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Retention of Client Records

Concern about how long engagement files should be retained is a common issue among Accounting firms. There is frequently a conflict between the desire to discard older files to free up storage space, and the inherent reluctance to discard documents which contain a detailed record of the work which you have performed.

There are very few rules established in law for file retention by accountants.  However, this information is intended to help provide some guidance in developing internal record retention standards for your firm.

Sample File Retention Policy

Sample Receipt for Client Records

Retention of Email and Electronic Files

In today's digital environment, the retention of electronic files and communication (email) has increased in relevance.  You will see in the Frequently Asked Questions below, it is not recommended to destroy original signed documents when available.  Despite increased legal acceptance of electronic files, original signed documents still hold considerable weight in a court of law.

Specific to Email and Electronic Communication we offer the following recommendations:

- Email should be part of the overall firm record retention and destruction policy.

- Care should be employed in what is said in email and certain email should be destroyed and not preserved. ( common sense typically dictates this policy ).

- Email can be used as a form of creating understanding with clients and proof of advice provided (over verbal communication).

- Email should be archived after a period of time which is dictated in the record retention policy of the firm.

 - Care should also be used in situations where there is litigation or the threat of litigation. A litigation hold should be put in place and all destruction should be suspended during this time. Failure to do so potentially lends itself to spoliation and obstruction of justice charges.  

Frequently Asked Questions

In general how long should I retain Engagement Records?

It may be recommended to tie the record retention policy to the statute of limitations for professional liability actions in your jurisdiction. We suggest that you consult a local attorney and/or the State Board of Accountancy or State Society, to identify the appropriate statute of limitations. For example, in Massachusetts, there is a three-year statute of limitations for actions against accountants for negligence. Because the statutory period does not begin to run until the potential plaintiff knows or should know that damages have been sustained, it is possible that the statutory period could extend beyond three years. Generally, a period of six to ten years for retaining files of past engagements is sufficient.

What about the question of electronic files? Do I need to maintain the original letter after I scan it in?

We do not, as a general rule, recommend destroying original signed documents after scanning. Documents such as engagement letters, management representation letters, and lawyers" letters are very important documents and may become central to defense of a future claim. Original signed documents carry great weight in the law, and it is best to have them. Because the courts are usually slow to adapt to change, and are just now struggling with all of the technology changes, we recommend erring on the side of retaining original signed documents, even if they are also scanned.

Frequently asked questions (faqs) on file retention

1 Legal requirements and statutes will vary by state and it is important that you check with your state and/or local legal counsel to adhere to any specific requirements in your locale.

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