31 March 2020
Just the facts!
As the name suggests, Agreed Upon Procedures (AUP) engagements are a type of assurance engagement that focusses on factual findings, and as such is probably the simplest form of assurance.
The practitioner is asked to verify a question of fact, and their work simply answers that question.
The International Federation of Accountants (IFAC) notes that:
…the objective of an AUP engagement is to carry out procedures of an audit nature to which the practitioner, the entity, and any appropriate third parties have agreed and to report on factual findings. These engagements may entail the practitioner performing certain procedures concerning individual items of financial data (for example, accounts payable, accounts receivable, purchases from related parties, and sales and profits of a segment of an entity), a financial statement (for example, a balance sheet) or even a complete set of financial statements.
Covering specific parts of financial statements or specific transactions makes sense. But there is more:
While directed toward engagements regarding financial information, ISRS 4400 [the international AUP standard] may provide useful guidance for engagements regarding non-financial information, provided the auditor has adequate knowledge of the subject matter in question and reasonable criteria exist on which to base their findings.
In practice, AUP engagements are especially useful to verify to funders that their money has been spent as specified – for much less cost and effort than an Audit or Review Engagement.
Other examples might be:
- Due diligence when buying or selling a business
- Verifying cash balances
- Checking security balances
- Income tax provisions
- Accounts receivable/payable processes
- Special reviews of loan portfolios
- Reviews of internal control and environmental management systems
- Royalty agreements compliance
- Employer compliance/payroll audits
- Purchasing department compliance
What does the work involve?
Factual findings exclude all concepts of risk assessment, materiality, expressing an opinion and extended testing, so they are radically different from risk-based auditing.
So the practitioner must take their auditor hat and stop evaluating risk and materiality, and instead just concentrate on doing what was agreed to in the engagement letter – nothing more and nothing less.
The The Institute of Chartered Accountants in England and Wales (ICAEW) says that:
The procedures and tests should be sufficiently detailed so as to be clear and unambiguous, and discussed and agreed in advance with the engaging parties so that the factual findings are useful to them and, depending upon the engagement, others to whom the report is made available. The practitioner’s report does not express a conclusion, and therefore it is not an assurance engagement in the technical sense.
Critically, a large part of the planning work is to determine who the users are. This is likely to be either the engaging entity, this entity plus a third party (for instance the funding suppliers), or the entity plus a regulator or representative of a group of users. These users must be identified and addressed in the engagement letter and the final report. The report is specifically restricted to these users.
Why would we use these?
AUP engagements have the potential to be much more focussed than audit or compliance assurance work. And therefore more economical for the client and profitable for the assurance practitioner. The client is assured that they are getting exactly what they ask for and no more.
AUP engagements have the potential to be an attractive and fast growing service offering to SMEs. Clients may not need an audit, but may greatly benefit from an AUP engagement to satisfy banking or vendor needs. (IFAC)
Audit Assistant includes templates using both the NZ and Australian standards for Agreed Upon Procedures. Australian firms use ASRS 4400. NZ practitioners base their AUP work on APS-1 (revised) – Agreed-Upon Procedures Engagements to Report Factual Findings issued by the NZICA (based on the Australian standard).
They may be used with respect to financial information and may be adapted to cover engagements involving non-financial information reporting on the factual findings resulting from those procedures that have been performed.
There are further options: one where the AUP is likely to be an annual job, and the other where is it is a one-off job. In the second case the date entered on setup is the “appointment date” rather than “year ending”.
Our templates include an engagement letter, report, and a range of confirmation letters and work-papers to fit many common agreed-upon procedures. An AUP report expresses the procedures and the practitioner’s findings. For example:
Contact us for more details.