These days, it’s hard to imagine holding onto paper copies of every bill, invoice or financial document. Today’s society has moved from paper copies to digitized, searchable files—with the click of a mouse or stroke of a keyboard. Many of us even have copies of important documents secured by fingerprints or facial recognition on our iPhones. While methods of retaining documents have changed, having a record retention policy is an important aspect of business that should serve as a guide, no matter where or how files are kept. 

Retention of specific documents should be easily identifiable in a company record retention policy. A basic record retention policy should include a listing of recommended retention periods for specific financial items. The length of time certain records should be maintained depends on services offered by the company, types of files and any specific regulations that may determine the holding period. The retention policy should be reviewed by a company’s legal counsel to ensure proper compliance with all laws and regulations. 

Records retention generally falls into four general time-specific categories: two years, three years, seven years and permanently. Documentation to be retained for two years includes items such as bank reconciliations and general correspondence. Typical three-year retention policy items include bank statements, insurance policies, internal reports and employment applications. Records to be kept for seven years include payroll records, personnel files (for terminated employees), sales records and subsidiary ledgers. Items to be retained indefinitely include audit reports, active contracts, legal correspondence, meeting minutes of board of directors, stockholders, etc., retirement and pension records and union agreements. In addition, there are specific guidelines provided by the IRS that govern retention of income tax returns and related documents. Generally, income tax returns are kept indefinitely, along with related depreciation schedules, financial statements (audited or unaudited) and year-end trial balances. 

As the world becomes more technologically advanced, it is becoming easier for companies to store files on the “cloud.” Cloud-based storage is the newest method of storing records and files. Keeping files on the cloud not only frees up physical space, but also significantly reduces the risk of potential for loss of work and crucial documents. Companies are recommended to back up their computerized files to the cloud daily, at a minimum. 

Record retention on the cloud is a secure and paperless way to keep all required files. Many companies opt to scan in all paper copies of files, support or related documents and keep them on the cloud. This is a great way to reduce physical paperwork while remaining in compliance with applicable laws, regulations and company policies on record retention.  As e-mails have become a significant form of communication, their storage timelines have also become important. E-mails are subject to discovery as evidence in the event of a lawsuit, so ensuring that e-mails are retained for an appropriate amount of time is crucial. The storage of e-mails should be outlined in a company’s record retention policy, dependent upon the nature of the e-mails. Some may need to be kept indefinitely if they include significant legal correspondence or other agreements. Companies should refer to the general guidance for these matters.   

Companies should consider the necessary requirements for record retention based on their lines of business and areas of expertise. Companies should also consult with legal counsel to develop an appropriate record retention plan that follows all appropriate laws and regulations, including specific IRS guidance for tax-related items. In today’s digital world, it is easier than ever to engage in cloud-based storage for purposes of complying with record retention. Additionally, a record retention policy should be reviewed annually for possible changes and updates. After all, who knows when paper copies will come back into style? 

Emily White, MSA is a senior associate at Meyers Brothers Kalicka. You can reach her at  ewhite@mbkcpa.com.