87 Agreed-Upon Procedures Engagement Letter Sample 2020 Explained and Demystified

Navigating the world of accounting and assurance can sometimes feel like deciphering a secret code. One important document you might encounter, especially if you're looking into specific financial checks, is an agreed-upon procedures engagement letter. Understanding the specifics of an agreed-upon procedures engagement letter sample 2020 is key to ensuring everyone is on the same page and that the agreed-upon work is clear and effective. This article aims to break down what this letter is all about and why it's so crucial.

What is an Agreed-Upon Procedures Engagement Letter?

Think of an agreed-upon procedures engagement letter as a detailed blueprint for a very specific kind of financial audit. Instead of a full audit that gives an overall opinion on financial statements, this letter outlines precisely which tasks an accountant will perform on certain financial data. It’s like agreeing with a friend exactly which toys you’ll check to make sure they're all there, rather than checking every single toy in the whole house. The importance of clearly defining these procedures in the letter cannot be overstated , as it prevents misunderstandings and ensures the work done meets the client's exact needs.

This letter is formally issued by the accountant to the client, and it serves as a contract. It details:

• The parties involved (accountant and client).
• The objective of the engagement.
• The specific procedures the accountant will perform.
• The period the procedures cover.
• The expected format of the report the accountant will issue.

For example, a client might want an accountant to check if all sales invoices over a certain amount were properly recorded and if supporting documentation exists. The letter would list these exact steps. Here’s a simple look at some common elements:

1. Identification of the financial information to be examined.
2. A list of the specific tests to be conducted.
3. Confirmation of who will perform the tests and by when.
4. An acknowledgment from the client that the accountant will not express an opinion on the financial statements as a whole.

Agreed-Upon Procedures Engagement Letter Sample 2020 for Fraud Investigation

• Verifying the existence of specific suspicious transactions.
• Tracing funds to their ultimate destination.
• Comparing recorded asset values with independent valuations.
• Examining related-party transactions for unusual terms.
• Reviewing management's responses to previous audit findings.
• Checking for unauthorized disbursements.
• Recalculating specific expense reimbursements.
• Interviewing employees involved in specific financial processes.
• Scrutinizing journal entries made near period-end.
• Testing the accuracy of inventory counts against perpetual records.
• Reviewing customer complaints related to billing.
• Examining vendor contracts for non-standard clauses.
• Checking for duplicate payments.
• Verifying employee addresses and banking details against payroll records.
• Reviewing travel and entertainment expenses for reasonableness.
• Testing the authorization of significant purchase orders.
• Comparing sales records to shipping documents.
• Examining access logs for sensitive financial systems.
• Recalculating commission payments based on agreed-upon rates.
• Reviewing the company's whistle-blower hotline activity.

Agreed-Upon Procedures Engagement Letter Sample 2020 for Compliance Checks

• Verifying adherence to specific contractual clauses.
• Testing the accuracy of reported compliance metrics.
• Confirming that all regulatory filings have been submitted on time.
• Examining records to ensure compliance with data privacy laws.
• Reviewing employee training records for mandatory compliance courses.
• Checking for proper segregation of duties in key financial processes.
• Testing the accuracy of tax filings against supporting documentation.
• Confirming that inventory is managed according to industry standards.
• Verifying that marketing materials comply with advertising regulations.
• Examining loan covenants for compliance.
• Reviewing environmental reports for adherence to regulations.
• Testing the completeness of insurance coverage.
• Confirming compliance with internal control policies.
• Verifying that all employee contracts meet legal requirements.
• Examining vendor agreements for compliance with procurement policies.
• Testing the accuracy of royalty payments.
• Reviewing the company's ethical code compliance.
• Confirming adherence to IT security policies.
• Verifying that grant funding is being used for its intended purpose.
• Examining safety records to ensure compliance with workplace regulations.

Agreed-Upon Procedures Engagement Letter Sample 2020 for Due Diligence

• Verifying the existence and ownership of key assets.
• Confirming the accuracy of reported revenue streams.
• Examining significant contracts and agreements.
• Reviewing outstanding litigation and contingent liabilities.
• Testing the valuation of inventory and receivables.
• Confirming the company's tax compliance status.
• Examining employee contracts and benefits.
• Reviewing intellectual property ownership and registrations.
• Testing the company's IT infrastructure and security.
• Confirming the status of regulatory approvals.
• Examining customer lists and relationships.
• Reviewing significant accounts payable balances.
• Testing the accuracy of any reported goodwill.
• Confirming the company's environmental compliance.
• Examining lease agreements.
• Reviewing board minutes for significant decisions.
• Testing the company's ability to meet financial obligations.
• Confirming the validity of any pending mergers or acquisitions.
• Examining insurance policies.
• Verifying the company's market position and competitive landscape.

Agreed-Upon Procedures Engagement Letter Sample 2020 for Grant Auditing

• Verifying that grant funds were used for eligible expenses.
• Testing the accuracy of expense reimbursements.
• Confirming that all expenditures are adequately documented.
• Examining supporting invoices and receipts.
• Reviewing the proper allocation of costs.
• Testing the mathematical accuracy of financial reports submitted.
• Confirming that grant reporting deadlines were met.
• Verifying that the project objectives are being met with the funds.
• Examining any in-kind contributions.
• Reviewing compliance with grant program guidelines.
• Testing the reconciliation of grant funds received and disbursed.
• Confirming that all required approvals were obtained.
• Examining budget versus actual expenditures.
• Verifying that funds were not used for prohibited purposes.
• Reviewing the company's internal controls over grant funds.
• Testing the completeness of financial records.
• Confirming that all sub-recipients complied with grant terms.
• Examining timesheets for personnel charged to the grant.
• Verifying that grant funds were disbursed in a timely manner.
• Reviewing any correspondence with the granting agency.

Agreed-Upon Procedures Engagement Letter Sample 2020 for Internal Control Testing

• Verifying the existence of documented internal control policies.
• Testing the effectiveness of key control activities.
• Examining evidence of control performance.
• Confirming that segregation of duties is in place.
• Reviewing access controls to financial systems.
• Testing the authorization process for transactions.
• Examining reconciliations performed by staff.
• Verifying that physical controls over assets are adequate.
• Confirming that IT general controls are functioning.
• Reviewing management's oversight of internal controls.
• Testing the accuracy of data inputs.
• Examining the process for identifying and reporting exceptions.
• Verifying that a process for periodic review of controls exists.
• Confirming that training on internal controls is provided.
• Reviewing the procedures for handling sensitive information.
• Testing the effectiveness of anti-fraud controls.
• Examining the process for updating control documentation.
• Verifying that controls are tested regularly.
• Confirming that recommendations for control improvements are implemented.
• Reviewing the company's business continuity and disaster recovery plans.

In summary, an agreed-upon procedures engagement letter sample 2020 is a vital tool for defining specific financial examination tasks. It ensures clarity, sets expectations, and guides the accountant in performing precisely the work required by the client. Whether for fraud investigation, compliance, due diligence, grant auditing, or internal control testing, having a well-drafted letter is the first step toward a successful and targeted financial review.