While my firm does provide tax services, the majority of our work falls under the audit and attestation side of accounting. Audit and attestation covers just about anything involving financial statement preparation, the focus of my firm. For many of our clients, we perform the most basic level of serviceâ€”the compilation. This involves the least amount of work, really nothing more than taking the client’s data and putting it into the form of financial statements. For others, particularly those with bank debt, a review is required. Reviews, the middle of three levels of service, involve inquiring of the client and some third parties, and then presenting their financial information in the form of financial statements. Still, not all that complicated. The third level is audit, the beast of all accounting engagements. Here, we basically check every number on the financial statements against either independent, third-party-provided information or apply a battery of analysis and management inquiry to establish whether or not management is being fair in its presentation of financial data. As one could imagine, the level of detail involved in planning any of these engagements is relative to its level of service, with compilation at the low end and audit at the other. That notwithstanding, the planning for these services is fairly broad. We establish basic goals for our procedures, but we do not detail each step that we will apply in, for example, auditing the client’s cash. Among other reasons, the vagueness allows us to adapt our procedures based on our findings. If, for example, we found a problem with cash, we could apply additional procedures. Conversely, if we are comfortable with the client’s abilities to record investments properly, we may apply fewer procedures to this area. Essentially, the auditor is required to use his or her professional judgement in determining the extent and timing of the engagement. Recently, though, I was introduced to a new type of service which falls outside of this neat little hierarchy I’ve just described.
Not too long ago, my firm was engaged to perform agreed-upon procedures on our client’s rental activities. Prior to this, I had encountered only one other engagment of this type. I quickly learned that performing this engagement will be unlike anything else I have encountered in my short tenure (To make matters worse, this is the first engagment where I’ve been put in charge, but that’s a whole different story). As the name implies, an agreed-upon procedures engagement involves my firm performing procedures specified by the client and reporting our findings. Whereas normally we control the methods of executing an engagement, here the client is in control. Every single aspect of the engagement, from the number of personnel files to review to the number of accounts payable invoices to vouch, is specified by the client. Even our response to problems uncovered during our engagement is different. Normally, we would inform the client of the problems and then modify our procedures accordingly to provide the required level of assurance. In an agreed-upon procedures situation, the problems are brought to the attention of management, who must then tell us how we should respond. For someone involved in a number of audits over the past year, this is a strange situation to be in. Normally, we control the process because we need to be sure we can support our opinion on the financial statements. In this case, we aren’t issuing an opinion, so satisfaction falls to the client. If the client decides not to investigate the problem further, then we must do just that. If questions are raised later, liability for the misstatement, misapropriation, or other problem lies with management. This is, I suppose, one upside to this engagement. All in all, I’d rather just perform the audit or review. Generally, it is easier and can be more cost effective. Because we must plan every exacting detail beforehand, agreed-upon procedures can run into the thousands of dollars just in the planning stage. Besides, I like to be in control.