How long to keep audit workpapers

We believe that rule would not have an adverse impact on competition. To the extent the proposed rules would increase the quality of audits and the efficiency of enforcement and disciplinary proceedings, there might be an increase in investor confidence in the efficacy of the audit process and the efficiency of the securities markets.

One commenter agreed that the rule should have no adverse effect on competition. In any event, to the extent the rule has any anti-competitive effect, or impacts efficiency, competition, or capital formation, we believe those effects are necessary and appropriate in furtherance of the goals of implementing section of the Sarbanes-Oxley Act.

It relates to new rule of Regulation S-X, which requires auditors to retain certain audit and review documentation.

The rule generally carries out a congressional mandate. The rule, in general, prohibits the destruction for seven years of certain records related to the audit or review of an issuer's or registered investment company's financial statements. The objective of the rule is to implement section of the Sarbanes-Oxley Act in order to increase investor confidence in the audit process and in the reliability of reported financial information.

This is accomplished by defining the records to be retained related to an audit or review of an issuer's financial statements. Having these records available should enhance oversight of corporate reporting and of the performance of auditors and facilitate the enforcement of the securities laws. One commenter anticipated that the record retention requirements, if adopted as proposed, would have placed an "enormous" burden on small accounting firms, and could have resulted in some firms deciding to no longer audit public companies.

These revisions include removing the "cast doubt" language from the rule, which commenters generally viewed as requiring the auditor to retain virtually all documents generated or reviewed during an audit or review, regardless of their relevance or materiality. We also have adopted a seven-year retention period to coincide with a forthcoming retention requirement to be promulgated by the Public Company Accounting Oversight Board, which, according to one commenter, should reduce processing costs associated with the rule.

As a result of these revisions and clarifications, we believe that implementation of the revised rule should be less costly for accounting firms than anticipated by the commenters. Furthermore, one commenter noted that records management procedures for smaller accounting firms should be the same as they are for larger firms. Our rules do not define "small business" or "small organization" for purposes of accounting firms. Under the new rule, 96 accountants who audit or review an issuer's or registered investment company's financial statements must retain certain records for a period of seven years from conclusion of the audit or review.

The records to be retained include records relevant to the audit or review, such as workpapers and other documents that form the basis of the audit or review and memoranda, correspondence, communications, other documents, and records including electronic records , which are created, sent or received in connection with the audit or review, and contain conclusions, opinions, analyses, or financial data related to the audit or review.

The required retention of audit and review records should discourage the destruction, and assist in the availability, of records that may be relevant to investigations conducted under the securities laws. In the Proposing Release, we estimated that adoption of the rule would not result in any significant increase in costs for accounting firms or issuers because the rule would not require the creation of records, would not significantly increase procedures related to the review of documents, and minimal, if any, work would be associated with the retention of these records.

Regarding the commenter's cost estimates related to potential litigation, we recognize that one purpose of section is to facilitate investigations of potential violations of securities laws, Commission rules and criminal laws, which could impact a firm's litigation costs.

The Regulatory Flexibility Act directs us to consider significant alternatives that would accomplish the stated objective, while minimizing any significant adverse impact on small entities.

In connection with the proposed amendments, we considered the following alternatives:. The Sarbanes-Oxley Act provides the basis for the requirements and timetables for the record retention rules. The rule is designed to require the retention of those records necessary for oversight of the audit process, to enhance the reliability and credibility of financial statements for all public companies, and to facilitate enforcement of the securities laws.

We considered not applying the proposals to small accounting firms. We believe, however, that investors would benefit if accountants subject to the proposed record retention rules, regardless of their size, audit all companies. We do not believe that it is feasible to further clarify, consolidate, or simplify the proposed rules for small entities. By amending section to add a new discussion at the end of that section under Financial Reporting Release Number 66 FR that includes the text in Section II of this release.

The Codification is a separate publication of the Commission. It will not be published in the Code of Federal Regulations. Authority: 15 U.

Significance of a matter shall be determined based on an objective analysis of the facts and circumstances. Such documents and records include, but are not limited to, those documenting a consultation on or resolution of differences in professional judgment.

Section states, among other things, that anyone who knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence an investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under the bankruptcy code, or in relation to or contemplation of any such matter or case, may be fined, imprisoned for not more than 20 years, or both.

Section a 1 specifies that: "Any accountant who conducts an audit of an issuer of securities to which section 10A a of the Securities Exchange Act of applies, shall maintain all audit or review workpapers for a period of 5 years from the end of the fiscal period in which the audit or review was concluded.

The Commission may, from time to time, amend or supplement the rules and regulations that it is required to promulgate under this section, after adequate notice and an opportunity for comment, in order to ensure that such rules and regulations adequately comport with the purposes of this section. Section also provides that any person who knowingly and willfully violates subsection a 1 , or any rule or regulation promulgated by the Securities and Exchange Commission under subsection a 2 , may be fined, imprisoned for not more than 10 years, or both.

It further provides that nothing in section shall be deemed to diminish or relieve any person of any other duty or obligation imposed by Federal or State law or regulation to maintain, or refrain from destroying, any document.

S July 26, Because investment advisers and broker-dealers are not necessarily issuers, audits of their financial statements required for regulatory purposes are not subject to the rule. In other words, only the audits of the financial statements of investment advisers and broker-dealers meeting the definition of "issuer" in section 10A f are subject to the retention requirements in rule One commenter suggested that investment advisers and broker-dealers be included within the scope of the rule.

Another commenter noted, however, that broadening some but not all rules under the Sarbanes-Oxley Act beyond "issuers" as defined in the Act would be confusing. References to the accountant include any accounting firm with which the certified public or public accountant is affiliated.

See the discussion of Statement on Auditing Standards No. For example, if a company has a calendar year-end fiscal year, for an audit of year financial statements that concludes in February or March , under the proposal, the records would have been required to be retained until January 1, This paragraph also states: "The quality, type, and content of audit documentation are matters of the auditor's professional judgment.

In light of the apparent massive document destruction by Andersen, and the company's apparently misleading document retention policy, even in light of its prior SEC violations, it is intended that the SEC promulgate rules and regulations that require the retention of such substantive material, including material that casts doubt on the views expressed in the audit or review, for such a period as is reasonable and necessary for effective enforcement of the securities laws and the criminal laws, most of which have a five-year statute of limitations.

In addition, the auditor should document findings or issues that in his or her judgment are significant, actions taken to address them including any additional evidence obtained , and the basis for the final conclusions reached.

Audit documentation should be sufficient to a enable members of the engagement team with supervision and review responsibilities to understand the nature, timing, extent, and results of auditing procedures performed, and the evidence obtained; b indicate the engagement team member s who performed and reviewed the work; and c show that the accounting records agree or reconcile with the financial statements or other information being reported on.

See, e. It states that "significant audit findings or issues" include:. This literature may provide helpful guidance as to the scope of the term "significant. Moreover, we do not intend for the auditor's subjective judgment of whether a matter is significant to be determinative. Instead, we believe that the more objective test of what may be significant to a reasonable investor should be applied in evaluating whether information is "significant. Donald G. What are the three main sets of auditing standards used in professional practice by audit firms?

Audit evidence is evidence obtained by auditors during a financial audit and recorded in the audit working papers. Auditors need audit evidence to see if a company has the correct information considering their financial transactions so a C.

Certified Public Accountant can confirm their financial statements. Auditing is defined as the on-site verification activity, such as inspection or examination, of a process or quality system, to ensure compliance to requirements. An audit can apply to an entire organization or might be specific to a function, process, or production step. The primary purpose of a workpaper review is examination scoping, in which a review of the work of external auditors can help regulators to better focus their own resources.

If deficiencies are severe enough, regulators can suggest a change in auditors. A review of an organization's financial statements provides a report issued by a CPA which expresses that the financial statements are free from material misstatement.

When audits are performed, documentation of the decisions of the Board is immensely important. This allows the auditor to review if the Board has made any decisions subsequent to the issuance of the draft audit that are material to the financial statements, which may require disclosure in the footnotes of the audit.

Audit procedures are the processes, technique, and methods that auditors perform to obtain audit evidence which enables them to make a conclusion on the set audit objective and express their opinion. Sometimes we call audit procedures as audit programs. Definition of internal check. Ownership of Audit working papers So they are his property. Although, the client may claim them as a record of his business matters, the auditor cannot part with them as his conclusions are based on them and as they provide evidence of the audit work carried out according to the basic principles.

Working Papers may be cited without seeking prior permission from the author. Posting a paper on this site does not preclude simultaneous or subsequent publication elsewhere, including other Working Papers series.

The copyright of a Working Paper is held by the author or by his or her assignee: see Copyright Statement. The following retention periods are suggested for common business and personal documents. Annual audited financial statements Canceled checks tax payments, fixed asset purchases, other major items Chart of accounts Company minutes Corporate stock records IRS audit reports IRS elections Legal documents LIFO inventory records Property appraisals Real estate purchase and sell records Retirement and pension records Tax returns Trademark registrations Trust documents Vital records birth, death, marriage, divorce, adoption, etc.

Bank loans after payoff Bank statements Contracts after expiration Employee payroll records Insurance records Leases after expiration Mortgage and notes receivable after payoff Accounts payable ledgers Accounts receivable ledgers Employee time records Inventory records non-LIFO Note receivable ledgers Payroll tax records and reports Subsidiary ledgers General ledgers and journals Workpapers for tax returns Depreciation schedules three years after life of asset Property records, builder contracts, improvement receipts on property sold Three-Year Documents — These records are more detailed in nature supporting tax returns and other business matters, but with the passage of three years, they are usually no longer needed.

Auto mileage books Bank deposit slips Bank reconciliations Budgets Cancelled checks Charitable acknowledgements Credit card statements Entertainment records Expense reports Expired insurance policies Interim financial statements Medical bills Petty cash vouchers Sales invoices Vendor invoices Employee personnel records three years after termination Unclassifiable — Unfortunately, one size does not fit all, and certain documents and unusual circumstances may dictate longer or judgmental retention periods.

Mark Flinchum Partner P September 24, Consult the article " Professional Liability Spotlight: How Social and Digital Media Can Be a majorrisk ," JofA , March , which discusses the risks that CPAs may encounter with electronic communication and how using it appropriately can help to avoid potential liability exposure.

Disposing of records is not as simple as separating recyclables from other types of refuse. Just because the retention period has passed, it does not mean that the practitioner's duty to protect the confidentiality of client data has also expired. Proper disposal of records is key. When it comes to destruction and sanitization of paper and electronic records and media, consult best practices defined in reputable sources such as the National Institute of Standards and Technology's Special Publication - 88 , Guidelines for Media Sanitization , or ISO A.

Many third - party service providers specialize in the collection and destruction of records based on regulatory or technological standards. However, using a vendor does not eliminate the practitioner's responsibility to maintain the confidentiality of client data.

If an outside vendor is used, due diligence must be performed on the vendor's processes for keeping the data confidential. It is understandable that a CPA may accumulate client information during the course of providing services. While practitioners are expected to and should retain copies of this information for their own purposes and requirements, clients have the primary responsibility to maintain their own records. To avoid becoming your client's filing cabinet, remind clients of their obligation to keep their own records, and let them know that the firm's workpapers are not a substitute for the client's records.

For more information about this article, contact specialtyriskcontrol cna. This article provides information, rather than advice or opinion. It is accurate to the best of the author's knowledge as of the article date.

This article should not be viewed as a substitute for recommendations of a retained professional. Such consultation is recommended in applying this material in any particular factual situations. Examples are for illustrative purposes only and not intended to establish any standards of care, serve as legal advice, or acknowledge any given factual situation is covered under any CNA insurance policy. The relevant insurance policy provides actual terms, coverages, amounts, conditions, and exclusions for an insured.