What is an Agreed-Upon Procedure? (Detailed Explanation)

When we talk about audit firms, most of us think about external audits. External audits are annual audits carried out by external auditors for the clients to meet regulatory requirements.

During the external audits, the auditors will gather evidence to determine if the financial statements are true and fair and free from material misstatements.

However, external audits are not the only services provided by audit firms. One of the other services offered is agreed-upon procedures. So, what exactly is an agreed-upon procedures engagement?

What is an agreed-upon procedure?

Agreed-upon procedures can be provided to clients as an individual engagement on its own. It is neither an internal nor an external audit. It is based on auditing standards International Standard on Related Services 4400 (ISRS 4400) Engagements to Perform Agreed-upon Procedures Regarding Financial Information.

ISRS 4400 defined agreed-upon procedures engagement as an engagement where its procedures are of an audit nature and are agreed upon by both the client and the auditor to report on the factual findings.

ISRS 4400 also mentioned that the report by the auditor would only be restricted to those who agreed to the procedures since only they understand the reasons for the procedures performed. These recipients will also have to form their conclusions from the auditor’s report.

Although the procedures are of audit nature, it is very different from an audit engagement. One of the most significant differences is that it is not subject to any regulatory requirements like an external audit.

An agreed-upon procedure engagement consists of procedures that the client or a third party requires the auditors to perform and report on. That means its ultimate goal is not for the auditors to issue an opinion on the financial statements on whether it is true and fair or free of material misstatements.

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Instead, the auditors will only have to perform the required procedures and report the findings to the party that engaged them and the intended recipients. As we mentioned earlier, the recipient will have to make their own conclusions based on these findings.

Another main difference is that the audit report will normally be lodged to the authority and attached to the annual report, which will be available to the public at large and other stakeholders. Still, the report of an agreed-upon procedure engagement will also be restricted only among the involved parties.

This is because the report for an agreed-upon procedures engagement is usually particular in nature. It is to address certain requirements which are only known to the parties involved and the auditors. A third party who does not understand the underlying reasons and needs may misunderstand the results.

Some examples of agreed-upon procedures engagements include verification of sales to submit to landlords who charge variable rents based on the company’s sales, verifying the company’s performance ratios as part of the loan covenants to submit to the bank that loans money the company and so on.

The scope of agreed-upon procedures

An agreed-upon procedures engagement has a much simpler scope than an external audit engagement. Auditors will normally apply the same technique or procedures as when they carry out an external audit, covering only the required areas. The reason is that the auditors are not going to issue an opinion on the procedures performed.

For example, suppose it is an agreed-upon procedures engagement to verify its sales (like the example we shared earlier). In that case, the auditor will only check the sales amount and verify that the company has indeed earned that much sales in the year. This is very different from external audits that cover all financial statements, including internal controls.

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Like an external audit engagement, the auditor will sign a letter of engagement with the client before the start of the engagement. In the letter, the client’s procedures that require the auditor to perform will be stated clearly together with the fees and the intended recipient. A sample report will also be attached, along with the letter of engagement.

An agreed-upon procedures engagement can cover both financial and non-financial data. It depends on what goal the client is trying to achieve through the performance of the agreed-upon procedures engagement.

Note that the standards do not state what an agreed-upon procedures engagement should cover, how an agreed-upon procedures engagement should be carried out or how the report should be presented. As its name suggests, it will have to be “agreed upon” by both the client, the relevant stakeholders, and the auditors.

Benefits of agreed-upon procedures

Agreed-upon procedures engagements have several advantages.

1) Customisable based on requirements

Since the procedures will be “agreed upon” by the client, the relevant stakeholders, and the auditors, an agreed-upon procedures engagement can be tailored based on requirements. This is very useful when a company requires an audit to be performed on a particular scope.

2) Provides an independent view

An audit firm’s agreed-upon procedures engagement is carried out, which is an independent third party to the company. This allows the company to get an independent view on the matters they need an audit on.

3) Cheaper than external audits

Because an agreed-upon procedures engagement will have the auditors perform particular procedures on a limited scope, the time taken will be much shorter than external audits. That means the client will not have to incur as much cost to hire the auditors to perform an agreed-upon procedures engagement to perform an external audit.

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4) No regulatory deadlines

Lastly, there is no regulatory deadline for the client or the auditor to adhere to. The client can engage the auditor at any time and agree on the deadlines between themselves.


An agreed-upon procedures engagement is a type of service offered by audit firms. Unlike an external audit, it is not subject to any regulatory requirements. The auditor will issue a report on the findings, and the intended recipients will make their own conclusions based on the findings.

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