Agreed-upon procedures is the term used to describe an engagement in which a CPA firm is engaged to issue a report of findings based on specified financial statement terms.
The user of the report agrees upon the procedures to be conducted by the CPA and accepts responsibility for the adequacy of the procedures.
In an agreed-upon procedures engagement, the CPA expresses no opinion or negative assurance. Instead, the report clearly states the procedures and the results of findings. The parties involved sign a representation letter describing the nature of the engagement and the specified users.
The following are examples of when an agreed-upon procedures engagement may be useful:
Example #1. A vendor may want a third party to prepare an itemized list of all activity in their account with your business for a certain period of time.
Example #2. A loan originator may ask to have your CPA look at a certain number of loan files to document that the proper forms are included in all files.
Example #3. A CPA may be engaged to conduct certain procedures in connection with the purchase of another business.
Example #4. A nonprofit organization may be requested to provide documentation on the accounting for an unusual high number of contributions due to a crisis situation.
Example #5. The financial institution that provides financing to your business and uses accounts receivable as collateral may require an agreed-upon procedure engagement to provide various information about the receivables.