My Writing > Practicing Safe Tax

1 Oct 2004

ProConnection Newsletter, Published Online at Intuit Canada website, October 2004


Practicing Safe Tax

Eileen Reppenhagen, QuickBooks ProAdvisor


I have just heard that as of this summer CRA has a new term for SME (small to medium enterprises) audits. The term is ‘IVI', which means Independent Verification of Income.

What exactly is an ‘IVI' audit? How should I be recommending my clients prepare for an ‘IVI' audit? What can I, as the accountant, do to minimize my risk?


The Auditor General, Sheila Fraser, considers the Small and Medium Enterprises (SME) tax base to be very ‘high risk' and suggested increases in compliance enforcement. View her recommendations at


CRA is apparently taking these recommendations seriously. New audit procedures for independent verification of income could include:

  • ratio analysis
  • audit of key input costs
  • quantity as compared to sales
  • examination of all personal bank and credit card accounts for all family members
  • net worth assessment
  • household budgets with comparison to Statistics Canada


Clients should keep a file with each personal bank, investment, RRSP and credit card statement for all family members with their business records for each year.


CRA will request these records and it is very expensive to request these records on demand.

Clients should also document all deposits and transfer for all bank, investment and credit card accounts as well.


It has been my experience that clients frequently remove cash from one bank to deposit to another bank across the street, rather than employing a traceable means of transfer like a cheque or electronic funds transfer.

It's really easy for an auditor to chalk up that cash deposit as more income rather than transfers, gifts or repayment of loans.

Part of your regular ‘know your client' procedures should be to set up a Quicken file for every client with assets, liabilities, investments, debts and a budget. There are three reasons for doing this:

  1. CRA will require it during an audit;
  2. It shows your clients that you care about their success by measuring and monitoring their plans;
  3. It minimizes your risk and generates billable time which results in increases to your bottom line.

Ensuring the foregoing procedures will decrease the residual effect of an IVI Audit on the client.

Eileen Reppenhagen, QuickBooks ProAdvisor
Tel: 1 604 943.7414




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