Agreed Upon Procedures vs. Consulting Engagements
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Transcript of Agreed Upon Procedures vs. Consulting Engagements
MCNAIR, MCLEMORE, MIDDLEBROOKS & CO., LLC
Agreed Upon Proceduresand Consulting Engagements
What Type of Service?
Scenario
Client needs fraud report, thinks someone is
stealing cash
Scenario
Client wants a comfort letter for a mortgage loan
Scenario
Client needs a personal financial statement for
bank loan
Scenario
Client wants you to test inventory but nothing else
Scenario
Client wants to issue an internal control report to
a nonprofit board
Scenario
The leadership of a church wants you to
review how they collect and deposit funds each
week
Engagement Letters are Important!
At a minimum, a write a memo describing what you have been asked
to do.
Consider sending an email:
"George, just to be clear, you have asked me to..."
Deciding Which Service to Provide
Will Third Parties Place Reliance on Your Work?
Are you adding credibility?
If Yes,Use AUP Option
If No,Use Consulting Option
Agreed Upon Procedures
Required wording in AUP reportFollow attestation standardsTighter procedural requirementsLess legal liabilityUsually at least three parties
Consulting
No particular wordingFollow consulting standardsMore flexibilityUsually just two parties
Agreed Upon Procedures Engagements
Agreed Upon Procedures
Subject to Peer Review
Agreed Upon Procedures
If specified party asks for procedures that are not well defined, consider whether or
not you should accept the engagement.
AUP Engagement
Engagement letter not required by AT standards but recommended.
Consider attaching your procedures to the engagement letter.
AUP Planning
Get agreement from all parties.
Consider drafting your report first and providing it to all parties.
AUP Procedures
Be specific.Can procedure be
reperformed?Make sure procedures satisfy
third party.
AUP Language
Responsible party - Person(s) assuming responsibility for the subject matter
Specified parties - Persons (entities) that assume responsibility for the sufficiency of the procedures
Poor AUP Examples
Read the minutesReview invoicesInterview the accounts
payable clerk
Reperform with Same Result?
If another person can perform the same
procedure and get the same result, then you have a good
procedure.
Poor AUP Example
Reading the minutes What is your objective? Can another person
perform the procedure and come to the same conclusion?
Good AUP Example
Agree every 25th check (from check register) to an invoice agreeing amount, payee and date.
Can another person perform the procedure and come to the same conclusion?
General procedures (e.g., Reading Minutes) expose a CPA to potential legal
liability.
Minutes may touch on a fraud-related issue
that you are unaware of.
The Third party may want you to assume more
responsibility.
Assuming more responsibility is fine, but make sure
procedures are well defined.
AUP Report
ProcedureFindingProcedureFinding
AUP Report
Too often AUP reports only reflect the procedure, but no finding.
AUP Planning
If you provide a draft, mark it "Draft" and include language explaining:
Results will depend on procedures.
No additional procedures will be performed unless directed to do so.
Consulting Services
Consulting
Not subject to peer review
Consulting standards list six categories of services.
Consulting Services
Consultations - e.g., reviewing a business plan
Advisory services - e.g., assistance with strategic planning
Implementation services - e.g., assistance with a merger
Consulting Services
Transaction services - e.g., litigation services
Staff and other support services - e.g., controllership services
Product services - e.g., providing training services
Consulting Examples
Fraud investigationInternal control reviewBankruptcy workDivorce settlementControllership work
Consulting Characteristics
Generally nonrecurringSpecialized knowledge and skills
to provide the serviceMore interaction with the client
and can be broader than attest work
Generally done just for the client
Consulting - Engagement Letter
If the nonattest service is for an attest client, Interpretation 101-3 of Rule 101 of the Code of Professional Conduct requires documentation of the understanding with the client.
Consulting - Engagement Letter
The understanding can be in:1.An engagement letter or2.A memo
Consulting - Engagement Letter
If the CPA is providing only nonattest services (e.g., consulting), then there is no professional standards requirement to have an engagement letter.
Do so anyway - the written understanding will protect you.
Consulting - Workpapers
Consulting standards do not require the consultant to prepare Workpapers.
But, you should in most cases, prepare Workpapers.
Workpapers are the link between your work and your report.
Consulting - Reports
Report format and content are up to you and your client
There is no opinion or other attestation reporting (e.g., compilation report or AUP report)
Consulting
If no formal report (e.g., phone call where you discuss issues), consider a memo to the file to summarize your consultation.
Contact Information
Charles B. Hall, CPA, CFE, MaccMcNair, McLemore, Middlebrooks & Co., [email protected] (blog)