Agreed upon procedures are one of the most practical yet underused tools in a CPA’s service lineup. An agreed upon procedures engagement, commonly called an AUP engagement, allows a CPA to perform specific, targeted tests on financial or nonfinancial data, then report the factual findings without issuing a formal opinion. The scope is defined entirely by the parties involved, which makes the process faster, more focused, and often significantly less expensive than a full audit.
Whether you are a lender verifying a borrower’s compliance, a business owner investigating potential fraud, or a buyer conducting due diligence on an acquisition, an AUP engagement gives you precisely the information you need and nothing you do not. This article answers a single question for finance leaders and advisors: when does an agreed upon procedures engagement make more sense than an audit, and how does it actually work?
What are agreed upon procedures in accounting?
Agreed upon procedures are a type of attestation engagement governed by the Statements on Standards for Attestation Engagements issued by the American Institute of Certified Public Accountants (AICPA). The current standard, SSAE No. 19, became effective for AUP reports dated on or after July 15, 2021, and added meaningful flexibility to how these engagements are designed and reported. In an AUP engagement, the engaging party, typically a lender, investor, or other third party, works with a CPA to define a specific set of procedures. The CPA then performs those procedures and reports the factual results.
The defining feature is that the CPA acts strictly as a finder of fact. There is no opinion, no assurance, and no judgment on whether the financial statements as a whole are fairly presented. Responsibility for drawing conclusions from the findings rests entirely with the parties who specified the procedures.
This structure makes AUP engagements especially useful when a stakeholder has a specific question or concern that does not require a comprehensive audit. A lender may want to confirm that a borrower’s accounts receivable aging report is accurate, or that the borrower has complied with certain loan covenants. A full audit would address those questions eventually, but an AUP engagement answers them directly and at a fraction of the cost.
Because the procedures are negotiated and documented in advance, both sides know exactly what the CPA will and will not do. That clarity reduces disputes about scope after the fact and keeps the engagement tightly aligned with the original concern. Under SSAE No. 19, the engaging party acknowledges that the agreed upon procedures are appropriate for the intended purpose, and the procedures can even be refined as the engagement progresses.
How do agreed upon procedures differ from an audit?
Both audits and AUP engagements fall under AICPA oversight, but they serve fundamentally different purposes and follow different standards. The distinction matters because choosing the wrong engagement type can cost a company time and money or leave a stakeholder without the answer they actually needed.
In an audit, the CPA’s client is the company itself. The CPA examines the company’s financial statements comprehensively and issues a formal opinion on whether those statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP). The scope of an audit is broad, standardized, and governed by professional auditing standards. Our audit and assurance services team handles these engagements when a company needs that level of comprehensive assurance.
An AUP engagement works differently in several important ways:
- Client relationship: The client in an AUP engagement is typically a third party, such as a lender, franchisor, or regulatory body, rather than the company being examined. This structure naturally reduces potential conflicts of interest.
- Scope: The engaging parties define exactly which procedures the CPA will perform. The scope can be as narrow as reviewing a single account or as broad as examining an entire set of financial statements.
- Output: Instead of a formal opinion, the CPA delivers a factual findings report. The report describes what the CPA did and what they found, with no interpretation layered on top.
- Timing: Audits typically occur at year-end. An AUP engagement can be performed at any time during the year, whenever the need arises.
- Cost: Because the scope is targeted rather than comprehensive, AUP engagements are almost always less expensive than a full audit.
Understanding these differences helps organizations choose the right level of assurance for their situation. If you need answers to targeted questions rather than broad assurance over financial statements, an AUP engagement is usually the better fit.
Common agreed upon procedures examples
AUP engagements are highly customizable, so they can be tailored to nearly any financial or operational concern. The following agreed upon procedures examples reflect the requests businesses and their stakeholders make most often:
- Accounts receivable verification: A lender asks a CPA to confirm the accuracy of a borrower’s outstanding receivables by tracing balances back to supporting invoices and customer confirmations.
- Loan covenant compliance: A bank requires independent verification that a borrower is meeting the financial ratios and other conditions specified in a loan agreement.
- Related party transaction review: A board of directors requests a CPA to examine transactions between the company and its officers, directors, or affiliated entities to identify any irregularities.
- Internal controls testing: A business owner engages a CPA to evaluate whether specific internal controls, such as cash handling procedures or purchase approval workflows, are operating as designed.
- Inventory verification: A potential buyer in a merger or acquisition asks a CPA to observe and test physical inventory counts before closing the deal.
- Royalty agreement compliance: A licensor engages a CPA to verify that a licensee is calculating and remitting royalty payments accurately, based on the terms of the licensing agreement.
- Revenue recognition testing: An investor requests a CPA to test whether a company’s revenue recognition practices align with the applicable accounting standards.
Each of these scenarios shows the flexibility of the AUP engagement model. The procedures are defined upfront, the CPA executes them, and the findings are reported without interpretation or opinion.
When should you use an AUP engagement?
An AUP engagement makes sense in any situation where a stakeholder needs factual answers to specific questions but does not need, or want to pay for, a full audit. Several common scenarios drive the decision to use AUPs.
Lender concerns about borrower financials. When a bank or other lender doubts the accuracy of a borrower’s financial reporting, an AUP engagement can quickly investigate the specific areas of concern. This is far more efficient than requiring a full audit, especially when the lender’s questions focus on one or two financial metrics.
Suspected fraud or misrepresentation. If a business owner suspects that a CFO is misrepresenting financial results or that a plant manager is stealing inventory, an AUP engagement can target those specific allegations. The CPA’s factual findings give the owner a basis to take action without the time and expense of a comprehensive audit. Companies that need help interpreting those findings and tightening controls often turn to our risk advisory services.
Mergers and acquisitions due diligence. Buyers routinely use AUP engagements to verify specific financial data before closing a deal. Rather than auditing the entire company, the buyer can focus on the accounts, contracts, or operations that carry the most risk. Our transaction advisory team supports buyers and sellers through this kind of targeted financial review.
Turnaround monitoring. A lender working with a distressed borrower may request periodic AUP engagements to track progress against a turnaround plan. Because AUPs can be performed at any point during the year, they provide timely visibility into whether the borrower is meeting milestones.
Regulatory or contractual compliance. Government agencies, franchisors, and licensing bodies frequently require AUP engagements to verify compliance with specific rules, contracts, or reporting requirements. Public company contexts follow a parallel framework, where the PCAOB’s interim attestation standard AT 201 governs agreed-upon procedures for issuers.
The freedom to choose exactly which procedures to perform, and when to perform them, makes AUP engagements one of the most cost-effective ways to get independent, factual answers to targeted financial questions.
What does an AUP engagement report include?
The deliverable from an AUP engagement is a findings report, not an opinion letter. The report typically includes the following elements:
1. Identification of the engaging parties: the entity being examined and the parties who specified the procedures.
2. A description of each procedure performed: stated in enough detail that the reader can understand exactly what the CPA did.
3. The factual findings for each procedure: what the CPA observed, calculated, or confirmed, including any exceptions or discrepancies found.
4. A statement that the CPA does not express an opinion: clarifying that the report presents facts only, and that the engaging parties are responsible for drawing their own conclusions.
Historically, AUP reports were always restricted to the parties who agreed to the procedures. SSAE No. 19 changed that default: the CPA may now issue a general-use report, while still being free to restrict distribution when that is appropriate for the circumstances. In practice, many engaging parties continue to prefer a restricted-use report, because readers who were not involved in defining the procedures may lack the context to interpret the findings correctly.
How to get started with an AUP engagement
An AUP engagement helps you dig deeper into financial results and identify specific problems that require immediate action. The process begins with a clear definition of the questions you need answered and the financial data or processes you want examined.
Working with an experienced CPA firm ensures that the procedures are designed to address your concerns efficiently. The right firm will help you define the scope, execute the engagement, and deliver a clear findings report that gives you the factual basis to make informed decisions.
If you suspect financial irregularities, need to verify compliance with a loan covenant, or are conducting due diligence on a potential acquisition, an AUP engagement is a targeted, cost-effective way to get the answers you need.
Frequently asked questions
What are agreed upon procedures?
Agreed upon procedures are a type of CPA engagement where the accountant performs specific tests defined by the engaging parties and reports the factual results. The CPA does not issue an opinion or provide assurance, so the parties who requested the procedures are responsible for drawing their own conclusions from the findings.
How do agreed upon procedures differ from an audit?
An audit provides a formal opinion on whether a company’s financial statements comply with GAAP, covering the full scope of financial reporting. An AUP engagement is narrower: the CPA performs only the procedures specified by the engaging parties and reports factual findings without an opinion, which makes it faster and less costly.
When should a business use an AUP engagement instead of an audit?
A business or its stakeholders should consider an AUP engagement when they need answers to specific financial questions rather than broad assurance over financial statements. Common triggers include lender concerns about borrower compliance, suspected fraud, pre-acquisition due diligence, and regulatory compliance verification.
Who can request an agreed upon procedures engagement?
Any party with a legitimate interest in specific financial or nonfinancial data can request an AUP engagement. In practice, lenders, investors, regulators, franchisors, and business owners are the most common requestors. The engaging party works with the CPA to define exactly which procedures will be performed.
What types of financial data can AUPs examine?
AUP engagements can target nearly any financial or nonfinancial data. Common areas include accounts receivable, accounts payable, inventory, related party transactions, internal controls, loan covenant compliance, royalty calculations, and revenue recognition practices.
Are agreed upon procedures reports made public?
It depends. Before SSAE No. 19, every AUP findings report was restricted to the parties who agreed to the procedures. SSAE No. 19, effective for reports dated on or after July 15, 2021, now allows a general-use report, though the CPA can still restrict distribution when appropriate. Many engaging parties continue to choose a restricted-use report, because readers who did not participate in defining the scope may lack the context needed to interpret the results correctly.
