What are agreed upon procedures engagement?

Agreed-upon procedures engagement is a type of engagement which auditor performs certain procedures that are agreed upon in advance. In this engagement, the auditor and specified parties agree that the auditor will perform specific procedures and report the findings. Likewise, there are usually three parties involved in the engagement, including the auditor, the client, and another third party.

Unlike an audit, auditors do not give an opinion on subject matters in the agreed-upon procedures. Auditors only report of findings based on the agreed procedures performed on the subject matter. Hence, the clients need to make their own conclusion on the subject matter.

In the agreed-upon procedures, auditors do not perform an examination or a review like in an audit or a review engagement. Hence, the reporting should be in the form of procedures and findings. For example, the report of agreed-upon procedures may state “we found no exceptions as a result of the procedures” or “we found no difference as a result of the procedures”, etc. But it should never state “in our opinion…” or “nothing has come to our attention…”.

Also, the use of the report in the agreed-upon procedures is strictly for the specified parties. It is not for the public or any related stakeholders that are not the specified parties of the agreement.

Agreed Upon Procedures vs Audit

It may be easier to understand when we look at the comparison between agreed-upon procedures and audit below:

Agreed Upon Procedures vs Audit
Agreed Upon Procedures	Audit Engagement
The assurance provided varies based on the nature and scope of the agreed procedures	The assurance provided is in form of the positive assurance
Auditors perform the work based on the procedures agreed upon by auditors and specified parties, e.g. the client and other third party.	Auditors perform the work based on acceptable auditing standards.
Auditors do not make conclusion on the subject matter	Auditors need to obtain sufficient appropriate evidence to make conclusion on the subject matter
The level of risk varies based on the agreed procedures	The risk is reduced to an acceptably low level
Auditors do not give an opinion on subject matter in the report	Auditors need to give an opinion on subject matter, e.g. financial statements, in the audit report
Usually state in the report as “We found no exceptions…”	Usually state in the report as “In our opinion…”

report this ad

A financial statement review is a service under which the accountant obtains limited assurance that there are no material modifications that need to be made to an entity’s financial statements for them to be in conformity with the applicable financial reporting framework (such as GAAP or IFRS).

A review differs significantly from an audit. Review engagements provide less assurance to the reader of the financial statements because the auditor does not perform many audit procedures. The broad review procedures required to be performed by the auditor are:

Inquiries as to the accounting practices and principles used by the business
Procedures for recording and accumulating financial information
Actions taken at owners’ or directors’ meetings
Written representations from management regarding the accuracy of all information given to the auditor
Receipt of all relevant information by the auditor
Management’s responsibility for internal control
Management’s responsibility to prevent and detect fraud
Knowledge of fraud
Information related to any significant subsequent events
Analytical procedures regarding comparisons
Expectations developed by the auditor of recorded amounts
Ratios from recorded amounts
Plausible relationships of recorded amounts

These analytical procedures provide better understanding of key relationships among certain numbers. This understanding gives more assurance about the reasonableness of the financial condition presented in the financial statements.

Based on the inquiries and analytical procedures, the auditor is able to express only limited assurance that there are no material modifications that should be made to the financial statements for them to be in conformity with the applicable financial reporting framework. Because a review engagement is substantially less intensive in scope than an audit, the auditor cannot express an opinion on the fairness of the financial statements taken as a whole.

At AMW, we perform review engagements for a number of clients for various different reasons. One such reason is the requirement for medium sized ACNC registered entities to at least be reviewed on an annual basis, if they choose not to be audited.

In an engagement to perform agreed upon procedures, we are engaged to carry out procedures of an audit nature to which the client and us have agreed in order to provide a report on our factual findings.

This can take any format – for example to verify a list of expenses to invoices, to verify the timely submission of bonds for real estate agents, to investigate specific transactions where fraud is suspected, to confirm debtors or creditors with the parties involved or to test the compliance to internal controls policies. An agreed-upon procedures engagement may be commissioned by an entity which is acquiring another business. The entity may engage an audit to report on specific aspects of the business that it is buying.

We agree the exact procedures to be performed with you before the start of the engagement. This could involve verifying a full list of transactions for example, whereas an audit only test a sample of transactions.

We also do not draw a conclusion from the results of our procedures, but only report on the factual findings. So if a creditor balance did not agree to a confirmation obtained, we would state that.

The report is restricted to those parties that have agreed to the procedures to be performed since others, unaware of the reasons for the procedures may misinterpret the results.

We have been using the audit services of AMW to complete our annual AFSL obligations for the last 5 years and would highly recommend their service to all, they are well priced, both practical and reasonable in their approach to small AFSL holders, and efficient at turnaround times.

CAMERON HOWLETT

AMW have been our preferred audit firm for SMSFs and other audits for many years. When I started Aver Group in 2004 we were looking to build a relationship with a like-minded professional auditing firm that understood the needs of Accountants.

We have always been impressed by the team’s expertise and understanding of auditing issues. They have a personal, proactive approach and are always available either via telephone or email.

The Principal/Director, B J Thomas, is approachable and is commercially minded. He is very professional and always gives clear advice in a prompt and efficient manner. His work ethic and personality has certainly been passed onto his team members and we have a great business relationship with the whole firm.

In summary, AMW are an impressive team which delivers on their promises and are stand out performers in the Auditing sector

RAVE RAVENDRAN

AMW came to us highly recommended and have conducted our last two audits of the college’s financials. They are highly professional and have developed a good understanding of schools and their processes. Their team are a pleasure to work with. I have no hesitation in recommending AMW to other schools for the purpose of conducting an audit and the preparation of financial statements.

TAMMY FENWICK