Accounting Office Management & Administration Report

Summer is a good time for CPA firms to tackle administrative tasks such as clearing out files you no longer need to retain. The switch to more digital files and fewer paper files makes this a neater task than in years past, but knowing what must be retained and for how long is imperative, whether files are electronic or paper.

Bear in mind that your firm may need to keep different files and documents from requirements affecting other firms, depending on your practice mix and client types, among other differentiators. Record retention is also affected by state laws, which vary widely. If your firm operates in multiple states, you will need to make sure that each office is in compliance with the appropriate state law.

Certain documents, files, and records are essential for your CPA firm’s operations. Suggestions about what you should keep in administrative records—those that relate to the operation of your CPA firm as a business, and for how long—are provided here by Melvyn Ockner, an audit partner with Berdon LLP (New York City):

•  Key administrative records.

—Your partnership agreement (if your firm is operated as a formal partnership).

—Articles of incorporation (if your firm is a corporation).

—License information for your CPAs and other professionals.

—Financial information, including revenues and other management data.

—Insurance policies, including professional liability insurance and coverage of the firm’s owners.

—Partnership meeting minutes.

—Tax returns.

—Legal information including correspondence with your lawyers.

—Deeds to property owned by the firm.

—The employee manual or handbook.

—Payroll records.

—Personnel data.

• How long to keep administrative records. The accompanying table gives guidelines on the basic records. Be aware that federal and state requirements may require adjustments to these guidelines (see sidebar for rules for length of retention).
• Client-related records. The requirements that govern document retention relating to client services are contained in several resources in the accounting profession (see sidebar for client files to retain or discard).

A Guide to Record Retention and Destruction Policies for CPA Firms, available from the Association for Accounting Administration (AAA; www.cpaadmin.org) points to two key references your firm should consult for guidance on record retention of engagement and administrative files related to client work: The AICPA’s Management of an Accounting Practice Handbook (www.cpa2biz.com), Section 209.08, "Records Retention," and Practitioners Publishing Co. (PPC; http://ppc.thomson.com/ ) Guide to Managing an Accounting Practice, Section 305, "Files and Record Retention."

There are also AICPA Professional Standards (www.aicpa.org) governing the retention of specific information (including AU 339/SAS No. 41, AU Section 339.06-.08, ET Section 301, ET Section 391, ET Section 391.009-.010, and ET Sec. 501 and Interpretation 501-1. They cover working papers, confidentiality and disclosure of client information, and retention of client records. The AICPA Code of Professional Conduct ET Section 501 and Interpretation 501-1 address what constitutes client records that must be retained.

In addition, you should be familiar with Treasury Department Circular 230 Sec. 10.20 on the duties to provide records and information to the IRS and other parties, and Sections 10.33, 10.35, and 10.36 on documentation requirements. The IRS speaks to the issue of releasing client tax information in IRC Sections 6713 and 7216, and Regs. Sec. 301.7216.

Those involved in public-company audits must adhere to the Sarbanes-Oxley Act Sections 802 (document alteration or destruction and mandatory retention) and 1102 (obstruction of justice). The PCAOB Audit Standard No. 3 covers assembling documentation for retention.

The accompanying sidebar contains a list of client files to be retained permanently and what should be destroyed at the conclusion of an engagement.

A word about backup and security. Especially with the move to less paper, it is critical that your firm’s IT professional employ a system that not just stores files, but regularly backs them up, and has a means to preserve them in the event of disaster. Off-site storage, especially for crucial client data, is wise, but make certain that any and all storage facilities your firm uses have stringent security to protect the privacy of your clients.

Remember that client relations and security are also of concern when you are destroying documents, paper or electronic, that you no longer need to keep. Put in place a policy of prior client notification—so you can make sure that clients don’t want copies of documents you plan to toss—and then use only secure means of destruction so that no information falls into the wrong hands.