In certain situations, businesses might need to hire CPAs to perform agreed-upon procedures (AUPs) instead of, or in addition to, a review or an audit. According to the American Institute of Certified Public Accountants, AUPs are a type of attestation engagement where a practitioner performs specific procedures on a subject and reports the findings without providing an opinion or conclusion.
AUPs are typically more cost-effective and quicker to complete than reviews or audits. Additionally, their flexibility allows them to address nonfinancial matters and delve deeper into items reported on financial statements.
The basics
In general, an AUP engagement uses similar procedures to a review or an audit, but on a smaller and limited scale and with no assurance on the part of the CPA. An engagement letter is used to outline the scope and nature of the specific procedures that will be performed.
Upon completing AUPs, CPAs issue a written report that 1) describes the procedures performed and 2) summarizes the findings from each procedure. The accounting standards also require an AUP report to contain the following:
- A title that includes the word “independent” to show the report is from an independent accountant,
- Identification of the engaging party, the subject, and the responsible party (if it’s not the same as the engaging party),
- The intended purpose(s) of the engagement,
- A statement that the practitioner didn’t conduct an examination or review,
- A statement that the practitioner doesn’t express an opinion or conclusion, and
- Reservations or restrictions concerning procedures or findings.
AUPs can be tailored to your organization’s needs and provide a targeted analysis of key areas of your business’s operations.
AUPs in the real world
Examples of areas where an AUP can provide clients and third parties with valuable insights include:
- Internal control evaluations,
- Grant compliance,
- Franchise agreement compliance,
- M&A due diligence,
- Construction project progress and spending practices, and
- Royalty payments under a licensing agreement.
Lenders also may want to confirm whether a company is in compliance with its loan covenants. Or if a lender waived a loan covenant violation during the year-end review or audit, the bank might request, as a condition of the waiver, that the borrower hire a CPA to perform AUPs to check on key financial metrics midyear.
We can help
AUPs are among the many services CPAs offer. These engagements can be a flexible, time-saving alternative (or add-on) to financial statement reviews and audits. But they have their limitations. Contact an Axley & Rode advisor to determine whether an AUP engagement is right for your situation.
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