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Record Retention

by MICPA | Oct 15, 2014   ()

MICPA members receive record retention guidance through multiple sources. First, Michigan Administrative Rules for Accountancy has specific guidance in R 338.5104 Retention of documents. Second, the Administrative Rules refer to “the applicable nationally recognized professional standards setting organizations," which today is a reference to the AICPA Code of Professional Conduct, giving the Code of Professional Conduct the weight of law. Third, IRS Circular 230 contains a section regarding record retention of federal tax documents. Lastly, a member may have other requirements outside the breadth of this material imposed by state and federal statutes or regulations, and contractual agreements, which are the responsibility of the member to know and follow.

Excerpt from the Michigan Administrative Rules:
R 338.5104 Retention of documents
Rule 104.
(1) With the exception of documents related to a  peer  review, all  registered  firms  and  licensed  individuals  shall  retain  sufficient documentation, in any form, with regard to services performed  while  engaged in the practice of public  accounting, as  well  as  evidence  obtained  and conclusions reached, for a period of not less than 5 years.
(2) Documents related to a peer review shall be retained in accordance with 
the AICPA's retention policies pursuant to R 338.5102(1)(f)  or  until  final adjudication of a complaint related to a peer review, whichever is later.
(3) Documentation shall be consistent with that required by professional standards or promulgated by the applicable nationally recognized professional standards setting organizations.

History:  2007 MR 22, Eff. Mar. 1, 2008.

Excerpt from the AICPA Code of Professional Conduct:
.02 501-1 —Response to requests by clients and former clients for records. 
Interpretation

When a client or former client (client) makes a request for client-provided records, client records prepared by the member, or supporting records that are in the custody or control of the member or the member’s firm (member) that have not previously been provided to the client, the member should respond to the client’s request as follows:

  • Client provided records in the member’s custody or control should be returned to the client.
  • Client records prepared by the member should be provided to the client, except that client records prepared by the member may be withheld if the preparation of such records is not complete or there are fees due the member for the engagement to prepare those records.
  • Supporting records relating to a completed and issued work product should be provided to the client, except that such supporting records may be withheld if there are fees due to the member for the specific work product.

Once the member has complied with these requirements, he or she is under no ethical obligation to comply with any subsequent requests to again provide such records or copies of such records. However, if subsequent to complying with a request, a client experiences a loss of records due to a natural disaster or an act of war, the member should comply with an additional request to provide such records.

Member’s working papers are the member’s property and need not be provided to the client under provisions of this interpretation; however, such requirements may be imposed by state and federal statutes and regulations, and contractual agreements.

In connection with any request for client-provided records, client records prepared by the member, or supporting records, the member may:

  • Charge the client a reasonable fee for the time and expense incurred to retrieve and copy such records and require that such fee be paid prior to the time such records are provided to the client;
  • Provide the requested records in any format usable by the client (fn 2); and
  • Make and retain copies of any records returned or provided to the client.

Where a member is required to return or provide records to the client, the member should comply with the client’s request as soon as practicable but, absent extenuating circumstances, no later than 45 days after the request is made. The fact that the statutes of the state in which the member practices grants the member a lien on certain records in his or her custody or control does not relieve the member of his or her obligation to comply with this interpretation. In addition, certain states have laws and regulations that impose obligations on the member greater than the provisions of this interpretation and should be complied with.

[Revised, effective April 30, 2000, by the Professional Ethics Executive Committee. Revised, effective April 30, 2006, by the Professional Ethics Executive Committee. Revised, effective February 28, 2011, by the Professional Ethics Executive Committee.]

Excerpt from IRS Circular 230:

§ 10.28 Return of client’s records.

(a) In general, a practitioner must, at the request of a client, promptly return any and all records of the client that are necessary for the client to comply with his or her federal tax obligations. The practitioner may retain copies of the records returned to a client. The existence of a dispute over fees generally does not relieve the practitioner of his or her responsibility under this section. Nevertheless, if applicable state law allows or permits the retention of a client’s records by a practitioner in the case of a dispute over fees for services rendered, the practitioner need only return those records that must be attached to the taxpayer’s return. The practitioner, however, must provide the client with reasonable access to review and copy any additional records of the client retained by the practitioner under state law that are necessary for the client to comply with his or her federal tax obligations.

(b) For purposes of this section — Records of the client include all documents or written or electronic materials provided to the practitioner, or obtained by the practitioner in the course of the practitioner’s representation of the client, that preexisted the retention of the practitioner by the client. The term also includes materials that were prepared by the client or a third party (not including an employee or agent of the practitioner) at any time and provided to the practitioner with respect to the subject matter of the representation. The term also includes any return, claim for refund, schedule, affidavit, appraisal or any other document prepared by the practitioner, or his or her employee or agent, that was presented to the client with respect to a prior representation if such document is necessary for the taxpayer to comply with his or her current federal tax obligations. The term does not include any return, claim for refund, schedule, affidavit, appraisal or any other document prepared by the practitioner or the practitioner’s firm, employees or agents if the practitioner is withholding such document pending the client’s performance of its contractual obligation to pay fees with respect to such document.

Source: MICPA
Source: MICPA

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