Does agreed upon procedures provide assurance?
In the world of auditing and assurance services, the term “agreed upon procedures” often raises questions about the level of assurance it provides. While agreed upon procedures are a type of engagement that can offer some level of assurance, it is important to understand the limitations and scope of such procedures.
Agreed upon procedures are a subset of assurance engagements, where the auditor performs specific procedures on a client’s records or systems to obtain limited assurance on a particular matter. These procedures are agreed upon by the auditor and the client, and are designed to address specific areas of concern or compliance requirements. The key question is whether these procedures can provide a sufficient level of assurance to meet the client’s needs.
Firstly, it is important to note that agreed upon procedures do not provide the same level of assurance as a full audit. In an audit, the auditor is required to obtain reasonable assurance that the financial statements are free from material misstatement. This involves performing a comprehensive set of procedures, including assessing the internal controls, testing the transactions, and evaluating the disclosures. In contrast, agreed upon procedures are focused on a specific area or issue, and the auditor’s responsibility is to obtain limited assurance on that matter.
Limited assurance means that the auditor has performed procedures that provide a reasonable basis for expressing an opinion on the specific matter. However, this opinion does not provide a full picture of the client’s overall financial position or compliance with applicable laws and regulations. Therefore, agreed upon procedures are best suited for situations where the client requires a focused review of a particular area, such as compliance with a specific regulation or the accuracy of a particular financial calculation.
One of the advantages of agreed upon procedures is that they can be tailored to the client’s specific needs. The procedures can be designed to address the client’s unique risks and concerns, providing a more targeted and relevant assessment. This can be particularly beneficial in situations where a full audit is not required or feasible, such as when a client needs to demonstrate compliance with a specific regulation or when a limited scope audit is more appropriate.
However, it is crucial to recognize the limitations of agreed upon procedures. The scope of the procedures is agreed upon by the auditor and the client, and the auditor’s responsibility is limited to the specific procedures performed. This means that the auditor may not uncover all potential issues or risks, and the opinion provided is based solely on the procedures performed. As a result, agreed upon procedures may not be suitable for all situations, especially when the client requires a comprehensive and independent assessment of their financial statements or compliance with applicable laws and regulations.
In conclusion, while agreed upon procedures can provide some level of assurance on a specific matter, they do not offer the same level of assurance as a full audit. The scope and limitations of agreed upon procedures should be carefully considered when determining whether they are appropriate for a particular situation. Clients should assess their specific needs and consult with their auditor to ensure that the agreed upon procedures provide the necessary level of assurance for their purposes.
