Academy/Taxes, Audits & Financial Compliance
Agreed-upon procedures
A narrower, cheaper alternative to a full audit, for when the board has one specific question, not a whole set of books to test.
An agreed-upon procedures engagement is not a smaller audit. The board and a CPA agree in advance on specific, narrow procedures, for example confirming the manager deposited every assessment collected, and the CPA reports only the factual results. No opinion on the financial statements as a whole is given.
What an agreed-upon procedures engagement is
An agreed-upon procedures engagement is a different kind of engagement, not a discount audit. The board and the CPA agree in advance on a specific list of procedures, for example confirming that assessments the manager collected were deposited into the operating account, or that every bank statement was reconciled that month. The CPA performs exactly those procedures and reports the factual results in plain terms. No opinion is offered on the financial statements as a whole, because none was asked for.
Where it fits among audits, reviews, and compilations
A compilation, a review, and an audit form a ladder: each goes further than the last in how much assurance it gives. Agreed-upon procedures sits off that ladder entirely. It answers one narrow question the board actually has instead of covering the whole set of financial statements.
| Engagement | What the board gets |
|---|---|
| Compilation | Statements presented, no assurance offered |
| Review | Limited assurance from inquiry and analytics |
| Audit | A tested opinion on the whole set of statements |
| Agreed-upon procedures | Factual findings on only the items you asked about |
What the report cannot do for the board
A full audit closes with an opinion, a formal statement that the financial statements are fairly presented or are not.
"The auditor's report must state that the audit was conducted in accordance with GAAS."
Source: Clarified auditing standards, AU-C 700 to 706, AICPA
An agreed-upon procedures report never reaches that kind of opinion, and a board cannot read one as if it did. It is also a separate document from a management letter, which an auditor writes to flag internal control weaknesses found during an audit or review. Having a management letter on file does not mean the board asked for agreed-upon procedures, and asking for agreed-upon procedures does not produce a management letter.
Check yourself
Answer before you read the explanation, recalling it is what makes it stick.
The board wants to know only whether the manager deposited every collected assessment, and does not want to pay for a full audit. What should they ask the CPA for?
A director reads an agreed-upon procedures report and tells the board the CPA gave the financials "a clean bill of health." What is wrong with that claim?
The board received an agreed-upon procedures report on bank reconciliations and, separately, a management letter from last year's audit. How do the two documents differ?
Sources
- AT-C Section 215, Agreed-Upon Procedures Engagements, AICPA (summarized by Deloitte DART)
- Statements on Standards for Accounting and Review Services (SSARS), AICPA (summarized by Journal of Accountancy and NSA)
- Clarified auditing standards on the auditor's report, AU-C 700 to 706, AICPA
- Understanding the Management Letter on Internal Control, HBK CPAs & Consultants
Taxes, Audits & Financial Compliance
Not sure whether your association needs an audit, a review, or something narrower? See how audits and reviews compare.
Whether agreed-upon procedures can satisfy an audit or review requirement in your bylaws or state statute, and which specific procedures are worth agreeing to, varies by association and by state, so check your governing documents and ask your CPA before treating an agreed-upon procedures report as a substitute for a required audit or review.