When You Need an Agreed-Upon Procedures (AUP) Report

Q: When do you need an agreed-upon procedures (AUP) report?

You need an agreed-upon procedures (AUP) report when a lender, investor, regulator, board, or counterparty wants a CPA to test specific items—not provide broad assurance like an audit or review. An AUP is useful when the request is narrow and clearly defined (for example, verifying a certain account balance, testing a sample of transactions, confirming compliance with a requirement, or validating a report). The CPA performs only the procedures agreed to in advance and reports the findings, without giving an opinion on the overall financial statements. The value of an AUP is precision: it targets exactly what the stakeholder cares about and avoids paying for unnecessary scope.

1. Overview

An Agreed-Upon Procedures (AUP) engagement is a highly targeted service where a CPA performs specific procedures that you, the CPA, and (often) a third party agree on in advance. Instead of looking at your entire financial system, the CPA focuses only on clearly defined items—such as a grant’s expenses, a revenue stream, a loan covenant, or a licensing condition.

The CPA does not provide an opinion or assurance. Instead, they report factual findings: which procedures were performed and exactly what was found. This makes AUPs very flexible, useful, and often more cost-effective than a full audit when you need narrow, objective testing.

2. Who Needs This & When

You may need an AUP report when:

• A bank or lender wants objective verification of specific numbers (for example, revenue, DSCR, or key ratios) before approving, renewing, or increasing a facility.

• An investor or buyer wants a targeted check on certain balances or metrics as part of due diligence, but not a full audit.

• A grantor or donor wants independent testing of how funds were used.

• A regulator or licensing body requires confirmation that certain financial conditions have been met.

• A board or audit committee wants focused testing in an area of concern (e.g., cash disbursements, payroll, or restricted funds).

You generally choose an AUP when you:

• Have a specific question or risk area that needs independent verification, and

• Do not need a full audit or review of the entire financial statements.

3. Common Real-World Scenarios

Examples of where AUPs are frequently used:

• A bank asks a CPA to recalculate and verify your debt service coverage ratio (DSCR) as of year-end.

• A grantor funds a nonprofit program and requests a CPA to test a sample of program expenses for eligibility and proper documentation.

• A company suspects issues in a particular area (for example, payroll or vendor payments) and asks a CPA to test selected transactions for accuracy.

• A franchisor wants a CPA to verify franchise royalty calculations before renewing a franchise agreement.

• A regulator wants a CPA to perform procedures on specific compliance items rather than the full financials.

In each case, the scope is not “review everything,” but “check these defined items and report exactly what you find.”

4. Regulatory / Third-Party Background

AUP engagements are performed under professional standards (for example, AICPA attestation standards in the U.S.). They are often requested by:

• Banks and other lenders

• Grant-making institutions

• Boards and audit committees

• Regulators and licensing bodies

• Investors or buyers in a transaction

The key regulatory points are:

• The specified parties (for example, the bank, grantor, or board) must agree on the procedures in advance.

• The report is generally restricted in use to those specified parties.

• The CPA must remain independent and follow ethical and professional rules.

Because rules and expectations differ by institution and jurisdiction, the exact procedures and format of the AUP report will always be customized to the situation.

5. Industries Where This Is Most Relevant

AUPs are used across many sectors, particularly where stakeholders need selective testing:

• Construction & contracting – verifying job costs, revenue recognition, or bonding requirements.

• Real estate & property management – rent roll verification or covenant testing.

• Nonprofits & NGOs – grant compliance, restricted fund testing.

• Healthcare – testing specific billing or funding streams.

• Franchise businesses – confirming royalties, franchise fees, or advertising fund contributions.

• Financial services / MSBs – testing compliance items, reconciliations, or cash controls.

Wherever a stakeholder wants assurance on specific items, an AUP can be a powerful tool.

6. Why a CPA Is Typically Involved

AUP engagements require:

• Objectivity

• Independence

• Technical knowledge of accounting and attestation standards

• The ability to design appropriate, objective procedures

Because the results will be relied upon by third parties (for example, banks or grantors), they want a licensed CPA who is bound by professional standards and ethics. The CPA’s role is to:

• Help define procedures that are clear, objective, and testable.

• Execute those procedures properly.

• Report the findings in a way that specified parties can rely on.

7. What the CPA Actually Does / Documents Needed

AUP work usually follows these steps:

1. Scoping Discussion

   
   

    The CPA, you, and any key stakeholders (for example, the bank or grantor) agree on:

   • Exactly what will be tested

   • The period being tested

   • The reports or balances involved
     

2. Defining Procedures

   
   

    Procedures must be:

   • Specific

   • Objective

   • Measurable

Example: “Select 25 cash disbursements over $10,000 and agree them to invoices and approvals.”

3. Gathering Documents

   
   

    You provide whatever is needed based on the agreed procedures, such as:

   • Bank statements

   • General ledger and trial balance

   • Invoices and supporting documentation

   • Contracts or grant agreements

   • Payroll records
     

4. Performing the Procedures

   
   

    The CPA performs each step exactly as described (for example, recalculations, tracing transactions to documentation, verifying specific balances).
   

5. Reporting Factual Findings

   
   

    The CPA does not interpret results or give opinions. The report simply lists:

   • Each procedure performed, and

   • What was found (for example, “no exceptions noted” or “differences of $X identified”).

8. Deliverables (with Illustrative Excerpt)

The main deliverable is an AUP report describing:

• The purpose of the engagement

• The specified parties for whom the report is intended

• Each procedure performed

• The factual findings from each procedure

The report does not include an audit opinion or review conclusion.

Illustrative excerpt:

“We performed the procedures described in the ‘Scope of Engagement’ section, which were agreed to by XYZ Bank and ABC Company. The procedures were performed solely to assist XYZ Bank in evaluating ABC Company’s compliance with the financial covenants of its loan agreement. Our procedures and findings are described in the ‘Results’ section. We were not engaged to and do not express an opinion or conclusion.”

This kind of wording helps stakeholders understand that the report is factual and limited in scope.

9. Timeline & Fee Ranges

Typical timeline

Assuming clear scope and timely access to documents:

• Simple AUP (limited procedures): around 1–2 weeks

• Moderate AUP: 2–4 weeks

• Larger or more complex AUPs: 4–6+ weeks

Typical fee ranges

Fees depend on the number and complexity of procedures, but approximate ranges might be:

• Smaller engagements: $2,500 – $7,500+

• Moderate complexity: $7,500 – $20,000+

• Complex / many procedures: $20,000 – $50,000+

The more precise and limited the scope, the more predictable the cost and timeline.

10. Common Mistakes & Misunderstandings

• Unclear scope: Trying to “check everything” defeats the purpose of an AUP. The value comes from being targeted.

• Procedures that are too broad or subjective: AUP procedures must be objective and repeatable, not based on judgment like “assess reasonableness.”

• Not involving the third party early: If a bank or regulator is involved, they should agree to the procedures before work begins.

• Expecting an opinion or assurance: An AUP does not provide assurance; it only reports factual findings.

• Providing incomplete documentation: Missing documents cause delays and may limit what the CPA can report.

Avoiding these mistakes makes the engagement smoother and more cost-effective.

11. How Jedidiah CPA Can Help

Jedidiah CPA can help you:

• Decide whether an AUP is the right tool for your situation—or whether an audit, review, or other service is more appropriate.

• Clarify and define procedures that satisfy lenders, regulators, boards, or investors while remaining efficient and focused.

• Coordinate with third parties (such as banks or grantors) so everyone agrees on the scope before work begins.

• Perform AUP engagements professionally and clearly, with practical communication throughout.

• Use the findings to improve your internal processes or support important business decisions.

Our aim is to give you clarity and confidence without over-engineering the engagement.

Important independence consideration:

Whenever an engagement requires independence under professional standards, Jedidiah CPA cannot perform bookkeeping, financial statement preparation, or management functions for the same client during the period of that engagement.

An Agreed-Upon Procedures (AUP) engagement must be performed by an independent CPA. This means the CPA cannot apply procedures to data or schedules that the firm prepared or posted on the client’s behalf. The CPA’s role is to independently test and report findings based on procedures agreed to by external users (such as banks, donors, or regulators). If your firm prepared, calculated, or approved the data being tested, an independent third party must perform the AUP engagement.

Disclaimer

This article is for general informational purposes only and does not constitute accounting, tax, legal, or professional advice. Agreed-Upon Procedures engagements are regulated services that can only be performed under a formal engagement letter by an appropriately licensed CPA who has assessed independence, scope, and professional requirements. Requirements and practices vary by jurisdiction, institution, and specific facts. You should consult a qualified professional about your particular situation before making decisions.

FAQs

How is an AUP report different from an audit or review?

An audit or review provides assurance on financial statements as a whole. An AUP tests only specific procedures agreed in advance and reports the results—without an overall opinion.

Who typically requests an AUP report?

Common requesters include lenders, investors, regulators, grantors, boards, franchisors, and partners who need verification of specific data or compliance requirements.

What are examples of common AUP procedures?

Examples include testing a sample of invoices, confirming bank balances, verifying AR/AP aging, validating payroll totals, checking covenant calculations, or confirming restricted fund usage.

What does “agreed-upon” mean in practice?

It means the scope is defined upfront by what the requesting party needs and what the CPA can perform, including exactly which tests will be done and what period/data is covered.

What documents are needed to start an AUP engagement?

The requester’s written requirements, the data to be tested (reports, ledgers, statements), supporting source documents, and clear definitions for any metrics or calculations involved.

Other FAQs

1. What is an AUP report? A report where the CPA tests only specific items requested by stakeholders.

2. Who asks for AUPs?Banks, investors, boards, regulators, grantors, and buyers.

3. What procedures are typically included? Revenue tie-outs, expense testing, DSCR calculations, grant spending verification, payroll testing, and more.

4. How long does an AUP take?1–3 weeks depending on scope.

5. How much does an AUP cost? Depends on the number and complexity of procedures.