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
Go to "Guidance Notes" Listings |
