Agreed-upon procedures – a seldom used auditor service in Poland

2 August 2016

We all know that auditors carry out audits and reviews of financial statements. Occasionally, they co-author the statements. Yet, in my long-standing practice I have not seen much popularity of another auditor service, namely the agreed-upon procedures.

This service is described in International Standard on Related Services 4400 as "Agreed-Upon Procedures Regarding Financial Information". This means that the requirements for auditors as to how to define the engagement and deliver the findings are formalised.

As I mentioned, this is neither an audit nor a review, so the report on the service contains no assurance. Since the report of factual findings refers to specific items of the financial statements or specific tasks, it presents exclusively information about these very issues.  That is why it is extremely important to agree on the purpose and extent of the engagement so that both parties have a clear understanding of what is included in the service. The client and the auditor need to be involved in the first stage much more than in the standard financial statement audit. The agreed-upon procedures are always customised, carried out to meet individual requirements of the client and, consequently, are not really repeatable. No special agreement or formal resolutions are required for the agreed-upon procedures. The 4400 standard requires only that an auditor sends an engagement letter (illustrated in an appendix to the standard).

One example of such an engagement may be to check selected procedures in a certain process of the client to see how the control mechanisms function in that area, if they are truly effective and if they cover all potential risks identified by the auditor. With such a selective approach the auditor can focus on specific tasks rather than on the whole process.

Another example of the agreed-upon procedures may be to engage the auditor to check turnover which two parties to a contract have achieved with third parties. This is often used when two parties try to reconcile their accounts and cannot reach shared conclusions and agreements. The auditor as an independent party delivers his findings based on evidence check.

In carrying out the agreed-upon procedures the auditor relies on the documentation provided by the client and uses appropriate accuracy checks, such as inquiry and analysis, observation, inspection, obtaining confirmations, recomputation, comparison. The auditor carries out his job in a manner and time agreed with the client and in the end delivers a report of factual findings.

The report is addressed to a narrow group of people, usually the client only. There may be more than one party involved (as in the second example above) but they must be identified already at the planning stage of the engagement. The report of factual findings should contain specific financial or non-financial information to which the agreed-upon procedures have been applied, identification of the purpose for which the procedures have been performed and a listing of the specific procedures performed. Then, the auditor takes one by one all the procedures performed to present his findings. The recipient has to draw the conclusions himself. The report includes also a statement confirming the auditor's independence and emphasising that the procedures performed do not constitute either an audit or a review. An appendix to International Standard 4400 contains an illustration of the report. 

The agreed-upon procedures allow focusing on a selected issue which the client wants to check utilising the auditor's knowledge and experience.