Accounting Knowledge Required

Welcome back and Happy New Year to you all. Originally I had another topic in mind but meeting with an old friend over the holidays prompted me to choose a new topic, that of CRA Compliance.

My friend lost his $2.5 million/year business in the last year due to non-compliance issues with the Canada Revenue Agency. In short, he took his records to his accountant annually and when the accountant was done, he signed off of the paperwork and it was filed on his behalf. The problem is that he did not understand what the accountant was preparing on his behalf, and had he, he would have been able to identify the errors that his accountant was making. The errors, related to the years of 2000 to 2002 and first came to light in 2004, when the CRA requested certain document from him, which he provided, then the issue when quiet until last spring when a dozen police officers and 15 CRA agents showed up his front lawn in Calgary at 6 am to execute a search warrant. Between 2004 and 2010, different CRA agents had been assigned to the file, and then finally it seemed that the issue was resolved, at least according to my friend’s accountant; meanwhile the fees and penalties continued to mount.

The management lesson is simple, know what your accountant is doing, and understand your financial statements from the ground up. If you don’t have a basic understanding of your financial statements you too could end up in a similar situation. The CRA has put more businesses out of business due to owner non-compliance than poor management and weak business plans combined.

When I have permission from my friend I will write more extensively on this specific case.

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