Consulting or agreed upon procedures–which should a CPA use?
I am often asked, “should this be an agreed-upon-procedures (AUP) engagement or a consulting engagement?” (The question usually comes just after a client says, “I don’t need an audit. They cost too much.”)
So what’s the difference in an AUP and a consulting engagement?
The AUP option is more precise and is mainly composed of:
An example follows:
Procedure – Agreed all January 2012 disbursements greater than $20,000 to checks that cleared the bank statement; compared the payee on each check to the payee per the check register.
Finding – All check payees agreed with the exception of check # 2394 for $45,000; the payee for this check was I. Cheatum, and the check register reflected a payment to King’s Supply Company.
A consulting engagement–based on the AICPA Consulting Standards–is less precise and does not necessarily need to follow the procedure-finding format. There are no specific reporting standards for a consulting engagement, so a CPA can more easily design the engagement to meet various needs. The consulting standards are more flexible than the attestation standards (and the requirements for agreed-upon-procedures engagements).
A consulting report might address the following:
As you can tell, there are no procedures and findings.
It all depends on the purpose of the report. Consider the following:
If the answer to these questions is yes, then use the AUP option.
If there is no third party relying on the information, then a consulting engagement may be better. But always ask, “Who will receive the report?” The CPA needs to know who will read and potentially place reliance upon the report.
The key consideration in performing an AUP is specificity.
Procedures that would not be appropriate include:
Procedures that would be appropriate include:
For the new AICPA AUP guidance (including sample reports), click here. These standards are effective for reports dated on or after May 1, 2017.
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Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty years, he has primarily audited governments, nonprofits, and small businesses. He is the author of The Little Book of Local Government Fraud Prevention and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events. Charles is the quality control partner for McNair, McLemore, Middlebrooks & Co. where he provides daily audit and accounting assistance to over 65 CPAs. In addition, he consults with other CPA firms, assisting them with auditing and accounting issues.
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