What are Agreed-Upon Procedures?

Agreed-upon procedures are those activities that a client and an auditor agree will be employed in the investigation of specific accounts or procedures. The auditor does not express an opinion or any assurances about this investigation, instead reporting on the procedures used and any resulting findings. The client then draws its own conclusions from the report. Also, the client takes responsibility for the outcome of the investigation. The auditor’s report is only shared with the client – it is not intended for external consumption.

Agreed-upon procedures may be used in a number of investigations on behalf of a client. For example, auditors could be hired to conduct a due diligence investigation of certain aspects of an acquiree’s books, or to investigate a possible case of fraud within a business.

Examples of Agreed-Upon Procedures

Here are several examples of agreed-upon procedures:

Inventory valuation. A business is concerned that it is not properly valuing the inventory that is on consignment at other businesses. Accordingly, it hires an audit firm to examine its procedures for ascertaining inventory levels at outside locations, as well as the sale procedures used by its distributors. The auditors also review the valuation procedures of the client, to see if the inventory it still owns is being appropriately valued in its accounting records.
Cash disbursements. A company has requested that an external accountant perform agreed-upon procedures on its cash disbursements process. The company is seeking confirmation of proper authorization and accurate recording of cash disbursements to provide assurance to its board of directors. Accordingly, the auditor conducts a review of proper authorizations, where there is adequate supporting documentation, and whether these transactions were properly recorded in the accounting records. The auditor then prepares a report for the client, itemizing any issues found.