Large Business Audit Manual

International, Large Business and Investigations Branch (ILBIB)


The original version of this manual is available electronically to Canada Revenue Agency (CRA) employees and has documents embedded in it. This version shows these documents as appendices.

The electronic version of this manual used by CRA employees has links to information in an intranet system called InfoZone. InfoZone is only accessible to CRA employees. You can ask for this information by making an access to information request.

This manual was last updated March 2016.

On April 1st, 2016 the Compliance Programs Branch assumed a two Branch structure consisting of the International, Large Business and Investigations Branch (ILBIB) and the Domestic Compliance Programs Branch (DCPB).


The Compliance Programs Branch (CPB) keeps current an Income Tax Audit Manual for its directorates. Presently, it can be accessed to through the Small and Medium Enterprises Directorate. The Income Tax Audit Manual was written specifically for audit staff involved in the audits of small and medium sized businesses.


This Large Business Audit Manual (LBAM) is written as a supplement to the CPB’s Manual. It has distinguishing features of the Large Business audit process and provides the audit teams with a guide through the stages of the audit process and its policies, procedures and quality standards.


This manual contains three chapters, annex and a section on best practices.
Chapters 1 (mandate) and 2 (program) put the work of the audit teams in context. Chapter 3, the most important one, is about the flow of operations. The “Best Practices” section is intended as an opening to improvement; audit teams will discover practices that could be of help.

Chapter 1 - Mandate

Chapter 2 - Organization of Program 31

Chapter 3 - Large Business Audit Process


Best Practice



Moving within the text

Hypertext links have been created for moving within the text. There are also links that give access to texts on Infozone. Once you have visited a reference, it is recommended to use the arrows in the tool bar to return to the text.


This manual is based on the manuals of the Laval and Toronto centre TSOs, and initiatives of other TSOs. It is also based on "Large business program policy and procedures guide Québec".

Chapter 1 - Mandate

Chapter 2 - Organization of Program 31

Chapter 3 - Large Business Audit Process


Annex A: Standardized Audit Process - Phase I

Annex B: Quality Assurance Standards

Best Practice

PE-1. Audit Process Quality Control List



Appendix 1: Books and Records Required

Appendix 2: Books and Records Required and Related Dates

Appendix 3: Initially Identified Audit Issues for 2007, 2008 and 2009

Appendix 4: ITAS Input Sheet

Appendix 5: AIMS Coding for Requirements Issued

Appendix 6: Coding Chart for Exchange of Information Activities

Appendix 7: T7W-C

Appendix 8: Nil Assessment and year under objection

Appendix 9: Form T99A

Appendix 10: Priority Reassessments

Chapter 1 - Mandate

1.1 CRA - mission, vision, and values

1.2 Mandate of the International and Large Business Directorate

The ILBD mandate is to be the Agency's centre of expertise in the administration of large business, international tax and aggressive tax planning (ATP). The Directorate contributes to the Agency's overall mandate by ensuring Canada receives its fair share of taxes from international business and financial transactions. The ILBD provides functional leadership, policy development and program direction for international, ATP, large business and basic file auditors in Tax Services Offices and for servicing non-resident clients through the International Tax Services Office. The Directorate also performs the competent authority functions under Canada's tax treaties with respect to specific taxpayer requests.

1.3 Objectives of the large business audit program

The mandate of the LBAD aligns to the Agency’s mission, vision and values of contributing to the public trust in the fairness and integrity of Canada’s self assessment system of taxation.

The Division addresses non-compliance issues by large businesses and provides analytical services and guidance to all other programs within the International and Large Business Directorate (ILBD). The Division is responsible for analyzing large business audit results, developing and publishing strategic policies for large business, developing and maintaining partnerships with other tax authorities and providing guidance and support to staff engaged in the audit of large businesses.

1.4 Planning Guidelines

The Financial and Performance Management Division of the CPB publishes Program Business Plans for every audit program. For the International and Large Business Directorate these guidelines may include:

1.5 Quality Assurance

This is a link to the CRA’s internal reference system, where auditors can find information on Continuous Program Integrity Review (CPIR) and the quality standards for the Large Business Audit program including:


Best Practice

Chapter 2 - Organization of Program 31

2.1 International and Large Business Directorate

This is a link to the CRA’s internal reference system, where auditors can find the most current information on the Directorate’s announcements, tools and resources, committees and working groups, divisions, topics, contacts and reference materials.

2.2 Large Business Audit Division

This is a link to the CRA’s internal reference system, where auditors can find the most current information on the Division’s sections and services, mandate, core compliance programs, communications, policy and legislation, international relationship management, contacts, ILBD reference material, income tax - Large Business (ILBD Topic), Ontario Aggressive International Tax Planning Initiative (Service Level Agreement II), approach to large business compliance, and CPB Memos.

2.3 Large File Case Managers

This is a link to the CRA's internal reference system, where auditors can find the most current list of managers across the country, by region and TSO.

Chapter 3 - Large Business Audit Process

3.1 Responsibilities


The purpose of this chapter is twofold. Firstly, it explains the respective responsibilities for large business staff in the large business audit process. Secondly, it ensures effective service delivery that meets the objectives and quality standards of the large business program.


This chapter reviews all stages of the audit process performed in TSOs, highlighting the directives for quality delivery based on the large business program's mandate.


The Large File Case Manager (LFCM) of the large business program is responsible for managing operations that examine businesses with a view to discovering, identifying and dissuading the non-observance in high-risk sections. The LFCM uses a team approach to perform an audit. The audit team comprises a LFCM, one or more auditors assigned to the file and auditors from required specialized areas.

The LFCM actively participates in the audit of a large business file. As the leader, he/she must co-ordinate the work of all team members, regardless of which sector they belong to. He or she must ensure efficient use of available resources.

Specifically, the LFCM is responsible for developing the general audit plan as a team and ensuring its methodical implementation. He or she must also manage taxpayer relations and ensure that taxpayers understand the audit plan.

The Large File Section Manager (LFSM) or the Assistant Director of Audit (ADA) establishes the annual work plan of the section in regard to the objectives of the Large File Program that were specified and transmitted by the Regional offices.

It is also the LFSM's or the ADA’s responsibility to assign specific responsibilities to LFCMs and ensure they have the training and tools required to perform their tasks.

Overview of the Large Business audit process

The Large Business audit process is divided into two phases. The first phase ends in the creation of a list of audit issues filtered through a risk analysis, and preparation of a general audit plan. The second phase goes from the actual audit of issues selected to the file finalization.

Activities that have an impact on audit quality and effectiveness are grouped under six (6) headings:

Phase I:

Phase II:

The directives and procedures as well as any relevant references are explained under each heading.

3.2 Planning

3.2.1 Large Business Section’s work outline

The work outline of a TSOs Large Business Section is based on the production and results objectives established by the Region (see 1.4 Planning Guidelines). These objectives are aimed at the highest risk areas and may be established by a team made up of the Regional Program Advisor together with either the Large File Section Managers or the Assistant Directors of Audit in the region. The Large File Section Manager or the Assistant Director of Audit, jointly with the Large File Case Managers, will identify the files or audit issues that bear risk.

According to these objectives the LFSM or the ADA, with the LFCM, will prepare the work outline of their section using the D.I.D. approach (detect, identify, deter non-compliance in high risks areas) and will:

3.2.2 Team workload

At the beginning of each year and within the section’s work outline, LFCMs prepare their budgetary planning based on ongoing and new audits.

Prepare team's work outline for the year

For new audits:

3.2.3 Inter-divisional relations

In order to facilitate an integrated large business audit approach, Large File Case Managers will share their planning with the sections involved, such as the Electronic Commerce Audit Section, International Audit, Aggressive Tax Planning, and SR&ED as per AD-98-07 and AD-97-03.


AD-98-07 and AD-97-03 are examples of where there are links or hypertexts to the InfoZone but not links in this document. Details of any material presented in this document can be accessed through the Access to Information and Privacy Directorate.

Once an audit start date has been arranged and scheduled with the representative, the first step is to identify how electronic data could be transferred to us (existing systems, format, media used, etc.) and put a service request to the ECAS (pre-questionnaires to taxpayers, where applicable).

For International Tax Audit, it will often be necessary at this stage to issue the contemporaneous documentation request letter (issued by the international auditor), which should be submitted to the representative on a set date.

3.3 Development of issues and general audit plan

3.3.1 Objective

The objective of this stage is to draw up a list of specific audit issues after performing a review and strategic analysis of the available information. Some information is already available at the office and a review of this information can generate a more general list of possible audit issues. A strategic risk analysis should include a comparative analysis of the detailed trial balances and taxpayer's documents that support the T2s and their schedules. This task, usually performed at the taxpayer's location, makes it possible to select a list of specific audit issues generated through the risk assessment. The second stage of the audit process will be based on this list plus the general audit plan.


Annex A, Standardized Audit Process - Phase I

3.3.2 Opening the file

At the start of the audit process, the LFCM makes sure that the list of information sources is complete, that all required information is entered (screen 1 and Supp) and that he or she has the necessary information filed by the group's corporations (financial statements, trial balances, computerized records of detailed transactions, T2, T106, T1134, T1135, etc.). The manager must also arrange the audit team, including representatives from required specialized sections.

Requesting assistance from Ontario Region in respect of CT23 return.


Quality Assurance Standard (QAS)

Standard Description
E1-S5 Consultation with specialized audit areas (SAA)

AD 98-14R, Annex A

3.3.3 Review of information sources

The LFCM and auditors assigned to the file review both internal and external information that is available to them at the office, for both the primary and controlled files. This analysis will be continued at the taxpayer’s location with the information obtained from the latter (see 3.3.4).

This review marks the start of the standardized risk assessment process. To facilitate this approach, the audit team will use the Standardized Audit Risk Assessment Template (“SARAT”) developed for this purpose.


Quality Assurance Standards (QAS)

Standard Description
E1-S1 Review of information
E1-S3 Risk Assessment: Selection of Control Files

3.3.4 Meeting with taxpayer

The LFCM must set up a meeting with the taxpayer to focus on the audit work to be done and create effective work conditions for both parties. Depending on the circumstances, this meeting may be held prior to or at the start of the fieldwork.

On the agenda, introduce the team, take note of any developments and major transactions of the group since the last audit, agree on the conduct and administrative aspects of the audit with the taxpayer, and indicate that a list of specific audit issues will be submitted to the taxpayer at the end of the first audit phase.

3.3.5 Strategic file review

The audit team continues its review work at the taxpayer's location. It performs a more in-depth analysis of financial and tax data using the basic documentation requested at the start of the fieldwork.

An information review, carried out in the strategic framework of the risk analysis, brings out the key tax issues, given available resources and deadlines.

Once this step is completed, we have a list of specific issues that will serve as a reference point for all staff involved in the audit and will be a key point for the general audit plan.

This work must be documented accordingly (AD 98-13).

To facilitate this task, a standardized risk assessment process model (SARAT) has been created. Using it promotes quality (see 3.3.3)


Quality Assurance Standard (QAS)

Standard Description
E1-S2 Risk Assessment: Selection of Audit Issue
E1-S4 Documentation: Selection/Rejection
E1-S6 PIA Audit Plan

3.3.6 Development of the general audit plan

A general audit plan must be prepared for any audit. This plan is an audit roadmap. It contains all of the information relevant to the proper conduct of the audit and was discussed previously with the taxpayer.

The topics identified in the audit plan must be numbered; this numbering could also be used to monitor the audit query sheets (T-997) - see Appendix 3


Quality Assurance Standard (QAS)

Standard Description
E1-S8 Taxpayer Informed


Quality Assurance Standard (QAS)

Standard Description
E1-S7 General Audit Plan reviewed and approved

3.4 Conducting the audit

The key elements in this process involve the orientation and control that the LFCM must constantly exercise on audits in order to complete the general audit plan and follow the quality standards for the conduct of operations.

3.4.1 Allocation

A large business audit involves many stakeholders.


AD-97-03: The involvement of Specialized Audit Areas in the on-site identification of audit issues for the audit of corporations in the large file program

AD-98-07: Large File Case Managers and their relationship with specialized audit areas, including Revenue Collections

AD-98-16: Guidelines with respect to consultation for tax avoidance issues

3.4.2 Audit

The efficiency of an audit is based on obtaining information in a timely manner. Actions taken in that regard include the use of statutory compliance tools where appropriate.

An audit uses a set of measures, processes and techniques.

Here are elements that should always be considered for every large business audit:

The provincial income allocation audit procedures can be found in AD-02-03R and a specific worksheet to complete an Ontario PIA - see Appendix 4.

The decision to issue these formal requirements will always be made as a team with all the personnel involved in the file and with the Large Business Audit manager. When the information is not given by the taxpayer a compliance order could also be considered.

All requirements for information must be approved pursuant to the Income Tax Act (Act) according to the Delegation of Ministerial powers, duties and functions.

We must identify the person in charge of financial services or an equivalent corporate executive before serving the taxpayer a Requirement for information. If the information or documents are not provided, we would serve that individual with a Compliance Order or with a Requirement for information.


Quality Assurance Standard (QAS)

Standard Description
E2-S7 Manage Queries
E3-S3 Penalties considered
E3-S5 PIA issues addressed

3.4.3 Consultations

Large business auditing is complex work that is only possible through the sharing of knowledge and the integration of the specialized audit areas.


Quality Assurance Standard (QAS)

Standard Description
E2-S5 Referrals / Consultations

See Appendix 6 for Coding for exchange of information.

3.4.4 Documentation

Given the duration of any large business audit, plus the number of stakeholders and the scope of work complete, good documentation is essential. The quality of documentation is often indicative of the quality of the work performed.


Quality Assurance Standard (QAS)

Standard Description
E6-S3 Log of action, Documentation
E2-S1 Audit Steps, procedures and techniques
E4-S4 Working papers

AD-98-13: Documentation on issue selection, audit steps, and issue disposition for large file audits

3.4.5 Periodic reviews

The LFCM is responsible for monitoring and following up on the conduct of the audit. This role includes:


Quality Assurance Standard (QAS)

Standard Description
E2-S1 Audit Steps, procedures and techniques
E2-S2 Low potential files stopped
E2-S3 Taxpayer informed of audit progress
E2-S4 Monitoring Audit Progress
E2-S6 Team audit
E2-S7 Manage Queries
E5-S1 Security guidelines for confidentiality
E5-S2 Enough time to prepare
E5-S6 Waivers (T2029)
E6-S4 Undue Delays, Requirements

AD-98-07: Large File case managers and their relationship with specialized audit areas, including Revenue Collections

3.4.6 Mid-term review

Halfway through the audit phase (phase II), there should be an independent assessment of the work completed and of the work yet to complete. Usually, the Large Business Section Manager or the Assistant Director of Audit is in charge of this review in the same way that he or she reviews and approves the general audit plan (see 3.3.6).


Quality Assurance Standard (QAS)

Standard Description
E6-S5 Independent mid-point review conducted

AD-00-05: Mid-Point Review of Large File Audit Plans

3.5 Communication of results

While communication plays an important role throughout the audit, it is of utmost importance when it comes time to communicate the audit results to a taxpayer, especially when discussing points at issue or when responding to the taxpayer's submissions. Clarity, precision and relevance are key factors to effectiveness. The LFCM should prepare and lead these communications including the ones from specialty audit sections.

The objective is to arrive at a well-documented final proposal based on the ITA. There may be an agreement reached and documented when an audit issue relates to the interpretation of the facts as opposed to the interpretation of the law. It is important to explain the difference between an audit agreement and a waiver of a taxpayer’s right to object. The following procedures issued by the Appeals Division should be reviewed and applied to a waiver procedure.


Quality Assurance Standard (QAS)

Standard Description
E4-S5 Correspondence

AD-05-02B: The Audit Agreement and Waiver of a Client’s Right to Object

3.5.1 Drafts


Quality Assurance Standard (QAS)

Standard Description
E3-S1 Audit results technically correct
E3-S2 Audit policy and procedures
E5-S3 Explanation for adjustments

3.5.2 Submissions

Even with the best conditions and communication, it is possible that taxpayers will want to make representations following the communication of results. Therefore, you must:


Quality Assurance Standard (QAS)

Standard Description
E5-S4 Submissions considered

3.5.3 Discussions


Quality Assurance Standard (QAS)

Standard Description
E3-S4 Audit Agreement and Objection Waiver

AD-05-02B: The Audit Agreement and Waiver of a Client's Right to Object


Quality Assurance Standards (QAS)

Standard Description
E5-S5 Taxpayer Relief Provision

IC07-01R1 Taxpayer Relief Provisions

3.5.4 Final proposal

One of the last steps in communicating with the taxpayer will be to communicate all of the proposed adjustments for all of the large business audit areas (domestic, international, aggressive tax planning, etc.). For each, you must:


Quality Assurance Standards (QAS)

Standard Description
E4-S9 Final letter sent to Taxpayer

3.5.5 Post-audit meeting

At the end of an audit, it is customary and appropriate that the audit team and the taxpayer hold an assessment meeting. Everyone who was involved may, at that time, report strengths and weaknesses and make suggestions to improve efficiency for the benefit of both parties.

3.6 Finalization

The most important thing at this stage is to properly document all audit results and to issue reassessments, as applicable. The LFCM and LFSM or ADA must exercise certain controls and give approval. Below are the key components of this process.

3.6.1 Procedures

To finalize a large file business audit, it is important to take the following steps.


Quality Assurance Standards (QAS)

Standard Description
E4-S1 BFICS and Complexity Rating
E4-S6 PIAAR clear & complete
E4-S8 Sign-off / Approvals

3.6.2 Audit reports

The preparation of reports is a very important step in the audit finalization process.  These reports are a means of communication, and they should therefore be clear, complete and concise.  These reports provide a summary of the work performed and any resulting assessment actions.

In most cases, the reports should satisfy the users’ needs without requiring them to examine the detailed working papers.

The auditors report (T20) should use the standard template (section A to J) and include at the beginning of Section E, “Explanation of all changes”, and a summary of the adjustments by fiscal year. See section 11.6.1 of the CPB Audit Manual for more details pertaining to the T20.


Quality Assurance Standards (QAS)

Standard Description
E4-S3 Audit reports clear and concise

3.6.3 Preparation of forms for issuance of reassessments

Since a nil reassessment cannot be subject to an objection and given that a year already under objection requires special mention on the T7W-C, see Appendix 8 for some additional explanations to consider for these particular cases.


Quality Assurance Standards (QAS)

Standard Description
E4-S2 (Re)assessment documents


3.6.4 Recording of results

Screen 5, coding and reconciliation of changes


AIMS Screen 1, 5, E, L, etc.
AD-98-17: Instructions for Processing Real Time Audits

3.6.5 File Review

It is up to the audit team to perform a quality review of the closure and reassessment documentation. In fact, many Large File Sections have developed a checklist to make this task easier.

3.6.6 Document Flow

3.6.7 Quality control

A checklist is a good tool to assist in quality control

PE-1: Audit Process Quality Control List

3.7 File assembly

3.7.1 Documentation functions

An audit creates many documents that have different values and functions. All files generate two types of documentation: specific and general.


Quality Assurance Standards (QAS)

Standard Description
E4-S4 Working papers
E4-S7 Permanent file well organized

3.7.2 Audit file

We need to recognize that various practices exist, depending on the TSO. In Large Business, there are two main ways to set up an audit file, both of which are acceptable. It is left up to each TSO to adopt a preservation structure that is conducive to future consultation and work.

Method one: into one single file

Closure files structure:

(Tabs A-F are bound into one or more volumes; Tab G is in a separate volume)

Tab Categories Content
A Entries Screen 1, screen 5, screen L, coding sheets, T99A, CORTAX print-outs, etc.
B Assessment details T7WC, revised T2 schedules, etc.
C Scope and audit  report(s) T20 report, provincial allocation report, penalty report and other reports, Protocol or General Audit Plan, etc.
D Correspondence Final letter, draft reassessment(s), taxpayer's approval, taxpayer's requests, waiver, T997, requests for rulings and responses, T2020, etc.
E Changes Working papers explaining all change items (amounts, position, research, analyses, responses to submissions, audit steps, procedures and techniques, etc.)
F Other issues (according to T20) Working papers on a selection of audited items with no change.
G Phase 1 documentation
(re: risk analysis)
All documentation used to prepare the list of issues and the general audit plan (see 3.2 & 3.3), including the Standardized Audit Risk Assessment Template (SARAT).

Method two: in the T2s and in a working paper file

Bound in the T2s:

  1. CORTAX print-outs based on the most recent reassessment.
  2. Screens (5, 1, SUPP) and coding sheets.
  3. T7WC and revised T2 schedules.
  4. T99A and other required forms.
  5. Memorandum to the Taxation Centre (loss identification notice, T67AM  T67BM).
  6. Reports: T20, Part XIII, provincial income allocation, fairness, penalty, etc.
  7. Reports/memos from specialized audit areas.
  8. Referrals to Head Office, Justice Department and other areas.
  9. Correspondence in chronological order (with index, if applicable).
  10. T2020 or log.
  11. Index to trace documentation on adjustments, which is kept in the working paper file or in the permanent file.

Working paper file:

Any documentation that the audit team deems fit to keep (plus the Standardized Audit Risk Assessment Template) with respect to explaining work completed during the entire audit process as well as adjustments made. In this respect, several TSOs have set their own guidelines or procedures.

3.7.3 Permanent file

We should not mix up the permanent files that are stored at the TSO and the permanent documents envelopes (PDE) that originate from the Tax Center (TC). In a PDE, there are specifically elections made by the taxpayer and few key documents from audit.

According to the Compliance Programs Branch’s Audit Manual (AM), audit documents and other relevant information including permanent documents are stored at the Tax Center (TC). These documents are either attached to the T2 Return (T2) or placed in the Permanent Document Envelope (PDE).

However, the AM further states that because of the size and complexity of the operations of the large business taxpayer and because of the greater frequency of audit, it is preferable to maintain in the TSO a Permanent Audit File.

The permanent file stored at the TSO contains general information on a group's corporate organization, operations and major transactions, financial structure and accounting system. It retains the documentation that reveals the corporation's tax history, past audit results, and taxpayer's tax elections that may have future repercussions. It is also where one accumulates all information or data that may be used in a future audit.

For the time being, there is no mandatory permanent file structure. The list of categories below is given for illustration purposes though it generally corresponds to the one found in the TSOs. Each office is encouraged to complete it based on its needs.

List of categories
Categories Content
History and organization BFICS, organizational charts, annual reports, prospectuses, press clippings, list of information sources (Internet addresses; based on AD 98-08), etc.
Tax policies Corporate policies (relocation, employee benefits, pension plan, etc.), technical opinions issued by our departments (interpretation, application, etc.), responses from the Agency during “round tables” (CTF, APFF, TEI, etc.).
Audit reports Past audit reports: T20 reports (with T7W-C and revised schedules), reports for assessment under Part XIII, etc.
Tax follow-ups Adjusted cost base (ACB) adjustments, T2S (3), calculation of at-risk amounts, elections, etc.
Contractual documents Purchase of real estate, long-term contracts relating to operations, joint ventures, etc.
Books and records Chart of accounts, accounting system (structure, particulars), account aggregation (trial balances/[FS]), etc.
Next audit Relevant analyses for the next audit, audit issues identified for the next cycle, comparative analysis of financial and tax information from last audit (on CD).

3.7.4 File update

The files of the Large Business Program are specific files. The audit team is the most qualified to update these files as they are the most familiar with the content of the files. The LFCM is responsible for updating the files. In view of this, it is not justified to use retention or disposal rules for each piece of documentation.

3.7.5 File Location

Audit files and permanent files should be securely stored in the TSO in locked filing cabinets or room accessible only to the Large Business staff.

The Large Business Section Manager or the Assistant Director of Audit is responsible of these files.

3.7.6 Electronic Format

When documentation (worksheets or others) is kept on electronic media (CDs, diskettes), these CDs and diskettes should be stored in the « Next audit » category of the permanent file or in another suitable and secure place.

Annex A

The following illustrates the different components of the audit process - Phase I:

Standardized Audit Process - Phase 1


Input Process
Process Document
1) Identify potential risks and potential audit issues 1) SARAT(note) - IRG
2) Assess audit risks and audit approach 2) SARAT - PIRA I
3) Risk assess potential audit issues (selection/rejection, risk level) 3) SARAT - PIRA II
Output Document
General audit plan SARAT - Audit plan


The document SARAT in this ANNEX means the Large File standardized audit risk assessment template.

Annex B

The following table list quality assurance standards (QAS) to consult:

E1 - Planning Element

Draft Standard (S) - Detailed Standard short
E1 - S1
The information gathering process includes the consideration of various sources pursuant to, but not limited to, AD98-25 Appendix A-2, AD98-14R Part B, and AD98-08.
Review of Information
E1 - S2
A strategic analysis and risk assessment process was conducted for the selection of issues in accordance with AD98-25 Appendix A-1 and AD98-14R Appendix B.
Risk Assessment:
Selection of Audit Issue
E1 - S3
Control files were considered during the risk assessment process in accordance with AD98-25 and AD98-14R.
Risk Assessment:
Selection of Control Files
E1 - S4
The reasons for the selection and rejection of significant issues were documented in accordance with SARAT, AD98-13 and AD98-14R.
E1 - S5
Specialized audit areas (SAA) have participated or were consulted during the planning stage, in accordance with AD-97-03, AD98-07, and
AD98-14R (Appendix B).
Consultation with specialized audit areas (SAA)
E1 - S6
The Audit Plan includes a review of Provincial Income Allocation issues and procedures to address any concerns, AD02-03R2 and AD02-04.
PIA Audit Plan
E1 - S7
The General Audit Plan was reviewed and approved as mandated by AD98-10.
General Audit Plan reviewed and approved
E1 - S8
The taxpayer was informed of the general audit issues and consulted on administrative aspects in accordance with AD98-14R (Part A, Appendix A).
Taxpayer Informed

E2 - Conducting Element

Draft Standard (S) - Detailed Standard short
E2 - S1
The appropriate audit steps, procedures and /or techniques were used and were documented in accordance to AD98-13.
Audit Steps, procedures and techniques
E2 - S2
Low potential files within the case were closed after risk assessment indicates little audit risk / potential for non-compliance, in accordance with AD01-01. 
Low potential files stopped
E2 - S3
LFCM met/communicated with taxpayer in order to monitor the audit progress and conduct.
Taxpayer informed of audit progress
E2- S4
LFCM met/communicated with team members in order to monitor the audit progress. AD98-07 Appendix A #2, #3
Monitoring Audit Progress
E2 - S5
Referrals/consultations were made to the appropriate areas, as required (i.e. Head Quarters, ISS, ECA, Collections, Justice, Valuations, Appraisals…)
Referrals / Consultations
E2- S6
Audit conducted using a team consistent with the risk assessment process and General Audit Plan. Ref: Communiqué AD98-07 APP A#1
Team audit
E2 - S7
Appropriate actions were taken to manage the audit queries. AD98-14R Appendix A - Communication strategy for the request of information.
Manage Queries

E3 - Application of Law, Policy and Procedures

Draft Standard (S) - Detailed Standard short
E3 - S1
The audit results were technically correct in accordance to legislation.
Audit results technically correct
E3 - S2
The audit results were in accordance with audit polices and procedures.
Audit policy and procedures
E3 - S3
Penalties were considered and were properly addressed, when applicable.
Penalties considered
E3 - S4
AD05-02B - The Audit Agreement and Waiver of a Taxpayer’s Right to Object was properly applied.
Audit Agreement and Objection Waiver
E3 - S5
Provincial Income Allocation (PIA) issues were addressed in accordance with established procedures.
PIA issues addressed

E4 - End Products

Draft Standard (S) - Detailed Standard short
E4 - S1
BFICS was updated and, where necessary, the complexity-rating template (Excel workbook) was prepared and submitted to HQ for their review.
BFICS and Complexity Rating
E4 - S2
The reassessment documents were clear and correctly completed.
(Re)assessment documents
E4 - S3
The audit report reports (T20R, penalty report etc.) were clear, concise, with the appropriate rationale, legislative reference and were cross-referenced to working papers.
Audit reports clear and concise
E4 - S4
The audit documentation (working papers) was clear, complete, well organized and supported the audit findings.
Working papers
E4 - S5
Correspondence was clear, concise, complete, well organized, and contains the appropriate language, grammar and spelling.
E4 - S6
The Provincial Income Allocation Audit Report (PIAAR) was completed in accordance with established procedures. Communiqué, AD02-03R2 (Infozone), AD02-04.
PIAAR clear & complete
E4 - S7
The Permanent file is well organized and contains pertinent information, in accordance with the guidelines provided in the Audit manual.
Permanent file well organized
E4 - S8
The appropriate final sign-offs or approvals were evident in the file. Ref. Communiqué AD98-07
Sign-off / Approvals
E4 - S9
A Final letter was sent to the taxpayer informing them the audit was concluded.
Final letter sent to Taxpayer

E5 - Professionalism

Draft Standard (S) - Detailed Standard short
E5 - S1
Security guidelines were followed to ensure confidentiality of taxpayer information.
Security guidelines for confidentiality
E5 - S2
The taxpayer was given sufficient time to prepare for the audit, to respond to information requests, audit queries, and proposals, and to prepare for negotiations, etc., reasonable to the circumstances.
Enough time to prepare
E5 - S3
The taxpayer was provided with a written explanation for all audit adjustments.
Explanation for adjustments
E5 - S4
Submissions were considered and negotiations were conducted appropriately.
Submissions considered
E5 - S5
The Taxpayer Relief provision was appropriately applied, when applicable.
Taxpayer Relief Provision
E5 - S6
A Waiver in respect of the Normal Reassessment Period (Form T2029) was considered, when necessary and for the appropriate purpose.
Waivers (T2029)
E5 - S7
Core Agency Values were displayed throughout the audit process.
Core Agency Values

E6 - Timeliness

Draft Standard (S) - Detailed Standard short
E6 - S1
Elapsed time (Days) was reasonable or significant variances were explained.
Elapse Time (Days)
Overall Audit Efficiency
E6 - S2
Applied time (hours) was reasonable and significant variances were explained.
Applied Time (Hours)
Overall audit efficiency
E6 - S3
A log of action (T2020, Log etc.) was maintained to record significant conduct during the audit.
Log of action, Documentation
E6 - S4
Appropriate action was taken to address undue delays in the conduct of the audit and consideration was given to the availability of statutory authority (i.e. ITA - 231.2, 231.6 requirements), where applicable.
Undue Delays, Requirements
E6 - S5
An independent mid-point review conducted in accordance with AD-00-05.
Independent Mid-point review conducted

Best Practice

Audit Process Quality Control List



Audit Process Stages Control and Follow Ups on Work Performed
Program development :


  • Update

2. Assistance from other TSOs

  • Were requests forwarded?
  • Did the TSOs accept our requests?
  • Were the requests processed efficiently?

3. Audit plan

  • Was there follow-up?
  • Was it revised during enforcement?

4. Real time audit

  • Were policies followed?

5. Risk assessment

  • Were the risks assessed and commented on?

6. Team audit

  • Were persons picked reasonable for the task to be completed?
  • Is there continuity among team members?

7. Specialties

  • Involvement:
    • Aggressive Tax Planning
    • Assessment
    • Scientific advisor
    • Industrial specialist
    • Employer Compliance Audit
    • International         
    • Other           
8. Concurrent audit Customs, excise, GST, HST and QST    

9. Confidentiality of information

  • Problems found

10. Advance ruling

  • Review of operation

11. Already audited file

  •  Reopening of files       

12. Non-resident assessment

  • Procedures applied

13. Requirements

  • Planned and/or used

14. Software used

  • IDEA

15. Consultations

  • a) Request a ruling
  • b) Justice Department
  • c) Industrial specialist                           

16. Enquiries

  • Follow-up completed

17. Taxpayer request for adjustments

  • Follow-up completed                         

18. Protocols

  • a) Audit
    • Observed by Agency?
    • Observed by the taxpayer?
  • b) Scientific Research & Experimental Development
    • Observed by Agency?
    • Observed by the taxpayer?  

19. Documentation   

  • Is the documentation adequate for the major aspects of the audit?
  • Permanent file      

20. Communication

  • Were the meetings with the taxpayer effective?
  • Was the taxpayer informed of the proposed adjustments?
  • Are the important events well described in the T2020?
  • Are the submissions well described in the T20 report?
  • Was correspondence with the taxpayer reviewed?

21. Waiver of letter of right to object

  • Received?

22. Fairness file

  • Requests received
  • Were procedures followed?
  • Delays caused by the Department?            

23. Standardization

  • T20 report, report to the non-resident committee, Part XIII
  • Procedure - loss identification
  • Competent authority
  • Priority assessment
  • Procedure - follow-up at taxation centres and reassessments 

24. “Post-mortem” Meeting

  • With the taxpayer
  • With the team
25. Complexity Rating review    


Acronyms Definitions
ACB Adjusted Cost Base
ADA Assistant Director of Audit
AIMS Audit Information Management System
AM Audit Manual
APFF Association de planification fiscale et financière
BFICS Basic Files Inventory Control System
CPB Compliance Programs Branch
CRA Canada Revenue Agency
DID Detect, Identify, Deter
ECA Employer Compliance Audit
ECAS Electronic Commerce Audit Specialists
ISS Industry Specialist Services
ITA Income Tax Act
LBAM Large Business Audit Manual
LFCM Large File Case Manager
LFSM Large File Section Manager
OMoR Ontario Ministry of Revenue
PIA Provincial Income Allocation
PIAAR Provincial Income Allocation Audit Report
QAS Quality Assurance Standard
SARAT Standardized Audit Risk Assessment Template
TEI Tax Executive Institute
TOM Taxation Operation Manual
TSO Tax Services Office


Appendix 1

Books and Records Required

Appendix 2

Books and Records Required and Related Dates

  1. Information Required 60 days prior to the start of the audit for the 1997 and the 1998 audit of SSL, ABC Ltd. and XYZ Inc.:
    • computer tapes of the General Ledger transactions and General Ledger Master in EBDIC format;
    • chart of accounts;
    • the grouping of the various accounts as shown in the financial statements;
    • adjusting entries;
    • analysis of accounts and reconciliation with the financial statements;
    • trial balance;
    • Consolidated Public Financial Report (SSL only);
    • Consolidated Financial Statement preparation working papers;
    • Financial Statements of foreign affiliates (other than those already included with Form T1134A or T1134B);
    • Financial statements of foreign branches and joint ventures (whether foreign or domestic);
    • recent chart showing the structure of SSL and its subsidiaries;
    • organization chart of management;
    • list of internal corporate reorganization and amalgamations and wind-ups;
    • legal closing documents on acquisitions or dispositions of subsidiaries and/or affiliated companies (ownership > 20%); and
  2. Information required at the start of the audit for the 1997 and 1998 audit of SSL, ABC Ltd. and XYZ Inc.:
    • Minute Books for the board of directors, all committees, and shareholders;
    • share register;
    • all filings made pursuant to the incorporation Act(s);
    • provincial tax returns and notices of assessment/ reassessment;
    • Pension Fund statement;
    • listing of foreign exchange rates used;
    • Management Reporting Letter from external auditor and management’s reply;
    • internal audit reports;
    • working paper files supporting T2S(1) items;
    • working papers and documentation for SR&ED claims, including applicable information in electronic format;
    • working papers supporting GST returns;
    • Contributed Surplus calculations;
    • Employee Benefit Manual; and
    • changes in accounting policies made during the years under audit.

Additional records that are required after the preliminary review will be requested using query sheets.

Appendix 3

Initially Identified Audit Issues for 2007, 2008, and 2009

A) Follow-up from Previous Audit

101 Salaries and employees benefits 2004-2005-2006
102 Meals and entertainment expenses 2004-2005-2006
103 Manufacturing and processing benefits 2004-2005-2006
104 Capital cost allowances (Schedules 8) 2004-2005-2006
105 Reserves and accrued expenses 2006
106 Adjusted cost base of shares 2006

B) New Issues from T2, T2 Schedules and Financial Statements

200 Provincial Income Allocation 2004-2005-2006
201 Gain (loss) on disposal of assets (Schedules 4 et 6) 2004-2005-2006
202 Deferred income 2004-2005-2006
203 Gain/Loss on exchange 2004-2005-2006
204 Bad debts 2004-2005-2006
205 Cumulative eligible capital deductions (Schedule 10) 2004-2005-2006
206 Pension cost and pension expenses 2004-2005-2006
207 Interco financing 2004-2005-2006
208 Professional fees and legal expenses 2005

C) Other Issues

300 Revenu Québec previous adjustments 2004-2005-2006
400 Wind-up of subsidiary 2005
500 Part XIII tax on payments to non residents 2004-2005-2006
501 Sale of receivables to parent company 2005-2006
502 Related party transactions 2004-2005-2006

Appendix 4

ITAS Input Sheet

The images below represent a data entry sheet used by Canada Revenue Agency (CRA) auditors to process adjustments made to Ontario corporate tax returns CT23 and CT8 before the 2009 taxation years (pre-harmonized years). Since April 3, 2008, the majority of the administration of Ontario’s corporate income tax was harmonized between the Ontario Ministry of Revenue (OMoR) and the CRA for taxation years prior to 2008.

Since adjustments to pre-harmonized Ontario returns are rare, this ITAS sheet is rarely used.

This data entry sheet, entitled Integrated Tax Administration System (ITAS), is used to: 1) ensure Ontario Corporation Tax and, or, Ontario Capital Tax reassessments were processed in a timely manner by the CRA and 2) the audit assignment and results are accurately tracked and recorded in the Ontario Ministry of Revenue (OMoR) ITAS.

The contents of this spreadsheet can be described as such:

The header fields include tombstone information: auditor name, telephone number of auditor, area (section and unit) where auditor works; along with Name of Corporation, Federal Account number, AIMS file number, Ontario Account number and CRA case number.

Input fields (summary fields covering a maximum of three consecutive years and including working paper references):

  • increase or decrease in ”Ontario Taxable Income (Loss)” including CRA audit changes affecting Ontario only, Ontario specific changes and taxpayer requested changes,
  • any changes are required for “Application of Ontario Loss Carry Back”; including non-capital loses, capital losses, farm losses and Restricted farm losses,
  • changes to “Income Tax Credits”, namely Incentive Deduction for Small Business Corporations, Surtax, Manufacturing & Processing Profits Credit and Other tax credits,
  • Ontario specific changes and taxpayer requested changes for: “Capital Tax: Net Paid-up Capital”; “Capital Tax: Eligible Investments”, “Capital Tax: Total Assets”; “Capital Tax: Aggregate Taxable Capital” and “Corporate Minimum Tax (CMT) Base”,
  • Enter any revised “Specified Tax Credits” amounts such as: “Media”, SR&ED” or “Other”,
  • any “Allocation to Ontario change” - attach the original and revised copy of T2 Schedule 5,
  • list any “Fraud & Penalty” items separately resulting from penalty under the Act, section 162, and
  • a space for the auditor to list “Special Instructions” relating to Waiver or Revocation received

Input field for Desk Audit use only (summary fields covering a maximum of three consecutive years) - these fields are a summary of the same input fields mentioned above, without reference to working papers.

The spreadsheet concludes with the auditor and supervisor filling in these cells: Entered by, Approved by, Date processed, Time to process, Start date, Completion date, Down time, Reason for downtime, and a section for the reviewer’s comments.

Appendix 5

AIMS Coding for Requirements Issued

In HQ_D field of Screen 1
(Enter a letter and number)

Required Party Code + Action/Outcome Code (the latest):
A Taxpayer (and related parties) 1 A requirement(s) or a compliance order was issued (monitoring compliance).
B Accountant 2 A requirement was served and complied with.
C Lawyer  3 A compliance order was served and complied with.
D Bank 4 A requirement and/or a compliance order were served but not complied with. Further actions pending.
E Other Third Parties 5 A requirement and/or a compliance order were served but not complied with. Prosecution is in progress.
O Combination of Above Parties 6 A requirement and/or a compliance order were served but not complied with. Prosecution was successful.
P None. 7 A requirement and/or a compliance order were served and not complied with. Prosecution was not successful.


Enter code for the latest action/outcome. In cases of multiple required parties, enter the action/outcome code that most affects the audit progress and the strongest legal action.

For example:

A further action is under consideration. Once the decision of prosecution is made, update to code 5, and when the outcome is known, enter code 6 or 7 as appropriate.

Appendix 6

Coding Chart for Exchange of Information Activities.
International and Large Business Directorate

Activities Activity Type Code Selection Reason Code other than JITSIC Selection Reason Code JITSIC ION (JITSIC only)
responding to requests from foreign countries, incl. JITSIC
n/a 0551 0552 n/a
AIMS cased up audit - reviewing leads received from foreign countries, other than JITSIC
>7.5 hours
(Spontaneous-in & auto-in)
n/a 0551 n/a n/a
AIMS cased up audit - reviewing information received through JITSIC n/a n/a 0552  n/a
RC509 no audit case - identifying, analyzing and gathering information for potential exchange, incl. JITSIC
475 n/a n/a 708752
RC509 no audit case - reviewing leads received from foreign countries, other than JITSIC
<7.5 hours
(Spontaneous-in & auto-in)
475 n/a n/a n/a

Activity Codes:
532 Large Business -Income Tax Regular
580 Large Business -International Issues
156 Provincial Allocations

Appendix 7


General Instruction

The T7W-C sets out the taxpayer's revised taxable income and details of all changes to reported income resulting from the audit. It is also the primary source of information used by the Audit Support/Tax Cal unit to determine the revised income tax payable.

The narrative portion of the T7W-C should provide the following information:

Where changes are made to an initial assessment, a T7W-8 will be prepared for T1 individual returns and a T7W-9 for T2 Corporation returns.


Returns (re)assessed with a penalty under subsection 163(1) and/or 163(2) of the ITA, must clearly note on the T7W-C the amount of income subject to penalty so that the non-agreeing provinces (Ontario, Alberta, and Quebec) are able to reconcile the amount subject to penalty.


For T2 Reassessments, the auditor will prepare a T7W-C. It is essential that the explanation of changes be arranged in such a manner as to allocate the total adjustment to the following types of income, where applicable:

Where there has been a corporate amalgamation and a return filed by a predecessor company is assessed, the T7W-C should be prepared in the name of new amalgamated company with a reference in the appropriate areas of the T7W-C of the name and income of the predecessor company:

The same procedures will apply for re-assessed returns of wound-up companies amalgamated into the parent company, including those companies wound-up where a liquidator has been appointed but no clearance certificate has yet been issued. Note that the transferee or the liquidator has a responsibility only to the extent of the values of the property distributed.

Part 1.3 tax is payable by on every corporation whose taxable capital employed in Canada is in excess of its capital deduction of $10 million. The Part I.3 tax is filed with the T2 return and any changes can be included on the T7W-C provide revised Part I.3 tax information on T99A Special Instruction Area.

Appendix 8

Nil Assessment and year under objection

The Federal Court of Appeal previously ruled that no Notice of Objection can be filed for nil reassessments. The Appeals Division thus considers that any objection with regard to a notification that no tax is payable is not valid and the taxpayers are informed accordingly. For situations others than those where we modify a loss (the T/P can then ask for a notice of determination of loss on which he can oppose), the taxpayer has in theory no recourse for the year in question. To avoid that he asks then for a reassessment for the said year to generate tax payable to be able to restore his right to file a notice of objection (double work of issuing reassessments for the same year), it is suggested that the taxpayers be informed that they cannot file a valid objection (or an appeal to Court) if there is no tax payable. They will thus have the possibility of protecting their rights (by leaving a small balance of tax payable).

In the same order of idea, we may have to issue a reassessment for a year already under Objection. It is then necessary to indicate on the T7W-C standard sentences to inform the taxpayer in writing that its notice of objection is cancelled by the reassessment and that he has to file a new notice of objection to protect his right to appeal:

This(These) reassessment(s) nullify(fies) the earlier reassessement(s) and the related objection(s) filed in respect thereof. If you wish to object to the reassessment(s), you must file a new notice of objection.

Appendix 9

Form T99A

The purpose of form T99A is to provide the Tax Cal unit with information that cannot be included on the T7W-C and information required to complete various forms to update the T2 file.

In the event that no reassessment is being issued (e.g. where changes are for a statute-barred year) it is necessary prepare a T99A to update the file. A notation should be entered in area L "For update purposes only" or at the top right corner in red.

The auditor must complete one copy of form T99A by for each year reassessed, updated, or where a NIL Notice of Reassessment is to be issued.

If a statute-barred return is reassessed, indicate the reason on the top margin of the T99A, such as:

Appendix 10

Priority Reassessments

General Instructions

Auditors are reminded that rather that processing a priority reassessment, consideration should be given to obtaining a waiver from the taxpayer/registrant for the particular year involved and the CRA policy regarding reopening prior year returns. For more information see 11.3.0 Normal Reassessment Period and 9.11.0 Audit Scope of the Income Tax Audit Manual.

It is generally accepted that "statute-barred problems" can be minimized through early identification and strict control. As it is not always possible to obtain a waiver, the identification and control procedures must be relied on to ensure that a notice is issued on time.

For adjustments requested by the taxpayer/registrant within the three-year period and being followed-up by audit, every attempt will be made either to obtain a waiver or reassess within the prescribed period.

Although the following procedures are outlined primarily to facilitate the processing of a return approaching statute-barred status, priority reassessments might be considered in other urgent or exceptional circumstances such as the taxpayer leaving the country.

Income Tax - To assist the auditor in processing a reassessment where a statute-barred deadline is approaching, procedures have been coordinated among the various sections involved. These procedures apply to reassessments to be issued by Tax Centres. Under some circumstances it may be necessary to issue a reassessment at the TSO, and each office should have local procedures in place to handle these situations.

While the following procedures provide that a priority reassessment may be processed in a short time interval, even on a "walk-through" basis if absolutely necessary, auditors must provide as much lead-time as possible to facilitate the processing in each section.

Processing Procedure

Categories have been established for the application of the different processing procedures. The reference to "days" is the period determined from the date that the file is forwarded to the responsible processing unit in the Tax Centre. Auditors should add an extra 10 days to the days specified to allow for processing of the file through the review and forms preparation stages. This extra 10-day period may be varied based on individual TSO's experience in processing files or the complexity of the case. Procedures vary depending on the circumstances as follows:

Over 120 calendar days

A special processing procedure is not required if the statute-barred date is over 120 days from the date the file is sent to the responsible processing unit in the Tax Centre.

60 - 120 calendar days

Special control procedures are not required if the reassessment is between 60 and 120 days of becoming statute-barred. Process the file in the normal manner, placing it in a red folder with the statute-barred date clearly marked on the front cover. Also, enter the statute-barred date in RED in the top margin of the T99, T919 or T99A, using the YY/MM/DD format.

30 - 60 calendar days

If a return is to be reassessed and will be sent to the responsible Assessing unit 30 to 60 days prior to the statute-barred date, the following procedures apply:

The AIMS section will assign priority to each file relative to the respective "Notice to be issued" date on form T287.


When forwarding returns for processing that are within 60 days of being statute-barred, ensure that the prior year information required for general averaging is provided or that a TAPMA identification printout is attached. If for some reason the information is not available, the reason(s) should be documented to alert the Tax Calculation area to the situation.

Less than 30 Days - Walk-through

A return to be reassessed that is within 30 days of being statute-barred, will be processed in accordance with the procedures for the 30 to 60 calendar day statute-barred files

The auditor will complete the priority procedures and pass the file to the team leader, who will forward the file using express delivery or fax to the attention of the expeditor (liaison officer) in the Tax Centre.

The Tax Centre will treat the "walk-through" reassessment in the same manner to ensure that there is no undue delay in completing the reassessment.

Cancellation of a Reassessment on a Priority Basis

If a priority reassessment becomes unnecessary, for example when a waiver is received, record the "Date", "Authority" and "Reason" and notify the expeditor (liaison officer) in the Tax Centre to cancel the requested reassessment action.

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