What Is Agreed-Upon Procedures? Everything You Need to Know

You need financial clarity, but a full audit feels like overkill. Your nonprofit board wants specific compliance checks. Your venture capital firm requires targeted due diligence procedures. Sound familiar?

You might be asking, what is agreed-upon procedures and how does it work? A flexible, cost-effective solution that gives you exactly what you need without the complexity of traditional audits. While many business owners have never heard of AUP audits, they’re becoming increasingly popular among smart organizations that want targeted financial insights without breaking the bank.

What Is Agreed-Upon Procedures Auditing?

Understanding what is agreed-upon procedures, starts with recognizing that it’s a specialized engagement where auditors perform specific procedures that you and your CPA agree upon in advance. Unlike traditional audits that result in an opinion about your financial statements, AUP audits focus on factual findings from predetermined tests and procedures.

Think of it this way: traditional audits are like comprehensive medical exams where doctors check everything and give you an overall health opinion. An AUP audit is more like targeted medical tests, where you and your doctor agree to check specific things like blood pressure, cholesterol, or heart function, and you get the raw results without a broad health assessment.

Key Characteristics of AUP Audits

• Client-Driven Scope: You decide exactly what gets tested. Want to verify cash disbursements over $10,000? Check compliance with grant requirements? Test inventory counts at specific locations? You set the agenda.
• Factual Reporting Only: Your CPA reports what they found, not what it means. If they discover three invoices without proper approval signatures, they’ll report that fact, but won’t conclude whether your internal controls are adequate.
• Limited Assurance: AUP audits don’t provide the same level of assurance as traditional audit and assurance services. You’re getting specific factual information, not comprehensive financial statement opinions.

How AUP Differs from Traditional Audits

Traditional audits follow standardized procedures designed to express an opinion on your financial statements as a whole. The auditor decides what to test based on professional standards and risk assessments. You get a comprehensive opinion about whether your financial statements are fairly presented.

AUP audits flip this relationship. You identify specific areas of concern or requirements, work with your CPA to design appropriate procedures, and receive detailed factual findings. No opinions, no assurance levels. Just clear, objective results about the specific items you wanted tested.

This fundamental difference makes AUP audits incredibly valuable for targeted situations where you need specific information rather than broad financial statement assurance.

Why Choose An AUP Audit?

When business owners ask what is agreed-upon procedures, the answer often centers on flexibility. These audits are perfect for situations where traditional audits are either unnecessary or insufficient for your specific needs.

Cost-Effectiveness and Efficiency

AUP audits generally cost significantly less than full audits because the scope is limited and focused. Instead of examining your entire financial system, your CPA concentrates only on areas you’ve identified as important. This targeted approach reduces both time and costs while still providing valuable insights.

For startups and small businesses with limited budgets, AUP audits offer a way to gain professional financial oversight without the expense of comprehensive audits. You can address specific investor concerns, comply with contract requirements, or test critical processes without straining your resources.

Common Business Scenarios for AUP Audits

• Venture Capital Due Diligence: Investors often require specific procedures to verify revenue recognition, cash flows, or compliance with debt covenants. An AUP audit can address these exact requirements without the time and expense of a full audit.
• Nonprofit Compliance: Grant agreements frequently specify certain procedures that must be performed by an independent CPA. AUP audits are perfect for testing compliance with grant terms, verifying proper use of restricted funds, or checking adherence to regulatory requirements.
• Contract Requirements: Many business contracts include clauses requiring specific financial procedures or testing. Rather than commissioning a full audit, you can use AUP procedures to satisfy these contractual obligations efficiently.
• Internal Control Testing: If you’re concerned about specific areas of your financial processes (like cash handling, inventory management, or expense approval procedures) AUP audits can test these areas thoroughly without examining your entire operation.
• Acquisition or Sale Preparation: Whether you’re buying or selling a business, AUP procedures can verify specific financial information that’s critical to the transaction without the full scope of traditional due diligence audits.

Risk Management Benefits

AUP audits help you identify potential issues before they become major problems. By testing specific high-risk areas, you can catch errors, fraud, or compliance issues early. This proactive approach protects your organization and demonstrates due diligence to stakeholders, investors, and regulatory bodies.

The AUP Audit Process: Step-by-Step

Beyond simply knowing what is agreed-upon procedures, understanding the process itself will help you prepare more effectively.

Initial Planning and Agreement

The process begins with detailed discussions about your specific needs and objectives. Your CPA will work with you to understand exactly what you want to accomplish, what procedures will provide the information you need, and how the results will be used.

This planning phase is critical because it determines the entire scope of the engagement. You’ll discuss factors like sample sizes, testing periods, specific accounts or transactions to examine, and the level of detail required in reporting.

Clear communication during this phase prevents misunderstandings later and makes sure the procedures will actually provide the information you need.

Procedure Design and Documentation

Once you’ve agreed on objectives, your CPA will design specific procedures to accomplish your goals. These procedures must be detailed enough that another qualified professional could perform them and reach the same results.

For example, instead of saying “test cash disbursements,” the procedures might specify: “Select all cash disbursements over $5,000 during the period January 1 to March 31, 2025, and verify that each disbursement includes proper authorization signatures, supporting documentation, and appropriate account coding.”

Execution and Testing

During execution, your CPA performs exactly the procedures you’ve agreed upon, nothing more, nothing less. They’ll document their work carefully and gather evidence to support their findings.

Unlike traditional audits where auditors might expand procedures based on what they discover, AUP engagements stick strictly to the agreed-upon scope. If unexpected issues arise, your CPA will discuss them with you, but additional procedures require your explicit agreement.

Reporting and Communication

The final AUP report presents factual findings without opinions or conclusions. If procedures reveal exceptions or unusual items, these will be clearly described. The report will also specify exactly which procedures were performed and any limitations on the work.

This factual reporting style means you’ll need to interpret the results yourself or with your CPA’s guidance. The report provides the raw information, but you draw the conclusions about what the findings mean for your business.

Follow-Up and Action Planning

After receiving your AUP report, work with your CPA to understand the implications of any findings. If the procedures reveal issues, you can develop action plans to address them. You might also decide to perform additional procedures if the initial results raise new questions.

Many clients use AUP results to improve their internal processes, satisfy stakeholder requirements, or make informed business decisions based on verified financial information.

Common Questions And Misconceptions About AUP Audits

Many business owners who are asking what is agreed-upon procedures often have questions about these specialized audits.

“Isn’t an AUP Just a Cheaper Audit?”

Not exactly. While AUP audits often cost less than full audits, they serve different purposes. Traditional audits provide opinions on financial statement fairness. AUP audits provide factual information about specific procedures you’ve requested.

The value isn’t in getting a cheaper audit, it’s in getting exactly the information you need without paying for procedures you don’t require.

“Without an Opinion, Are AUP Results Worthless?”

Absolutely not. AUP results provide verified factual information that can be incredibly valuable for decision-making. Many stakeholders prefer factual findings they can interpret themselves rather than broad audit opinions that might not address their specific concerns.

For example, an investor might care more about verified revenue growth rates and cash flow trends than about overall financial statement fairness. AUP procedures can provide exactly that specific information.

“Are AUP Audits Only for Small Organizations?”

While AUP audits are popular with smaller organizations due to cost considerations, large companies also use them frequently. Major corporations might use AUP procedures for subsidiary audits, compliance testing, or due diligence for acquisitions.

The key factor isn’t organization size, it’s whether you need specific factual information rather than comprehensive financial statement opinions.

“How Do I Know if AUP is Right for My Situation?”

AUP audits work well when you have specific questions that can be answered through targeted procedures. They’re less suitable when you need comprehensive assurance about your financial statements as a whole or when regulatory requirements specifically mandate traditional audits.

Consider AUP audits when you need to satisfy specific stakeholder requirements, test particular aspects of your financial processes, or verify certain financial information without the scope and cost of traditional audits.

Addressing Cost and Complexity Concerns

Some organizations worry that even AUP audits might be too complex or expensive. The reality is that AUP engagements can be tailored to fit almost any budget and timeline. By working closely with your CPA to define exactly what you need, you can design procedures that provide valuable information within your resource constraints.

Remember that avoiding necessary financial oversight often costs more in the long run than investing in appropriate procedures upfront. AUP audits offer a middle ground between doing nothing and commissioning comprehensive audits.

Some Examples

Understanding how other organizations use AUP audits can help you identify opportunities for your own business.

Nonprofit Grant Compliance

Consider a nonprofit organization that receives a significant federal grant with specific compliance requirements. Rather than commissioning a full audit, they could work with their CPA to design AUP procedures that test compliance with grant terms, verify proper segregation of restricted funds, and confirm appropriate documentation for grant-funded expenditures.

Such AUP procedures might reveal minor documentation gaps that the nonprofit could correct before their next grant reporting deadline. This cost-effective approach would satisfy federal requirements while allowing the organization to allocate more resources to their mission.

Startup Due Diligence

Picture a tech startup preparing for Series A funding that needs to satisfy investor due diligence requirements without the expense of a full audit. Working with their venture capital firm and accounting professionals, they could design AUP procedures that verify revenue recognition practices, test cash flow projections, and confirm compliance with existing investor agreements.

The AUP results would give investors confidence in the company’s financial processes and help secure funding. The startup would save significant time and money compared to a traditional audit while still providing the assurance investors need.

Professional Services Internal Controls

Imagine a growing professional services firm concerned about cash handling procedures and expense reimbursement processes. They might use accounting professionals for AUP procedures that test these specific areas without examining their entire financial system.

The procedures could reveal several opportunities to strengthen internal controls, which the firm would implement before any problems occur. This targeted approach would allow them to address specific concerns efficiently while maintaining focus on serving their clients.

Medical Practice Compliance

Think about a medical practice group that needs to verify compliance with various healthcare regulations and billing requirements. AUP procedures could test patient billing accuracy, verify proper coding practices, and confirm compliance with insurance requirements.

The results would help the practice identify billing process improvements and demonstrate regulatory compliance to stakeholders. This focused approach would be much more practical than a comprehensive audit for their specific needs.

How AUP Audits Fit Into LNB Accounting’s Service Offering

At LNB Accounting CPAs, we understand that every client has unique needs. Our audit and assurance services include AUP engagements specifically designed to provide flexible, cost-effective solutions for our diverse clientele.

Our Specialized Expertise

Our team has extensive experience designing AUP procedures for various industries and situations. Whether you need compliance testing for grant requirements, due diligence procedures for investors, or internal control assessments, we can design procedures that provide exactly the information you need.

Technology-Driven Efficiency

We use cloud-based and advanced accounting platforms to streamline AUP engagements while maintaining accuracy and timeliness. Our expertise with major accounting software systems allows us to work efficiently with your existing systems and data.

This technology integration means faster turnaround times, more accurate results, and better documentation of our procedures and findings.

Our Commitment to Quality and Community

LNB Accounting is built on a foundation of community support and empowerment. We bring this same commitment to excellence and social responsibility to every client engagement, including AUP audits.

Personalized Service Approach

Our client onboarding process makes sure you get exactly the services you need. We start with a discovery call to understand your situation, provide a detailed proposal outlining recommended procedures, and guide you through our client portal for seamless service delivery.

After completing your AUP engagement, we conduct client satisfaction surveys to ensure we’ve met your expectations and identify opportunities to serve you better in the future.

Ready to explore how an agreed-upon procedures audit might benefit your organization? Contact us today to schedule a discovery call and learn more about our comprehensive audit and assurance services. Let’s work together to design procedures that provide exactly the financial insights you need to move your business forward with confidence.

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