Audit and Assurance
Agreed-Upon Audit: Fact-finding by consensus
There are times when audit-related procedures are requested to make sure that certain processes carried out by a business comply with the required ethical or legal standards. In such cases, the business agrees with an auditor and any third parties to have the audit-related procedures, or an Agreed-Upon Audit conducted. All parties must agree to the terms of the Agreed-Upon Audit for the engagement to be binding.
However, Agreed-Upon Audits—also known as Agreed-Upon Procedures do not contain any conclusions, opinions, or assurance, as it will be up to the recipients of the audit report to form their own. Only those who agreed to have the audit conducted are privy to the report, as it is prone, because of its highly specific nature, to be misinterpreted by those who don’t know why the audit was conducted, to begin with.
Also note that the auditor or audit team, in this case, may not perform any procedures that were not agreed upon by the business or the third parties involved, and may not perform Agreed-Upon Audits on any processes or tests that were likewise not specified in the original request. Should the audit team conduct any procedures that weren’t agreed upon, they may face charges for breach of contract.
Examples of Agreed-Upon Audit procedures include:
Checking accounts receivable and payable
Due diligence for the purchase or sale of a business
Ensuring compliance in purchasing and royalty agreements
Inspection of control and management systems
Loan portfolio reviews
Payroll audits
Reviewing income tax provisions
Verifying cash or security balances
The situation calls for it.
Agreed-Upon Audits may be requested for several reasons. Examples include determining the causes behind operational inefficiencies, banking requirements, validating accounts payable, managing risk in financial or non-financial information, or a larger company that wants to know more about a smaller business it wants to buy.
Agreed-Upon Audits may also vary according to the end-user of the reports that are generated, whether it’s the business that will be using it for private use or a third party. Private reports are ideal for businesses that aren’t required to submit a formal audit because they cost less and be augmented by an expert’s opinion.
If a third party is the end-user of the report, the audit team will need to know why the party wants to use it so that the appropriate terms and conditions may be specified before the report is submitted. This Agreed-Upon Audit may also reassure the party of the business’s compliance with regulations.
Agreeable advantages.
Agreed-Upon Audits benefit businesses in several ways, mainly by defining the investigative limits of the auditor or audit team. In doing so, a business will be able to get more accurate results and protect sensitive or confidential information from being collected indiscreetly.
The auditor can help the business and the third parties to define these limits if need be, although it will be up to them to make sure that the audit-related procedures specified in the agreement will meet their objectives.
An Agreed-Upon Audit is also more flexible than a Financial Statements Audit or Internal Audit, making it ideal for specific needs such as investigating a particular business process. Agreed-Upon Audits may also be able to cover certain processes that formal audits do not, such as items that aren’t included in Financial Statements, contracts, and the regulatory requirements of a particular industry such as banking or healthcare.
Because there are no opinions or conclusions involved, an Agreed-Upon Audit is generally a lower cost option than a formal audit.