Selecting the Ideal Financial Evaluation – Audits or Agreed Upon Procedures

ARTICLE | August 07, 2024

Nonprofit organizations and governmental entities such as towns and school districts have options when it comes to their financial evaluation, generally audits or Agreed Upon Procedures (AUPs). Understanding the differences between audit or review engagements and Agreed Upon Procedures engagements can help determine the most appropriate and beneficial to your organization.

An audit is a comprehensive examination of a company’s financial statements to ensure they conform to U.S. Generally Accepted Accounting Principles (GAAP). An audit offers a high level of assurance, making it valuable for organizations seeking to verify the accuracy of their financial information and ensure compliance with regulatory standards. However, audits can be extensive and relatively costly, requiring an in-depth understanding of the organization and a thorough evaluation of internal control design.

On the other hand, an Agreed Upon Procedures engagement is a more targeted approach that focuses on specific areas of concern within an organization. In an AUP engagement, no formal opinion is expressed. Instead, the CPA acts as a fact finder, performing specified procedures and reporting the findings. This allows stakeholders to draw their own conclusions based on the findings.

AUP engagements can be geared towards specific financial data, nonfinancial information, a particular financial statement, or even a complete set of financial statements. They can be performed at any time during the year and can be relied on by third parties. Furthermore, AUP engagements offer flexibility, allowing organizations to choose procedures based on their unique needs, making them a cost-effective option.

Moreover, for nonprofit organizations, an AUP engagement can be particularly useful. It can provide an independent review of specific components or internal control systems within the organization, help identify potential weaknesses, and satisfy grant or contract requirements. AUP engagements focus on controls over disbursements, receipts, and regulatory compliance, making them more responsive to the needs of many smaller nonprofits compared to the limited scope of financial reporting in audits.

In conclusion, while audits provide a high level of assurance and a comprehensive review of financial statements, Agreed Upon Procedures offer a more targeted, flexible, and often cost-effective approach to addressing specific areas of concern. The choice between audits or Agreed Upon Procedures engagements depends on the unique needs and circumstances of your organization. Insero’s assurance professionals can help you determine the level of service needed and how best to address the financial and regulatory requirements of your organization. Contact us today to learn more.