An agreed-upon procedures engagement is a service in which a CPA is to report findings based on specific procedures agreed upon beforehand. The procedures are agreed upon in advance and can encompass a wide variety of topics, which we like to refer to as “subject matter”. Some examples of such AUP engagements that our firm often performs are: payroll compliance testing for a multi-employer benefit plan, medical claims testing for a third-party service provider or a health and welfare plan, cost allocation studies, and testing for accuracy of expenses.
The procedures are determined by your organization and may be as limited or as extensive as desired but should not include procedures that are open to varying interpretations. The chart below lists examples of appropriate procedures your CPA can perform for you versus those that would be inappropriate.
- Procedures characterized by a specific action, such as: inspect, confirm, compare, agree, trace, or recalculate, etc.
- Using sampling methodologies to select items to which the procedures will be applied
- Comparison of documents, schedules, or analyses with specified attributes
- Confirmation of specific information with third parties
- Performance of mathematical computations
- Procedures defined with vague or ambiguous language such as: evaluate, analyze, interpret, examine, etc.
- Mere reading of work performed by others to describe findings
- Evaluating the competency or objectivity of another party
How can an AUP Engagement Benefit my Organization?
One of the benefits of engaging a CPA to perform such work is that the findings are independently
derived with no bias. There is flexibility in the nature, timing, and extent of the AUP and the work can be tailormade to fit your needs. You know your organization and can direct a CPA to perform procedures in a certain area—perhaps an area of concern, a new activity, or just a closer look at something. It is also important to note that in an AUP engagement, the CPA does not provide an opinion or a conclusion. Instead, the CPA provides a report listing the findings resulting from the procedures that are agreed-upon.
What Set of Standards do CPAs Follow when Conducting AUP Engagements?
CPAs follow a set of standards called Statements on Standards for Attestation Engagements (SSAE) when conducting AUP engagements. There were changes made to these standards effective May 1, 2017, as a result of SSAE No. 18, which was issued by the American Institute of Certified Public Accountants (AICPA) in April 2016. Some of the more significant changes affecting agreed-upon procedures engagements that you may have seen are summarized below:
- Engaging Party: Party that hires the CPA to perform the agreed-upon procedures.
- Responsible Party: Party that takes responsibility for the subject matter (generally this is management of the entity whose subject matter is being measured).
- Representations from both the engaging party and the responsible party are now required. This is generally completed by a signed letter.
- Representations are statements confirming certain matters of the AUP. This is similar to what you may have seen if your organization has an annual audit by a CPA. It is a shorter version of a representation letter, tailormade for an agreed-upon procedures engagement.
New Reporting Changes
- The AUP report is modified by the CPA to disclose the lack of representations provided if the responsible party refuses or is unable to to sign the representation letter (or provide verbal representations).
- The CPA should consider withdrawing from the agreed-upon procedures engagement if the engaging party refuses to sign the representation letter.
Although the technical requirements of an AUP engagement changed with SSAE No. 18, as outlined above, the basic overall objective remains the same. An independent CPA performs procedures that are agreed upon in advance based on your specific needs, and reports on the findings at the conclusion of the testing. Could an AUP engagement be valuable to your organization? Please contact us at (925) 277-9100 for more information.