Agreed-upon procedures engagements, in contrast to assurance engagements, provide no explicit assurance (audit or review assurance). Agreed-upon procedures engagements are only appropriate when users will be able to draw their own conclusions from the factual findings reported combined with any other information available to them. Agreed-upon procedures engagements can address subject matter such as turnover lease agreements, management agreements, leave provisions, loan securitisation, stocktake procedures, debtors’ balances and controls to meet contractual obligations.
Key features
ASRS 4400 Agreed-Upon Procedures Engagements to Report Factual Findings is the first standard issued by the AUASB on “related services”. It deals with the conduct of agreed-upon procedures engagements which involve procedures of an assurance nature but no conclusion or opinion is expressed or provided.
ASRS 4400 identifies that risk assessment, responding to assessed risks, evaluation of evidence gathered and expressing a conclusion or opinion are aspects of an assurance engagement which are not performed when no assurance is to be provided, ie, in agreed-upon procedures engagements.
The objective of the assurance practitioner in an agreed-upon procedures engagement is to apply his/her professional capabilities and competence in carrying out procedures of an assurance nature. These procedures, to which the assurance practitioner, the engaging party and any third party (as applicable) have agreed, are then reported in a “report factual findings”, without providing assurance or implying that assurance has been provided.
ASRS 4400 makes it clear that an agreed-upon procedures engagement is not an assurance engagement; however, because the engagement is conducted by assurance practitioners, then the standard does address the professional responsibilities of the assurance practitioner. These include but are not limited to the need for practitioner to have the capabilities, competence and resources to perform the procedures.
ASRS 4400 is written in clarity format and aligns with the other AUASB standards written under clarity. For users to rely on the factual findings reported, certain requirements, such as the need for the engagement team to have the capabilities, competence and resources to perform the procedures, a system of quality control and adequate documentation, are consistent with requirements for assurance engagements.
ASRS 4400 deals with the content of a report of factual findings to differentiate it from an assurance report. ASRS 4400 deals with how the form, content and restrictions on distribution of an assurance practitioner’s report of factual findings helps to minimise misinterpretation and promote the intended users’ understanding of that report.
ASRS 4400 replaces AUS 904, and is applicable to agreed-upon procedures engagements for reporting periods commencing on or after 1 October 2011.
Major changes from AUS 904 to ASRS 4400
The major changes from to AUS 904 Engagements to Perform Agreed-upon Procedures to ASRS 4400 Agreed-Upon Procedures Engagements to Report Factual Findings include:
- the boundaries between an assurance engagement, an agreed-upon procedures engagement, and other professional services engagements have been clarified
- more substantive requirements regarding engagement acceptance, including identifying circumstances where agreed-upon procedures are not acceptable
- incorporation of recently revised ethical requirements of APES 110 Code of Ethics for Professional Accountants, section 291 Independence – Other Assurance Engagements
- identification of other assurance standards ASA 805 Special Considerations – Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement, ASA 2405 Review of Historical Financial Information Other than a Financial Report, and ASAE 3000 Assurance Engagements Other than Audits or Reviews of Historical Financial Information
- an explicit requirement that risk and materiality assessments are not performed
- restrictions on the use of analytical review procedures
- specific quality control requirements and enhanced documentation required
- revised examples of engagement letter and report on factual findings and the introduction of appendices addressing Differentiating Factors between Agreed-Upon Procedures Engagements and Assurance Engagements and Examples of Differences in Scope between an Agreed-Upon Procedures Engagement and an Assurance Engagement, and
- minor revisions to the reporting on factual findings.
Characteristics and selection
Characteristics of an agreed-upon procedures engagement are:
- Not an assurance engagement: Although similar procedures are performed as to assurance engagement, the purpose of the procedures performed for an agreed upon procedures engagement is not to obtain sufficient appropriate evidence on which to base a conclusion
- No conclusion or opinion provided: The performance of procedures of an assurance nature from which no conclusion or opinion is expressed by the assurance practitioner and no assurance is provided to intended users
- Factual finding: Only factual findings obtained as a result of the procedures performed are reported
- Risk assessment: No risk assessment procedures are performed as nature, timing and extent of procedures to be performed are agreed with the engaging party rather than determined by the assurance practitioner in response to assessed risks, and
- Materiality: Materiality is not applied in designing the procedures to be performed or to assessing the factual findings to determine whether the subject matter information is free from material misstatement or non-compliance, as this is the responsibility of the intended users.
The procedures applied in an agreed-upon procedures engagement may include: inspection; observation; external confirmation; re-calculation; re-performance; analytical review procedures; and enquiry (ASRS 4400.A15). The nature, timing, and extent of such procedures are discussed and agreed with the engaging party.
Analytical procedures are not performed in an agreed-upon procedures engagement unless the engaging party provides an expectation of recorded amounts or ratios on which the assurance practitioner may base the analytical procedures. The engaging party’s expectations are defined in the procedures described in the terms of the engagement. It is necessary for the engaging party to provide the expectations as a basis for the analytical procedures so that the assurance practitioner does not use their professional judgement to develop expectations. The assurance practitioner must not interpret the findings from the analytical procedures but simply presents the findings against the expectations provided by the engaging party.
Action items
The following seven action items may assist the assurance provider in dealing with the revised agreed-upon procedures requirements:
- Identify all ongoing engagements where agreed upon procedures are performed and determine whether these engagements can still be undertaken as such, or now need to be undertaken as an assurance engagement.
- Update agreed-upon procedures engagements policies, procedures, programs and precedents, and compile into an Agreed-upon Procedures manual.
- Have revised policies, procedures, and precedents subject to quality assurance process and consider the benefits of an independent review.
- Organise training for staff on ASRS 4400.
- Engage with clients on revised requirements and reissue engagement letters.
- Align existing agreed-upon procedures engagements to the new requirements.
- Update internal quality assurance programs for new requirements and, adopting a risk-based approach, focus increased attention to ASRS 4400 engagements particularly in the early years of its operation.
Conclusion
Revision to AUS 904 Engagements to Perform Agreed-upon Procedures is long overdue. In practice, the application of AUS 904 has resulted in a number of agreed-upon procedures engagements evolving into a mixture of assurance and non-assurance approaches and reporting. The specific prohibitions in ASRS 4400 Agreed-Upon Procedures Engagements to Report Factual Findings are the standard-setters’ response. ASRS 4400 will reduce the inappropriate use of agreed-upon procedures engagements, where users’ needs indicate that a conclusion, advice or recommendations are required. A number of existing agreed-upon procedures engagements are now likely to be redesignated as assurance engagements.
ASRS 4400 contains many more requirements than its predecessor. ASRS 4400 requires a structured approach to its implementation to ensure that it is appropriately applied in practice and the assurance provider is not unnecessarily exposed to regulatory and litigation risks. Get the approach to agreed-upon engagements right from the start. Invest the time and effort or disengage in providing such services.
