An agreed-upon procedure is the type of audit where the procedures are prepared or set out by the company for the auditor, who is an external party when they are to perform an audit on a specific business process.
The audit procedures are mainly set and designed by the given entity, who conducts the audit, who is part of the audit (the client) and any relevant third party who might remotely be involved in the overall audit process.
During the agreed-upon procedure engagement, the qualified accountant is supposed to discuss and decide on the procedures depending on the overall scope of the audit, and the relevant areas to be investigated.
How should the Agreed Upon Procedures be decided?
The manner in which overall Agreed Upon Procedures is decided is highly dependent on the overall scope of work.
However, they should be detailed enough in order to ensure that there is proper clarity, and no ambiguity amidst the overall process.
Furthermore, these procedures are to be discussed well in advance with the engaging party, so that the overall work can be carried out in a proper manner, without any difficulty.
Additionally, it is also imperative that the outcomes of these procedures are subsequently used in a productive manner so that the company can improve on areas that are to be improved.
Importance of Agreed-Upon Procedures:
The overall importance and value of Agreed-Upon Procedures are mainly derived from the practitioner’s ability to deploy his expertise when carrying out the process itself.
Therefore, the main rationale is to save the client, or the engaging party to carry out these procedures themselves.
However, regardless of ‘outsourcing’ this part to an external party, the engaging party should always have a proper understanding and knowledge to identify the area or matter which needs to be focused on and further understand the motive behind all the identified procedures to be performed. This can then be used by the engaging part to interpret their findings in their own decision making.
Furthermore, it can also be seen that the Agreed Upon Procedures can be an immensely powerful tool, which can be a chance for collaboration between the engaging party and the auditor with regard to assertions for which sufficient work cannot be performed, or evidence cannot be duly obtained.
Therefore, this can be seen as a relationship-building tool, which removes any misunderstandings between the practitioner and the engaging party with regard to issues that might otherwise occur and deter their working relationship.
This bridge is created as a result of the practitioner effectively proposing an Agreed Upon Procedure engagement based on the forecasts, followed by testing of relevant existing control procedures, and agreed upon committed future transactions for purposes of securing documentation.
Therefore, it can be seen that Agreed Upon Procedures can be regarded as a very important and fundamental step for an organization since it helps them to prepare well in advance to facilitate a smooth audit engagement process.
Additionally, this process highlights possible areas of improvement pertaining to controls that should be present within the organization, so that there is no confusion, whatsoever.