Agreed-Upon Procedures Engagements

Written by Stelios Spiliotis
19 November, 2021

Agreed-Upon Procedures (AUP) engagements provide a great opportunity for small- and medium-sized practices (SMPs) to grow and provide a valued service to their clients. International Standard on Related Services 4400 (Revised), Agreed Upon Procedures Engagements (ISRS 4400 (Revised)) is the international standard that addresses AUP engagements.

Effective date

In April 2020, the International Auditing and Assurance Standards Board (IAASB) approved the revised standard, which is effective for agreed-upon procedures engagements for which the terms of engagement are agreed on or after January 1, 2022. The present version of ISRS 4400 remains valid until this new effective date and early application is permitted.  For terms of engagements covering multiple years, practitioners may wish to update the terms of engagement so that the AUP engagement will be conducted in accordance with the revised standard.

Objectives of the revised standard

The revised standard intends to achieve the following objectives:

  • Respond to the needs of stakeholders by broadening its scope to meet the demand for AUP engagements on both financial and non-financial subject matters.
  • Provide clarity in the AUP report.
  • Enhance consistency in the performance of AUP engagements in relation to the areas of exercising professional judgment, considering acceptance and continuance conditions, using a practitioner’s expert and Disclosure of compliance with independence requirements, as applicable.

Significant changes in the revised standard

The most significant changes in the revised standard are the following:

Scope and responsibilities

  • The scope now covers AUP engagements on both financial and non-financial subject matters.
  • New requirements and application material clarify the practitioner’s responsibilities in relation to the various parties involved in an AUP engagement such as the engaging party, the intended users of the AUP report and the responsible party for the subject matter on which the AUP are performed.
  • Consistent with the clarity drafting conventions, the standard now includes an “Objectives” section. The objectives are intended to assist the practitioner in understanding what needs to be accomplished in an AUP engagement.
  • The term ‘factual findings’ has been replaced by the term ‘findings,’ which is defined as the factual results of agreed-upon procedures performed. In addition, findings are capable of being objectively verified, and exclude opinions or conclusions in any form as well as any recommendations.

Compliance with Independence Requirements

  • The revised standard does not include a precondition for the practitioner to be independent when performing an AUP engagement (the same as extant ISRS 4400). However, new requirements and application material recognize that, even when the practitioner may not be required (for example, by law or regulation, an ethics code or contract) to comply with independence requirements, the practitioner may agree with the engaging party that compliance with independence requirements is appropriate for the purpose of the AUP engagement.
  • The AUP report is now required to include a statement on independence―The required statement depends on whether or not the practitioner is required to comply with identified independence requirements for the purpose of the AUP engagement

Professional Judgment

  • New requirement for the practitioner to exercise professional judgment throughout the engagement, including in accepting, conducting and reporting on the AUP engagement, taking into account the circumstances of the engagement.
  • New supporting application material to explain, and provide examples of, how professional judgment is exercised in an AUP engagement.

Engagement Acceptance and Continuance

Introducing new requirements in relation to engagement acceptance and continuance considerations, including:

  • Understanding the purpose of the engagement, and declining the engagement if the practitioner becomes aware of any facts or circumstances indicating that the procedures are inappropriate for the purpose of the engagement;
  • Only accepting or continuing the engagement when certain conditions are met; and
  • Communicating with the firm if information is obtained that would have caused the firm to decline the engagement had that information been available earlier, so that necessary action can be taken.

Introducing application material to support the new requirements, including:

  • Clarifying the specificity with which AUP and findings are described and describing which terms may or may not be appropriate in the context of a particular engagement; and
  • Highlighting that certain procedures may be prescribed by law or regulation– However, these will still be subject to the conditions of specificity referred to above.

Using the Work of a Practitioner’s Expert

New requirements and application material provide guidance on how a practitioner’s expert can assist the practitioner in an AUP engagement. In addition, if the work of a practitioner’s expert is to be used:

  • The practitioner must be able to be involved in the work of a practitioner’s expert to an extent that is sufficient to take responsibility for the findings included in the agreed-upon procedures report; and
  •  The practitioner may refer to the work performed by a practitioner’s expert in the AUP report, either voluntarily or in compliance with law or regulation. If so, the wording of the report shall not imply that the practitioner’s responsibility for performing the procedures and reporting the findings is reduced because of the involvement of an expert.

The Agreed-Upon Procedures Report

  • The revised standard provide enhanced transparency on the responsibilities of the various parties involved in an AUP engagement; and whether or not the practitioner is required to comply with independence requirements, and if so, the relevant independence requirements.
  • In contrast with the existing standard, ISRS 4400 (Revised) does not require the practitioner to include a statement that the report is restricted to those parties that have agreed to the procedures to be performed. Such a restriction is now based on the discretion of the practitioner. New application material guides the practitioner in deciding whether to restrict the use or distribution of the AUP report.
  • New reporting requirements and application material to address circumstances when a summary of findings is provided in the AUP report and when the practitioner is undertaking an AUP engagement together with another engagement.

Additional guidance

In December 2020, IAASB issued a publication that  outlines an AUP engagement, identifies the benefits to clients of offering such services and when an AUP engagement is appropriate. It covers examples of financial and non-financial subject matters, six short case studies with example procedures that might be applied, and two illustration AUP reports from ISRS 4400 (Revised).

You May Also Like…