The audit, review/attestation, and compilation reports that local auditees
are required to submit to the Louisiana Legislative Auditor (LLA) by the audit law
(Louisiana Revised Statute 24:513
provide a great deal of information to local auditees and the users of their financial statements.
However, an audit, review/attestation, or compilation report may not meet the needs of all users of local auditee reports, who may require additional information and assurances on internal control, compliance with laws and regulations, or other matters.
The local auditee may hire a certified public accounting (CPA) firm to perform additional tests of controls and compliance or other matters to supplement the financial statement audit’s or other engagement’s coverage of these areas; in order to meet the local auditee’s needs, or the needs of other report users.
These additional needs are often met by the following:
An agreed-upon procedures engagement
An examination engagement
An agreed-upon procedures engagement is performed by a CPA firm in accordance with Standards for Attestation Engagements
promulgated by the American Institute of Certified Public Accountants. As the name suggests, this type of engagement consists of a CPA performing procedures that are agreed to by the local auditee and the CPA firm. The list of procedures to be performed is included in the engagement agreement that is signed by the local auditee and the CPA firm. After the engagement is completed, the CPA prepares a report on the results of the procedures performed, and any exceptions noted.
An examination engagement is also performed by a CPA in accordance with Standards for Attestation Engagements
. In an examination engagement, the CPA obtains reasonable assurance about whether the subject matter of the engagement, as measured or evaluated against the criteria, is free from material misstatement; and expresses an opinion about whether the subject matter is in accordance with, or based on, the criteria; or whether management’s assertion is fairly stated, in all material respects.
Common subjects of agreed-upon procedures and examination engagements are the test of specific types of expenditures, such as travel and credit card expenditures; or certain types of accounts, such as school activity funds. These engagements may also be performed on the contents of a specific report or statement, such as a tax collector’s statement of taxes assessed and settlements made to parish taxing authorities.
Most agreed-upon procedures and examination engagements (except for statewide agreed-upon procedures engagements
) are classified as non-routine engagements
. Non-routine agreed-upon procedures and examination engagements are approved by LLA through the Engagement Approval Request form
. See Submitting an Engagement Approval Request to the Legislative Auditor
for more information on this process.
How do agreed-upon procedures and examination engagements differ from audit engagements?
A. The principal difference between an audit engagement, and an agreed-upon procedures or examination engagement is the type of standards under which the engagements are performed. Audits are performed under auditing standards promulgated by the AICPA; agreed-upon procedures and examination engagements are performed under attestation standards promulgated by the AICPA.
The comptroller for a local auditee would like to engage our CPA firm to perform an agreed-upon procedures engagement to test 100% of their expenditures. Is this advisable?
If fraud is suspected, an engagement to test 100% of expenditures may be in order. Absent a suspicion of fraud, such an engagement may cost a local auditee far more than the value of any knowledge that would be gained. It would cost less money, and would most likely be as effective, for the local auditee to identify the specific areas of concern – such as whether documentation for travel or credit card reimbursements is adequate – and hire your firm to perform an agreed-upon procedures engagement regarding these transactions.
Must an agreed-upon procedures engagement or examination engagement be performed by the CPA firm that performed the audit?
An agreed-upon procedures engagement or examination engagement needs to be performed by a CPA firm on LLA’s approved list, but does not need to be performed by the same CPA that performed the local auditee’s audit, review/attestation, or compilation engagement. The exception is the statewide agreed-upon procedures engagement
LLA requires of all local auditees that are required by the audit law to provide an audit report to LLA.