Mastering Agreed-Upon Procedures Engagements
As business accountants, we often find ourselves in situations where clients need specific tasks performed without requiring an opinion or assurance. This is where Agreed-Upon Procedures (AUP) engagements, governed by ISRS 4400, become invaluable. An AUP engagement allows us to provide clients with factual reports based on specific procedures agreed upon between the practitioner and the client. This article explores the key elements of AUP engagements, offering practical insights for CIBA members.
Understanding Agreed-Upon Procedures (AUP) Engagements
An AUP engagement is a unique service where a practitioner performs particular tasks as requested by the client. Unlike audits or reviews, AUPs do not provide any opinion or assurance. Instead, they result in a factual report, often referred to as a "factual findings report," that the client can use to make informed decisions.
For instance, if a company wants to verify that a supplier delivered the correct quantity of goods, the practitioner might count the goods and report the findings. The company then decides whether the delivery meets their expectations based on these results. The value of an AUP engagement lies in the clarity and reliability of the information provided, allowing the client to use this information for decision-making.
Key Objectives and Examples of AUP Engagements
AUP engagements are highly customizable and can be tailored to address specific needs. The following are common scenarios where AUP engagements prove beneficial:
Turnover Confirmation: Verifying that sales or turnover figures reported align with actual data, particularly useful for rental agreements based on sales figures.
Due Diligence: Conducting targeted checks during mergers, acquisitions, or business sales to verify financial data or compliance with agreements.
Compliance Checks: Ensuring compliance with specific contractual terms or regulatory requirements, such as solvency and liquidity assessments for banks.
These examples illustrate the flexibility of AUP engagements, which can be adapted to various contexts, providing clients with precise and relevant information.
The Importance of Compliance and Ethical Standards
As practitioners, it is crucial to adhere to ISRS 4400 standards, which mandate a comprehensive understanding of the entire standard, including applications and explanations. Ethical compliance, particularly with the IESBA Code of Ethics for Professional Accountants, is non-negotiable throughout the engagement.
While independence is not always required for AUP engagements, it is essential to disclose the practitioner’s independence status in the report. If independence is not maintained, this must be explicitly stated to ensure transparency and uphold the integrity of the engagement.
Engaging Effectively: Acceptance and Terms
Before accepting an AUP engagement, it is vital to understand the purpose and ensure that the procedures requested align with the engagement’s goals. Clear documentation of the engagement terms, including the subject matter, purpose, and intended users, is essential.
For ongoing engagements, regular reviews of the terms are necessary to ensure continued relevance. Any changes in procedures during the engagement must be formally documented to reflect these modifications.
Designing and Executing Procedures
The success of an AUP engagement hinges on designing procedures that are factual, measurable, and specific. Ambiguity must be avoided, and each procedure should yield clear, objective findings. For example, verifying cash balances should involve comparing the bank statement to the company’s general ledger for a specific date, leaving no room for varying interpretations.
During the execution phase, it is critical to perform each procedure exactly as agreed upon. Documenting each step meticulously is equally important, as it provides evidence of the work performed and supports the factual findings reported.
Reporting: Clarity and Precision
The AUP report is the final product of the engagement, and it must be clear, concise, and devoid of any opinions or interpretations. The report should include:
A detailed description of each procedure performed.
The factual findings from each procedure.
A compliance statement with ISRS 4400.
Disclosure of the practitioner’s ethical compliance and independence status.
Proper documentation throughout the engagement not only supports the findings but also ensures legal protection and adherence to quality control standards.
Conclusion
Agreed-Upon Procedures (AUP) engagements are a powerful tool for providing clients with factual, reliable information tailored to their specific needs. As CIBA members, understanding the intricacies of ISRS 4400 and adhering to ethical standards are critical to delivering high-quality AUP engagements. By mastering the design, execution, and reporting of AUPs, we can enhance the value we provide to our clients, reinforcing our role as trusted advisors in the business accounting landscape.
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Sign up for the CIBA Academy CPD Session on Agreed Upon Procedures here.
Master Agreed-Upon Procedures (AUP)
Join us for a comprehensive 2-hour CPD session designed to enhance your understanding and execution of Agreed-Upon Procedures (AUP). This free event will equip you with the skills to design and conduct AUP engagements effectively, avoiding common pitfalls and adding value to your clients.
What You’ll Learn:
Grasp the basics and objectives of AUP engagements.
Learn how to design AUPs tailored to client needs.
Master the execution process from planning to reporting.
Explore real-world examples and avoid common challenges.
Develop effective communication strategies to present your findings.
Whether you're new to AUPs or looking to refine your approach, this session is your gateway to delivering exceptional value and strengthening client relationships.
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