Finance leaders often wonder whether they need a full financial statement audit or if agreed-upon procedures would be sufficient to meet their financial requirements. Audits and agreed-upon procedures both provide confidence, but they offer different levels of assurance.
Below, we’ll cover the differences between audits and agreed-upon procedures so you can choose the right engagement for your business.
Key Takeaways
- Audits provide the highest level of assurance through a formal opinion on full financial statements.
- Agreed-upon procedures (AUPs) offer flexible, targeted testing without an auditor’s opinion.
- AUPs are typically faster and less expensive than audits, making them a cost-effective choice for focused assurance.
- When full assurance isn’t required, compilation and review engagements or AUPs may be better suited to meet stakeholder expectations.
Audit vs. Agreed-Upon Procedures: The Key Differences
An audit is a full examination of your financial statements. An auditor provides an opinion on whether your financial records comply in accordance with GAAP (Generally Accepted Accounting Principles). It’s comprehensive and is typically required by investors or lenders to prove compliance with regulatory requirements.
Agreed-upon procedures are more flexible and do not provide any level of assurance. During an agreed-upon procedures engagement, an accountant conducts only the procedures you and your stakeholders request. Instead of an opinion, they report factual findings, and your team interprets those results based on the purpose of the engagement.
As Bennie Lewis, CPA, President and Partner at Assurance Dimensions, explains: “An audit provides high-level assurance for stakeholders who need confidence in your entire financial statements. But in many cases, an agreed-upon procedures engagement gives you targeted insight at a fraction of the cost.”
When to Choose an Audit
Depending on your business needs, an audit may be a more suitable option. Consider undergoing an audit if:
- A lender, investor, or regulator requires one
- You’re preparing for a major funding round or transaction
- Stakeholders want the highest possible credibility
- You need an independent opinion on your complete financial statements
Audits offer the kind of broad, formal assurance that external parties rely on. Agreed-upon procedures do not provide the same level of assurance.
When to Choose Agreed Upon Procedures
Agreed-upon procedures are ideal when you need verification of a specific aspect, but a full audit is not necessary.
Organizations commonly choose this option for:
- Grant or program spending verification
- Vendor or contract compliance testing
- Internal control testing
- Royalty, franchise fee, or revenue-share calculations
- M&A due diligence
- Targeted testing of specific balances or transactions
As Lewis notes: “When you don’t need a formal opinion, but you do need accurate, independent verification, agreed-upon procedures can deliver focused results faster.”
Making the Right Choice
The right engagement depends on your reporting purpose and the level of assurance required. If you’re unsure which engagement is right for your business, reach out to an assurance partner. Their guidance is invaluable and can help you determine the right choice.
At Assurance Dimensions, we help clients choose whether a full audit or agreed-upon procedures best fits their compliance needs and stakeholder expectations. Our team tailors each engagement so you’re never paying for more assurance than you truly need.
How Assurance Dimensions Can Help
Whether you need high-level assurance, targeted verification, or support with compilation and review engagements, Assurance Dimensions can help you make the right call. Our team has the experience to evaluate your goals and recommend the engagement that delivers the best value and compliance coverage.
Contact Assurance Dimensions to schedule a consultation and find the best-fit solution, without overpaying for services you may not need.