Guidance Note on Engagements to Perform Agreed - upon
Procedures Regarding Financial Information
Introduction
1. The purpose of this Guidance Note is to provide
guidance on the auditor's (1) professional responsibilities when an
engagement to perform agreed-upon procedures regarding financial
information is undertaken and on the form and content of the report that
the auditor issues in connection with such an engagement.
2. This Guidance Note is basically directed towards engagements regarding
financial information. However, this Guidance Note would be relevant for
engagements regarding non-financial information, provided the auditor has
adequate knowledge of the subject matter in question and reasonable
criteria exist on which to base findings. The standards set out in
Statements on Standard Auditing Practices (SAPs) would be applicable in
performance of agreed-upon procedures by the auditor, to the extent
relevant.
3. An engagement to perform agreed-upon procedures may involve performance
of certain procedures concerning individual items of financial data (for
example, accounts payable, accounts receivable, purchases from related
parties and sales and profits of a segment of an entity), a financial
statement (for example, a balance sheet) or even a complete set of
financial statements.
Objective of an Agreed-upon Procedures Engagement
4. For the auditor, the objective of an agreed-upon
procedures engagement is to carry out procedures of an audit nature to
which the auditor and the entity and any appropriate third parties have
agreed and to report on factual findings.
5. As the auditor provides simply a report on the factual findings of
agreed-upon procedures, no assurance is expressed. Instead, users of the
report assess for themselves the procedures followed and findings reported
by the auditor and draw their own inferences/conclusions from the work
done by the auditor.
6. The report is restricted only to those parties that have agreed to the
procedures to be performed since others, unaware of the reasons for the
procedures, may misinterpret the results. However, it is possible in
certain circumstances that the report of the engagement may not be
restricted only to those parties that have agreed to the procedures to be
performed, but made available to a wider range of entities or people,
e.g., in case of a government organisation.
General Principles of an Agreed-upon Procedures Engagement
7. As in the case of other professional assignments,
for engagements to perform agreed-upon procedures also, the auditor should
comply with the "Code of Conduct", issued by the Institute of Chartered
Accountants of India.
8. The auditor should conduct an agreed-upon procedures engagement in
accordance with this Guidance Note and the terms of the engagement.
Defining the Terms of the Engagement
9. The auditor should ensure clarity of understanding
with representatives of the entity and, ordinarily, other specified
parties who will receive copies of the report of factual findings,
regarding the agreed procedures and the conditions of the engagement.
Matters to be agreed include the:
-
Nature of the engagement including the fact that the
procedures performed will not constitute an audit or a review and that
accordingly, no assurance will be expressed.
-
Stated purpose of the engagement.
-
Identification of the financial information to which
the agreed-upon procedures will be applied.
-
Nature, timing and extent of the specific procedures
to be applied.
-
Limitations on distribution of the report of factual
findings. When such limitation is in conflict with the legal
requirements, if any, the auditor should not accept the engagement.
10. In certain circumstances, when the procedures have
been agreed to between the regulator, industry representatives and
representatives of the accounting profession, the auditor may not be able
to discuss the procedures with all the parties who will receive the
report. In such instances, the auditor may consider, for example,
discussing the procedures to be applied with appropriate representatives
of the parties involved, reviewing relevant correspondence from such
parties.
11. It is in the interests of both the client and the auditor that the
auditor sends an engagement letter documenting the key terms of the
appointment. An engagement letter confirms the auditor's acceptance of the
appointment and helps to avoid misunderstanding regarding such matters as
the objectives and scope of the engagement, and the extent of the
auditor's responsibilities.
12. Matters that should be contained in the engagement
letter include :
-
A listing of the procedures to be performed as agreed
upon between the parties.
-
A statement that the distribution of the report of
factual findings would be restricted to the specified parties who have
agreed to the procedures to be performed.
An example of an engagement letter appears in Appendix
I to this Guidance Note.
Planning
13. The auditor should plan his work so that an
effective engagement will be performed.
Documentation
14. The auditor should document matters which are
important in providing evidence to support the report of factual findings
and evidence that the engagement was carried out in accordance with this
Guidance Note and the terms of the engagement.
Procedures and Evidence
15. The auditor should carry out the procedures agreed
upon and use the evidence obtained as the basis for the report of factual
findings.
16. The procedures to be applied in an engagement to perform agreed-upon
procedures may include:
- Inquiry and analysis
- Recomputation, comparison and other clerical accuracy checks
- Observation
- Inspection
- Obtaining confirmations
Appendix II to this Guidance Note is an example of a
report which contains an illustrative list of procedures which may be
applied as a part of a typical agreed-upon procedures engagement.
Reporting
17. The report on an agreed-upon procedures engagement
needs to describe the purpose and the agreed-upon procedures of the
engagement details in a comprehensive manner to enable the reader to
understand the nature and the extent of the work performed.
18. The report of factual findings should contain:
(a) Title;
(b) Addressee (normally the client who engaged the auditor to perform
the agreed-upon procedures);
(c) Identification of specific financial or non-financial information to
which the agreed-upon procedures have been applied;
(d) A statement that the procedures performed were those as agreed upon;
(e) A statement that the engagement was performed in accordance with
this Guidance Note and in compliance with any statute, or practices, as
may be applicable;
(f) Stating the purpose for which the agreed-upon procedures were
applied;
(g) Listing of the specific procedures carried out;
(h) Description of the auditor's factual findings including sufficient
details of errors and exceptions found;
(i) A statement that the procedures performed do not constitute either
an audit or a review and, as such, no assurance is expressed;
(j) A statement that the report is restricted for access to only those
parties that have agreed to the procedures to be performed;
(k) A statement (when applicable) that the report relates only to the
elements, accounts, items or financial and non-financial information
specified and does not extend to the entity's financial statements taken
as a whole;
(l) Date of the report;
(m) Auditor's address; and
(n) Auditor's signature.
Appendix II to this Guidance Note contains an example
of a report of factual findings in connection with an engagement to
perform agreed-upon procedures regarding financial information.
(1) The term 'auditor' is used throughout this Guidance
Note, when describing the services involving performance of agreed-upon
procedures. Such reference is not intended to imply that a person
performing these services need necessarily be the auditor of the entity's
financial statements.
Appendix I
Example of an Engagement Letter for an Agreed-upon
Procedures Engagement
The following letter is intended for use as a guide
in conjunction with paragraph 12 of this Guidance Note and is not intended
to be a standard letter. The engagement letter will vary according to
individual requirements and circumstances of each work undertaken.
Date
To
The Board of Directors or other appropriate
representatives of the client who engaged the auditor.
This is in reference to your letter dated _____, appointing us to perform
agreed-upon procedures in respect of _______ (identify the items, e.g.,
accounts receivable, sales and profits of a segment of an entity).
This letter is to confirm our understanding of the terms and objectives of
our engagement and the nature and limitations of the services that we will
provide. Our engagement will be conducted in accordance with the Guidance
Note on Engagements to Perform Agreed-upon Procedures regarding Financial
Information issued by the Institute of Chartered Accountants of India and
will indicate so in our report.
We have agreed to perform the following procedures and report to you the
factual findings resulting from our work:
(describe the nature, timing and extent of the procedures to be performed,
including specific reference, where applicable, to the identity of
documents and records to be perused , individuals to be contacted and
parties from whom confirmations to be obtained.)
The procedures that we will perform are solely to assist you in _________
(state the purpose). Our report is for this purpose and is solely for your
information, and/or for use by ____ (in case the terms of engagement so
require).
The procedures that we will perform will not constitute an audit or a
review and, consequently, no opinion will be expressed.
Please sign and return the attached copy of this letter as a token of
acceptance to indicate that it is in accordance with your understanding of
the terms of the engagement including the specific procedures, which we
have agreed, will be performed.
For ABC & Co.
Signature (Name of the partner)
Partner
Chartered Accountants
Date
Address
Acknowledged on behalf of
XYZ Company by
(Signed)
..............
Name and Designation
Date
Appendix II
Example of a Report of Factual Findings in Connection
with Accounts Receivable
(CONFIDENTIAL)
Report in Connection with Agreed upon Procedures Assignment Related to
Accounts Receivable
To,
The Board of Directors or other appropriate representatives of the client
who engaged the auditor.
We have performed the procedures agreed with you and enumerated below with
respect to the accounts receivable of XYZ Company as on __________ (date),
set forth in the accompanying schedule. Our engagement was undertaken in
accordance with the Guidance Note on Engagements to Perform Agreed-upon
Procedures regarding Financial Information, issued by the Institute of
Chartered Accountants of India. The procedures were performed solely to
assist you in evaluating the validity of the accounts receivable and are
summarised as follows:
1. We obtained and checked the addition of the trial
balance of accounts receivable as at _______ (date), prepared by XYZ
Company, and we compared the total to the balance in the related general
ledger account.
2. We compared the attached list of major receivable parties and the
amounts outstanding at ______ (date) to the related names and amounts in
the trial balance.
3. We obtained receivables parties' statements or confirmations from
receivable parties to confirm balances outstanding at _______ (date).
4. We compared such statements or confirmations to the amounts referred to
in 2 above. For amounts which did not agree, we obtained reconciliations
from the management of the company. For reconciliations obtained, we
identified and listed outstanding invoices, debit notes and outstanding
cheques, each of which was greater than Rs. xxx. We located and examined
such invoices and debit notes subsequently raised and cheques subsequently
received and we ascertained that they should in fact have been listed as
outstanding on the reconciliations.
We report our findings below:
(a) With respect to item 1, we found the addition to be correct and the
total amount to be in agreement.
(b) With respect to item 2, we found the amounts compared to be in
agreement.
(c) With respect to item 3, we found there were receivables statements
for/ confirmations from all such receivables, except for _______(number)
receivables parties out of a total of ________(number) receivables
parties.
(d) With respect to item 4, we found the amounts agreed, or with respect
to amounts which did not agree, we found that the management had prepared
reconciliations and that the debit notes, invoices and outstanding cheques
over Rs. xxx were appropriately listed as reconciling items with the
following exceptions:
(Detail the exceptions)
Because the above procedures do not constitute either
an audit or a review, we do not express any opinion on the accounts
receivable as of _______ (date).
Our report is solely for the purpose set forth in the first paragraph of
this report and for your information and is not to be used for any other
purpose or to be distributed to any other parties. This report relates
only to the accounts and items specified above and does not extend to any
financial statements of your company, taken as a whole.
For ABC & Co.
Signature
(Name of the partner)
Partner
Chartered Accountants
Date
Address
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