Agreed Upon Procedures AUP Attestation Engagement. CPA Exam AYD

In this video, we explain we explain agreed upon procedures as an attestation engagement covered on the CPA exam.
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Understanding Agreed-Upon Procedures (AUP)
Agreed-Upon Procedures (AUP) refer to an engagement in which an auditor is hired by a client to perform specific tests and procedures and report on the findings. Unlike traditional audits, AUP engagements do not result in an opinion from the auditor; instead, they provide a factual report of findings based on the procedures agreed upon with the client. This type of engagement is useful for clients who need specific financial information verified for various purposes.
1. Nature of AUP Engagements
AUP engagements are highly flexible and tailored to the client's specific needs. The client and the auditor agree in advance on the procedures to be performed, which are then executed by the auditor. These procedures could include checking documents, verifying compliance with agreements, reconciling accounts, or any other financial analysis that does not require an audit opinion.
2. Key Characteristics of AUP
Specificity: The procedures are specific and agreed upon in advance by both the client and the auditor.
No Opinion Provided: The auditor does not provide an assurance opinion or a negative assurance. Instead, the report will list the procedures performed and the related findings.
Objective Reporting: The findings are factual and based solely on the agreed-upon procedures, without interpretation or judgment from the auditor.
3. Common Uses of AUP
Due Diligence for Mergers and Acquisitions: Verifying specific aspects of the financial statements of a business being acquired.
Compliance: Checking compliance with regulatory requirements or parts of contractual agreements.
Internal Controls: Evaluating the effectiveness of internal controls over specific financial or operational areas.
Third-Party Verification: Providing creditors or other third parties with verification of certain information requested by them.
4. Process of AUP Engagements
Engagement Agreement: The auditor and client formally define and agree on the procedures to be performed. This agreement includes the nature, timing, and extent of the procedures.
Conducting Procedures: The auditor performs the procedures as agreed upon. This involves gathering evidence, conducting tests, and verifying information.
Reporting Findings: The auditor prepares a report detailing the procedures performed and the findings. This report is factual and does not include an opinion or assurance.
5. Benefits of AUP
Flexibility: Can be customized to suit specific aspects of the client’s operations or financials.
Cost-Effectiveness: Generally less costly than full audits because they are limited in scope.
Objective Insights: Provides clear, factual results that can be used for making informed decisions or fulfilling third-party information requirements.
6. Considerations in AUP Engagements
Scope Limitation: Clients must understand that AUP engagements do not provide the same level of assurance as audits or reviews. The usefulness of the engagement is directly tied to the appropriateness of the agreed-upon procedures.
Intended Users: The report is typically restricted in use to specific parties who agree to the procedures. It’s not intended for general distribution or use by parties who did not agree to the terms of the engagement.
Professional Judgment: While the auditor does not provide an opinion, professional judgment is still critical in performing the procedures and in accurately reporting the findings.
Conclusion
Agreed-Upon Procedures engagements offer a versatile and practical approach for clients needing specific financial information validated without the need for a full audit or review. These engagements are especially useful where independent verification of certain information is required for decision-making, compliance, or transactional purposes.
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