What Does Agreed Upon Procedures Mean?

Agreed Upon Procedures in finance refer to a specific set of guidelines that auditors follow to perform examinations and assessments on financial information. These procedures are agreed upon by both the auditor and the entity being audited, ensuring transparency and accuracy in the audit process.

In this article, we will delve into the purpose of agreed upon procedures, who performs them, the steps involved, their benefits, limitations, and provide an example to illustrate their application in the financial sector. Let’s explore the world of agreed upon procedures and how they contribute to financial accountability and integrity.

What Are Agreed Upon Procedures?

Agreed Upon Procedures refer to engagements where an accountant performs specific verification procedures on financial information. These procedures are established based on agreed criteria and are detailed in a report.

The purpose of Agreed Upon Procedures is to provide assurance to stakeholders regarding the accuracy and reliability of specific financial information. These engagements are particularly important in situations where traditional audit services are not needed, but there is a need for independent verification. For example, in a scenario where a company is seeking funding from investors, the investors may request Agreed Upon Procedures to be performed to ensure that the financial data presented is trustworthy. By following these agreed procedures, the accountant can verify financial information in a consistent and reliable manner, increasing confidence in the data provided.

What Is The Purpose Of Agreed Upon Procedures?

The purpose of Agreed Upon Procedures is to provide assurance to clients regarding the accuracy and compliance of their financial statements. These procedures evaluate specific aspects of financial data to ensure adherence to industry standards.

They play a crucial role in enhancing transparency and accountability within financial reporting processes. By conducting thorough assessments and tests, Agreed Upon Procedures help in uncovering any discrepancies or errors, ultimately leading to improved financial accuracy.

This proactive approach not only instills confidence in stakeholders but also assists in identifying opportunities for operational enhancements and risk mitigation strategies.

The findings from Agreed Upon Procedures can support informed decision-making, aiding clients in achieving their financial objectives effectively.

Who Performs Agreed Upon Procedures?

Agreed Upon Procedures are typically performed by independent accountants with expertise in financial verification processes. These professionals engage in specific procedures to validate financial information.

The independence of these accountants is crucial as it ensures unbiased and objective assessments of the financial data. Their expertise allows them to navigate complex financial statements and transactions with precision, identifying any irregularities or discrepancies with thoroughness. By engaging in detailed testing and analysis, these professionals play a vital role in providing assurance to stakeholders regarding the accuracy and reliability of the financial information under review.

What Are The Qualifications Of The Auditor?

Auditors conducting Agreed Upon Procedures must possess professional judgment, expertise in financial analysis, and a thorough understanding of auditing standards.

These qualifications are essential to ensure that the auditor can accurately verify and report on financial information following the agreed-upon procedures. By demonstrating strong professional judgment, auditors can make informed decisions during the auditing process, especially when faced with complex financial transactions or discrepancies. Their financial expertise enables them to delve deep into financial records, analyze data effectively, and identify potential areas of concern or non-compliance.

Adherence to industry standards is paramount as it ensures that the audit procedures are carried out in a consistent, reliable, and ethical manner, leading to trustworthy and credible audit reports.

What Are The Steps Involved In Agreed Upon Procedures?

Agreed Upon Procedures entail three main steps: planning, performing verification procedures, and reporting findings. These steps involve meticulous documentation and validation of financial records.

  1. During the planning phase, the team identifies the specific procedures to be carried out and establishes a timeline for completion.
  2. Once the plan is in place, the verification procedures are executed diligently, focusing on gathering sufficient evidence to support the findings. This may involve testing transactions, examining documentation, and interviewing key personnel. The meticulous nature of this process ensures that all aspects of the financial records are thoroughly reviewed.

The findings are reported accurately, highlighting any discrepancies or areas of concern discovered during the verification process.


The planning stage of Agreed Upon Procedures involves outlining the scope of work, assessing risks, and applying professional skepticism to ensure thorough evaluation and evidence collection.

Risk assessment plays a crucial role in the planning phase as it helps in identifying potential areas of material misstatement. By understanding the risks, the procedures can be tailored to focus on high-risk areas, increasing the effectiveness of the engagement.

Setting the scope of work clearly delineates the objectives and ensures that the necessary procedures are designed to achieve the intended goals. Professional skepticism is key in maintaining a questioning mindset throughout the process, enabling the auditors to critically evaluate evidence and avoid bias in their conclusions.

Performing Procedures

During this phase, specific verification procedures are performed, including data analysis, testing of financial records, and validation of financial transactions to ensure accuracy and consistency.

  1. Data analysis typically involves examining financial data to identify any inconsistencies or irregularities, such as unusual patterns or discrepancies.
  2. Testing of financial records may include checking the mathematical accuracy of calculations, reconciling balances, and verifying the authenticity of supporting documentation.

Validation of financial transactions aims to confirm that transactions were properly authorized, recorded accurately, and classified correctly in the financial statements. By conducting these thorough procedures, auditors can provide stakeholders with reliable and trustworthy financial information.


The reporting phase of Agreed Upon Procedures involves documenting the procedures performed, presenting findings, and making assertions based on the evidence collected, culminating in a detailed report for the client.

During this phase, the focus shifts towards meticulously recording each step taken, ensuring that the client receives a comprehensive overview of the procedures undertaken. The report not only outlines the specific tasks performed but also highlights any significant discoveries or anomalies uncovered during the process. By synthesizing the gathered data and evidence, the report aims to provide a clear and conclusive assessment of the subject matter. Ultimately, this thorough documentation and assertion-making process play a crucial role in delivering an informative and valuable report that addresses the client’s needs effectively.

What Are The Benefits Of Agreed Upon Procedures?

Agreed Upon Procedures offer various benefits, including customization of verification processes, cost-effectiveness in engagements, and the provision of independent opinions on financial statements.

By allowing the flexibility to tailor the procedures to specific needs, these engagements can address unique aspects of a company’s operations and risks, ensuring a more thorough and targeted analysis. This customized approach often leads to more relevant and meaningful insights for stakeholders. The efficiency of Agreed Upon Procedures can result in cost savings for businesses, as they only pay for the specific procedures conducted rather than a comprehensive audit.

The independent opinions provided through this process enhance the credibility and reliability of financial statements, instilling confidence in investors and other users of the information.


Customization in Agreed Upon Procedures allows for tailored verification of financial data, focusing on material aspects to ensure accuracy and relevance to the client’s financial position.

This targeted approach involves adapting the audit procedures to specifically address the unique characteristics of the client’s operations and industry sector. By honing in on key financial indicators and significant transactions, the procedures can be fine-tuned to provide meaningful insights into the financial health of the client.

This personalized scrutiny not only enhances the effectiveness of the procedures but also increases the value proposition for the client, as it directly addresses their specific concerns and risks. This customized verification process helps in identifying potential irregularities or discrepancies that may have a significant impact on the client’s financial condition.


Cost-effectiveness in Agreed Upon Procedures is achieved through targeted testing, efficient sampling methods, and focused verification procedures that optimize resource utilization.

  1. By strategically targeting specific areas for testing, organizations can avoid unnecessary expenses associated with broad-spectrum assessments.
  2. Implementing efficient sampling strategies allows for the collection of representative data without overspending on extensive sampling efforts.

The use of focused verification procedures helps ensure that only essential validations are conducted, reducing redundancy and cutting down on additional costs. By combining these cost-effective approaches, businesses can streamline their Agreed Upon Procedures process while maintaining thoroughness and accuracy in their assessments.


Agreed Upon Procedures offer flexibility in engagements, allowing for customized testing approaches, tailored compliance assessments, and adaptable procedures to meet specific reporting requirements.

This flexibility enables professionals to design procedures that are uniquely suited to the nature of the engagement, ensuring that the testing and assessments undertaken are relevant and effective.

Whether it’s conducting detailed analyses on financial data or verifying regulatory compliance, Agreed Upon Procedures can be tailored to address the specific needs of the organization.

This level of customization enhances the overall engagement process by providing targeted insights and recommendations based on the most critical aspects of the entity’s operations.

Independent Opinion

The independent opinion provided through Agreed Upon Procedures is based on thorough evidence collection, detailed assertions, and professional judgment, ensuring objectivity and reliability in financial evaluations.

By endorsing independent opinions in such procedures, financial stakeholders can place trust in the accuracy and validity of the assessments conducted. The reliance on concrete evidence ensures that conclusions are not merely speculative but grounded in factual support, enhancing the credibility of the findings.

Through detailed assertions, the process of evaluating financial data becomes transparent, allowing for a clear understanding of the methodology employed. Professional judgment plays a pivotal role in upholding impartiality and aligning with industry standards, reinforcing the integrity of the entire assessment process.

What Are The Limitations Of Agreed Upon Procedures?

Despite their benefits, Agreed Upon Procedures have limitations such as a restricted scope of work and reliance on compliance evidence rather than assurance on financial statements.

This restricted scope can leave gaps in identifying potential errors or discrepancies that may not fall within the specified procedures. Although compliance evidence is valuable, it does not offer the same level of confidence as a full audit in providing a comprehensive assessment of financial statements.

This reliance on specific procedures can result in overlooking important aspects that could impact the overall financial health of a business. Therefore, it is crucial for stakeholders to understand the boundaries and constraints of Agreed Upon Procedures when relying on them for financial assessments.

Limited Scope

The limited scope in Agreed Upon Procedures results from adhering to agreed criteria and specific assertions, which may restrict the depth of verification compared to full audit engagements.

This constraint can pose challenges for auditors aiming to provide a comprehensive assessment of financial information. As a result of this limited scope, auditors may find themselves unable to provide a complete assurance on the financial statements.

The constraints imposed by agreed criteria may hinder the ability to detect potential errors or fraud within the financial data. It is crucial for auditors to carefully navigate these limitations to ensure that stakeholders are aware of the boundaries of Agreed Upon Procedures and the constraints they bring.

Lack Of Assurance

Agreed Upon Procedures fall short in providing full assurance on financial statements due to their focus on compliance and financial controls testing rather than comprehensive assurance testing.

While Agreed Upon Procedures provide valuable insights into specific aspects of financial activities, such as compliance with regulations and the effectiveness of internal financial controls, they do not offer the same level of comprehensive assurance as an audit. The procedures focus on specific agreed-upon areas, limiting the scope of assurance provided. This targeted approach means that other areas of the financial statements may not receive the same level of scrutiny, leading to gaps in the overall assurance provided.

What Is An Example Of Agreed Upon Procedures?

An example of Agreed Upon Procedures involves evaluating internal controls, reviewing financial statements, and confirming accounts receivable to ensure accuracy and compliance.

For instance, during the evaluation of internal controls, the auditor may look at the segregation of duties within the company to prevent fraud or errors. In reviewing financial records, the auditor would examine the company’s income statement and balance sheet to verify that they are in line with the generally accepted accounting principles (GAAP). Confirming accounts receivable entails matching the invoices with customer payments to validate the company’s revenue. In this engagement, meticulous attention to detail and strict adherence to procedures are crucial to maintain the integrity of the financial information.

Evaluating Internal Controls

In this scenario, Agreed Upon Procedures involve assessing internal controls, conducting risk assessments, and reviewing documentation to ensure the effectiveness and reliability of financial processes.

  1. During the evaluation of internal controls, the first step is to identify potential risks that could impact the accuracy and integrity of financial reporting. Risk assessments play a crucial role in determining the likelihood and impact of various risks on the organization’s operations.
  2. Subsequently, a thorough review of documentation is conducted to verify that proper procedures are in place and being followed. This includes examining financial records, policies, and procedures to ensure compliance with regulatory requirements. Assessing the effectiveness of processes involved in financial transactions is essential to identify any weaknesses or inefficiencies that could undermine the reliability of financial information.

Reviewing Financial Statements

This example of Agreed Upon Procedures involves scrutinizing financial statements, performing account reconciliations, and applying analytical procedures to validate financial data accuracy.

During the review process, account reconciliations play a crucial role in ensuring that the balances reported in the financial statements align with the corresponding accounts in the general ledger. This involves comparing and matching individual transactions, verifying the accuracy of financial data entries, and checking for any discrepancies that may indicate errors or misstatements.

Various analytical procedures are applied to assess the consistency and reasonableness of financial information, such as trend analysis, ratio calculations, and variance investigation. These steps help in identifying potential anomalies and ensuring the reliability and integrity of the financial statements.

Confirming Accounts Receivable

Confirming accounts receivable is a critical component of Agreed Upon Procedures, involving transaction testing, inquiries, and verification to validate the accuracy of financial records.

This process helps ensure that the amounts stated in the accounts receivable ledger match the amounts customers owe the company.

Transaction testing involves reviewing individual transactions to confirm they were properly recorded.

Inquiries are made directly to customers to validate outstanding balances, while verification involves examining supporting documentation for receivable amounts.

By conducting these steps diligently, auditors can gain assurance regarding the completeness and accuracy of accounts receivable, providing a clear picture of the organization’s financial health.

Frequently Asked Questions

What Does Agreed Upon Procedures Mean?

Agreed Upon Procedures, or AUP, is a term used in finance to refer to a type of engagement where a client agrees to have a third party perform a specific set of procedures on their financial information. These procedures are agreed upon beforehand and are used to provide assurance on the accuracy of the financial information.

What is the Purpose of Agreed Upon Procedures?

The purpose of Agreed Upon Procedures is to provide limited assurance on the accuracy of financial information. These procedures are chosen by the client and can vary depending on their specific needs and concerns. AUP engagements are often used when a full audit or review is not necessary, but some level of assurance is still desired.

What are Some Examples of Agreed Upon Procedures?

Examples of Agreed Upon Procedures can include testing specific account balances, verifying the accuracy of financial statements, or reviewing the effectiveness of internal controls. The specific procedures used will depend on the client’s needs and the nature of their financial information.

How is Agreed Upon Procedures Different from an Audit?

While both Agreed Upon Procedures and audits involve a third party reviewing financial information, there are some key differences. An audit provides a higher level of assurance, as the auditor performs more extensive testing and procedures. In contrast, AUP engagements are tailored to the specific needs of the client and provide limited assurance.

Who Can Perform Agreed Upon Procedures?

Agreed Upon Procedures can only be performed by a qualified third party, such as a certified public accountant (CPA), who has the necessary expertise and knowledge in finance and accounting. It is important to choose a reputable and experienced professional to ensure the accuracy and reliability of the procedures.

What are the Benefits of Agreed Upon Procedures?

Agreed Upon Procedures can provide numerous benefits to clients, including a cost-effective way to obtain assurance on their financial information, increased transparency, and the ability to address specific concerns or issues. These engagements can also help identify potential areas for improvement in internal control processes.

Leave a Reply

Your email address will not be published. Required fields are marked *