All About Agreed-Upon Procedures

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Preparing taxes and performing audits are the most popular types of services offered by a CPA firm.  However, CPA firms actually provide a myriad of services, one of which is the agreed-upon procedure engagement. 

What is an agreed-upon procedure engagement?

An agreed-upon procedure (AUP) engagement is an engagement in which a CPA is to independently report findings based on procedures agreed upon beforehand.  The procedures are agreed upon in advance and can encompass a wide variety of topics.  The procedures can be limited or detailed in scope.  Often there are at least three parties involved in the engagement.  It is imperative that the procedures are concrete in nature and are not open for varying interpretations.  AUPs should not analyze, interpret or evaluate the reported findings.

Some common types of AUPs performed:

  • Payroll compliance testing for a multi-employer benefit plan

  • Medical claims testing for a third-party service provider

  • Accuracy testing of allowed expenses

  • Cost allocation studies

What is the guidance for an AUP engagement?

AUP guidance is found in the AICPA’s Statement on Standards for Attestation Engagements (SSAE) No. 19, Agreed-Upon Procedures Engagements. This statement was issued in December 2019 and it replaces SSAE No. 18, Attestation Standards: Clarification and Recodification, AT-C section 215.  The newest guidance is effective for AUP reports dated July 15, 2021, although early implementation is allowed.     

What testing methods are used?

Some of the methods of performing AUP testing:

  • Confirmation of information with third parties.

  • Mathematical computations.

  • Inspection of documents against specified testing attributes.

  • Sampling of populations using different sampling methodologies.

  • Other testing methods include tracing, recalculating, agreeing, verifying and comparing multiple sources of data.

Why do organizations engage a third party to perform an AUP?

Using a Certified Public Accountant to perform an AUP ensures that all procedures are performed and all findings derived independently.  Although someone internal to the organization could perform the procedures, there is no level of independence granted by using an employee and the findings are as trustworthy.  An AUP can be tailored to the organization’s exact needs and can be very specific in scope.  The scheduling of an AUP is also flexible in timing as there is no deadline for an AUP other than the one set up during the signing of the engagement letter with the CPA firm.  

How do CPAs report their AUP findings?

The reporting portion of an AUP is different from an audit in that there is no opinion given.  An AUP report is a list of factual findings from the procedures performed.  Often the report will specify findings as ‘exceptions’ and provide a number of exceptions as well a detailed list of exceptions, dependent upon the scope of the AUP.  There are no recommendations included in the report; it is strictly a factual report for the party requesting the AUP.  The report is worded to restrict reliance on it to those parties that agreed to the procedures to be performed since others could misinterpret the findings.  Generally, the distribution of the AUP findings is limited and not available to those outside of the parties who agreed to the AUP.  The party requesting the AUP can then draw its own conclusion from the reported findings.