Save every last scrap.

• Author: Rosario, Ric
• Position: Records Retention

Can you say "pack rat"? It's the image California's new record retention and documentation standards conjure up for some CPAs. Effective Jan. 1, 2003, all California CPA firms must abide by new, more rigorous audit documentation standards that exceed the standards set in SAS 96, Audit Documentation.

CAREFUL CONSIDERATIONS

CAMICO has long advocated that accounting firms establish a written record retention policy that is applied consistently to all engagements.

With AB 2873, the California Board of Accountancy will require CPAs to have both a written audit documentation retention and destruction policy that includes how, when and who will do the destruction. New regulations are forthcoming, so existing policies should be reviewed to ensure compliance.

When developing a record retention and destruction policy, you should consider the level of service your firm provides as well as what is best for your clients. For example:

* Should different record retention periods be allocated for different types of clients and different scopes of service? A policy for tax services versus one for audit services may depend on statutory requirements as well as on what works best for your firm and the client.

* Should a shorter record retention period be allocated for former clients (at least seven years for audit services) and a longer one for current clients? Incidentally, the likelihood of having a claim filed against your firm is not affected by whether the claimant is a current or former client.

You'll also want to consider the potential impact of your record retention policy on storage costs and space limitations.

Don't forget to factor in the impact of potential litigation. For instance, not keeping records long enough can negatively impact a claim's defense, and keeping them for too long can increase litigation costs.

SAVING RECORDS IS YOUR BEST DEFENSE

When a client leaves your firm, your records become your only physical evidence for supporting the reports, opinions and other services that you provided.

In the event of litigation, work papers provide evidence that services were in compliance with professional standards. CAMICO claims experience shows that good documentation is one of your best defenses against a client lawsuit.

By the same token, work papers also can be used by potential claimants to attempt to prove that you acted in some inappropriate manner, or that the engagement was not in compliance with standards.

HIGH DOCUMENTATION STANDARDS

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