File storage and retention is challenging considering the various types of information CPA firms encounter. Improper file storage exposes accounting professionals to liability claims and lawsuits. The digital age has expanded the types of documents that must be dealt with to include voicemails, emails, instant messages, fax documents, images, and electronic documents.  

There is no way around the need for proper document retention. CPAs must have on hand the needed paperwork when they are presented with a request from a client or to create future engagement letters. CPAS also need quick and easy access to documents should a claim arise. They also must be able to have organized destruction policies and a method for removing records from that queue should a CPA be notified about litigation efforts.

Considerations when creating retention timelines

There are two major principles to consider when creating retention policies. First, documents should be kept only for as long as they have a useful purpose or until the legal requirement is met. Secondly, statutes of limitation for document retention varies from state to state. For requirements on record retention, CPAs should refer to their state professional organization or the local Bar Association.

Document retention considerations include:

Statutes of limitation and discovery: Consult with an attorney when considering statutes of limitation and rules of discovery specific to your documents and state guidelines.

Regulations and contractual requirements: Special retention policies may come in to play if you work with clients who receive government funding or are subject to government regulations.

State rules: Consider the state board of accountants’ regulations when creating retention policies.

New call-to-action

Types of services provided may affect retention policies

When creating your document retention policies, think of the kinds of services your accounting firm offers. Each type of service may have particular risks and regulations. For example, tax preparation document retention policies must be based on IRS regulations.

While your clients may have a records retention policy of their own, it’s best not to rely on them to retain documents regarding your services. It’s impossible to know their policies or how closely they are followed. It is up to the firm to ensure proper records retention for documents relating to the engagement.

Email retention policies

The digital age continues to shape and complicate document retention. Email has become the most common form of communication in today’s business world. Email retention policies must be crafted carefully and followed throughout the organization.

Email storage can become cumbersome. A system that automatically deletes specific types of email after a certain period may be helpful. Also, a procedure around retaining emails that are specific and important to engagement can be created so they are moved or copied to that client’s engagement file.

Email is subject to discovery if your firm is involved in a lawsuit. For the best result, ensure legal counsel provides retention policies on email. In addition, emails that are deleted once notified of an impending lawsuit can trigger legal action against the firm. Any automatic deletion system needs to be able to be paused at once if notified of any impending litigation.

Still, general email retention policies should follow the overarching document retention policies of the firm.

Why a retention policy should be written

A document retention policy should be written to eliminate confusion among staff. A written plan also clarifies responsibilities between the firm and clients regarding who carries the duty for record retention.

A comprehensive written record retention policy also addresses the following:

  • Defines client records
  • Defines firm engagement work papers
  • Sets a retention period for each type of document or record
  • Outlines the document destruction review process

Methods to store documents

Along with record retention policies, a firm must have a document management system (DMS) that allows for easy storage and retrieval of documents.

There are many software products available for document storage. No matter which system your firm selects, you’re best off if it includes the ability to digitize or scan documents, a customizable management system, and a simple retrieval method.  

A cloud-based document management system offers an off-site storage solution, eliminating concerns about theft or physical damage to the DMS. Also, when it’s time to delete documents, some cloud-based programs overwrite the data, making it inaccessible.

File retention policies are complicated by pending litigation

File retention policies can be complicated. The growing use of electronic documents and cloud-based storage have automated and eased many file retention policies. However, there are times when it may be difficult to know what files to keep and what can be destroyed.

As a rule of thumb, if your firm is involved in litigation or pending litigation, all related file deletion policies should be suspended.

McGowan encourages its clients to take a proactive approach to file management and potential lawsuits by offering a wealth of resources regarding file retention. Our CPAOnePro policy provides a complete insurance solution, including claims triage and a free hotline where policyholders can get expert legal advice even before a claim is filed.