AT 201: Agreed-Upon Procedures Engagements
EFFECTIVE DATE AND APPLICABILITY
| Original Pronouncement |
Statement on Standards for Attestation Engagements (SSAE) 10, Attestation Standards: Revision and Recodification, as amended by SSAE 11. |
| Effective Date |
These statements currently are effective. |
| Applicability |
All agreed-upon procedures engagements, except the following: |
|
1. Situations in which an accountant reports on specified compliance requirements based solely on an audit (see AU Section 623, Special Reports)
2. Engagements for which the objective is to report in accordance with AU Section 801, Compliance Auditing Considerations in Audits of Governmental Entities and Recipients of Governmental Financial Assistance
3. Circumstances covered by AU Section 324, Service Organizations, when the service auditor is requested to apply substantive procedures to user transactions or assets at the service organization and he or she makes specific reference in the service auditor’s report to having carried out designated procedures
4. Engagements covered by AU Section 634, Letters for Underwriters and Certain Other Requesting Parties |
When performing agreed-upon procedures on prospective information or compliance matters, the practitioner should refer to AT Section 301, Forecasts and Projections, and AT Section 601, Compliance Attestation.
DEFINITIONS OF TERMS
Agreed-upon procedures engagement. An agreed-upon procedures engagement is one in which a practitioner is engaged by a client to issue a report of findings based on specific procedures performed on subject matter. The client engages the practitioner to assist specified parties in evaluating subject matter or an assertion. The specified parties assume responsibility for the sufficiency of the agreed-upon procedures. In this type of engagement, the practitioner does not perform an examination or review and does not provide an opinion or negative assurance about the assertion. The practitioner’s report is in the form of procedures and findings.
Assertion. An assertion is any declaration or set of declarations about whether the subject matter is based on, or in conformity with, the criteria selected.
OBJECTIVES OF AT SECTION 201
This section presents attestation standards and provides guidance to a practitioner concerning performance and reporting in all agreed-upon engagements, except those noted above in “Effective Date” and “Applicability.” It was issued because of the diversity in practice in performing and reporting on agreed-upon procedures engagements.
In 2001 the Auditing Standards Board issued SSAE 10, Attestation Standards: Revision and Recodification. SSAE 10 superseded SSAEs 1 through 9 and renumbered the AT sections in the American Institute of Certified Public Accountants’ (AICPA’s) Codification. The revisions to this section include
- Eliminating the requirement for the practitioner to obtain a written assertion in an agreed-upon procedures engagement.
- Providing guidance on engagements to apply agreed-upon procedures to specified elements, accounts, or items of a financial statement previously covered by Statement on Auditing Standards (SAS) 75, Engagements to Apply Agreed-Upon Procedures to Specified Elements, Accounts, or Items of a Financial Statement. (SAS 75 was withdrawn as part of SAS 93, Omnibus Statement on Auditing Standards—2000).
In 2002, SSAE 11 amended this section to delete the guidance on working papers. Documentation requirements for attest engagements are now covered in AT Section 101, Attest Engagements.
FUNDAMENTAL REQUIREMENTS
Standards
The practitioner should follow the general, fieldwork, and reporting standards for attestation engagements (see AT Section 101) in performing and reporting on agreed-upon procedures engagements as interpreted in this section.
Subject Matter
In an agreed-upon procedures engagement, the agreed-upon procedures are applied to the specific subject matter using the selected criteria. The subject matter may take many different forms and be at a point in time or covering a period of time. However, the subject matter and the criteria must meet the conditions in the third general standard (see AT Section 101). The criteria may be stated with the enumerated procedures or referred to in the practitioner’s report.
Assertion
In general, a written assertion is not required in an agreed-upon procedures engagement, except when another attest standard specifically requires it (see AT Section 601). If, however, the practitioner asks that the responsible party provide an assertion, the assertion may be presented in writing in a representation letter or another written communication from the responsible party (such as a statement, narrative description, or schedule, appropriately identifying what is being presented and the point in time or period of time covered). The responsible party’s refusal to furnish a written assertion is a scope limitation that requires the practitioner to withdraw from the engagement.
Acceptance of Engagement
The practitioner may perform an agreed-upon procedures attestation engagement if:
1. He or she establishes an understanding with the client about the services to be performed.
2. He or she has adequate knowledge of the subject matter to which the agreed-upon procedures are to be applied.
3. He or she is independent (ordinarily engagement team independence, not firmwide independence).
4. One of the following conditions is met:
a. The client is responsible for the subject matter, or has a reasonable basis for providing a written assertion about the subject matter when a responsible party does not exist due to the nature of the subject matter.
b. The client is not responsible for the subject matter but is able to provide the practitioner, or have a third party who is responsible for the subject matter provide the practitioner, with evidence of the third party’s responsibility for the subject matter.
5. He or she and the specified parties agree upon the nature, timing, and extent of procedures performed or to be performed. Furthermore, the procedures agreed to should not be overly subjective and possibly open to varying interpretations. The practitioner should not report on the engagement if the specified users do not agree to the procedures.
6. The specified parties take responsibility for the sufficiency of the agreed-upon procedures for their purposes.
7. The specific subject matter to which the procedures are to be applied is subject to reasonably consistent measurement.
8. Criteria to be used in the determination of findings are agreed upon between the practitioner and the specified parties.
9. The procedures to be applied to the specific subject matter are expected to result in reasonably consistent findings using the criteria.
10. Evidence related to the specific subject matter to which the procedures are applied is expected to exist to provide a reasonable basis for expressing the findings in the practitioner’s report.
11. If applicable, the practitioner and the specified parties agree to any materiality limits for reporting purposes.
12. The report is restricted to the specified parties.
13. For agreed-upon procedures engagements on prospective financial information, a summary of significant assumptions is included in the prospective financial statements (see AT Section 301).
Involvement of a Specialist
The practitioner and the specified parties should explicitly agree to involving a specialist, if any, in assisting the practitioner in performing an agreed-upon procedures engagement. The practitioner should not agree to merely read the specialist’s report solely to describe or repeat the specialist’s findings in his or her report. The latter does not constitute assistance to the practitioner.
Involvement of Internal Auditors or Others
Except as referred to in the prior section, the practitioner must perform the agreed-upon procedures included in his or her report. Internal auditors or others may prepare schedules and accumulate data or provide other information for the practitioner, but cannot perform agreed-upon procedures reported on by the practitioner.
Elements of Practitioner’s Report
According to AT 201.38, the practitioner’s report on agreed-upon procedures should be in the form of procedures and findings. The report should contain the following elements:
1. A title that includes the word independent
2. Identification of the specified parties
3. Identification of the subject matter (or the written assertion related thereto) and the character of the engagement
4. Identification of the responsible party
5. A statement that the subject matter is the responsibility of the responsible party
6. A statement that the procedures performed were those agreed to by the specified parties identified in the report
7. A statement that the agreed-upon procedures engagement was conducted in accordance with attestation standards established by the AICPA
8. A statement that the sufficiency of the procedures is solely the responsibility of the specified parties, and a disclaimer of responsibility for the sufficiency of those procedures
9. A list of procedures performed (or reference thereto) and all related findings; negative assurance should not be given, and vague or ambiguous language in reporting findings should be avoided
10. If applicable, a description of any agreed-upon materiality limits
11. A statement that the practitioner was not engaged to, and did not, conduct an examination of the subject matter, the objective of which would be the expression of an opinion, a disclaimer of opinion on the assertion, and a statement that if the practitioner had performed additional procedures, other matters might have come to his or her attention that would have been reported
12. A statement of restrictions on the use of the report because it is intended to be used solely by the specified parties
13. For an agreed-upon procedures engagement on prospective financial information, all items included in AT Section 301
14. If applicable, a description of the nature of the assistance provided by a specialist.
15. If applicable, and if the practitioner does not withdraw from the engagement, describe any restrictions (not agreed to) or reservations on the performance of the procedures
16. The manual or printed signature of the practitioner’s firm
17. The date of the report
Other requirements are as follows:
1. If desired, explanatory language about matters such as disclosure of stipulated facts, assumptions, or interpretations; description of the conditions of records, controls, or data; explanation that the practitioner has no responsibilities to update the report; and explanation of sampling risk
2. If applicable, and if the practitioner does not withdraw from the engagement or change the engagement to another form of engagement, disclose in his or her report the inability to obtain representations from the responsible party (see the section “Representation Letter”)
3. If, in connection with the application of agreed-upon procedures, matters come to the practitioner’s attention by other means that significantly contradict the subject matter (or written assertions), include this matter in the report
Dating of Report
The practitioner’s report should be dated as of the date of completion of the agreed-upon procedures.
Adding Specified Parties
The practitioner may be asked to consider adding another party as a specified party (a nonparticipant party) after the completion of the agreed-upon procedures engagement. If the practitioner agrees to add the nonparticipant party as a specified party, he or she should obtain affirmative acknowledgment from that party, normally in writing, agreeing to the procedures performed and agreeing to take responsibility for the sufficiency of those procedures.
If a nonparticipant party is added after the practitioner has issued his or her report, the practitioner may reissue the report or provide written acknowledgment that a party has been added. If the report is reissued, the report date should not be changed. If written acknowledgment is provided, the acknowledgment ordinarily should state that no procedures have been performed subsequent to the date of the report.
Restrictions on the Performance of Procedures
The practitioner should attempt to have specified parties agree to any modification of the agreed-upon procedures when circumstances impose restrictions on the performance of those procedures. If an agreement cannot be obtained (for example, when the agreed-upon procedures are published by a regulatory agency that will not modify those procedures), the practitioner should either describe any restrictions in his or her report or withdraw from the engagement.
Representation Letter
Practitioners may find that a representation letter is useful in obtaining representations from the responsible party. Generally, a representation letter is not required for this type of engagement. However, a representation letter is required in an agreed-upon procedures engagement related to compliance with specified requirements (see AT Section 601). If the practitioner decides to request a representation letter from the responsible party and that party refuses to furnish one, the practitioner should do one of the following:
1. Disclose in the accountant’s report the inability to obtain representations from the responsible party.
2. Withdraw from the engagement (required for an agreed-upon procedures engagement related to compliance with specified requirements).
3. Change to another form of engagement.
Knowledge of Outside Matters
If matters come to the practitioner’s attention by other means outside the agreed-upon procedures that significantly contradict the assertion referred to in the report, the practitioner should include the matter in the report.
Change from Another Engagement (Attest or Nonattest) to an Agreed-Upon Procedures Engagement
Before agreeing to change another type of engagement to an agreed-upon procedures engagement, the practitioner should consider the following:
1. Are there certain procedures performed as part of the other engagement that are not appropriate to include in an agreed-upon procedures engagement?
2. What are the reasons given for the request, especially any scope restrictions or restrictions on matters to be reported related to the other engagement?
3. What additional effort is required to complete the other engagement?
4. What is the reason for changing from a general-use to a restricted-use report?
5. Is it appropriate to accept a change in engagement if agreed-upon procedures are substantially complete (or effort to complete the procedures is relatively insignificant)?
INTERPRETATIONS
There are no interpretations for this section.
TECHNIQUES FOR APPLICATION
Meaning of Independence
Independence requirements for an agreed-upon procedures engagement are less stringent than the independence requirements for other attest and audit engagements (refer to the Code of Professional Conduct, Interpretation 101.11, Modified Application of Rule 101 for Engagements Performed in Accordance with Statements on Standards for Attestation Engagements [Revised February 2012, effective April 30, 2012].
Engagement Letter
The practitioner should establish a clear understanding regarding the terms of engagement, preferably in an engagement letter. Engagement letters should be addressed to the client, and, in some circumstances, to all specified parties. According to AT 201.10, the practitioner should consider including the following matters in the engagement letter:
1. Nature of the engagement
2. Identification of the subject matter (or the assertion related thereto), the responsible party, and the criteria to be used
3. Identification of specified parties
4. Specified parties’ acknowledgment of their responsibility for the sufficiency of the procedures
5. Responsibilities of the practitioner
6. Reference to attestation standards established by AICPA
7. Agreement on procedures by enumerating, or referring to, the procedures
8. Disclaimers expected to be included in the practitioner’s report
9. Use restrictions
10. Assistance to be provided to the practitioner
11. Involvement of a specialist, if applicable
12. Agreed-upon materiality limits, if applicable
Communication with Specified Parties
Ordinarily, the practitioner should communicate directly with, and obtain affirmative acknowledgment from, each of the specified parties. This may be accomplished by:
1. Meeting with the specified parties
2. Distributing a draft of the anticipated report to the specified parties and obtaining their agreement
3. Distributing a copy of the engagement letter to the specified parties and obtaining their agreement
If the practitioner is unable to communicate directly with all of the specified parties, he or she should consider doing one or more of the following:
1. Comparing the procedures to be applied to written requirements of the specified parties
2. Discussing the procedures to be applied with appropriate representatives of the specified parties
3. Reviewing relevant contracts with, or correspondence from, the specified parties
Procedures to Be Performed
The procedures agreed upon by the practitioner and the specified parties may be as limited or as extensive as the specified parties wish. Mere reading of an assertion or specified information, however, is not sufficient to permit a practitioner to report on the results of applying agreed-upon procedures.
Appropriate procedures might include:
1. Executing a sampling application after agreeing on relevant parameters
2. Inspecting specified documents
3. Confirming information with third parties
4. Comparing documents, schedules, or analyses with specified attributes
5. Performing specific procedures on work performed by others, including the work of internal auditors
6. Making mathematical computations
Examples of inappropriate procedures include evaluating the competency or objectivity of another party or interpreting documents outside the scope of the practitioner’s professional expertise.
Representation Letter
Although, as a general rule, a representation letter is not required, it is advisable to obtain one. According to AT 201.38, examples of matters that might appear in a representation letter include:
1. A statement acknowledging responsibility for the subject matter or the assertion
2. A statement acknowledging responsibility for selecting the criteria and for determining that the criteria are appropriate
3. The assertion about the subject matter based on the criteria selected
4. A statement that all known matters contradicting the subject matter or the assertion and any communication from regulatory agencies affecting the subject matter or the assertion have been disclosed to the practitioner
5. Availability of all records relevant to the subject matter and the agreed-upon procedures
6. Other matters the practitioner deems appropriate
Report on Agreed-Upon Procedures in a Document Containing Financial Statements
When the practitioner consents to the inclusion of his or her report on agreed-upon procedures in a document containing the entity’s financial statements, he or she is associated with those financial statements. For a public entity, the practitioner should include his or her audit report (see AU Section 508, Reports on Audited Financial Statements), review report (see AU Section 722, Interim Financial Information), or unaudited disclaimer (see AU Section 504, Association with Financial Statements) in such document. For a private entity, the practitioner should include his or her audit report (see AU Section 508), review report (see AR Section 60-90), or compilation report (see AR Section 60-90) in such document. If the practitioner has not audited, reviewed, or compiled the private entity financial statements, the document should state that the practitioner has not audited, reviewed, or compiled the financial statements and assumes no responsibility for them. All combined reports (agreed-upon procedure and other reports) should be restricted to specified parties (see AT Section 101).
ILLUSTRATIONS
Illustration 1. Accountant’s Standard Report on an Agreed-Upon Procedures Engagement (From Ssae 10)
Independent Accountant’s Report on Applying Agreed-Upon Procedures
To the Managements of Widget Inc. and Basic Fund:
We have performed the procedures enumerated below, which were agreed to by the audit committees and managements of Widget Inc., and Basic Fund, solely to assist you in evaluating the accompanying Statement of Investment Performance Statistics of Basic Fund (prepared in accordance with the criteria specified therein) for the year ended December 31, 20X1. Basic Fund’s management is responsible for the statement of investment performance statistics. This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of the parties specified in the report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose.
The procedures and associated findings are as follows:
[Include paragraphs to enumerate procedures and findings.]
We were not engaged to, and did not conduct an examination, the objective of which would be the expression of an opinion on the accompanying Statement of Investment Performance Statistics of Basic Fund. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you.
This report is intended solely for the information and use of the audit committees and managements of Widget Inc. and Basic Fund, and is not intended to be and should not be used by anyone other than these specified parties.
Smith and Jones
February 15, 20X2
NOTE: The following are additional illustrations of reporting on applying agreed-upon procedures to elements, accounts, or items of a financial statement.
Illustration 2. Report in Connection with a Proposed Acquisition
Independent Accountant’s Report on Applying Agreed-Upon Procedures
To the Board of Directors and Management of Widget Company:
We have performed the procedures enumerated below, which were agreed to by the Board of Directors and management of Widget Company, solely to assist you in connection with the proposed acquisition of Generic Company as of December 31, 20X1. Generic Company is responsible for its cash and accounts receivable records. This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of the parties specified in this report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose.
The procedures and the associated findings are as follows:
Cash
1. We obtained confirmation of the cash on deposit from the following banks, and we agreed the confirmed balance to the amount shown on the bank reconciliations maintained by Generic Company. We mathematically checked the bank reconciliations and compared the resultant cash balance per book to the respective general ledger account balances.
| Bank |
General ledger account balances as of December 31, 20X1 |
| XY Bank |
$ 2,500 |
| AB Bank |
4,200 |
| Town Trust Company regular account |
67,341 |
| Town Trust Company payroll account |
11,240 |
|
$ 85,281 |
We found no exceptions as a result of the procedures.
Accounts Receivable
2. We added the individual customer account balances shown in an aged trial balance of accounts receivable (identified as Exhibit A) and compared the resultant total with the balance in the general ledger account.
We found no difference.
3. We compared the individual customer account balances shown in the aged trial balance of accounts receivable (Exhibit A) as of December 31, 20X1 to the balances shown in the accounts receivable subsidiary ledger.
We found no exceptions as a result of the comparisons.
4. We traced the aging (according to invoice dates) for fifty customer account balances shown in Exhibit A to the details of outstanding invoices in the accounts receivable subsidiary ledger. The balances selected for tracing were determined by starting at the eighth item and selecting every fifteenth item thereafter.
We found no exceptions in the aging of the amounts of the fifty customer account balances selected. The sample size traced was 9.8% of the aggregate amount of the customer account balances.
5. We mailed confirmations directly to the customers representing the 150 largest customer account balances selected from the accounts receivable trial balance, and we received responses as indicated in the following paragraph and table. We also traced the items constituting the outstanding customer account balance to invoices and supporting shipping documents for customers from which there was no reply. As agreed, any individual differences in a customer account balance of less than $300 were to be considered minor, and no further procedures were performed.
Of the 150 customer balances confirmed, we received responses from 140 customers; 10 customers did not reply. No exceptions were identified in 120 of the confirmations received. The differences disclosed in the remaining twenty confirmation replies were either minor in amount (as defined above) or were reconciled to the customer account balance without proposed adjustment thereto. A summary of the confirmation results according to the respective aging categories is as follows:
We were not engaged to and did not conduct an audit, the objective of which would be the expression of an opinion on cash and accounts receivable. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you.
This report is intended solely for the information and use of the board of directors and management of Widget Company and is not intended to be and should not be used by anyone other than these specified parties.
Smith and Jones
February 15, 20X2
Illustration 3. Report in Connection with Claims of Creditors
Independent Accountant’s Report on Applying Agreed-Upon Procedures
To the Trustees of Widget Company:
We have performed the procedures described below, which were agreed to by the Trustees of Widget Company with respect to the claims of creditors, solely to assist you in determining the validity of claims of Widget Company as of May 31, 20X1 as set forth in the accompanying Schedule A. Widget Company is responsible for maintaining records of claims submitted by creditors of Widget Company. This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of the party specified in this report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose.
The procedures and associated findings are as follows:
1. Compare the total of the trial balance of accounts payable at May 31, 20X1 prepared by Widget Company, to the balance in the related general ledger account.
The total of the accounts payable trial balance agreed with the balance in the related general ledger account.
2. Compare the amounts for claims received from creditors (as shown in claim documents provided by Widget Company) to the respective amounts shown in the trial balance of accounts payable. Using the data included in the claims documents and in Widget Company’s accounts payable detail records, reconcile any differences found to the accounts payable trial balance.
All differences noted are presented in column 3 of Schedule A. Except for those amounts shown in column 4 of Schedule A, all such differences were reconciled.
3. Obtain the documentation submitted by creditors in support of the amounts claimed and compare it to the following documentation in Widget Company’s files: invoices, receiving reports, and other evidence of receipt of goods or services.
No exceptions were found as a result of these comparisons.
We were not engaged to and did not conduct an audit, the objective of which would be the expression of an opinion on the claims of creditors set forth in the accompanying Schedule A. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you.
This report is intended solely for the information and use of the Trustees of Widget Company and is not intended to be and should not be used by anyone other than this specified party.
Smith and Jones
February 15, 20X2
