Agreed-upon procedures (AUPs) are a common practice in the business world, where a company or client specifies certain procedures to be followed by an external party during an audit process. These procedures, known as audit standards, are mutually agreed upon by the parties involved in the audit to ensure transparency and accuracy in the results obtained.
AUP audits are particularly useful for organizations that do not require a full financial audit but need a detailed report based on specific procedures conducted during the audit process. This type of audit is often used in situations where a company is considering acquiring another business and needs specific information to make informed decisions.
During an audit conducted under agreed-upon procedures, the auditor’s role is to provide factual findings without offering any opinions, conclusions, or assurances. The final report presented by the auditor includes the results of the agreed-upon procedures, allowing the parties involved to draw their own conclusions based on the findings.
While audits and agreed-upon procedures may appear similar at first glance, there are key differences between the two. An audit is aimed at providing an overall assurance of compliance, integrity, and authenticity, while an AUP is a more focused fact-gathering exercise intended to address specific areas of concern. This limited scope distinguishes an AUP from a traditional audit.
The process of conducting an agreed-upon procedure involves several key steps. First, the procedures and report format are documented in detail, outlining the scope of the agreed-upon process and the responsibilities of the certified public adjuster or other qualified party executing the procedures. The CPA then creates a plan for executing the procedures, which may include reviewing historical data, data analysis, and issue identification.
Once the procedures are executed, the CPA prepares a report outlining the processes undertaken and presenting the results. The report may also include any limitations of the analysis or scope of the results, allowing the intended users to interpret the information provided.
Examples of situations where agreed-upon procedures are commonly used include due diligence reviews before acquisitions, testing of internal controls and security procedures, and evaluating compliance with industry standards. These procedures offer flexibility, cost-effectiveness, and focused results, making them valuable tools for stakeholders in various industries.
However, there are drawbacks to using agreed-upon procedures, including the limited scope of the process, which may restrict the depth of analysis and the level of confidence in the results. Additionally, the customizability of AUPs may make them less compelling than audits based on well-established standards, and if the procedures are not well-designed, the information obtained may have limited value.
In conclusion, agreed-upon procedures play a vital role in providing specific, factual information to organizations in need of detailed reports for decision-making purposes. While they may not offer the same level of assurance as a traditional audit, AUPs are a valuable tool for organizations seeking focused and actionable results in specific areas of concern.