Auditing Compliance with Agreed Upon Procedures Engagements

Auditing Compliance with Agreed Upon Procedures Engagements

In this blog, we look at the essential concepts and practices behind auditing compliance with Agreed Upon Procedures (AUP) engagements. We’ll discuss these, their benefits, and the key steps in conducting an effective audit. Whether you’re a business owner, an auditor, or simply curious about auditing compliance, this information provides valuable insights into understanding this critical aspect of financial accountability.

The Importance of Agreed Upon Procedures Engagements

AUP plays a crucial role in ensuring transparency, accountability, and credibility in various business processes and involves independent auditors performing specific procedures to report their findings based on agreed-upon criteria. This identifies potential risks, internal control weaknesses, and operational inefficiencies, allowing organizations to take timely corrective actions. 

Benefits of Conducting Agreed Upon Procedures Engagements

Clear benefits abound in AUP engagements and point to the intrinsic value of the process.

Flexibility

Flexibility is a key benefit to engagements. It allows for customized procedures to specific needs, targeting the most impactful areas of concern and providing details on those particular aspects. This same flexibility also allows for a variety of use cases with many stakeholder groups, like management, investors, lenders, regulators, or other interested parties.

Regulatory Compliance

AUP engagements assist organizations in meeting regulatory or contractual obligations by providing assurance services on specific compliance-related matters. The engagements help ensure that an organization operates within the boundaries of applicable laws and regulations, leading to greater adherence to legal requirements, improved risk management, increased stakeholder confidence, improved governance, and an overall competitive advantage within a given industry.

Risk Management

Identifying the potential risks and weaknesses in internal controls is a further valuable benefit. Agreed-upon procedures are designed to obtain specific information or evidence about the effectiveness of controls, enable early detection of control deficiencies, and reduce the likelihood of adverse events or financial irregularities. With the identification of the risks, actionable recommendations for improvement are discovered, and the findings are used to develop targeted remediation plans.

Conducting Agreed Upon Procedures Engagements

Understanding the Engagement Scope

The scope of AUP engagements is defined by the specific mutually agreed-upon procedures. Unlike audits or reviews, engagements do not involve expressing an opinion or providing conclusions on the subject matter. Instead, the practitioner’s role is limited to objectively reporting factual findings based on the procedures. The scope varies depending on the objectives and requirements of the engaging party and allows for a tailored approach to address specific concerns or areas of interest.

Determining the Procedures Performed

To determine the procedures performed in an engagement, several key steps are involved.

• Engaging parties clearly define the objectives and scope, identifying the subject matter and purpose required. 
• The practitioner assesses the risks and relevant regulations associated with the subject matter, considering any industry-specific requirements, and determines the appropriate procedures necessary. 
• Procedures are designed for specific circumstances and may include tests, analyses, evaluations, confirmations, etc. 
• Engaging parties agree on the reporting format, ensuring it will provide relevant and useful information.

Collecting and Analyzing Data

A data collection plan creates a systematic approach to required data gathering, and the necessary access rights and permissions are obtained to collect data from relevant individuals. Execution of this plan ensures accurate and complete capture of the specified information, with verification of data integrity performed to ensure the accuracy, completeness, and reliability of all collected data.

Using analytical techniques, such as calculations, comparisons, and trend analysis, meaningful insights are derived from the collected data. The results of the analysis are documented and recorded, including any exceptions or anomalies discovered during the process.

Reporting the Findings

Proper reporting of the results of an engagement involves summarizing the findings in a clear and concise manner that details the procedures performed, the data analyzed, and the conclusions drawn. More specifically, reports typically include an introduction, a concise description of the process, an objective presentation of the findings, additional context, limitations and restrictions, a summary and conclusion, and any supporting documentation.

How to Leverage the Findings of Agreed Upon Procedures Engagements

Review

To leverage areas of improvement in the findings of an AUP engagement, it’s important to first carefully review the identified areas for improvement. It’s necessary to understand the implications of the findings and an assessment impact of each in an organization’s operations, financial statements, or compliance with regulations.

Prioritize

Prioritizing and ranking the findings based on their potential risk and importance to the organization is the next step. A focus on areas with the greatest impact or that present the highest risk is usually the priority. By analyzing the root issue and digging deep to identify the underlying causes contributing to each finding, you can understand the factors that led to the identified issues or weaknesses.

Action Plan

An action plan is instrumental in developing a procedure to address each finding. Individual responsibilities are assigned once a specific outline of actions, responsibilities, timelines, and resources required to rectify the issues are identified. A detailed assignment of tasks ensures accountability and clearly defines who’s responsible for implementation. The final part is to regularly track and monitor the progress of the action plan. Established milestones and constant review engagement ensures timely and effective resolution of the identified areas.’

The Final Word on Agreed Upon Procedures Engagements

Agreed-upon procedures engagements allow for tailored reporting that provides stakeholders with information that is credible, relevant, and useful to them, and at Hamptons Group, that’s what we provide. Reach out to one of our experts for more information.