Agreed-Upon Procedures Engagement

An agreed-upon procedures engagement is a form of audit-like work in which an accountant performs only the tests that the client (or another third party) has specifically asked for, rather than conducting a comprehensive audit. The auditor reports only on what was tested—not on the overall fairness of any set of statements—and issues no overall opinion.

A tailor-made alternative to full audit

A traditional audit engagement is comprehensive: the auditor applies generally accepted auditing standards, examines financial statements as a whole, and issues a formal opinion on whether they are fairly presented. The auditor’s procedures are driven by the auditor’s risk assessment and professional judgment about what must be tested to support that opinion.

An agreed-upon procedures engagement inverts this model. The client—or in some cases a lender, grantor, or other third party—identifies specific tests they need performed. The auditor agrees to perform exactly those tests and report the results. The auditor does not test other areas, does not form an overall opinion about financial statements, and does not conclude whether the entity is in compliance or not. The accountant is a detective following the client’s instructions, not an auditor evaluating the whole picture.

Why clients choose agreed-upon procedures

An agreed-upon procedures engagement is often cheaper and faster than a full audit, because the scope is narrow and pre-defined. A private company that does not need a full audit but whose lender requires testing of a specific covenant—say, the debt-to-equity ratio—might engage an accountant to verify the two calculations and report the numbers. The lender gets the information it wants without paying for extensive general audit work.

Similarly, a non-profit that receives a government grant may be required to test whether funds were spent only on approved purposes. Rather than undergoing a full audit of all financial statements, the organisation can engage an accountant to test grant spending against the grant agreement’s terms. The result is a report that says, “We examined 50 invoices and verified that 49 were compliant; one was not.”

Consultants and accountants also use agreed-upon procedures to investigate specific questions for boards, management, or auditors. Has this division’s revenue been recorded correctly? Are payroll deductions being handled properly? Has the entity been making required insurance premium payments? The client frames the question, the accountant tests it, and the client gets a factual report.

The critical absence: no opinion

The defining feature of an agreed-upon procedures engagement is that the accountant issues no opinion. An audit produces an adverse opinion, a qualified opinion, or a clean opinion. A review engagement produces limited assurance. An agreed-upon procedures engagement produces neither.

Instead, the accountant reports findings. “We tested 15 transactions. 14 were recorded correctly; 1 was not.” Or: “We examined the entity’s debt schedule and recalculated the debt-to-equity ratio at 2.1:1.” The reader is left to draw their own conclusions. This is intentional: the client has specified exactly what they want tested, and the accountant reports exactly what was found, without wrapping it in professional judgment about overall implications.

Because there is no opinion, there is also no assertion that the work followed auditing standards. Instead, the engagement is governed by a letter of engagement that specifies the procedures to be performed and the intended users of the report. The accountant typically restricts distribution of the report to the client and any third parties named in the engagement letter—because readers who did not request the procedures cannot safely rely on the report without understanding what was and was not tested.

Procedures are client-defined, but implementation is professional

While the client proposes the procedures, the accountant retains professional judgment in how to execute them. If a client asks, “Check that all invoices are in order,” a competent accountant will ask clarifying questions: What date range? What definition of “in order”? Should we examine supporting documents? The accountant then performs the procedures as agreed, documents the work, and reports straightforward findings.

If the accountant encounters an issue—say, evidence that procedures cannot be completed as specified, or that findings suggest a bigger problem than anticipated—the accountant discloses this limitation. An agreed-upon procedures report should clearly state what was done, how many items were tested, what criteria were applied, and what findings emerged. The report does not say “everything is fine”; it says “here’s what we checked and what we found.”

Common use cases in practice

Lenders frequently require agreed-upon procedures. A borrower might be required to arrange for an accountant to verify quarterly compliance with specific debt covenants—testing the debt-to-equity-ratio or minimum interest-coverage-ratio calculation. The lender gets comfort without a full audit.

Non-profits and grantees use agreed-upon procedures to satisfy funder compliance requirements. A foundation might require that grant spending be tested against the approved budget; an accountant performs that test and reports findings.

Private equity firms and acquisition advisors use agreed-upon procedures in due diligence investigations, testing specific seller representations or financial metrics before a transaction closes.

Internal audit departments and boards sometimes commission agreed-upon procedures to investigate specific concerns—fraud allegations, revenue irregularities, or compliance with a particular policy.

The boundary with audit and review engagement

An agreed-upon procedures engagement is narrower than both an audit and a review. An audit tests a full set of financial statements against auditing standards; a review applies analytical and inquiry procedures to provide limited assurance; an agreed-upon procedures engagement tests only what the client asks for, with no assurance conclusion at all.

However, the three can coexist. An auditor conducting a full audit might use agreed-upon procedures results to supplement other testing. A client might arrange both a review of its year-end statements and an agreed-upon procedures engagement to verify a specific loan covenant.

Limitations and risks

Because an agreed-upon procedures report is factual and narrow, readers must be careful not to over-interpret it. A report that finds no problems with a sample of transactions does not mean all transactions are correct; it means the tested sample showed no problems. Conversely, finding a problem in an agreed-upon procedures test does not automatically mean the financial statements as a whole are misstated.

For this reason, agreed-upon procedures reports are typically restricted in distribution. A lender who commissioned the procedures has full context and can use the findings appropriately. A third party who stumbles upon the report might misunderstand it. Professional standards and engagement letters enforce this restriction.

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