Income Tax Audit Manual

Compliance Programs Branch (CPB)


This chapter was last updated November 2019.


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Note that the Integras System has replaced the Windows Audit Laptop System (WinALS) and the Audit Information Management System (AIMS) for certain audit programs. The Income Tax Audit Manual is being updated continuously to incorporate the use of Integras in the audit process.

Chapter 9.0 Audit planning and preparation

Table of Contents

9.0 Audit planning and preparation

(Revised November 2019)

9.1.0 Introduction

This chapter provides detailed information on how to prepare an Audit Plan, acquire and review information available from sources within the CRA, and make initial contact with the taxpayer.

Auditors must use the Integras suite of solutions (Integras) to prepare, conduct, and complete the audit.

The laptop computer includes Interactive Data Extraction and Analysis (IDEA) for Windows. IDEA is a useful tool when the taxpayer's records are in electronic format.

The auditor has the support of the team leader and when necessary, may consult other auditors who have experience in the industry being audited. Auditors should attempt to resolve audit issues by completing their own research. If there are unresolved technical issues, the auditor should discuss with the team leader, who may request technical assistance from Headquarters.

Whenever an audit of a small or medium business is transferred from one auditor to another, the originating auditor (or their team leader, in exceptional circumstances) must complete the Audit Transfer Form and the team leader must approve it. For more information, go to the September 28, 2015, memo, Audit Transfer Form.

The Audit team leader may reassign a file from an auditor to another auditor without going through the regional Business Intelligence team leader. However, the Audit team leader must document the reason or reasons as to why the file is being reassigned. For more information, go to the August 29, 2014, memo, Audit File Assignment and Reassignment - Audit Information Management System (AIMS) and INTEGRAS.

For guidelines on conducting audits under unusual circumstances, go to 4.6.0, Auditing under unusual circumstances.

9.1.1 Topics in this chapter

The elements to plan and prepare for an audit include:

9.1.2 Overview to planning the audit

The most significant step at the beginning of an audit is to prepare an Audit Plan specific to each audit. All auditors should be familiar with policies and procedures before beginning any audit.

It is important to have a good understanding of the CRA's systems and the data available to prepare an Audit Plan.

The topics in this chapter are limited to preparing for the audit and contacting the taxpayer. Conducting and completing the audit are discussed in subsequent chapters.

Team leaders should ensure that auditors are familiar with the information in this chapter and that auditors prepare and use an Audit Plan for each audit.

9.2.0 Preliminary review

9.2.1 Introduction

The preliminary review is the first stage of preparing for an audit and provides the information necessary to prepare an Audit Plan. Preparing for and planning the audit are essential to ensure that the audit is completed efficiently and effectively. Complete the preliminary review, including information in the Audit Plan, before contacting the taxpayer.

The preliminary review includes an analysis of the screener's comments. Review and note in the Audit Plan, concerns that have been documented from previous contact with the taxpayer and items from a previous audit that indicated that a follow up is necessary. Also review previous forms T401 and T401A from Appeals, Report on Objection, and, Notice of Objection - Negotiated Settlement Report, respectively.

Review historical information as well as any new information or changes to the taxpayer's business operations. However, changes in operations may not become evident until visiting the taxpayer's premises. The Audit Plan should be flexible to allow for these changes.

Initial contact with the taxpayer should confirm that the tombstone information is current and accurate. If the taxpayer's business activities have changed or the information on file is inaccurate or outdated, update the information as soon as possible. For updating business number (BN) accounts, auditors complete the Audit BN Change - CRITICAL Report available in Integras Reports template library. For more information, go to 9.18.0, Contacting the taxpayer.

9.2.2 Sources of information

A list of sources for valuable information during the preliminary review of the audit includes (this is not an exhaustive list):

Note: If the taxpayer has outstanding returns, go to 9.5.0, Unfiled returns.

9.2.3 Trailing documents

Trailing documents were formerly called permanent documents (PD) or attachments. They contain significant information about the taxpayer’s obligations and operations, including the organizational structure, business operations, prior audits, and other information useful to the planning of subsequent audits. Trailing documents may also contain information on the books and records (location, type of record keeping, software), prior Audit Plans, Audit Reports, and correspondence (including rulings), and information on concerns that were noted during other contact with the taxpayer that need follow up. For more information, go to 11.8.4, Trailing (permanent) documents.

Trailing documents are stored with Iron Mountain (IRM). For more information, go to Taxpayer records, Request tax records.

9.2.4 Audit Case browser

In Integras, the case browser contains tombstone information about the taxpayer such as their name, address, telephone number, person to contact, major business activity, NAICS (North American Industry Classification System) code, filing history, elections, and the screener’s package (in Relationship Overview tab).

In addition, Launch provides the following information:

Taxpayer View (T1)

Launch from within a T1 Case Browser and it consists of:

Taxpayer View (T2)

Launch from within a T2 Case Browser and it provides a view of all T2 returns and related forms for a corporation. It displays data that exists in the Corporation Tax Processing System (CORTAX). It allows for quick and easy retrieval of tax year-end information for the year 2000 and subsequent.

Profile View (T2 only) is a tool for T2 cases that displays the ranking of non-compliance based risk issues.

In each of these Views, Integras provides much more information. As part of the preliminary review, the auditor should open and read all the relevant nodes within Integras.

Verify the tombstone information at the time of initial contact and make changes as required.

9.2.5 Screener's comments

The Relationship Overview tab in Integras contains the screener’s comments. It helps to determine the scope of the audit based on the reason for selection. It is a tool used to communicate the items of concern that require specific review and comments by the auditor. The auditor uses this information to develop the Audit Plan. If the audit is the result of a lead or referral, the reason is noted on the referral form. All screener's comments must be addressed on Form T20, Audit Report. For more information, go to 9.11.0, Audit scope.

9.2.6 Prior audits

If there has been a previous audit, review the information when preparing and planning the audit, which helps develop the Audit Plan.

Information from prior audits, such as Form T20, Audit Report, is stored electronically as trailing documents with Iron Mountain (IRM). For information on requesting trailing documents from IRM, go to Taxpayer records, Request tax records. 

Auditors must use Integras to retrieve prior audits that were completed using WinALS. From Tools menu, select either National Audit Archives (NAA) or Search Cases.

Note 1: All audits completed using the WinALS system between 2008 and 2018 have been migrated to Integras. You must use Integras to access these archived audit cases.

Note 2: Audits stored in the NAA prior to 2008 have been purged in accordance with CRA Information Management policy.

The auditor must review previous T401 and T401A forms from Appeals, Report on Objection, and, Notice of Objection - Negotiated Settlement Report, respectively.

9.2.7 Collections information

The auditor must review the taxpayer's account to check for outstanding balances payable to CRA and to determine if a collection problem has been identified. Collection information is in the Common Menu System, which is available in the Automated Collections and Source Deductions Enforcement System (ACSES). For more information on how to navigate within this system, go to ACSES.

Review of collection information may indicate:

If a hold has been placed on the account, the auditor should determine the reason for the hold. If there are refunds that have not been disbursed, the auditor should determine the reason before contacting the taxpayer.

If Collections and Verification has been in contact with the taxpayer, the auditor should discuss the situation with the team leader and should contact the Collection officer before contacting the taxpayer or starting the audit.

9.2.8 Historical information – Mainframe databases

The mainframe databases provide access to historical taxpayer filing information as well as to audit processing functions that add completed audit results to the taxpayer information. Mainframe access is restricted and monitored to ensure that information is retrieved only as necessary. Specific mainframe applications are available to CRA employees and are based on their job function.

9.2.9 Filing history

Income tax returns

Income tax returns that are filed using paper documents and forms are stored at the responsible TC for several years. The charge-out menu on the RAPID mainframe indicates the documents that are available. Use the Online Charge-out System to request documents from the TC.

The majority of T1 and T2 returns are electronically filed by taxpayers. In these cases, a paper return is not available. However, all the relevant information is available on the mainframe or in Integras.

Individuals and partnerships

Audits of individuals and partnerships must include a review of the spouse or common-law partner's T1 and other related, associated, or affiliated persons, as appropriate.


Audits of corporations must include a review of the shareholders' income tax returns as well as related, associated, or affiliated persons’ T1, T2, and T3 returns. Auditors may also review T4 slips issued by the taxpayer.

9.2.10 Sector Profiles

Sector Profiles provide information that applies to the industry or sector in general. These profiles are an excellent source of information to establish the Audit Plan and to help guide the auditor in aspects that require specific review for that industry.

The specific details that are available include:

For more information, go to CRA Electronic Library > Compliance Programs Branch Reference Material > Audit > Income Tax Sector Profiles.

9.2.11 Consultations with specialists

The CRA has specialists for many areas that are located in the TSO, the regional office, or Headquarters (HQ). Auditors must research the application of a policy or of the law (technical issue) relating to their files and discuss challenging issues with their team leaders. If the application of a policy or law remains unclear, the team leader may request technical assistance from HQ.

Examples of specialists or specialty sections include:

If the team leader approves a request for assistance from these specialists, the procedure to follow is to create a new case in Integras. For more information, consult learning products:

9.2.12 Other sources of information

Real estate information

The real estate database provides the auditor with specific historical information on real property transactions. The information includes values, dates, purchaser and vendor information, and other data including type of property and type of transaction such as open market or non arm’s length. Current ownership and tenant information is also available through this database. For more information, go to 10.11.4, Referrals for real estate appraisal or business equity valuation.

Other regulatory bodies

Other regulatory bodies include provincial and municipal jurisdictions and professional organizations. Depending on the nature of the audit, it may be necessary to search these sources for additional information.

As an example, provincial vehicle registration may be searched to identify transactions that have occurred between parties and to determine the current ownership of vehicles. Search by name, plate number, and by vehicle identification number (VIN). This information is available for each provincial jurisdiction.

Certain types of information owned by provincial and municipal jurisdictions may be useful in conducting the audit. One example is the total of liquor purchases by the taxpayer from provincially-owned liquor distributors. This information may be needed to complete a projection of sales based on liquor purchases. To obtain these types of information, the auditor should consult the team leader and also the TSO federal-provincial liaison before proceeding.


Visit Small and Medium Enterprises Directorate to use the intranet for reference material on CRA audit policy and other more general information.


The Internet may provide information for the auditor, including:

9.2.13 Knowledge of business - under review

Auditors need to understand the way a business functions to conduct an effective audit and to assess the taxpayer's compliance with the relevant acts. Sector Profiles give useful information that applies to the industry, including common types of records and performance indicators. For more information, go to CRA Electronic Library > Compliance Programs Branch Reference Material > Audit > Income Tax Sector Profiles.

Specific information is gathered during the audit, as each business is unique and may function according to local requirements and customer base. During the audit, the auditor will obtain and apply knowledge of the taxpayer's business activity. This knowledge will assist the auditor in updating the Audit Plan and complete the audit effectively and efficiently.

Some knowledge of the taxpayer’s business is required to prepare questions for the initial interview and to be able to understand the taxpayer's response to the questions. Auditors are not permitted to use audio or video recorders to record interviews nor should they allow themselves to be recorded. If an auditor becomes aware that they are being recorded, the interview should be stopped, the reasons explained, and alternate arrangements made.

Information gathered during the audit will either verify the preliminary information obtained or indicate that changes to the Audit Plan are necessary.

9.3.0 Ratio analysis and review of financial statements

Use ratios, such as gross profit and inventory turnover, to test information in the taxpayer's financial statements, to determine the reasonableness of the amounts as stated, and to indicate items that may require further verification. Compare ratios from year to year and also with ratios of other taxpayers in the same industry.

Auditors should exercise caution when relying on any ratio analysis. When the ratio calculated indicates a material variance from the norm or average for the taxpayer's type of business, further testing may be warranted. However, a ratio is only a guide and any variance can have many different explanations. Do not overlook the taxpayer's records and findings from the initial interview and internal control review simply because a ratio analysis does not indicate a material variance or immediate reason for concern. Ratios can return false results if the numerator and denominator in the calculation have both been materially understated.

Ratios can provide measures of average performance and can serve as a basis for identifying unusual financial relationships or issues that should be verified. Using projections can test the taxpayer's reported revenues, gross profit, or net income.

However, projections based on industry ratios cannot be used as a basis for assessment. Only a projection based on taxpayer-specific data (for example, units purchased versus units sold) may be used as a basis to assess additional revenue under limited circumstances or to deny, based on reasonableness, the purchases expensed.

The CRA's Computer-assisted Audit Selection (CAAS) System is built on models of industry ratio analysis. This is often reflected in the identified audit issues in the summary printouts provided.

Industry-based ratios are in copies of publications in the CRA libraries; for more information, also see the Sector Profiles at CRA Electronic Library > Compliance Programs Branch Reference Material > Audit > Income Tax Sector Profiles.

9.4.0 Analytical review

9.4.1 Introduction

An analytical review of financial statements and returns as filed is often completed during the preliminary review. To view financial statement information for prior years, access the T2 CORTAX menu in the Common Menu System when financial statements are not available until visiting the taxpayer. The returns can be used to prepare a preliminary analysis. The CAAS profile provides a multi-year comparison of financial data and is useful for analysis.

Perform an analytical review to help determine potential issues. Note unusual variances and address them during the interview with the taxpayer; develop additional audit procedures if necessary.

9.4.2 Review of returns as filed and ratio analysis

Analytical review includes a detailed review of returns as filed, such as:

For more information, go to 9.2.0, Preliminary review.

For an example of common ratio analysis (liquidity, debt to equity, coverage, and profit) of financial statements, go to 13.1.8, Examples of computer-assisted audit techniques.

9.4.3 Reconciling the returns to the books and records

Before conducting any substantive testing on an expense account (beyond query), the account must be reconciled to the tax return. Expense reconciliation is a comparison of the amounts claimed as expenses to amounts listed in the final books of account along with any adjusting journal entries and explanations from the taxpayer. Adjustments cannot be made to the account until an audit conclusion has been reached to explain any variance.

Example: Purchase expense was identified as a risk. Final books of account indicate Purchases of $1M. Tax return claims $1.5M. Testing must be developed that verifies the $1M in the books, and testing must be developed that allows a conclusion to be drawn regarding the $500,000 variance.

9.4.4 Changes in taxpayer’s accounting policies

Changes in the taxpayer's accounting policies are important aspects of the audit process to ensure compliance. Changes in accounting policies that are made arbitrarily affect the degree of assurance that may be placed on the financial statements. For a meaningful comparison of figures from year to year, it is necessary that the figures be compiled on a consistent basis. If a change in accounting policy is the result of changes in operations, the comparative figures may not provide information that is useful for audit purposes.

If changes made to accounting policies appear arbitrary and affect the reporting of certain items, the motivation of the taxpayer may be to limit the usefulness of comparative analysis. For example, the taxpayer may have a significant increase in a certain expense and would prefer not to have the item questioned. As a result, segregating certain costs to form two expense accounts may alter the presentation of the expense account.

If a significant change is noted in the compilation of the financial statements, discuss with the team leader. A significant change in accounting policy includes:

Changes in the method of valuing finished goods and/or work in progress inventories are frequent in the manufacturing industry. Thoroughly review these policy changes during the audit to determine the tax effect.

While the results of the comparative analysis of the financial statements can be useful information, other audit steps, tests, and procedures are required to determine the degree of the taxpayer's compliance. Interpret the ratios calculated and variances noted when comparing amounts to determine their effect on the audit.

9.4.5 Gross profit ratio

A specific item to compare from year-to-year is the gross profit ratio, calculated as:

Gross income or gross sales – Cost of goods sold / Gross income or gross sales = Gross profit ratio

Compare the gross profit of individual items or product lines to the average gross profit ratio, as well as to the average ratio for the industry. Compare the calculated ratio to the ratio as stated by the taxpayer during the initial interview. A significant variance in the ratio may indicate overstated cost of goods sold or understated sales.

Example 1 – Gross profit ratio

In this example, the auditor suspects that the gross profit may be understated. Assume reported sales are correct.

Reported sales                                                    $320,000
Less: Cost of goods sold as reported                212,800
Gross profit                                                        $107,200
Gross profit as % of sales                                         33.5%
Gross profit industry ratio                                        43.5%

Projected gross profit ($320,000 x 43.5%)      $139,200
Less: Reported gross profit                                 107,200
Estimated cost of goods sold overstated    $  32,000

Example 2 – Gross profit ratio

In Example 1, the sales figure was assumed to be correct. However, in this example assume instead that the cost of goods sold figure is accurate. If sales were not verified, the potential unreported sales could be as high as $56,600, as in the analysis below.

Reported cost of goods sold                                $212,800
Divide by (1 less the gross profit industry ratio     56.5%
given in Example 1 above)

Estimated sales                                                       $376,600
Less: Reported sales                                                 320,000
Estimated unreported sales                               $  56,600

If the gross profit ratio analysis determines a discrepancy, a review of the taxpayer’s sales invoices or other observations may determine the selling prices. From the purchase invoices and freight bills, the auditor can determine the costs incurred. If the auditor does this for a representative sample, the overall gross profit ratio can be roughly determined and the estimated discrepancy revised.

The auditor should be aware that if both sales and cost of goods sold are misrepresented, the gross profit ratio analysis provides a false projection. For more information, go to 9.16.0, Continued risk assessment while the audit is in process.

9.4.6 Inventory turnover

A taxpayer's inventory turnover is determined as annual cost of goods sold divided by average inventory.

Inventory turnover Cost of goods sold / ((Beginning inventory + Ending inventory) / 2)

Use an analysis of inventory turnover to calculate revised estimates of sales and purchases, based on figures for reported inventory.

Example 1 – Inventory turnover

In this example, the auditor suspects that the sales may be understated.

Assume reported average inventory and cost of goods sold are accurate.

Taxpayer's reported average inventory                                $ 45,000
Taxpayer's reported gross profit margin                                  40.0%
Industry average inventory turnover (times per year)                3.0
Inventory turnover (in days)                                                121.6 days
Estimated cost of goods sold (3.0 x $45,000)                       $135,000
Add: Taxpayer's reported gross profit margin (40%)             90,000
Estimated sales                                                                          $225,000
Less: Sales reported                                                                    193,000
Estimated unreported sales                                                  $ 32,000

Example 2 – Inventory turnover

In this example, the auditor suspects that the purchases may be overstated.

Assume reported ending inventory is accurate.

Taxpayer's reported average inventory                                $  45,000
Industry average inventory turnover (times per year)                 3.0
Inventory turnover (in days)                                                 121.6 days
Estimated cost of goods sold (3.0 x $45,000)                        $135,000
Less: Cost of goods sold reported                                             155,000
Estimated overstated cost of goods sold                           $  20,000

Alternatively, if the taxpayer's reported purchases or sales are determined to be accurate, use an analysis of inventory turnover to calculate revised estimates of ending inventory.

Example 3 – Inventory turnover

In this example, the auditor suspects that the ending inventory may be understated. The revised estimate of ending inventory will be based on recorded purchases.

Taxpayer's reported ending inventory                                 $62,000
Taxpayer's reported gross profit margin                                40.0%
Industry average inventory turnover (times per year)               3.0                    121.6 days

Using inventory turnover, the taxpayer's ending inventory can be estimated by totalling the purchases for the last 122 days (approximately 4 months) of the period.

September purchases                                                               $23,220                         30 days
October purchases                                                                      22,710                          31 days
November purchases                                                                  17,490                         30 days
December purchases                                                                   15,580                         31 days
Estimated ending inventory                                                  $79,000                       122 days
Less: Reported ending inventory                                               62,000
Estimated understated ending inventory                         $17,000

Example 4 – Inventory turnover

In this example, the auditor suspects that the ending inventory may be understated. The revised estimate of ending inventory will be based on recorded sales and the taxpayer's gross profit ratio.

Taxpayer's reported ending inventory             $62,000
Taxpayer's reported gross profit margin            40.0%
Industry average for inventory turnover                  3.0              121.6 days

Using inventory turnover, the auditor can estimate the taxpayer's ending inventory by totalling sales for the first 119 days (approximately 4 months) of the subsequent period.

January sales                                                         $  28,610                   31 days
February sales                                                           29,780                   28 days
March sales                                                                29,900                   30 days
April sales                                                                   38,640                   30 days
Total                                                                        $126,930                119 days
Less: Gross profit (40% x $126,930)                        50,772
Estimated ending inventory                                $  76,158
Less: Reported ending inventory                            62,000
Estimated understated ending inventory    $  14,158

If the analysis of inventory turnover determines a discrepancy, the auditor can verify the taxpayer's inventory control procedures and year-end physical count. If no year-end physical count of inventory was taken, the auditor may request that one be undertaken as part of the audit. If the analysis concludes that the taxpayer's sales or gross profit may be understated, the auditor should consider applying gross profit ratio analysis or in-depth direct testing of sales and cost of goods sold.

If both ending inventory and cost of goods sold are misrepresented, the inventory turnover analysis will provide a false projection.

9.4.7 For future use

9.4.8 Comparative analysis of financial statements

Comparing current and prior years' line items in the taxpayer’s financial statements can highlight unreasonable or questionable balances. For example:

If there are significant items or changes, prepare a working paper listing items to review during the audit and update the Audit Plan.

Note: The CAAS profile provides an analysis of multi-year data and greatly facilitates this aspect of audit planning.

In addition to comparing items from year-to-year, review the balance sheet to:

Complete information is required to determine the continuity of balance sheet accounts. If the information is incomplete, the situation should be discussed with the team leader to determine appropriate action.

Discuss unusual items in a return outside the standard audit period with the team leader to determine if the audit period should be extended to include those returns. For more information, go to 9.12.3, The common audit period (one-plus-one).

Use the CCA schedule to ensure that acquisitions and dispositions of capital assets are correctly recorded.

9.5.0 Unfiled returns

9.5.1 Introduction

Subsection 152(7) of the Income Tax Act (ITA) provides the minister with the authority to issue an assessment regardless of the amounts already filed in a return or where no return has been filed. This action is taken in certain situations if returns have not been filed voluntarily.

Assessments made under subsection 152(7) of the ITA are referred to as arbitrary assessments and must be realistic and based on factual amounts. This term is for internal use only and for notations on the mainframe systems. Subsection 152(7) assessments are raised by the Non-filer/Non-registrant (NF/NR) Section of the Employer Services Unit in the TC, the NF/NR Section, or the Delinquent Filer and Special Initiatives Section of Taxpayer Services and Debt Management in the TSO.

Income tax audits are usually conducted on returns that have already been filed and assessed. However, the auditor may encounter a taxpayer who has outstanding income tax returns outside the assigned audit period.

If the taxpayer has an outstanding return, the auditor should contact the NF/NR Section in the TSO to discuss the taxpayer's situation.

In certain circumstances, the NF/NR Section may find that the auditor is better suited to handle the file, as the auditor has already established contact with the taxpayer during the audit. In such a case, the auditor should discuss the taxpayer's filing requirements with the team leader and if necessary, with the taxpayer. If the taxpayer does not file the outstanding returns voluntarily, then the auditor must refer the file to the NF/NR Section for their action.

The NF/NR Section will issue a demand for a return under subsection 150(2) of the ITA, a requirement notice under paragraph 231.2(1)(a) of the ITA, or prepare an assessment under subsection 152(7) of the ITA.

For more information, go to 11.5.3, Assessments under subsection 152(7) of the Income Tax Act.

In rare circumstances, an auditor may receive unfiled returns from the taxpayer. The auditor may receive these returns as a result of audit effort. The auditor needs to ensure that these returns are processed as soon as possible by the TC. This is necessary so that the auditor can obtain a copy from Integras and enter the appropriate AIMS codes to recognize audit effort prior to uploading. An AIMS file can only be closed through an Integras case; it is no longer possible to close an AIMS file manually.

9.5.2 For future use

9.5.3 Pro-forma income tax returns

If the taxpayer has not voluntarily filed income tax returns, the minister can assess by preparing pro-forma returns, also known as subsection 152(7) assessments or arbitrary assessments. For more information, go to 11.5.3, Assessments under subsection 152(7) of the Income Tax Act.

9.6.0 Audit Plan

9.6.1 Preparing the Audit Plan

Prepare the Audit Plan after completing the preliminary review, as the Audit Plan is based on the reason for the audit. Identify potential items of concern noted during the preliminary review and the audit procedures that will address the concerns identified. Note that there may not be sufficient information to establish the appropriate audit procedures at this point in the audit. Additional information obtained during the initial interview, tour of premises, accounting system walkthrough or assessment of internal controls should be used to modify/update the Audit Plan and the relevant audit procedures. For more information, go to 9.2.0, Preliminary review.

Include workload referral procedures in the Audit Plan. For more information, go to 9.13.3, Workload referral process. In certain situations, an auditor will receive a file from Workload Development that has been classified as a consequential adjustment (CA). A CA is a non-complex adjustment originating in a referral from GST/HST. An auditor can identify a CA by noting that the audit action (“AUDIT ACT”) code = 03 and the work section source (“WORK SOURCE”) = 210. In addition, Workload Development will have entered a notation in the “SCREENER’S COMMENTS” that this is a CA.

Auditors who have received a CA must issue a proposal letter to the taxpayer using the information from the GST/HST audit as the basis. Auditors are expected to spend 10 hours or less in completing a CA. A specific Audit Report has been designed for CAs only.

If an auditor determines that the CA should be a full-scope audit, the auditor must discuss this with the team leader. If the team leader agrees that a CA should be a full-scope audit, then Workload Development will update the AIMS audit action code to 01. In this case, the auditor must follow regular audit procedures.

For more information, go to Appendix A-9.2.7, Sample Audit Plan.

9.6.2 Factors to consider and procedures to include in the Audit Plan

A well-prepared Audit Plan is essential for an effective and efficient audit. The Audit Plan must address:

The Audit Plan is a mandatory document necessary to an effective and efficient audit. It is a document that is continually updated for evolving audit issues, determination of the level of internal controls, and the adequacy of books and records.

The audit programs within Integras are useful references during the planning and auditing stages.

Although template Audit Plans are useful guides, auditors must read each line and note when an audit step is or is not necessary. If an auditor enters N/A (not applicable) beside a pre-printed audit step, the auditor must include a sentence explaining why the step was not performed. Auditors are encouraged to use template Audit Plans as guides only, and create additional, relevant audit steps as necessary.

9.6.3 Team leader involvement in the Audit Plan

The team leader approval of the Audit Plan is required prior to meeting with the taxpayer. The auditor must follow the Integras procedures to send the Audit Plan to the team leader for approval. If the team leader rejects the Audit Plan, the auditor can revise it and resubmit.

However, if the team leader approves the Audit Plan and the auditor finds that they need to amend or expand it, the auditor will need to create another work item within Integras.

Team leader approval is necessary at various stages of the audit; note this approval on Form T2020, Memo for file.

The team leader must be actively involved in the planning phase of the audit, especially if the auditor is inexperienced or unfamiliar with the type of business. The team leader must ensure that the audit approach takes into consideration the nature of the business, the type of audit to be conducted, and the income of the relevant individuals.

In T1 audits, relevant individuals include, at a minimum, the proprietor and the spouse or common-law partner of the proprietor. Other relevant individuals may be included as the audit progresses. In T2 audits, relevant individuals include all shareholders and their spouses or common-law partners. If there is a series of holding corporations, the auditor must look to the individuals that control the corporations and their spouses or common-law partners. Other relevant individuals may be added as the audit progresses.

Significant changes to the Audit Plan must be discussed and approved by the team leader. For example, during the audit, the auditor may determine that a net worth is required; in this case, consult the team leader as soon as possible.

9.6.4 Time budget

The Audit Plan should include a preliminary time budget based on the information available. The taxpayer will likely need an estimate of how long the audit will take to ensure space is available for the auditor to work and employees are available to assist the auditor, if necessary.

The time budget may require adjusting as additional information becomes available and as the audit progresses. Keep the team leader and the taxpayer informed of material changes in the estimated time needed to complete the audit.

9.7.0 Audit tools

9.7.1 Integras


From an auditor’s point of view, Integras is a computer-based audit system that provides the ability to manage audit cases for its entire lifecycle in both official languages. Its objective is to replace AIMS and WinALS. It is mandatory for auditors to use Integras to carry out their audits.

According to their different roles, Integras allows users to:

For more information, go to learning products:

These learning products are designed to introduce Integras users to the fundamentals of managing audits and to Integras functions.

9.7.2 For future use

9.7.3 Integras templates

Forms, audit programs and procedures, working papers, applications and reports, are located in the Integras Template Library. Template Library is only available within a case.

Templates may be added, customized, renamed, and removed from the Navigation region. However, it is important that the templates for requirements and compliance orders not be changed, for legal reasons. Once a template is added to the Navigation region in Integras, it becomes a working paper.

Auditors can use the templates to automate and simplify many tasks. If the document includes data tokens, the system replaces the tokens with the appropriate data, but only in Microsoft Word or Excel documents.

What are Tokens?

Tokens are similar to hyperlinks used to auto-populate information into a template, when the template is added to an Integras case. This is important, as it saves the auditor time in the audit process because they do not need to spend time manually entering this information. For example, tokens can be used to auto-populate a taxpayer’s address in letters.

Audit applications

Integras contains many audit applications, procedures, working papers, and forms, such as:

The Audit Report

Form T20, Audit Report, provides all the information necessary for someone not familiar with the specifics of the audit to become fully informed about the audit, including the findings, conclusion, recommendations, significant issues, errors and omissions, and recommended follow up. For more information, go to 11.6.1, Form T20, Audit Report.

Reassessment documents

Go to Appendix 11.2.0, Nationally used forms and instructions.

Workload referral templates

The workload referral templates (WRT) are required for all audits, except for those excluded in 9.13.3, to provide the other taxes with business intelligence that will enhance their risk assessment. To access the WRTs and for more information, go to 9.13.0, Workload referral procedures for GST/HST and Small and Medium Enterprises.

The audit table of contents

The audit table of contents (ATOC) in WinALS has been replaced in Integras by a tab in the Navigation region. The following folders and nodes are created automatically for income tax Audit cases and arranged from top to bottom:

Clicking on these folders will display different tabs in the Detail region of Integras.

Data Change Record

The data change record (DCR) is an Integras automation that records in a database, the individual changes made by an auditor in conducting an audit. Auditors use this feature to create all the forms required and to automate the assessment process to complete an audit.

Audit Change Records

Audit Change Records (ACR) records all changes made that have no reassessment implications in the current audit period. These records are not sent for a reassessment, but affect the TEBA calculation. An ACR is created when there is an adjustment to the taxpayer’s claims. For example, CCA balances on a T1 return (ending UCC) or when a taxpayer's request is denied.

Auditors can complete a DCR/ACR at the proposal stage or when the audit is finalized.

Completing the audit

For most audit cases, Integras replaces:

Integras includes templates and forms required to process and complete the audit, such as:

Archiving the audit file

After the team leader has approved the final phase of the audit, the completed file is archived in Integras. Auditors will be able to retrieve completed audit cases by using the search feature within Integras.

Note 1: All audits completed using the WinALS system between 2008 and 2018 have migrated to Integras.

Note 2: Audits stored in the NAA prior to 2008 have been purged in accordance with CRA Information Management policy.

9.8.0 Working papers

9.8.1 Purpose and content of audit working papers

Working papers are essential to any audit, as they provide a record of the extent of the audit work carried out, findings, calculations, application of legislation, rationale, and the final adjustments. The working papers must not contain personal opinions or comments about the taxpayer.

Copying of taxpayer's records or restructuring of financial statements should be documented in the audit file. Use working papers to document the audit techniques and procedures followed during the audit. Working papers:

Audit procedures performed and any adjustments proposed detailed in the working papers must provide sufficient information to ensure that subsequent users of the working papers come to the same understanding and conclusion as the auditor who prepared them. All working papers must be clear, concise, logical, and comprehensive.

The working papers should summarize the results of each audit procedure. For example, if the audit procedure calls for an examination of a sample of sales invoices and no adjustment is required, the working paper conclusion should state that no adjustment is necessary and the reason. Copies of invoices tested are not required except when necessary to support an audit adjustment.

Documentation on file must indicate that the auditor was reasonable in dealing with the taxpayer. Working papers document:

Meetings, including the initial and final interviews, held with taxpayers or their representatives, must be documented. Disclose delays in scheduling meetings. Documentation must relate only to the taxpayer under audit and not to other taxpayers.

Do not make markings of any kind, such as highlighting, underlining, or check marks, on any original documents submitted by the taxpayer, including correspondence, financial statements, CCA and other schedules.

Working papers – Integras

It is mandatory to complete audits in programs 17 and 18 in a paperless format.

For more information, go to memorandum, Mandatory use of WinALS and use of scanners - Small and Medium Audits and GST/HST Pre-Assessment Examinations, dated May 9, 2012.

To facilitate a paperless audit, certain documentation must be scanned and included in the Integras audit file.

For more information, go to memorandum, Documentation Requirements for Electronic Audits – Small and Medium Business Income Tax Audits, dated November 19, 2012.

There is no limitation to file size in Integras for attachments; however, there is a limitation for documents containing tokens. If it exceeds 1MB in size, the tokens will not be populated. Either reduce the file size, or delete / write over the tokens.

Note: If there were data tokens in the working paper, they will be updated with the appropriate information.

The team leader must review the file using Integras. Once approved, the team leader uploads the audit case. The audit case is then archived in Integras. Completed audit cases can be retrieved from Integras.

The archived version can be retrieved as required, to prepare for a subsequent audit, access to information requests, or follow-up action by, for example, Taxpayer Services and Debt Management, Appeals, Criminal Investigations, and Aggressive Tax Planning.

The Integras cases are usually stored for a period of six years; TSO management may extend this period if warranted.

No paper documents should be kept from an audit. Correspondence sent to external parties after approval by the team leader will have to be scanned and uploaded into Integras. Forms T99, T99A, T7W-C, and any other schedules necessary for reassessment by the online RAP clerk or by the TC will only be electronic copies.

Trailing documents

Although the audit file is completed electronically, certain documents must be printed and stored as trailing documents with Iron Mountain (IRM). These documents include:

To send a document to IRM, the auditor completes and staples Form RC467, Trailing Document Records Transmittal Slip, to each document. For more information, go to:

9.8.2 Working paper specifications

Working paper consistency and standardization

Integras contains many pre-defined working papers to be used by the auditor in carrying out an audit. Integras also allows the auditor to create and save custom working papers. Templates may be customized but it is important, for legal reasons, to not change the requirement templates.

Integras provides for some standardization of audit working papers. However, there are no standard working papers to which auditors must conform. Auditors have the flexibility to tailor the working papers to meet the needs of the situation. The working papers must be clear and meaningful to the auditor and understood by others. Auditors should prepare a working paper, keeping in mind that such a document could be read by an individual who has no knowledge of the case or even of details involved in a tax audit.

Working paper templates

The working papers and audit steps include a brief description of the reason for the procedure and why the procedure was not necessary or applicable. Checking the boxes, “Yes,” “No,” or “N/A," does not provide sufficient information. A brief summary of the results or findings of the procedure or step can also be useful.

Auditors can delete from the Integras - Navigation region, working paper templates that will not be used in a particular audit.

Format of working papers

Prepare audit working papers and schedules if possible, in a consistent format. This assists the team leader and others in their understanding of the contents and conclusions reached by the auditor. Include in each working paper:

Attach and cross-reference as required, any calculations, schedules, and documentary audit evidence in support of the conclusions reached. Narrative comments should have sufficient detail to explain to the reader what was done and why; a simple comment such as “cleared – no problem” is insufficient.

Indexing and numbering of working papers

SMED, ILBD, and the GST/HST Directorate have created a working paper numbering convention. This document is available in the Integras Template Library. Search for the document entitled CPB_Index of WP_translated version_.xlsb.

Also go to Communiqué AD-16-14, Standardized Index of Working Papers.

Cross-referencing of working papers

Clearly and completely cross-reference working papers to make it as easy as possible for another person to follow the audit trail and findings that lead to the conclusions that have been drawn.

For example, electronic working paper cross-references can be shown as “to/from WP3100-2.”

In the case of a paper copy working paper produced manually, if information is carried forward:

9.8.3 Working paper documentation

The working papers document the audit from beginning to end. Of particular importance are:

Documentation of the audit's progress

Form T2020, Memo for file, must be used to:

Significant events include initial contact, meetings, interviews, telephone conversations, proposal letters, representations, and extensions. If another working paper documents a significant event, for example, the initial interview or a proposal letter, it is sufficient to note the date of the event on Form T2020 and reference to the corresponding working paper. The purpose is not to duplicate the content of working papers, but to provide a comprehensive timeline of the significant events in addition to items that are not noted elsewhere in the audit (for example, conversations with team leaders, representatives, or the taxpayer).

By documenting the time spent during the audit, the auditor can readily account for the total audit time. Documentation supports any significant time variances, as they may affect taxpayer relief considerations and help explain delays in completing the audit.

Form T2020 contained in the Integras case must be used as a record of events and conversations.

9.8.4 Working papers as “government information holdings” - Under review

Government information holdings are defined by Treasury Board of Canada Secretariat (TBS) to include “all information under the control of a government institution, regardless of physical mode or medium in which such information may be stored. Without restricting the generality of the foregoing, this may include correspondence, memoranda, books, plans, maps, drawings, diagrams, pictorial or graphic works, photographs, films, microfilm, sound recordings, videotapes, machine readable records, published material and any other documentary material. Excluded from the definition are materials held by federal libraries that were not prepared or produced by or for the government.”

These information holdings, that by definition include all audit working papers and reports in paper or electronic format, are subject to the federal government's information management policies developed by TBS. For more information, visit the TBS Policy on Information Management.

From an audit perspective, information holdings include:

The CRA manages all its information holdings according to related federal legislation such as the Access to Information Act, Privacy Act, National Archives of Canada Act, and Copyright Act and program legislation such as the Income Tax Act and the Excise Tax Act, including any related legislation of a provincial or territorial government. This includes any instrument made under these acts or any part of such instrument. For more information, visit Canada Revenue Agency Public Affairs and Communications Policy and CRA’s Information Management Policy.

Authority for managing information is included in several federal acts and legislation. The relevant provisions of the legislation that relate to the management of information, and by which the CRA is bound, are provided in the Finance and Administration Manual, Security Volume.

Access and privacy

The Access to Information Act gives Canadian citizens, as well as persons present in Canada, the right to have access to information in federal government records. The Act ensures that a taxpayer can ask for information and if it is not exempt or excluded, is entitled to see it or to be provided with a copy. For more information, visit Access to Information Act.

The Privacy Act also gives Canadian citizens and persons present in Canada the right to have access to information related to them that is held by the federal government and protects against unauthorized disclosure of personal information. In addition, it strictly controls how the government will collect, use, store, disclose, and dispose of any personal information. For more information, visit Privacy Act.

TBS policies on access and privacy reinforce information management principles inherent in the Management of Government Information Holdings Policy and the Security Policy. The policies support the objectives of duty to inform, routine disclosure, and service to the public, which are fundamental concepts within the Communications Policy.

Deputy ministers and heads of agencies are responsible to ensure that their organizations comply with the Access to Information Act and Privacy Act. In addition, the minister of the treasury board coordinates administration of the acts by preparing and distributing policies and guidelines to help institutions interpret the laws and to assist them in their application on high profile issues. For more information, visit TBS’ Access to information and privacy and 3.0, Taxpayer rights and taxpayer relief.

9.8.5 Transitory records and section 67.1 of the Access to Information Act - Under review

Government records (including draft records) must be retained under the authority of the Access to Information Act. Section 67.1, adopted in 1998, creates an offence for destroying records to obstruct the right of access under the Act. This provision usually should not be a concern to the auditor respecting the regular working papers that are found on the audit file. However, the interaction of section 67.1 and the disposal of transitory records raise a particular dilemma for income tax auditors and for public servants in general.

The term transitory record is used in Canada to deal with records of a temporary nature of short-term value found in both administrative and operational records created by a government institution.

An interdepartmental access to information review task force was established by the federal government on August 21, 2000, with a mandate to review all components of the access to information framework, including the Act, Regulations, policies and procedures. A final report analyzing the administrative and legislative aspects of access to information and providing recommendations for improvement was released on June 12, 2002.

For more information, visit TBS Archived – Access to Information Guidelines – Requests.

9.9.0 CRA mainframe as a source of information

9.9.1 Introduction

The CRA mainframe information systems are tools used to process taxpayer returns, as well as to retain a filing history and other relevant information. Historical information is used to determine, for example, industry trends, establish ratios, and assess audit risk. This information is also used to select audits.

The CRA mainframe information systems can be used to provide information that may not be available in the download when the case is assigned or the audit is in progress.

Auditors have access to many databases, including RAPID (T1 and T2 income tax information), the Common Menu System, and the Automated Collections and Source Deductions Enforcement System (ACSES). These systems can provide details relating to an audit in progress that are not available on the audit diskette.

9.9.2 The income tax mainframe

The main menu includes separate menus for T1 and T2 filers. Screens provide useful information to:

9.9.3 Income tax database (RAPID)

RAPID provides immediate access to up-to-date taxpayer and employer information for authorized users in the TSO, TCs, and other operating areas of the CRA.

The data available through RAPID comes from many sources, including: PAYDAC, CINDAC, CORPAC, ASSESSING, TAPMA, IPS, and ON_LINE CHARGE-OUT.

Access to RAPID information is restricted to holders of valid user identifications and passwords. Auditors have a mainframe access profile to allow access to the required functions and information.

Go to Appendices A-9.2.5, RAPID T1 menu, and A-9.2.6, RAPID T2 menu, for a sample of the RAPID menus available.

9.9.4 CORTAX

For information on CORTAX, go to Appendix 12.4.0, T2 CORTAX.

9.9.5 For future use

9.9.6 Other systems

Other systems include:

9.10.0 Determining the need for computer-assisted audit techniques

To determine if computer-assisted audit techniques (CAATs) need to be used during the planning stage of the audit, evaluate:

The volume of data is a key factor to determine if the use of CAATs is appropriate. If the volume of data is limited, it is unlikely that using CAATs will provide a significant benefit compared to completing the audit manually.

The detail of the information available is important to determine the effectiveness of using CAATs. If the taxpayer uses a batch processing system and consolidates transaction detail (common procedure with Accpac accounting software), the electronic records do not usually contain sufficient detail for computer-assisted audit purposes, as only the summary information from each batch is available.

If the costs to obtain or convert the information for audit purposes to usable format are material, the use of CAATs may not be desirable. Consider consulting with Computer Audit Specialists (CAS) to help determine the cost to download taxpayer information. For more information, go to 13.1.0, Computer-assisted audit techniques. 

9.11.0 Audit scope

9.11.1 Introduction

The Workload Development Section is responsible for selecting the audit scope based on issues identified.

As the audit progresses and additional information becomes available, the Audit Plan may need to be adjusted. The additional information must be evaluated to determine its impact on the audit scope and if warranted, the audit scope is amended. Any change to audit scope must be approved by the team leader. Rarely, the audit may be closed or deferred without completing all audit steps. The auditor must document the rationale and obtain approval from the team leader for this course of action on Form T2020, Memo for file.

Integras Case Type, Program Type, and Activity Type

Integras types are used to identify the scope of the audit. Case Type, Program Type, and Activity Type are displayed in Integras in the Detail region of the Inventory browser.

Some elements in this tab are completed by the screener, while other fields must be populated manually.

Restricted audit scope

All audits of principal files are initiated by Workload Development as full-scope compliance audits, unless a reduced or restricted scope is approved by HQ for specific purposes.

In rare situations, the scope of an audit may be changed from full-scope to restricted; such a change must be approved by Workload Development.

9.11.2 Reliance on the books and records

Auditors must use their professional judgement to determine the scope of the audit. If Business Intelligence has mandated IVI required, this means that you must do a minimum of two supporting IVI tests (for the most current year or on the year where risk has been identified): the IVI bank deposit analysis test and one of: rough net worth, source and application of funds, or ratio analysis.

For all other audits, it is not mandatory to complete these two supporting IVI tests. However, the audit approach taken depends on the reliance that can be placed on the internal controls and the quality of the books and records. Therefore, even in these audits, if the reliability of the accounting records is suspect or the apparent lifestyle of the taxpayer is inconsistent with reported income, auditors should use supporting IVI tests.

If the shareholder or taxpayer prepares the books and records, the auditor must consider internal controls as non-existent and rely on supporting IVI tests to continue the audit.

For more information, go to 13.3.0, Indirect Verification of Income.

9.11.3 Types of audit adjustments

Auditors should consider both increases and decreases to taxable income for all audits. If the adjustments are in favour of the taxpayer, the auditor must ask the taxpayer to provide complete information to verify such a downward adjustment.

9.12.0 Audit period policy

9.12.1 Purpose

The audit period policy for income tax audits came into effect December 4, 1996.

9.12.2 Legislation

The ITA provides specific limits to periods that may be reassessed. For more information, go to 11.3.0, Normal reassessment period.

9.12.3 The common audit period (one-plus-one)

The common audit period (also known as 1 + 1, one-plus-one, or one + one) includes the current year being audited plus the immediately preceding twelve-month period. Audits should not usually go beyond the current fiscal period and the immediately preceding twelve-month period. However, some exceptions apply and must be discussed with the team leader.

For income tax purposes, the current year is defined as the most recent fiscal period for which an income tax return has been filed, assessed, and is available for audit.


The common audit period policy (often called the one-plus-one policy) was implemented to make efficient use of limited audit resources while at the same time, to maximize the impact on non-compliance. The policy also ensures a common and consistent audit period across all business lines.

Extending the audit period

There will be circumstances that require the extension of the audit period beyond the current and preceding twelve-month periods. For example, if payroll deductions (income tax, CPP/QPP, EI) have been withheld and not remitted, the audit period should include all periods not statute-barred because these amounts are funds held in trust. Errors in computation, classification, or elections are not intended, in and of themselves, to be grounds to extend the audit period.

Clearly document justification to extend the audit period on Form T20, Audit Report, approved by the team leader.

Situations where the audit period may be extended

Situations that may warrant extending the audit period beyond two years include:

Note: If a recurring or system problem is noted that was present in prior years, extend the audit period to include periods that are not statute-barred. Audit procedures for periods outside the common audit period should only be directed to these items of concern.

Other factors particular to a file, such as a series of transactions covering several years, may require reassessment of prior years as part of the process to correct the overall misstatement.

Team leader approval

Extending the audit period beyond the normal two-year period is a matter of professional judgement based on the facts of the case, and requires the team leader’s approval. The decision will be based on the circumstances, the significance of the potential adjustment, and the effectiveness of expanding the audit period for each case. The additional time needed for the expanded audit period should be minimal, if the auditor properly limits the review to the problem items. Audit prior years only if significant items are uncovered that give cause for such action. Auditors must include the reasons for extending the audit period on Form T20, Audit Report.

9.12.4 Re-auditing a previously audited period

There are certain circumstances when it may be necessary to conduct an audit of a previously audited period. This usually happens because misrepresentation, attributed to neglect, carelessness, or suspected fraud, is subsequently discovered. More examples where a second audit may be warranted include:

9.13.0 Workload referral procedures for GST/HST and Small and Medium Enterprises

9.13.1 Introduction

The goal of the workload referral (WR) is for one tax to provide the other taxes with business intelligence that will enhance risk assessment of the other taxes.

9.13.2 Applicable programs

Effective April 1, 2011, the WR process applies to the following audit programs in the Small and Medium Enterprises Directorate and the GST/HST Directorate:

Income tax


The WR process also applies to the Film Advisory Services programs in the Scientific Research and Experimental Development Directorate for changes to income and/or expenses and/or if the auditor recognizes an issue for GST/HST.

9.13.3 Workload referral process

A WR is required when:

Exclusions from the WR procedures:

Some audits and programs are excluded from the WR process; for more information, go to April 7, 2011, memorandum, Small and Medium Enterprises and GST/HST Audit Workload Referral Procedures (replacing Compliance Reviews), Workload Referral procedures, 4.2 Exclusions from the Workload Referral Procedures.

9.13.4 Completing the workload referral templates

Complete the Small and Medium Workload Referral Template (WRT) for all audits except for those excluded in 9.13.3, Workload referral process. Until the WRT is included in Integras, go to Workload referral procedures for GST/HST and Small and Medium Enterprises and use the WRT listed as Appendix 1: Small and Medium Workload Referral Template.

9.13.5 Workload referral package

The workload referral package (WRP) includes:

Making an early workload referral:

9.13.6 AIMS reporting for workload referrals

Three fields are available on AIMS screen 5 (audit work completed section) to capture information related to a workload referral to GST/HST by an income tax auditor.

  1. The first field, Compliance Review, requires a “yes” or “no” response to indicate if a workload referral template (WRT) was prepared.
  2. The second field, Referral Done, requires a “yes” or “no” to indicate if a complete WRT package was forwarded to GST/HST.
  3. The third field, At Risk Amount, captures the estimated amount of GST/HST at-risk.

For more information, go to Workload Referral procedures.

9.13.7 Referrals to excise tax

If applicable, when an audit is completed, the auditor must send the excise WRT in an encrypted email, with the applicable excise standard naming convention format in the subject line, to their team leader, with a c.c. to the workload area of the tax audited.

9.14.0 For future use

9.15.0 Concurrent audits of related, associated, or affiliated corporations

In certain situations it is more efficient to expand the audit of the principal corporation to include related, associated, or affiliated corporations.

9.15.1 Situations that may warrant concurrent audits

Concurrent audits can be particularly efficient if:

9.15.2 Specialists

For additional information on referrals and consultations with specialists, go to 9.2.11, Consultations with specialists, and 10.11.0, Referrals and consultations.

9.15.3 Restricting the audit scope

In some cases, the audit scope of the related, associated, or affiliated corporation’s operations is restricted to a review and verification of only specific inter-company transactions, for example, transfers of assets. When the secondary case is created in Integras, the audit action code should not be 01 (full-scope). Audit action should only be 01, if a full-scope audit was completed of the related, associated, or affiliated corporation.

Adding related, associated, or affiliated corporations to the audit in progress

During an audit of a principal corporation, the auditor may determine through Integras that a related, associated, or affiliated corporation is under audit. Depending on the circumstances, it may be more effective and efficient to complete the related, associated, or affiliated corporate audit at the same time as the principal corporation. The auditor should discuss this with the team leader, outlining why the audits should be completed at the same time. If the team leader is in agreement, then the auditor should take steps to ensure that the related, associated, or affiliated corporations are audited concurrently.

If the related, associated, or affiliated file is unassigned in the Workload Development inventory, the auditor of the principal corporation should prepare a referral to Workload Development to obtain the audit. The referral should outline why the audit of the related, associated, or affiliated corporation should be completed at the same as the principal. The referral would note the team leader’s approval.

If the related, associated, or affiliated corporation is under audit by a different auditor, depending on the circumstances, it may be necessary for the two auditors and their respective team leaders to determine how to proceed.

Cost vs. benefit

Determine the benefits of conducting concurrent audits before the audit is expanded to include the related, associated, or affiliated corporations. The primary consideration must be whether there is any significant advantage. For example, an audit of a group of corporations helps to obtain a complete picture of the operations, but carefully consider the additional audit time and the potential benefits.

Often an Electronic Data Support specialist is needed because of the complexity and size of the electronic records.

Referrals of related, associated, or affiliated corporations between TSOs

During an audit of a principal file, the auditor may determine that an audit of a related, associated, or affiliated corporation is necessary. If the books and records of that corporation are located in another TSO’s area of responsibility, the auditor of the principal file must prepare Form T133, Lead or Project Information, signed by their team leader, and forward to the originating section manager or assistant director of Audit (ADA) for approval. The memo should then be sent to the ADA of the TSO where the books and records of that corporation are located.

9.16.0 Continued risk assessment while the audit is in process

9.16.1 Introduction

During the audit selection process, Workload Development uses a combination of computerized and manual risk assessment techniques to review and identify those files with the greatest risk of non-compliance and potential revenue loss.

The auditor must continue to risk assess during the many stages of the audit, including preparation, continual updating, and implementation of the Audit Plan. The preliminary risk assessment was based on information available at the time. During the audit, changes to the preliminary risk assessment may be required because the information used to draw conclusions changes. For example:

An effective Audit Plan uses risk assessment techniques to identify the areas of concern and to design the most appropriate audit tests to address those concerns. The Audit Plan must provide for periodic reviews and adjustments to reflect new information and changing conditions. Without continual risk assessment during the audit, the risk of performing unnecessary audit procedures or missing areas of non-compliance increases.

9.16.2 Risk assessment during preliminary review

During the preliminary review, the auditor reviews the information provided. It should not be assumed that every assigned audit would be carried out according to the screener's recommendations. The auditor prepares to make changes to the recommendations or to suggest downscreening the audit, if the risk is limited. Document reasons for the changes to the risk assessment and discuss with the team leader.

Risk assessment procedures during the preliminary review include:

Based on review of additional information, the auditor evaluates the original risk assessment and proceeds with one, or a combination, of these actions:

9.16.3 Risk assessment during audit planning

After identifying the areas of concern, the nature and extent of audit tests to address these concerns must be determined and are based on risk assessment. The nature of the tests depends on the nature of the potential errors and the taxpayer's accounting system, or lack thereof.

Audit policy is to obtain reasonable assurance that significant errors are detected and corrected. It is not policy to audit all of a taxpayer's transactions and audit tests should only be carried out to the extent necessary to ensure compliance. An in-depth analysis is required for those transactions with errors or if other non-compliance is detected or suspected.

The concept of reasonable assurance may result in the possibility that a significant error is not detected. However, a well-executed Audit Plan will uncover most significant errors and issues of non-compliance that require attention.

9.16.4 Components of risk

These three components combine to make up total risk:

  1. inherent risk
  2. control risk
  3. audit or detection risk

For more information, go to the CICA Handbook – Assurance (section 5130).

An important aspect of risk assessment is the evaluation of internal controls. For more information, go to 10.1.6, Evaluation of internal controls.

9.16.5 Reviewing risk while the audit is in process

As the audit progresses, update the assessment of risk based on the result of audit procedures and testing completed to determine if changes to the Audit Plan are necessary.

Evaluate the risk with respect to each area of concern, as well as to the audit as a whole. It is important to remember:

As audit procedures are performed, the auditor is always mindful of the concern being addressed. When a predetermined number of the tests directed at a particular concern are completed, the auditor reviews the results to ensure that the audit procedure addresses the concern or issue to ensure that testing is not done unnecessarily or that additional items are not required for testing.


Audit concern identified:

Sales may be under-stated.

Planned audit procedures:

  1. Reconcile amounts recorded in the books and records to the returns filed. It is also possible to reconcile to GST/HST returns as well.
  2. Review all sales invoices greater than a material limit. This should be done to understand how the accounting system works and where cash is deposited.

Audit results:

Step 1: Completed. No errors or exceptions noted.

Step 2: After testing approximately 50% of the items selected for review for Step 2, the auditor reviews the audit results and asks these questions:

It is important to review audit procedures before completing the actual testing of items selected to ensure that the test addresses the concern identified.

Professional judgement plays an important role in assessing risk during the audit. The assessment of risk differs from audit to audit. Generally, if after testing 50% of the selected sample, no material errors are found, it is reasonable to conclude that the results are representative of the population as a whole. The risk assessment may be revised, resulting in a decrease in audit procedures. In this example, the auditor may consider adjusting the selection criteria to review only those invoices greater than $2,000. If no errors are noted, the procedure can be aborted. The auditor then proceeds to the next audit concern and repeats the process.

When approximately 60% of the budgeted hours for an audit have elapsed, the auditor should review the audit results. Based on the findings of the audit procedures completed:

The questions to consider are similar to the questions asked to ensure that the individual audit procedures meet their objective.

The auditor's observations, conclusions, and recommendations should be documented and discussed with the team leader. The team leader should ensure that the audit is meeting the objectives and addressing any concerns noted. The degree of the team leader’s involvement during the review and decision making process depends on the auditor’s experience and confidence.


Continually assessing risk during the audit will result in a more effective and efficient audit. The auditor uses a systematic and rational approach to evaluate audit procedures against the anticipated benefits, such as taxpayer compliance and revenue recovery.

A review of audit results ensures that procedures that do not address identified concerns are aborted. Continual risk assessment ensures that the Audit Plan is updated to reflect any changes in circumstances.

9.16.6 Downscreening audits by auditors

An audit can be downscreened in Integras by an auditor, if the number of hours charged on a case does not exceed the following limits:

The increase to the number of downscreen hours will enable an auditor to conduct the early steps of an audit, such as the initial interview, a site visit, sample testing, and risk analysis, so that the auditor and team leader can make a more informed decision to either continue or downscreen the audit.

Auditors must clearly document their decision to downscreen the audit (case) and how all identified risks and issues were addressed and the steps taken to recommend that the case be downscreened. Auditors must update Form T2020, Memo for File, for any contact with the taxpayer.

A downscreened case requires approval from both the Audit team leader and a Regional Business Intelligence (BI) officer. All downscreen requests should be processed in accordance with the current downscreening policies and procedures.

Auditors must make sure that all documents indicating the team leader and BI officer approval to proceed with the downscreen are obtained, as appropriate, and attached to the Integras case before closing the case in Integras.

For more information, go to:

If the case cannot be worked because of lack of contact (see 9.18.3) and is to be downscreened or returned to BI, Form T2020, Memo for File, and any correspondence sent, including any confirmation of delivery or non-delivery, should be sent with Form RC467, Trailing Document Records Transmittal Slip to Iron Mountain (IRM).

To downscreen an audit case in Integras:

*When Other(Specify) is selected as the Reason, auditors are required to provide details in the note portion of the window.

9.17.0 Assessment of materiality

9.17.1 Introduction

Consider audit risk and materiality to efficiently complete an audit and to determine the audit effort in any given area.

What is materiality?

The concept of materiality recognizes that some transactions have a greater impact in a given situation and therefore warrant greater scrutiny. Material amounts or transactions have an effect on the outcome of the audit. Limited time and effort is spent on insignificant transactions because they do not compromise the objectives of the audit or have an impact on the audit results. Preliminary planning is based on the screener's comments and/or information provided in a referral (Form T133, Lead or Project Information). For more information, go to 9.2.0, Preliminary review, and 9.11.0, Audit scope.

Materiality for income tax audits is generally related to the size of the business. For example, a $2,000 increase in taxable income may be material in a small business, but may not be material in a large corporate entity. The CRA uses a concept of materiality similar to the one used in public accounting, in that it is not cost effective to adjust for a small error (or a few small errors) in very large accounts.

Materiality is dependent on three factors:

  1. the monetary size of the transaction in relation to the size of the business
  2. the implication of the legislation on the transaction
  3. the nature or status of the item

To determine materiality guidelines for an audit, the auditor establishes a threshold, or a dividing line between significant and less significant transactions. This allows the auditor to focus audit efforts in areas of non-compliance where it is most likely there is significant revenue loss.

Materiality guidelines are usually expressed in terms of dollar values, as a specific amount or as a range. The initial determination is made during the planning stage of the audit at the same time as assessing risk. As the audit progresses and additional information is gathered, changes may be warranted.

For more information, go to CICA Handbook - Accounting, Part II – Accounting Standards for Private Enterprises, Sections 1000 to 1800.

9.17.2 Determining materiality

The concept of determining materiality is not an exact science. Determine materiality on a case-by-case basis; it is a matter of professional judgement to discuss with the team leader. In some cases, the same guideline may be used for the entire audit while in other cases, it may be more appropriate to establish different guidelines for different sections of the audit.

Factors to consider when determining materiality include:

9.17.3 Materiality and the taxpayer's operations

An amount that is considered material for one taxpayer may not be considered material for another. For example, a $1,000 transaction may be material if the taxpayer's annual revenues are $30,000 (3.3% of annual sales), while the same amount may not likely be considered material when sales are $3,000,000 (.03% of annual sales), unless the amount is recurring. Materiality is often determined by relating the amount to annual sales or total expenses. When all other factors are equal, this approach results in higher materiality guidelines for taxpayers with greater sales.

If the treatment of transactions results in non-compliance with the legislation, smaller amounts are usually considered material.

9.17.4 Costs vs. benefits

Regardless of the size of a taxpayer's business operation, it is not economical to audit transactions of small amounts due to the costs involved in carrying out any audit procedure. However, if a systematic error is discovered, small amounts can become material if the error is recurring and there are a large number of transactions affected.

9.17.5 Reason for the audit

If an audit is initiated due to suspected non-compliance, smaller amounts are considered material.


Apply materiality guidelines consistently for taxpayers whose business operations are similar.

Applying materiality

Do not regard materiality as a fixed formula to be applied mechanically throughout an audit. Auditors should always be alert to circumstances that can change an otherwise immaterial item into a material item and vice versa. This becomes increasingly relevant as transaction amounts approach the amount considered material. If the population of transactions is high, it may be useful to stratify the population to include a sample of all transactions in the audit procedure.

Suspicion of fraud or non-compliance - Under review

An amount that may otherwise be immaterial is considered material if fraud or non-compliance is suspected. For example, a taxpayer has reported total revenues of $2,000,000, including miscellaneous revenue of $2,000. The $2,000 would usually be immaterial. However, if the auditor suspects that only a portion of the miscellaneous income has been reported and the amount might be much higher, undertake audit procedures to ensure the completeness of the miscellaneous revenue.

Take care to ensure that the audit does not proceed if suspected fraud has been detected, so as not to jeopardize the case if a criminal investigation is required. The auditor consults with the team leader immediately for further instructions. For more information, go to 10.11.8, Referrals to the Criminal Investigations Division.

9.17.6 Tax status of the item

Consider the implications

An item that may be considered immaterial may become material as a result of potential implications. For example, rental charges paid to a storage facility could mean hidden assets exist or that expenses of a personal nature have been charged to the business.

Non-monetary factors to consider

If the auditor has identified material errors, consider these non-monetary factors before proceeding to an adjustment:

Materiality and evaluating the audit test results

Evaluate the results of the audit tests conducted to determine the next course of action for the audit in process. The auditor must decide if adjustments are warranted based on the findings of the audit procedure by reviewing the type of errors, the effect of the errors, and the reason for the audit. In some cases, further testing is required and may include adjusting the established guideline of materiality.

Adjustments to net income

If adjustments or errors noted are below the established materiality guideline, the auditor discloses the rationale applied and the circumstances used to determine that no adjustment is required to net income.

If the auditor determines that errors are material and an adjustment to net income is warranted, complete the appropriate documents. For procedures to complete and assess the file, go to 11.5.0, Assessments.

9.18.0 Contacting the taxpayer – Under review

It is important to plan the initial contact and subsequent interview with the taxpayer or their representative to ensure the highest degree of cooperation and to obtain as much information as possible. Auditors are not permitted to use audio or video recorders to record interviews nor should they allow themselves to be recorded. If an auditor becomes aware that they are being recorded, the interview should be stopped, the reasons explained, and alternate arrangements made.

Record details of all communication with the taxpayer on Form T2020, Memo for file.

For more information, go to 10.1.0, Interviewing the taxpayer.

Who should be contacted

In the case of a T1 audit, initial telephone contact should be made with the individual whose income tax returns are under audit. In the case of a T2 audit, initial telephone contact should be made with the controlling shareholder. If it is not immediately identifiable which individual controls the corporation or more than one individual controls the corporation, use the authorized representative screen in the BN System. The auditor must confirm verbally that the individual contacted has the authority to provide the necessary information before discussing any details of the audit.

Audits of partnerships

If a partnership is being audited, identify the individual who is the general partner or most active partner and contact the person.


Correspondence in the audit file may indicate that a representative (attorney or accountant) be contacted for all financial matters. The auditor advises the taxpayer that the account has been selected for audit, confirms the name of the representative as indicated in the file, and advises that the representative will be contacted to arrange for the audit to take place.


If the taxpayer indicates there is a representative and there is no authorization in the file, an authorization must be obtained from the taxpayer before contacting the representative.

9.18.1 Initial contact

Initial contact with the taxpayer may be made by telephone. From the initial contact and throughout the audit, the auditor must ensure that the taxpayer knows what to expect.

Purpose of the call

As a representative of the CRA, the auditor explains that the account has been selected for an income tax audit and briefly explains the audit procedures. Also establish an appointment at a mutually convenient time to begin the audit.

A letter confirming the details of the telephone discussion may be sent to the taxpayer. For more information, go to 9.18.3, Communicating with the taxpayer by letter.

What should be asked

Discuss these details during the initial contact with the taxpayer:

The audit procedure

The auditor discusses the audit procedure during the initial contact, including:

Provide the taxpayer with the CRA webpage address or a copy of Pamphlet RC4188, What you should know about audits, if one has not yet been made available. It is mandatory to distribute this pamphlet for all audits in the small business ranges. The purpose of the pamphlet is to improve compliance through taxpayer education. To this end, the pamphlet is designed to provide small businesses with an overview of the audit process as well as an explanation of their rights and obligations with respect to an audit. The auditor briefly reviews the contents of the pamphlet with the taxpayer and provides further explanations or clarifications as required.

In an effort to ensure that taxpayers are aware of their obligations, their entitlements, and their rights, the CRA has published the Taxpayer Bill of Rights on its website.

The Taxpayer Bill of Rights is a set of 16 rights confirming the CRA will serve taxpayers with a high degree of accuracy, professionalism, courtesy, and fairness. Taxpayers have the right to privacy and confidentiality and they also have the right to complete, accurate, clear, and timely information. Taxpayers have the right to have the law applied consistently.

The Taxpayer Bill of Rights includes the Commitment to Small Business, a five-part CRA pledge to support the competitiveness of the Canadian business community by ensuring that interaction with the CRA is as effective and efficient as possible.

For more information, go to About the Taxpayer Bill of Rights.

Books and records

During the initial contact, the auditor determines if the taxpayer has computerized records and the location of the records. If the records are computerized, obtain the names of the resource persons and the type of accounting software used.

Assess the need for assistance from Electronic Data Support specialists at this time. For more information, go to 13.1.3, Assistance from Electronic Data Support Division specialists.

Borrowing records

In some cases, it is not possible to conduct the audit at the taxpayer's premises. Consequently, it may be necessary to borrow the records to conduct the audit at the office or at another location. Use Form T2213, Receipt for Borrowed Books, Records, and Documents, to give the taxpayer a receipt for the borrowed records. For more information, go to 10.2.6, Borrowing books and records from a taxpayer.

9.18.2 Taking the necessary steps to begin the audit

After contacting the taxpayer, the auditor may change the Audit Plan based on the information provided by the taxpayer. Additional research may be required if the auditor is not familiar with the taxpayer’s accounting software. For more information, go to 9.2.0, Preliminary review.

Determining the need for assistance

The auditor may request the assistance of other auditors, specialists, or other offices, in these circumstances:

For more information, go to 10.11.0, Referrals and consultations.

9.18.3 Communicating with the taxpayer by letter

It is best to make initial contact with the taxpayer by telephone. However, in some cases, initial contact with the taxpayer may be in writing.

The letter advises the taxpayer that the account has been selected for audit and proposes a starting date for the audit. To ensure that taxpayers are aware of their entitlements, rights, and obligations, the letter includes a link to:

As well, every letter sent to the taxpayer or their representative must state: “You can also reach my team leader, (insert name), at xxx-xxx-xxxx.”

For more information, go to the January 10, 2014, memorandum, Small and Medium Enterprises and GST/HST programs' action plan to improve communication with taxpayers.

For a letter template, go to the Integras Template Library, letter A-9.1.1, No Contact.

Correspondence that is intended to be printed, either for internal or external audiences, including correspondence to taxpayers, must always be printed on pre-printed CRA letterhead, Form R350, and follow the Writing Guide for the CRA. Note that all external correspondence needs team leader approval before being sent out.

Confirming the audit

It is advisable to confirm the details of the audit in writing after the telephone conversation. To ensure that there is no misunderstanding as to the responsibilities of the auditor and the taxpayer, the letter includes:

For more information, go to the Integras Template Library, letter A-9.1.2, Audit Confirmation.

Difficulty in contacting the taxpayer

In some cases, it may be difficult to contact the taxpayer selected for audit or the taxpayer may not respond to a letter requesting that they contact the auditor. The auditor should attempt to call the taxpayer several times over a two-week period, at different times of the day. Maintain a detailed Form T2020, Memo for file, with the date and time of each call and if a message was left.

Unable to contact the taxpayer by telephone

If the taxpayer cannot be reached by telephone, send a letter requesting that they contact the auditor within 30 days to arrange for the audit to start (go to the Integras Template Library, letter A-9.1.4, Second Contact).

If the taxpayer does not establish contact, determine if another section, such as Collections, has made recent contact with the taxpayer.

No contact

If attempts at contacting the taxpayer are unsuccessful:

The auditor is expected to pursue the use of legislated enforcement provisions (ULEP) for establishing contact with the taxpayer.

Visits to the taxpayer that are not pre-arranged

Although most audits take place by appointment, sometimes surprise visits are made. Discuss with the team leader and depending on the circumstances, ask another auditor or the team leader to attend the initial interview.

Drawbacks to surprise visits include:

9.18.4 Scheduling

Before contacting the taxpayer, review work in progress and other commitments, such as training, to determine a potential audit start date. The date proposed should:

In some cases, records may have to be retrieved from a storage facility.

The auditor is sensitive to the taxpayer's needs to continue business operations. The taxpayer's hours of operation should be observed to reduce the inconvenience as much as possible.

The auditor also recognizes that the taxpayer may have other commitments in addition to operating the business, and may only be available during certain hours. Do not schedule audits around particularly busy periods such as month-end, when employees' workload may be greater than usual. People may not be available to assist the auditor in locating documents and answering procedural questions at that time.

The auditor should be flexible but maintain control of the audit and the audit schedule. By recognizing the taxpayer's commitments and assuring the taxpayer that the time spent by employees assisting with the audit will be limited as much as possible, the audit can usually be scheduled and proceed without problems or delay. Keep the taxpayer informed of changes to the estimated time required to complete the audit.

Factors that affect scheduling the audit

These factors affect scheduling the audit:

9.18.5 Audits delayed at the taxpayer's request

Difficulty scheduling the audit

In some situations, the taxpayer may make scheduling the audit difficult, may have agreed to start the audit on a specific day and postpone at the last moment, or is not available when the auditor arrives. The auditor must use professional judgement to determine if the audit is being unreasonably delayed.

Repeated or undue delay of scheduled audit

If the taxpayer repeatedly or unduly delays the start of an audit and there are no extenuating circumstances, send a letter to the taxpayer requesting that a firm date for the start of the audit is set. The letter states that failure to comply might result in the application of penalties and a compliance order to provide access to records may be issued.

These procedures also apply if the taxpayer agrees to the audit and then delays or hinders the audit from progressing by limiting or restricting access to books and records. For more information, go to 10.2.0, Books and records.

Appendix 9.1.0 Letters

The letter templates are available in the Integras Template Library. Please refer to the library for the current version.

The letter templates are also available at Letters (CRA Electronic Library > Compliance Programs Branch Reference Material > Audit > Income Tax – Forms and Letters > Letters). If there are changes to the letters, the templates in the CRA Electronic Library are updated when the library material is published, usually every two months.

There are two versions of the letters: electronic and paper.

Use the electronic version to write to the taxpayer or their representative through Audit enquiries in the My Account, My Business Account (if a T2 audit), or Represent a Client portals. Otherwise, use the paper version.

There are differences between the electronic and paper versions of the letters. In the electronic version:

To identify the electronic version, the filenames include ED (electronic document) between the letter’s number and title; for example, A-9_1_2 ED Audit Confirmation. There is no change to the paper version filenames.

Appendix 9.2.0 Forms, templates, and checklists

A-9.2.1 For future use

A-9.2.2 For future use

A-9.2.3 For future use

A-9.2.4 For future use

A-9.2.5 RAPID T1 menu

Text version

A-9.2.5 is an image showing the login screen for CRAs Income tax database for T1 returns.

A 9.2.5 is an image showing the login screen for CRAs Income tax database for T1 returns.

A-9.2.6 RAPID T2 menu

Text version

A-9.2.6 is an image showing the login screen for CRAs Income tax database for T2 returns.

A 9.2.6 is an image showing the login screen for CRAs Income tax database for T2 returns.

A-9.2.7 Sample Audit Plan


Taxation Years Audited:

Go to 9.2.0, Preliminary review, before preparing the Audit Plan.

Audit steps and additional audit steps

For more information, go to 9.6.2, Factors to consider and procedures to include in the Audit Plan.

List additional audit steps determined necessary that were not included in the original Audit Plan.

Some audit steps from the original Audit Plan may be determined to be unnecessary. These may be eliminated from the Audit Plan and the reasons for their removal noted.

The Audit Plan should remain flexible.


Note working paper number (using the WinALS numbering system) detailing the audit step and results as applicable.

Comments and disposition

Comment on results of the audit step.

Approved by team leader:

Team leader signature


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