WHAT ARE THE AGREED-UPON PROCEDURES?

                                   

 

What are the Agreed-Upon Procedures?

An agreed-upon procedures engagement is undertaken when an organization has specific transactions, elements or accounts that need to be examined by an external accountant. The procedures performed are similar to audit procedures, but are limited and agreed to by the accountant, the client and possibly an interested third party ahead of time. An agreed-upon procedures engagement is not meant to be a substitute for an audit of financial statements and therefore the report may not refer to or accompany financial statements. In conducting an agreed-upon procedures engagement, the accountant must comply with the Statements on Standards for Attestation Engagements (SSAE).

Another important aspect of the agreed-upon procedures engagement is that the accountant’s report limited to the parties who were involved in the development of the agreed-upon procedures. For example, an agreed-upon procedures engagement may be designed by an organization that is thinking of acquiring another business. As such, the organization making the purchase would develop the agreed-upon procedures in order to determine specific financial and other monetary information about the business it is planning to acquire.

In an audit made under agreed-upon procedures, the accountant only gives factual findings and does not provide his opinions, assurances, and conclusions in his final report. His report only presents the findings of facts, leaving the facilitators of the audit to draw their own conclusions from the facts found by the accountant. The report normally does not provide recommendations or suggestions based on the accountant’s findings.

Since it is focused on a specific matter, the agreed-upon procedures report must be detailed enough to be unambiguous and clear and must be discussed with the engaging parties. The value of the agreed-upon procedure relies on how well the parties defined their objectives when developing the procedures to be performed. The parties may express what they want to obtain from the procedure, and the accountant will carry out the agreed-upon procedures in accordance with the wishes of the engaging parties in an unbiased manner.

 

What are the Benefits of Designing and Adopting an Agreed-Upon Procedures Engagement?

There are several benefits from designing and adopting an agreed-upon procedures engagement:

1. Obtaining Loans

With the volume of asset-based lending in recent years, the agreed-upon procedures engagement has become popular with financial institutions. The bank might need assurance regarding an organization’s receivables or inventory that serves as the collateral. The accountant can conduct agreed-upon procedures to verify the amounts. The resulting report would be helpful to the bank and less costly than an audit of the financial statements.

2. Compliance

Numerous governmental organizations, as well as non-governmental entities, have embraced the agreed-upon procedures engagement as a way to ensure compliance with provisions of grants, contracts or other legal obligations.

3. Winning Contracts

Lastly, agreed-upon procedures are also helpful to win contracts since they can determine cost principles and rates in accordance with current regulations.