SEC Proposes Audit Workpaper Retention Rules

As required under the Sarbanes-Oxley Act, the Securities and Exchange Commission has developed proposed rules regarding the retention of audit documents, including e-mails and electronic records.

Currently, audit records retention policies involve considerable judgment, and accounting firms vary in how long they keep records. The proposed rules would change this by:

  • Specifying that certain types of audit documents must be retained by auditors for a five-year period subsequent to the completion of an audit or review of a registrant's financial statements.
  • Carefully defining the documents including in this category. The proposed definition includes workpapers and other documents that form the basis of the audit or review and memoranda, correspondence, communications, other documents, and records (including electronic records) that 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.
  • Specifying that the requirement applies to records that reflect differences of opinion. This is to avoid misunderstandings that might arise under the definition currently used in generally accepted auditing standards, (i.e., records in support of audit conclusions).

Open questions include:

  1. Should the timeframe be extended to seven years, so as to avoid confusion with the audit workpaper retention requirements under a different section of the Sarbanes-Oxley Act?
  2. Should foreign auditors be exempt from the 5-year requirement?
  3. Will the rules, if adopted, discourage auditors from committing disagreements to writing?

SEC Chairman Harvey Pitt suggested the third question might be best referred to the Public Company Accounting Oversight Board (PCAOB), and the PCAOB may want to set requirements about what should be committed to writing.

Download the proposed rules. The rule proposals will be exposed for a 30-day comment period. The expectation is that the rules will be finalized shortly after comments are received and analyzed because the Sarbanes-Oxley Act requires that final rules be in place by Jan. 26, 2003.

-Rosemary Schlank

You may like these other stories...

The Public Company Accounting Oversight Board (PCAOB) on Tuesday adopted a new auditing standard and amendments in three areas of the audit that could pose an increased risk of material misstatement in company financial...
Read more from Larry Perry here and in the Today’s World of Audits archive.In my last article, I presented an overview of one of the first steps in the preplanning phase of an audit engagement: reviewing prior year...
Read more from Larry Perry here and in the Today’s World of Audits archive.AU-C Section 800, Special Considerations—Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks (SPFs),...

Upcoming CPE Webinars

Jul 31
In this session Excel expert David Ringstrom helps beginners get up to speed in Microsoft Excel. However, even experienced Excel users will learn some new tricks, particularly when David discusses under-utilized aspects of Excel.
Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.
Aug 20
In this session we'll review best practices for how to generate interest in your firm’s services.
Aug 21
Meet budgets and client expectations using project management skills geared toward the unique challenges faced by CPAs. Kristen Rampe will share how knowing the keys to structuring and executing a successful project can make the difference between success and repeated failures.