Hold everything?

• Author: Klein, Ron
• Position: Loss Prevention - Accounting - Brief Article

This one's not too hard to pinpoint. The California Board of Accountancy recently proposed Business and Professions Code Sec. 5064. Designed to replace Rule 68.1,the proposal specifically defines workpapers and -sets a seven-year minimum for workpaper retention.

And, even before the CBA put pen to paper for this proposal, legislators had introduced legislation both federally and in California that addressed records retention. California CPAs are likely to be faced with some tough new records retention standards before the year is out. While we wait for the story to unfold, let's review current best practices.

SHOULD A CLAIM ARISE

Should a claim arise against your work, your documents and files more often than not should assist in defending you. At CAMICO we advise CPAs to retain records for five to seven years.

Some firms have destroyed documents after one or two years, hoping to reduce the chances of litigation and costly claims. However, when firms destroy records before the recommended timelines, their actions are interpreted as "We don't trust our own documents."

Without records or documentation, a jury may be presented with a "he said, she said" scenario between the client and the CPA. The benefit of the doubt in such cases generally goes to the client and against the CPA. It is usually easier to defend a claim when there is appropriate supporting documentation.

Before you destroy any client files, send a letter to the client's last-known address, stating your intent. If at any time there is a significant issue or potential for a problem, do not destroy the documents.

POLICY CONSIDERATIONS

The first and most important step is to establish, in writing, a records retention policy that is best for clients and that can be applied consistently to all clients in accordance with the policy's provisions. Ensure that your staff is informed of the details of your policy. Some firms include a paragraph regarding their records retention policy in their engagement letters to increase clients' awareness.

Additionally, the policy must balance legal and operational considerations. For example, the more documents that are available in a legal proceeding, the more likely those documents will be called for, increasing the length and cost of litigation. Likewise, firms must bear the costs of organizing, cataloging, storing and securing records.

RETENTION PERIODS

The only time we have to worry about records retention is when something goes wrong, and that...