Agreed-upon procedures (ISRS 4400) - Scope, responsibility, ...

Learning Outcomes

After reading this article, you will be able to explain the nature and scope of agreed-upon procedures (AUP) engagements under ISRS 4400, identify all parties involved and their roles, and distinguish an AUP from assurance and audit engagements. You will understand the practitioner’s reporting responsibility, the importance of precise procedures, and the unique features and limitations of AUPs, all required for ACCA Audit and Assurance (AA).

ACCA Audit and Assurance (AA) Syllabus

For ACCA Audit and Assurance (AA), you are required to understand how agreed-upon procedures differ from assurance engagements and audits, with focus on responsibilities and reporting. For AUPs, ensure you can:

• Define the objective and scope of agreed-upon procedures engagements under ISRS 4400.
• Identify the three key parties: practitioner, engaging party, and intended users, and describe each role.
• Describe the practitioner’s duties—conducting specified procedures and reporting actual factual findings.
• Explain how agreed-upon procedures differ from assurance engagements in terms of conclusion, responsibility, and user confidence.
• Recognise the limitations and risks associated with AUP reports.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Who are the three essential parties to an agreed-upon procedures engagement under ISRS 4400, and what does each do?
2. How does the report from an agreed-upon procedures engagement differ from an assurance engagement report?
3. True or false? In an AUP engagement, the practitioner offers an opinion or conclusion on the subject matter.
4. Give one example of a situation where an AUP might be more appropriate than an audit or review.

Introduction

Agreed-upon procedures (AUP) engagements are engagements where a practitioner performs procedures of an audit nature, which have been specifically agreed by the engaging party and any relevant users, and then reports the results of those procedures in a factual manner without providing assurance or an opinion.

AUPs are governed by International Standard on Related Services (ISRS) 4400 and are commonly requested when a full audit or assurance engagement is not required, but an objective, factual report is needed on financial or non-financial information.

Key Term: agreed-upon procedures engagement
An engagement where a practitioner is engaged to carry out procedures agreed with the engaging party and specified users and to report on factual findings without expressing any conclusion or assurance.

Elements of an Agreed-upon Procedures Engagement

Unlike assurance engagements, AUPs have their own key components:

1. Three-party involvement: practitioner, engaging party, and intended users.
2. Specified subject matter: the information, data, or process subject to the procedures.
3. Clearly agreed procedures: procedures are set in advance by the practitioner and the parties.
4. Factual findings report: the report lists actual findings from the procedures, not conclusions or opinions.
5. No assurance: the practitioner does not provide any level of assurance.

Key Term: factual findings
The actual results identified by carrying out each agreed procedure, reported without interpretation, conclusion, or recommendation.

Parties and Responsibilities

The Three Key Parties

1. Practitioner: The independent accountant who performs the procedures exactly as agreed and reports the factual findings.
2. Engaging party: The entity or person who commissions the engagement (often management or those charged with governance).
3. Intended users: Those for whom the report is prepared—may include regulators, investors, or other stakeholders.

Key Term: engaging party
The person or organisation that contracts with the practitioner to perform agreed-upon procedures.

Key Term: intended users
Individuals or groups that will use the factual findings report issued by the practitioner.

Scope and Nature of AUP Engagements

An AUP can cover a range of subject matters, such as verifying cash at a specific date, confirming inventory quantities, calculating financial ratios, or checking compliance with specific regulations.

Scope is Limited and Precise: Only the procedures explicitly agreed in advance are performed. The engagement letter clearly states the extent and nature of each procedure.

The practitioner does not use judgement to design or add procedures beyond those agreed or interpret results—any such interpretation is left to the users.

Worked Example 1.1

A company’s lender requests confirmation of specific cash balances at the year-end. Management appoints an accountant to count the cash and compare balances to bank statements. The lender and accountant agree the exact steps to be taken in advance, and the accountant subsequently provides a report listing cash counted and any differences.

Answer:
The accountant has acted as practitioner in an AUP engagement under ISRS 4400, reporting only on factual findings from the procedures agreed with the lender and management.

Reporting Responsibility

The AUP report describes each procedure performed and the corresponding factual results. Critically, the practitioner does not provide:

• An opinion,
• Any form of assurance,
• Any interpretation of the findings.

Instead, the user draws their own conclusion from the reported results.

Key Term: ISRS 4400
The International Standard on Related Services that sets objectives and requirements for conducting AUP engagements and reporting factual findings.

Worked Example 1.2

The practitioner tests 20 payroll calculations as agreed, finding 2 errors. The report details the steps performed and lists the errors found, without providing any statement as to whether the payroll as a whole is reliable or compliant.

Answer:
Only the factual details from the work performed are provided, so readers make their own assessment. This is correct under ISRS 4400.

Exam Warning

The report for an agreed-upon procedures engagement does not ever include a conclusion, opinion, or assurance wording. If asked to draft or evaluate such a report, ensure only factual findings are communicated.

AUP vs. Assurance and Audit Engagements

AUPs do not satisfy the elements of assurance because:

• The procedures are dictated by the parties, not left to practitioner judgement.
• The practitioner does not use professional judgement to interpret findings.
• There is no conclusion (positive or negative), only findings.

Worked Example 1.3

A company asks a practitioner to verify whether a supplier overcharged for materials by recalculating invoice amounts on 10 sample invoices. The practitioner does as agreed and reports for each invoice whether the calculation matches or not, listing exact discrepancies.

Answer:
This is an AUP engagement as the practitioner objectively reports the factual findings for each invoice, without further interpretation.

Limitations and User Considerations

• No assurance is given: Users cannot presume accuracy beyond the factual findings listed.
• Procedures may not address all relevant risks: If important matters are left out of the procedures, no findings will be reported.
• Report limited to specific users: Distribution is typically restricted to those who agreed the procedures, as only they understand the scope and limitations.

Revision Tip

In exam scenarios, carefully distinguish AUPs from audits and review engagements by highlighting the absence of any conclusion and the restriction to factual findings only.

Summary

Agreed-upon procedures engagements under ISRS 4400 let engaging parties and users receive objective factual findings about specified procedures, but without any conclusion or assurance from the practitioner. The procedures to be performed must be agreed in advance and are exclusively stated in the engagement letter. The practitioner’s report lists the steps taken and findings only, leaving interpretation to the intended users. Unlike an audit or review, the practitioner provides no assurance and bears no responsibility for user decisions based on the report.

Key Point Checklist

This article has covered the following key knowledge points:

• Define agreed-upon procedures engagements and recognise their use under ISRS 4400.
• Identify the three parties: practitioner, engaging party, intended users.
• Describe the responsibility and limits of the practitioner, especially regarding reporting factual findings only.
• Explain the nature of AUP reports and how they differ from audit and assurance reports.
• List common examples and appropriate circumstances for AUP engagements.
• State the main limitations of AUPs regarding scope, assurance, and report users.

Key Terms and Concepts

• agreed-upon procedures engagement
• factual findings
• engaging party
• intended users
• ISRS 4400