In certain circumstances, businesses may need to hire CPAs to perform agreed-upon procedures (AUPs) instead of (or in addition to) a review or an audit. AUPs are a type of attestation engagement “in which a practitioner performs specific procedures on the subject matter and reports the findings without providing an opinion or conclusion,” according to the standards set forth by the American Institute of Certified Public Accountants. AUPs generally cost less and take less time than a review or an audit. Their versatility allows them to address nonfinancial matters and dig deeper into items reported on your financial statements.
The basics
In general, an AUP engagement uses procedures similar 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 outlines 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 may also want to confirm whether a company is in compliance with its loan covenants. 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 Dan Harris, Audit Partner at Reynolds + Rowella, to determine whether an AUP engagement is right for your situation. Our team is here to help you navigate your financial reporting needs with customized solutions that provide clarity and insight into your business operations.
Reynolds + Rowella is a regional accounting and consulting firm known for a team approach to financial problem solving. As Certified Public Accountants, our partners foster a personal touch with our clients. As members of DFK International/USA, an association of accountants and advisors, our professional network is international, yet many of our clients have known us for years through the local communities we serve. Our mission is to operate as a financial services firm of outstanding quality. Our efforts are directed at serving our clients in the most efficient and responsive manner possible, delivering services that exceed the expectations of those we serve. The firm has offices at 90 Grove St., Ridgefield, Conn., and 51 Locust Ave., New Canaan, Conn. For more information, please contact Elizabeth Bresnan at 203.438.0161 or email.
