17.2 Agreed-Upon Procedures Engagements (AT-C 215, SSAE No. 19)
Key Takeaways
- SSAE No. 19, effective for reports dated on or after July 15, 2021, removed the written assertion requirement for agreed-upon procedures engagements.
- Under SSAE No. 19, the engaging party acknowledges that the procedures are appropriate, other users need not agree, and the report may be issued for general use.
- An agreed-upon procedures report lists the procedures and findings and expresses no opinion, no conclusion, and no negative assurance.
- Procedures must be precise, using actions such as compare, agree, recompute, or confirm, rather than vague terms such as review for reasonableness.
- The practitioner must be independent for an agreed-upon procedures engagement and may restrict use of the report when judged appropriate.
17.2 Agreed-Upon Procedures Engagements (AT-C 215, SSAE No. 19)
Blueprint Link: Area IV.B.2 asks you to identify the factors a practitioner considers when issuing an agreed-upon procedures (AUP) report and to determine the report's form and content. SSAE No. 19, effective for reports dated on or after July 15, 2021, changed several long-standing rules, so older study materials are often wrong.
1. What an AUP Engagement Is
In an AUP engagement the practitioner performs specific procedures on subject matter and reports the findings. The practitioner expresses no opinion, no conclusion, and no negative assurance. Common uses include testing debt covenant calculations for a lender, royalty or franchise fee reports, grant or program compliance items, and data submitted to regulators.
2. What SSAE No. 19 Changed
| Topic | Before SSAE No. 19 | Under SSAE No. 19 |
|---|---|---|
| Written assertion from the responsible party | Generally required | Not required |
| Who agrees that procedures are appropriate | All specified parties agreed to the procedures and took responsibility for their sufficiency | The engaging party acknowledges that the procedures are appropriate for the intended purpose; other users need not agree |
| Report distribution | Always restricted to specified parties | General use is permitted; the practitioner may still restrict use when judged appropriate |
| Timing of agreement on procedures | Before the work began | Procedures may be developed or refined during the engagement, with the acknowledgment obtained before the report is released |
| Practitioner's role in designing procedures | Limited | The practitioner may help develop the procedures |
What did not change: the practitioner must be independent, must not provide negative assurance, and does not take responsibility for whether the procedures are sufficient for the users' purposes.
3. Planning and Performing the Procedures
Procedures must be clear and objective. Findings should be capable of consistent description, so procedures use precise actions:
| Acceptable Wording | Unacceptable Wording (Too Vague) |
|---|---|
| "Compare the quantities on the inventory listing for the 25 largest items with the signed count sheets and report differences" | "Review the inventory listing for reasonableness" |
| "Recompute the current ratio using amounts in the trial balance and compare it with the 1.5 to 1 covenant" | "Determine whether the company complies with its loan agreement" |
| "Agree each royalty payment over $10,000 to the bank statement" | "Test royalties to see whether they are fairly stated" |
Other planning points:
- Materiality: Findings are reported as found unless the engaging party and practitioner agree on a threshold, which the report then describes.
- Written representations: The practitioner requests written representations from the responsible party. A refusal must be evaluated and may lead the practitioner to disclose it or withdraw.
- Specialists: A practitioner may use a specialist, and the report may describe the specialist's assistance.
- Knowledge of other matters: If the practitioner becomes aware of matters outside the procedures that contradict the subject matter, the practitioner considers whether to report them.
4. Report Content
An AUP report typically includes:
- A title that includes the word independent.
- An addressee and identification of the engaging party and the subject matter.
- A statement that the responsible party is responsible for the subject matter.
- A statement that the engaging party has acknowledged that the procedures are appropriate for the intended purpose, and that the report may not be suitable for any other purpose.
- A statement that the procedures performed may not address all items of interest to a user, and that users are responsible for determining whether the procedures meet their needs.
- A list of the procedures performed and the related findings.
- A statement that the engagement was performed under the AICPA attestation standards for AUP engagements.
- A statement that the practitioner was not engaged to perform an examination or review, does not express an opinion or conclusion, and that other matters might have been reported had additional procedures been performed.
- A statement that the practitioner is required to be independent and to meet other ethical responsibilities.
- An alert restricting use, only when the practitioner decides restriction is appropriate.
- The practitioner's signature, city and state, and the report date.
5. Worked Example: Covenant Procedures for a Lender
A borrower's loan agreement requires a current ratio of at least 1.5 to 1 and a debt service coverage ratio of at least 1.25 to 1. The lender asks for an AUP report.
| Procedure | Finding |
|---|---|
| Agree current assets and current liabilities in the covenant schedule to the December 31 trial balance | Amounts agreed without exception |
| Recompute the current ratio using those amounts | The recomputed ratio was 1.62 to 1 |
| Recompute debt service coverage using the definitions in Section 7.2 of the loan agreement | The recomputed ratio was 1.18 to 1 |
The practitioner reports the 1.18 to 1 result as a finding. The report does not state that the borrower "failed" the covenant or "complied" with the agreement, because that would be a conclusion. The lender draws its own conclusion from the findings.
6. Choosing Among Attestation Services
| Need | Best Fit |
|---|---|
| Users want an opinion on whether subject matter meets criteria | Examination (assertion-based or direct) |
| Users want moderate comfort at lower cost, and the subject matter can be reviewed | Review |
| Users want specific facts found by specific procedures and will draw their own conclusions | Agreed-upon procedures |
Exam Trap: "Nothing came to our attention" is review language. Placing it in an AUP report provides negative assurance, which AT-C 215 does not permit.
Which statement correctly describes an agreed-upon procedures engagement under AT-C 215 as revised by SSAE No. 19?
A lender and a practitioner are drafting procedures for an agreed-upon procedures engagement on a borrower's inventory. Which procedure is worded appropriately?
Which element is required in an agreed-upon procedures report issued under AT-C 215?
A CPA firm lacks independence with respect to a client that has asked it to perform an agreed-upon procedures engagement for a bank. What is correct?