Audit vs Agreed-Upon Procedures: Which approach does your business need?

When businesses require independent verification of financial information, processes or controls, many assume that a full audit is the only option. In reality, there are different ways to obtain independent scrutiny of financial information, and in some circumstances a more targeted approach may be the better fit.

For organisations that need comfort over a specific balance, transaction stream or area of risk, an Agreed-Upon Procedures (AUP) engagement under ISRS 4400 can provide focused reporting without the scope, cost and timescales typically associated with a full audit. 

Understanding the difference between an audit and agreed-upon procedures can help businesses choose the most appropriate approach for their requirements. 

What Is ISRS 4400? 

ISRS 4400 is the professional standard that governs Agreed-Upon Procedures engagements. 

Rather than providing an opinion on an entire set of financial statements, an agreed-upon procedures engagement focuses on specific areas identified by the client or other stakeholders. The procedures to be performed are agreed in advance, carried out by the accountant and reported on factually. 

The result is a report of findings rather than an audit opinion. 

This allows businesses, shareholders, lenders and other stakeholders to obtain independent verification over particular areas of interest without commissioning a full audit. 

Who might benefit from agreed-upon procedures? 

An ISRS 4400 engagement may be useful where independent reporting is needed on a specific issue rather than an audit opinion on the financial statements as a whole. 

Examples include: 

In these situations, agreed-upon procedures can provide targeted insight and independent reporting without the broader scope of an audit engagement. 

What are agreed-upon procedures? 

Agreed-upon procedures engagements are highly flexible. 

The client and accountant agree in advance exactly what work will be performed and which areas will be reviewed. The procedures can then be tailored to address specific objectives or stakeholder requirements. 

Common examples include reviewing: 

• Revenue transactions 
• Debtor balances 
• Cash balances 
• Specific contracts or transactions 
• Regulatory compliance requirements 
• Internal controls over key processes 
• Financial information used during due diligence exercises 

Unlike an audit, the accountant does not provide an overall opinion or conclusion. Instead, the report sets out the procedures performed and the factual findings identified. 

Users of the report can then draw their own conclusions based on those findings.

Audit vs agreed-upon procedures: what’s the difference? 

While both engagements involve independent professional scrutiny, they are designed to achieve different outcomes.

The key distinction is that an audit provides an independent opinion on the financial statements as a whole, while agreed-upon procedures report factual findings relating only to the specific procedures requested. 

Why might a business choose agreed-upon procedures instead of an audit? 

For many organisations, the requirement is not necessarily for a full audit opinion. 

A shareholder may require comfort over a specific transaction. A lender may need verification of financial information linked to funding arrangements. A buyer may need reassurance over a particular balance during a due diligence process. 

In these circumstances, agreed-upon procedures can often deliver the information stakeholders need while avoiding unnecessary cost and disruption. 

Benefits of agreed-upon procedures 

Agreed-upon procedures engagements offer several advantages:

This makes them particularly attractive when independent findings are required on a defined area rather than an audit opinion on the financial statements as a whole. 

Benefits of an audit 

Despite the advantages of agreed-upon procedures, an audit remains the most appropriate solution in many situations. 

A full audit provides: 

• Independent assurance over the financial statements as a whole 
• An audit opinion that can be relied upon by stakeholders 
• Greater confidence for shareholders, lenders and investors 
• Comprehensive testing undertaken in accordance with auditing standards 
• Compliance with statutory or regulatory requirements where applicable

Where a higher level of assurance is required, or an audit is mandatory, a full audit remains the preferred option. 

Understanding the limitations 

Neither engagement is simply a substitute for the other. 

The most suitable option will depend on the objectives of the business and the needs of those relying on the information. 

Which approach is right for your business? 

There is no one-size-fits-all approach to independent financial scrutiny. 

In some situations, a full audit will be the most appropriate choice because stakeholders require assurance over the financial statements as a whole. In others, stakeholders may simply need independent findings on a specific balance, transaction or process. 

Understanding what information is required, who needs it and why is the first step in determining the right approach.