(Ref: Para. 17)

Ethical requirements, applicable to Other Assurance Engagements, permit the independence requirements to be modified, if the intended users of the assurance practitioner’s report are knowledgeable as to the purpose, subject matter information and limitations of the report and explicitly agree to the application of the modified independence requirements.  In these circumstances, the report is to include a restriction on use to the intended users only, which is already included in the report of factual findings.  If modified independence requirements are adopted in the terms of the engagement, but the intended users include a class of users who are not party to the terms of the engagement, they are required to be made aware of the modified independence requirements, such as by reference to them in the report of factual findings.  In any case, the independence of the assurance practitioner and the engagement team will need to be assessed.

(Ref: Para. 18-22)

The assurance practitioner needs to understand the engaging party’s objectives in engaging the assurance practitioner to ensure that an engagement is agreed which is appropriate to those objectives and to avoid any misunderstandings with respect to the scope of the engagement.

In determining whether a report of factual findings is likely to meet the needs of intended users, or class of intended users, of the report, the assurance practitioner considers the purpose for which users intend to use the report.  In doing so, the assurance practitioner, does not take responsibility for the sufficiency of the agreed-upon procedures to be performed to meet the needs of intended users.  If intended users are likely to be able to interpret the factual findings resulting from procedures performed, whether alone or in combination with other available evidence, to reach appropriate conclusions, then an engagement to report factual findings may be acceptable.  If intended users are unlikely to be able to interpret the factual findings to reach appropriate conclusions, then the assurance practitioner does not accept an agreed-upon procedures engagement, but may accept an assurance engagement if appropriate.

An agreed-upon procedures engagement may be accepted if it satisfies some but not all of the elements of an assurance engagement,^[12] with the exception of a written assurance report, as that requires the provision of assurance.

If all of the elements of an assurance engagement are met,^[13] the assurance practitioner declines an agreed-upon procedures engagement, however an assurance engagement may be accepted if appropriate and applicable AUASB standards are applied.  Appendix 1 provides a table of Differentiating Factors between Agreed-Upon Procedures Engagements and Assurance Engagements to assist the assurance practitioner in determining whether the engagement is an agreed-upon procedures engagement or an assurance engagement.

The extent of the subject matter does not affect whether an engagement is an assurance engagement or not. Even if the subject matter of an engagement is very specific, when the engagement contains the elements of an assurance engagement, the assurance practitioner complies with the requirements of either:

1. ASA 805 Special Considerations - Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement when providing reasonable assurance on historical financial information other than a financial report;
2. ASA 2405 Review of Historical Financial Information Other than a Financial Report when providing limited assurance on historical financial information other than a financial report; or
3. ASAE 3000 Assurance Engagements Other than Audits or Reviews of Historical Financial Information when providing reasonable or limited assurance on matters other than historical financial information.^[14]

Example engagements are described in Appendix 2 illustrating how an engagement could be scoped as an agreed-upon procedures engagement or an assurance engagement for the same subject matter.

The assurance practitioner may assist the engaging party and intended users in determining the procedures to be performed to ensure that the procedures are able to be performed and are likely to meet the needs of the intended users.  Nevertheless, the assurance practitioner is not responsible for the adequacy of the agreed-upon procedures nor for assessing whether the findings will be sufficient either alone or in combination with other evidence to support any conclusions which the users intend to draw.  The assurance practitioner’s role in an agreed-upon procedures engagement is to use their professional competence and capabilities in the performance of the agreed-upon procedures and to report the findings accurately.

If it is necessary for the assurance practitioner to perform a risk assessment, respond to assessed risks or evaluate the evidence gathered, then this indicates that the assurance practitioner is using their professional judgement to gather sufficient appropriate evidence to support a conclusion.  In these circumstances, the engagement may be an assurance engagement and, if so, the relevant requirements in the AUASB standards need to be applied.

(Ref: Para. 23-26)

The agreed terms would ordinarily be recorded in an engagement letter or other suitable form of written agreement. It is in the interests of both the engaging party and the assurance practitioner that the assurance practitioner sends an engagement letter, preferably before the commencement of the engagement, to help in avoiding misunderstandings with respect to the engagement.

In certain circumstances, for example when the procedures have been agreed to between the regulator, industry representatives and representatives of the accounting profession, the assurance practitioner may not be able to discuss the procedures with all the intended users who will use the report of factual findings. In such cases, the assurance practitioner may consider, for example, discussing the procedures to be applied with appropriate representatives of the intended users, reviewing relevant correspondence from such users or sending them a draft of the report of factual findings that will be issued.

In an agreed-upon procedures engagement, as the assurance practitioner does not express a conclusion, it is the engaging party’s responsibility to determine the procedures which will provide sufficient appropriate evidence to support their own or intended users’ conclusions.  It is only appropriate for the assurance practitioner to select the procedures if they will be assessing the evidence to support a conclusion provided in an assurance engagement.

Not all intended users may be available to agree to the terms of the engagement or the agreed-upon procedures to be performed. These intended users may still be specified in the letter of engagement where the assurance practitioner is satisfied that those users will understand the purpose for which the report of factual findings is intended to be used. These intended users may include:

1. regulators or industry bodies which issue requirements for procedures to be performed and factual findings to be reported; and
2. an identifiable class of users which are intended to receive the report of factual findings for a specified purpose.

An example of an engagement letter for an agreed-upon procedures engagement is set out in Appendix 3.

(Ref: Para. 27-28)

Planning in an agreed-upon procedures engagement is restricted by the nature, timing and extent of procedures as agreed in the terms of the engagement.  Therefore, the assurance practitioner does not have the discretion to perform alternative or additional procedures without obtaining the engaging party’s agreement.  Nevertheless, the assurance practitioner will still need to plan the nature, timing and extent of the resources necessary to perform the engagement.

(Ref: Para. 37-38)

The procedures applied in an engagement to perform agreed-upon procedures may include:

1. inspection;
2. observation;
3. external confirmation;
4. re-calculation;
5. re-performance;
6. analytical review procedures, where those procedures are based solely on comparison against expectations defined in the terms of the engagement; and
7. enquiry.

Analytical procedures are not performed in an agreed-upon procedures engagement unless the engaging party provides an expectation of recorded amounts or ratios on which the assurance practitioner may base the analytical procedures.  The engaging party’s expectations are defined in the procedures described in the terms of the engagement.  It is necessary for the engaging party to provide the expectations as a basis for the analytical procedures so that the assurance practitioner does not use their professional judgement to develop expectations, which is only appropriate when conducting an assurance engagement.  The assurance practitioner does not interpret the findings from the analytical procedures but simply presents the findings against the expectations provided by the engaging party.

(Ref: Para. 39-47)

Even though assurance is not provided by the assurance practitioner, the intended users are entitled to rely on the accuracy of the reported findings by virtue of the assurance practitioner’s capabilities and competence in conducting the agreed-upon procedures.

The report of factual findings needs to describe the procedures performed and findings in sufficient detail to enable the intended users to understand the nature, timing and extent of the work performed as well as the nature of the errors and exceptions identified in order to assess the findings reported and draw their own conclusions on the subject matter.  In order to draw conclusions, intended users may need to assess the factual findings along with information from other sources.  Intended users will need to satisfy themselves that the evidence, which the report of factual findings and other sources provide, is sufficient and appropriate to provide a basis for any conclusion which they may reach.

An illustrative report of factual findings, incorporating the elements set forth in paragraph 43, is set out in Appendix 4.

If the law or regulation prescribes the layout or wording of the assurance practitioner’s report in a form or in terms that are significantly different from the requirements of this standard and an additional explanation cannot mitigate possible misunderstanding, in addition to excluding any reference to this standard in the report, the assurance practitioner may consider including a statement that the agreed-upon procedures engagement is not conducted in accordance with this standard.

If the assurance practitioner is aware that an error or exception identified has been substantially rectified, the fact that it has been rectified may be included in the report.

The assurance practitioner's inability to perform the agreed-upon procedures may arise from:

1. circumstances beyond the control of the engaging party;
2. circumstances relating to the nature or timing of the assurance practitioner's work; or
3. limitations imposed by management of the engaging party.