ARMA files comment with the SEC.

The Securities and Exchange Commission (SEC) recently released for comment the proposed rule for records retention under Section 802 of the Sarbanes-Oxley Act. This proposed rule addresses the five-year retention period and other criteria for audit workpapers and other documents. It also discusses the differences between this section's requirement and the seven-year retention requirement in Section 103, and poses questions for comment regarding specific document retention policies and requirements.

The U.S. Government Relations Committee (GRECO) of ARMA International submitted its official comment, excerpted below, regarding three questions from Proposed Rule: Retention of Records Relevant to Audits and Reviews per File No. S7-46-02:

Section 103 of the Sarbanes-Oxley Act directs the Public Company Accounting Oversight Board to adopt an auditing standard that requires each registered public accounting firm to retain for a period of not less than seven years audit workpapers and other information that support the conclusions in the auditor's report. Should the retention period in the proposed rules be extended to seven years to coincide with the retention period in Section 1037

"There is no rationale found in any commentary for the seven-year time period stated in 103. The rationale for Section 802 could be assumed to be five years due to the lengthening of the statute of limitations to five years. If there is no valid, substantive reason for a longer retention period, the five-year retention period should be recommended. If the shorter time period of five years under Section 802 cannot be used for Section 103, then it would (be) recommended to lengthen the retention period to seven years for uniformity."

Should the retention period be for some other appropriate period based on consideration of other factors, such as the utility of the records to investors, regulators, or litigants, the cost of retaining the records, or the size of the accounting firm?

"There are always issues of cost involved with the retention of any records either in paper or electronic format. Electronic formats have a greater risk and cost involved due to the changing technology involved in their retention. Small and mid-size accounting firms may not have the capital to expend to meet the requirements to retain material for a longer period of time."

Should there be a document retention requirement for issuers as well as auditors?

"Most corporate records retention schedules state that financial and audit material can be destroyed after a certain time period once the final audit report is issued, usually about one year. For many corporations, this information has already been held for at least three years or longer, depending upon the backlog of the auditors. A requirement for issuers to meet the same retention period as the auditors would extend the retention requirements for another five years. Such extensions can greatly increase the cost of retaining the additional information ...

Issuers should probably be required to retain copies of the correspondence with auditors in the event there is a discrepancy; however, it does not seem necessary to retain information that auditors did not use."

To read the letter submitted by ARMA to the SEC in its entirety, go to www.arma.org/pdf/sec_letter.pdf.