Agreed-Upon Procedures (AUP) Services

Vertix Auditing is a licensed audit firm and provides professional Agreed-Upon Procedures (AUP) services to companies across the UAE. Most of the times an Agreed-Upon Procedures audit is purpose-driven and is required for a specific matter, but in some cases it is required by local authorities. For example, and AUP report is required for Qualifying Free Zone Persons who are performing distribution activities in order to maintain the 0% corporate tax status. Similarly, an Agreed-Upon Procedures report is required for AML/CFT compliance function of the licensed exchange businesses. Also, AUP report is required by UAE Central Bank for Remittance Intermediate Accounts.

As an experienced Audit Firm, Vertix helps UAE companies with AUP engagements on revenues and expenses, inventory, financial investigation, bank balances, testing of different GL accounts, receivables and payables, related party transactions, VAT and Corporate Tax calculation and filing, bank reconciliations, and any other area that requires and independent and transparent review.

What is Agreed-Upon Procedures UAE?

An Agreed-Upon Procedure (AUP) involves a practitioner conducting specific audit procedures that have been agreed upon by the auditor, a company, and any relevant third party. It’s a highly precise, targeted, and effective analytical tool in the field of audit. Conducted according to International Standard on Related Services (ISRS) 4400 (Revised), Agreed Upon-Procedure allows you to define exactly what the auditors check and what methodology they use. In the rapidly evolving business landscape of the UAE, where adaptability and specific compliance are vital, AUP is becoming an important method for independent review and investigation.

Unlike an audit or review, the Agreed-Upon Procedure (AUP) presents no opinion or assurance; it simply delivers factual findings of the specific task requested by the client.

Key Aspects of Agreed-Upon Procedure

The key aspects of the agreed-upon procedure (AUP) include:

Factual report (no opinion): Unlike an audit, the auditor, while carrying out the AUP engagement, just acts as a fact finder and doesn’t make any formal opinion or conclusion. The client draws their own conclusion from the auditor’s AUP report.

Agreed and pre-defined scope: The parameters are pre-defined and agreed upon. The procedures are customized to align with the client’s exact requirements.

Fast and cost-effective: Due to its highly defined and specific parameters, an AUP is usually faster and relatively cheaper than a full audit. However, if the scope is detailed, the fee could become higher than a normal external audit or internal audit.

Well-suited for targeted risks: It is well-suited for suspected fraud investigations, verification of grant usage, verification of a specific acquisition target, checking compliance with bank agreements, etc.

How AUP is Different from an Audit?

The fundamental difference between an AUP and an audit particularly lies in their objectives and the level of assurance provided.

The table below explains how AUP is different from an External Audit:

Agreed-Upon Procedure Report	External Audit
The practitioner performs specific pre-defined and agreed tasks. Only factual findings are provided in the form of a report.	Presents an opinion on the entire financial statements.
No assurance is provided.	Reasonable assurance is provided by the auditor.
Narrow and pre-defined scope, specifically set by the clients.	Scope is broad and determined by the auditor depending on the auditing standards and nature of client.
Usually fast and cost-effective, depending on the scope.	Relatively expensive and time consuming.
Materiality is not considered in AUP assignments in the same way as in an audit. Instead, the practitioner/auditor performs procedures agreed with the client based on their specific requirements.	Materiality is a key and integral part of external audit.

The Key Components of an AUP Report

An Agreed-upon procedure report usually consists of:

• A well detailed description of agreed procedures.
• The auditor’s specific factual findings.
• Complete details of the data examined.
• The statement clarifying that no conclusion or assurance is being provided by the auditor

Standards Governing AUP Reports

An Agreed-Upon Procedure engagement is governed by the International Standard on Related Services (ISRS) 4400 (Revised).  The ISRS 4400 provides a clear set of rules for carrying out agreed-upon procedure engagements and clarifies the responsibilities of the AUP practitioner.  

To comply with ISRS 4400, the auditor and the engaging parties need clear consensus on the following:

• The procedures performed will not constitute an assurance engagement and therefore, no professional opinion or assurance will be provided.
• A clear statement explaining the purpose of the engagement.
• Identify the targeted data (the exact information, accounts, or documents) to which the agreed-upon procedures will be applied.
• The nature, timing, and extent of the specific procedures the auditor will apply.
• The expected format of the auditor’s report
• The limitations on the use of the report, as the client chooses the specific procedures; the report could be misunderstood by the outsiders.

The required steps and testing methods must be sufficiently detailed so as to be unambiguous. Furthermore, the procedures must be agreed and discussed in advance with the engaging party so that the factual findings are useful to them and to whom the report is made available.

Typical Use Cases of Agreed-Upon Procedures

An AUP covers both financial and non-financial information. AUP engagements are rapidly becoming the preferred choice for many businesses requiring specific review or investigations.

Here are the most commonly use cases of AUP reports:

• Buyers or investors carry out targeted due diligence on specific data before the transaction.
• Lenders may require an AUP report to assess whether the required financial metrics have been met.
• Intellectual property owners require verification of royalty calculations.
• Granter needs verification that the funds were spent as intended.
• Certain companies or government programs mandate AUP as a condition for participation.
• Independent observation and reconciliation of the inventory count.

Limitations of AUP Reports

While AUP engagements provide real practical value, there are some limitations that both the client (engaging parties) and report recipient needs to understand.

• There are the chances that the user may misinterpret the report based on an assumption of assurance that was never actually provided.
• It may not be the best approach for “statutory assurance”, where there is need for a complete audit.
• Access is restricted exclusively to the specific parties that have agreed to the procedures performed, since outsiders, unaware of the reasons for the procedures, may misinterpret the report.
• Since an AUP focuses only on the specific areas, there is a chance that other financial or operational risks outside the agreed-upon procedures may go undetected.

Advantages of AUP Reports

Agreed-Upon Procedures are targeted financial reviews where the client has the flexibility to choose only those procedures they feel are required to be performed. As the procedures are narrow and targeted, the AUP is a much faster and a cheaper option than the full audit.

AUP can be useful in the following situations in particular:

• M&A due diligence
• When a business owner suspects misrepresentations the financial results
• To determine specific regulatory compliance

Unlike audits that are required to be performed usually at the end of the financial year, Agreed-Upon Procedures can be scheduled and performed at any point throughout the year. Furthermore, AUP provides targeted assurance, focusing on the exact problem area highlighted by the client. This allows companies to concentrate on a specific problem, without unnecessary reviewing of other financial areas. Also, the inherent flexibility of AUP allows the work to be customized for each client’s specific need.

Conclusion

Agreed-Upon Procedures (AUP) services are highly beneficial for businesses of all sizes, including both large organizations and small and medium-sized entities (SMEs).

AUP engagements offer clarity and verified facts about most concerning financial areas. The primary value of AUP is that the auditor independently performs procedures with expertise, saving your team time and effort. Agreed-Upon Procedures are most effective where the client is knowledgeable enough to identify areas or information to focus on, discuss and agree on the steps to be performed by the auditor or practitioner, and draw conclusions from the auditor’s final report.

The procedures performed for AUP are similar to an audit, but on a smaller scale. The auditor or accountant acts as an investigator, based on the scope and criteria mutually agreed upon with the engaging party. Unlike auditing, no formal opinion or assurance is given by the auditor; therefore, the final report cannot be used as an assurance. The primary purpose of an AUP is restricted to presenting factual findings, allowing companies to interpret the results and decide their next steps.

Frequently Asked Questions (FAQs)

1 – What are Agreed-Upon Procedures?

Agreed-Upon Procedures (AUP) are professional engagements where an independent auditor or accountant performs pre-defined and agreed procedures on financial and non-financial data. Unlike a financial audit or review, the auditor only reports factual findings and provides no opinion, conclusion, or level of assurance. Instead, the engaging parties draw their own conclusion based on the auditor’s report.  AUPs are typically faster, targeted, and cheaper than a complete audit.

2 – What is the difference between Agreed-Upon Procedures and an audit?

An audit examines the entire financial statements and gives a formal opinion with a high level of assurance, while Agreed-Upon Procedures examine specific pre-defined areas and report only factual findings with no opinion or assurance.

3 – Does AUP require independence?

Yes. The assigned auditor must be independent of the party whose subject matter is being examined. In a situation where the mandated independence is missing, this must be disclosed in the report.

4 – When is it necessary for businesses to commission an Agreed-Upon Procedure?

A company typically needs an AUP when they want an auditor to test very specific financial or non-financial data without the cost of a full audit. Common scenarios are bank facility compliance check, grant money verification, royalty calculations, specific inventory count checks, or investor KPI reporting.

5 – How quickly can an AUP be completed?

Speed is the key benefit of an AUP. As the procedures to be performed are pre-defined and targeted, an AUP can be completed within 2 to 3 weeks depending on the complexity of the procedure and availability of the data. On the other hand, a full audit might take months to complete.