Agreed Upon Procedures

Audit firms provide clients with various services. Most prominently, audit firms render the services of external auditing. In this process, auditors examine the financial statements and internal controls of the client and form an opinion regarding whether they present a true and fair view and free from material misstatements. During an external audit, auditors perform various audit procedures with the intention of gathering audit evidence that is sufficient and appropriate which is called sufficient appropriate audit evidence. Usually, the requirement of an external audit comes from rules and regulations. Similarly, auditors must abide by standards or laws when performing an external audit.

Furthermore, audit firms can also provide other services to clients. These include tax services, where the audit firm takes care of the client’s tax matters. It may consist of filing returns, helping with tax planning, explaining regulations, etc. Audit firms can also help clients with advisory related to various matters, such as policies and procedures, etc. Furthermore, they can provide accounting services to clients helping them with their accounting and financial reporting tasks. Moreover, audit firms can help clients with legal matters or even assist with their integrated software development.

What is Agreed Upon Procedures?

Agreed-upon procedures engagement, while not external or internal audit, is a part of auditing. According to auditing standards (ISRS 4400), the definition of agreed-upon procedures engagement is as follows.

“An engagement in which an auditor is engaged to carry out those procedures of an audit nature to which the auditor and the entity and any appropriate third parties have agreed and to report on factual findings. The recipients of the report form their own conclusions from the report by the auditor. The report is restricted to those parties that have agreed to the procedures to be performed since others, unaware of the reasons for the procedures may misinterpret the results.”

Therefore, agree-upon procedures consist of all engagements taken up by the auditor, which while having a similar nature to audit, do not have the same requirements as external audit. For agreed-upon procedures, the goal isn’t for auditors to provide an opinion regarding the financial statements of the company in the form of a report.

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Instead, in agreed-upon procedures, the client or any other third party decides on what the auditors should do. The goal in these engagements is to report on factual findings rather than an opinion provided by the auditor. Once the auditor presents the factual findings to the recipients, they make conclusions regarding the matter using the auditors’ report or findings.

Furthermore, unlike external audits, the reports provided in an agreed-upon procedures engagement, auditors only report to the recipients. Auditors don’t present external audit reports to other parties as well. However, the report is available along with the company’s annual report that a wide range of stakeholders or the general public can view. In an agreed-upon procedures engagement, the report stays between the auditors and the predetermined recipients.

The primary reason why the report for agreed-upon procedures engagement has a limited number of recipients is because of the nature of the engagement. This type of engagement occurs under special circumstances known to specific parties and the auditors. Providing a report to third parties will not help them understand the reason behind it and may end up misinterpreting the results.

The reason why these engagements get the name ‘agreed-upon’ is that auditors provide a report of their findings based on procedures agreed upon beforehand. Examples of agreed-upon procedures taken up by audit firms may include payroll compliance testing, fraud investigations, medical claims testing, internal control effectiveness checks, etc.

What is the Scope of Agreed-Upon Procedures?

Agreed-upon procedures engagement has a limited scope. Auditors can still use procedures similar to when they perform an external audit, although with a limited scale. For example, they can use procedures that identify specific problems that require immediate attention. Similarly, the scope of agreed-upon procedures is different because auditors don’t provide or form a formal opinion.

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In the report that auditors provide after agreed-upon procedures engagement, they list the procedures they performed and what their findings were. As stated above, the conclusions are factual and, therefore, does not require any recommendation or opinion from the auditor. The users of the report can interpret the factual findings to draw conclusions based on their needs.

Similarly, the scope of agreed-upon procedures audits is limited to specific financial data. For example, it may include auditors obtaining and reporting factual findings regarding accounts payables, receivables, or related party transactions. In contrast, in external audits, the scope is wider and contains the financial statements as a whole rather than specific areas.

Sometimes, however, it may also include a few specific financial statements or all of them combined. However, as stated, the goal isn’t similar to auditors’ objective during external audit engagements. Apart from these, agreed-upon procedure engagements may also be for nonfinancial data. For example, auditors may check or review the internal controls of the client or compliance in agreements or contracts.

Unlike other engagements, standards do not dictate how auditors must provide their findings or how they should perform the agreed-upon procedures engagement. The client decides on the extensiveness of the procedures that auditors perform and also dictates the limits for them. Both the client and auditors have much better flexibility in nature, timing, and extent of the engagement.

What are the Advantages of Agreed-Upon Procedures?

Agreed-upon procedures engagements have several advantages. Firstly, they do not require complying with time requirements. Auditors can perform these engagements at any time at a client’s request. Unlike external audits, these engagements don’t depend on the preparation of financial statements, allowing clients to request agreed-upon procedures at any time around the year.

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Similarly, agreed-upon procedures can be highly cost-effective to both auditors and clients. Due to the limited scope, auditors don’t have to perform the same number of procedures, unless otherwise required by the client. Therefore, the costs of these engagements are relatively low. These procedures are also useful when clients want to perform due diligence, fraud investigations, or compliance with specific regulations.

Sometimes, specific stakeholders may require companies to perform agreed-upon procedures engagements. These stakeholders dictate the rules and regulations of the engagement. For example, financial institutions or parent companies may request an agreed-upon procedures engagement if they doubt the company’s effectiveness of internal controls or specific areas of financials.

Lastly, many companies already have departments to investigate internal matters. However, these departments may not be independent or maybe too close to the problem. Therefore, agreed-upon procedures engagements can be useful when companies need an independent party or third-party view of these matters. As mentioned, auditors also don’t provide recommendations based on their findings, thus, allowing clients to make use of the report any way they want.


Auditing firms, aside from their primary external auditing services, may also provide many other services to clients. These include accounting, legal, advisory, taxation services, and much more. Auditors can also provide agreed-upon procedures services, in which they present factual findings to specified recipients based on the procedures they perform.

Agreed-upon procedures engagements have a limited scope compared to external audits. However, the procedures performed in both are usually similar. Agreed-upon procedures engagements are advantageous for several reasons discussed above.

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