Agreed Upon Procedures
Sometimes a client will need a CPA to attest to subject matter other than that included in the company’s financial statements. Typically, there is another third party involved who wants a professional, independent party (the CPA) to perform procedures that will enhance the credibility of the information provided by the client. For instance, an acquiring company may ask for certain information (in addition to financial statements) from the company it is considering buying.
Third parties may also ask for an agreed-upon procedures engagement* to give them an enhanced level of confidence that a service provider (a builder, or other contractor has fulfilled obligations within the framework of the agreed-to contracts) or that billings and payments have been made in compliance with contract specifications.
Often, agreed-upon procedures engagements are suitable if a client isn’t sure exactly what he/she needs. Even without a third-party involved, a client may want a CPA to verify certain information or take a second look to give them peace of mind. For instance, projections of future earnings, provided by the client, could also be the subject matter of an agreed-upon procedures engagement.
In both situations, the CPA can use an agreed-upon procedures engagement (which must follow AICPA attestation standards) to satisfy the client’s needs and the needs of any third-party, while limiting the CPA’s exposure to unnecessary risk.
Unlike a financial statement audit or review, in which the CPA determines the nature and extent of procedures in order to form an opinion, the CPA doesn’t decide or prescribe what the procedures should be in an agreed-upon procedures engagement. According to professional standards, in an agreed-upon procedures engagement, the “specified parties are responsible for the sufficiency (nature, timing, and extent) of the agreed-upon procedures because they best understand their own needs.” The procedures that the CPA and the parties agree to may be as limited or as extensive as the specified parties desire, but the specified parties assume the risk that the procedures might not be sufficient for their purposes. The CPA’s responsibility is to “carry out the procedures and report the findings” in a written report and in accordance with attestation standards. The recipients of the report must reach their own conclusions about the CPA’s findings.
If you want the CPA to make recommendations as a result of findings, you’ll want a different type of engagement. In such case, you may want to consider a consulting engagement, which has different professional standards and different objectives. Typically there is no third-party involved when a client requests a consulting engagement, and there is usually little need to adhere to the stricter guidelines of an attestation engagement (like agreed-upon procedures) if there is no third party involvement.
If you’re unsure which type of attest service would meet your needs, or if a consulting engagement would be the better choice, please contact an audit and attest practice member (shown in the sidebar) for guidance. We have extensive experience providing agreed-upon procedures engagements for clients in a wide range of industries.