January 2003

Regents Adopt Record Retention Rules
CPAs Must Keep Work-Paper Records for Seven Years

By Simon Eskow

NEW YORK—A state regulation that went into effect with the new year requires CPAs to retain documentation of attest and compilation work for seven years, and for all firms and sole practitioners to form a written policy on record retention.

The New York State Board of Regents in December approved the rule that will force CPAs to retain records of “the procedures applied, the tests performed, the information supporting, and the material conclusions reached” for work “including but not limited to an audit, review, compilation, forecast or projection.”

The rule applies to work completed on or after Jan. 3, 2003. Documentation of past work already on file as of that date must also be retained. Failure to comply with the regulation is now considered professional misconduct.

The rule, which evolved from a proposal by the New York State Education Department (SED) in August, affects all CPAs who do audit work, whether for private or public companies, and forces firms and sole practitioners to establish a written policy on record retention. The final version adopted suggestions submitted by the New York State Society of CPAs during a public comment period to clear up ambiguities in the original proprosal, removing tax returns and special documents from the list of work papers that must be retained, and definining procedures for making alterations to work papers already issued.

;'''''''''''''''''“This is going to change things,” NYSSCPA Task Force on Public Accountability Chairman Vincent J. Love said. “It means we’re going to have to be a lot more disciplined. I think it’s a good discipline. The problem is it’s a little more strict on what needs to be retained.”

Love said CPAs will have to grow accustomed to the new documentation requirements for making “substantive alterations” to work papers. In response to Society comments, the state education department clarified the meaning of substantive alterations to be anything that changes the “nature, timing, extent and results of the procedures performed… alter(s) the information obtained and…conclusions reached…and alter(s) the identity of the persons who performed and reviewed the work.” Alterations to work papers now require an addendum indicating the subject, date and reason for an alteration.

Love also said the requirement for a written policy may catch some CPAs off guard. The rule now says that individual CPAs must maintain a written policy on work-paper retention, unless they work for a firm that has a policy.

Attest and Relaxation

Ambiguous language in the original proposal elicited comments from Society representatives that the scope of the regulation went beyond attestation and compilation work. According to the Oct. 23 issue of the New York State Register, however, the state education department took care to emphasize that the intent of the change was to focus exclusively on attestation and compilation.

According to the Register, “The state education department has revised the proposed rule to delete tax return and special report from the list of work products…and added forecast and projection to the list. The list now includes only attestation and compilation work.”

The SED also changed its original proposal to give firms time to prepare work papers for retention. The proposal originally demanded that CPAs retain the work papers as soon as they are issued, while the final regulation allows accountants 45 days after the work paper is issued to retain the documentation.