The question, “Is Agreed Upon Procedures An Assurance Engagement,” often arises in auditing and financial discussions. Understanding the nature of Agreed Upon Procedures (AUP) and their relationship to assurance engagements is crucial for businesses, auditors, and anyone involved in financial reporting. Let’s break down this concept to provide a clear and concise answer.
Delving into Agreed Upon Procedures and Assurance
Agreed Upon Procedures (AUP) engagements involve an auditor being engaged to perform specific procedures that have been agreed upon with the client and any specified third parties. Instead of providing an opinion or conclusion on the overall financial statements or subject matter, the auditor simply reports the factual findings from performing the agreed-upon procedures. This is quite different from a typical audit where the goal is to provide reasonable assurance that the financial statements are free from material misstatement. The key distinction lies in the level of assurance provided and the scope of work performed.
To further understand AUP engagements, consider these key characteristics:
- Specific Procedures: The auditor only performs the procedures that have been explicitly agreed upon.
- Factual Findings: The auditor reports the factual results of performing those procedures, without expressing an opinion.
- Limited Assurance: Because the procedures are limited and defined by agreement, the level of assurance is considerably lower than a full audit.
Considering the components above, let’s compare it against the actual definition of an assurance engagement:
| Component | Description |
|---|---|
| Three Party Relationship | Involves a practitioner, a responsible party, and an intended user. |
| Subject Matter | The information or assertion being examined. |
| Suitable Criteria | The benchmarks used to evaluate the subject matter. |
| Evidence | Information gathered to support the practitioner’s conclusion. |
| Assurance Report | The practitioner’s conclusion, providing a level of assurance. |
Given the structured nature of AUP engagements and the lower level of assurance provided when compared to a full audit, AUPs are often viewed as a middle-ground. They are used when specific concerns or areas need to be examined, but a full audit isn’t required or necessary. While AUPs share characteristics with assurance engagements because of the 3 party relationship, subject matter, suitable criteria, evidence and assurance report, the level of assurance provided doesn’t meet the threshold to be considered a full assurance engagement.
Want to learn more about the specific standards governing Agreed Upon Procedures? Refer to the official guidance issued by auditing standard setters for detailed information and examples.