Agreed Upon Procedures

What are Agreed Upon Procedures?

Definition: Agreed upon procedures engagement is a job where the company gives the other hired auditor an agreement stating which tests or processes it is permitted to analyze.

What Does Agreed Upon Procedures Mean?

An agreed upon procedure is a standard a company or client outlines when it hires an external party to perform an audit on a specific test or business process. The procedures, which are called audit standards, are designed and agreed upon by the entity conducting the audit, as well as any appropriate third parties.

The auditor’s report on the findings is usually restricted to those parties who developed the agreed upon procedures because of the specificity of the desired results. For example, agreed-upon procedures may be developed by one entity that is considering purchasing another business. The purchasing entity would likely develop the agreed-upon procedures to help determine specific monetary or other information about the business it may acquire.

In an audit conducted under agreed-upon procedures, the auditor provides only factual findings and does not offer opinions, conclusions or assurances in the final report. Instead, the auditor’s report simply presents the facts, with the audit facilitators drawing their own conclusions from the findings.

Example

Let’s say, Biop, a company that delivers pharmaceutical goods to senior citizens and elderly people’s door has been getting complaints about in accurate delivery times. Before the issue progress, the transportation manager and specialists hires an auditing team to discover the root of the issue in order to make arrival times more accurate.

When Mark, the transportation executive, meets with the auditing company, he had his attorney draft an agreement that specifies the exact procedures the auditors are allowed to perform. He wants to avoid unnecessary or sensitive information from being gathered and compromised. He says that they are allowed to inspect the truck efficiencies, the system that calculates the distance from pick-up areas to drop-off locations, and how long it takes all shipments to be prepared for shipment. Any other procedures performed outside of the engagement will be considered a breach of contract and may result in legal action. The engagement is only binding if all parties involved agree to the terms, these are usually not negotiable and set clear boundaries for the auditing team to facilitate in.

If the problem is still not found, another engagement may be drafted to inspect other possible inaccuracies but rarely will corporations allowing voluntary auditing to commence without one.

Summary Definition

Define Agreed Upon Procedures: Agreed-upon procedures engagement means the service that company management and auditors approve before the services are rendered.

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