By Dennis O’Leary, Director of Governmental Relations

ALBANY—The New York State Education Department recently published a notice of proposed rulemaking that would set new standards for the documentation and retention of work papers.

The proposed rule, announced on Aug. 14 in the New York State Register, would amend the Rules of the Board of Regents, Part 29–Unprofessional Conduct, Section 29.10, “Special Provisions for the Profession of Public Accountancy.” The proposed subparagraph, (iv)(b) “Retention of Work Papers,” provides in part that: “Licensees shall ensure that work papers are retained a minimum of seven years after the date of issuance of the work product, unless licensees are required by law to retain such records for a longer period…”

“The amendment is needed to establish uniform standards for documentation in work papers and retention of such work papers in the profession of public accountancy. The amendment is needed to ensure that work papers that support work products produced in the practice of public accountancy are maintained for a reasonable period of time, and that such work papers contain adequate documentation,” states the department’s Regulatory Impact Statement. “The amendment will serve to protect the public interest by ensuring that adequate documentation is available when a potential problem in public accounting is identified. It will provide information that may be used by the state education department’s Office of Professional Discipline, when it conducts investigations of possible instances of professional misconduct.”

Jo Ann Golden, president of the New York State Society of CPAs, appointed a task force chaired by Vincent J. Love that recently submitted comments on the proposed rule to the New York State Board for Public Accountancy.

“The proposed rule…should focus only on the statutory responsibility of CPAs for audits and on their other attestation engagements,” the task force wrote in its letter to the board. “The proposed rule’s treatment of working paper documentation and retention for non-audit and non-attestation services is not only inappropriate but also detracts from the proposed rule’s effectiveness.”

The task force recommends that the proposed rule reference the documentation requirements in professional standards related to the definition and purpose of audit working paper, including generally Accepted Auditing Standards (GAAS) as delineated in the Statements on Auditing Standards (SAS) and, where applicable, Generally Accepted Government Auditing Standards (GAGAS). With respect to the characterization of substantive alterations of work papers, the task force also recommends they be defined as changes to audit documentation that alter the nature, timing, extent and results of the audit procedures performed; the evidence obtained; the conclusions reached; and/or the identity of the persons who performed and reviewed the work.

A complete listing of the task force’s comments can be found by going to the Society’s website at www.nysscpa.org, clicking on the “Professional Resources” button, and then clicking the “Society Comment Letters” link.

Given the public notoriety on the destruction of records in the Enron case, NYSSCPA Executive Director Louis Grumet said he was not surprised that states have begun addressing record retention. While the Board of Regents is taking up the issue through regulation, California passed a new record retention law on Aug. 23.

“In the final analysis, compliance with reasonable record retention standards will be a good business practice,” Grumet said, noting that under the Sarbanes-Oxley Act of 2002, the record retention requirements only apply to auditors of publicly traded companies. “Here in New York, there is a major issue whether the same record documentation and retention requirements should apply to non-audit and non-attestation services by CPAs. I believe the Regents will carefully deliberate this proposal.”

If adopted by the Regents, the proposal, as currently written, states that the record retention requirements of subparagraph (iv) would apply to licensees’ work papers that exist on or after Oct. 24, 2002.

The text of the proposed rule can be found under “Info Highlights” on the Society’s website. The 45-day public comment period on the proposal expires on Sept. 28, 2002. Comments may be mailed to: Daniel J. Dustin, CPA, executive secretary, New York State Board for Public Accountancy, New York State Education Department, 89 Washington Ave., Second Floor, East Mezzanine, Albany, NY 12234; or e-mailed to: cpabd@nysed.gov.