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., LLCchall@mmmcpa.comCpa-scribo.com (blog)