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


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