When seeking assurance services for businesses and organizations, it is crucial to understand the differences between Agreed Upon Procedures (AUP) and financial statement audits. While both engagements provide valuable insights into a company’s financial health and operations, they serve different purposes and have distinct methodologies. In this blog post, we will explore the key differences between Agreed Upon Procedures and financial statement audits to help you make an informed decision when selecting the appropriate service for your needs.
1. Purpose of the Engagement
One of the most significant differences between AUP and financial statement audits lies in the purpose of the engagement.
Agreed Upon Procedures: AUP engagements focus on specific areas or aspects of a company’s operations, as agreed upon by the company and the independent auditor. The primary goal of an AUP engagement is to provide a detailed report on the procedures performed and the findings obtained, without expressing an opinion on the overall financial statements or internal controls.
Financial Statement Audit: In contrast, a financial statement audit aims to provide an opinion on whether a company’s financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. The auditor examines the company’s financial records, internal controls, and other relevant information to form an opinion.
2. Scope of the Engagement
The scope of the engagement is another key difference between AUP and financial statement audits.
Agreed Upon Procedures: AUP engagements are customized to address specific concerns or areas of interest within the organization. The scope of the engagement is limited to the agreed-upon procedures, and the auditor does not provide an overall assessment of the company’s financial statements or internal controls.
Financial Statement Audit: The scope of a financial statement audit is much broader, covering all aspects of a company’s financial statements. The auditor performs a comprehensive examination of the company’s financial records, internal controls, and other relevant information to form an opinion on the financial statements as a whole.
3. Level of Assurance
The level of assurance provided by AUP and financial statement audits also differs significantly.
Agreed Upon Procedures: AUP engagements provide a lower level of assurance, as the auditor does not express an opinion on the overall financial statements or internal controls. Instead, the auditor reports on the specific procedures performed and the findings obtained, allowing the users of the report to draw their own conclusions.
Financial Statement Audit: Financial statement audits provide a higher level of assurance, as the auditor expresses an opinion on the overall financial statements. This opinion is based on the auditor’s examination of the company’s financial records, internal controls, and other relevant information, providing users of the report with greater confidence in the company’s financial reporting.
4. Reporting
The format and content of the reports issued for AUP and financial statement audits are also distinct.
Agreed Upon Procedures: In an AUP engagement, the auditor provides a detailed report outlining the specific procedures performed, the findings obtained, and any exceptions or discrepancies identified. This report is typically factual in nature and does not include an opinion on the financial statements or internal controls.
Financial Statement Audit: In a financial statement audit, the auditor issues an audit report that includes an opinion on the overall financial statements. The report typically contains an introductory paragraph, a scope paragraph, an opinion paragraph, and an explanatory paragraph (if applicable), providing users with a comprehensive understanding of the auditor’s findings and conclusions.
Understanding the key differences between Agreed Upon Procedures and financial statement audits is essential when selecting the appropriate assurance service for your business or organization. AUP engagements are tailored to address specific concerns or areas of interest, providing a lower level of assurance without an opinion on the overall financial statements or internal controls. In contrast, financial statement audits offer a higher level of assurance with an opinion on the company.
