Understanding AUP Engagements
In specific scenarios, businesses might require Certified Public Accountants (CPAs) to conduct agreed-upon procedures (AUPs) instead of, or alongside, a review or an audit. According to the American Institute of Certified Public Accountants (AICPA), AUPs are a type of attestation engagement where a practitioner performs specific procedures on subject matter and reports the findings without offering an opinion or conclusion.
AUPs are typically more cost-effective and quicker to complete than reviews or audits. Their adaptability also enables them to address both financial and non-financial matters, providing a deeper examination of items reported on your financial statements.
The Basics of AUP Engagements
Generally, an AUP engagement involves similar procedures to those used in reviews or audits but on a smaller, more limited scale and without assurance from the CPA. The scope and nature of the procedures are outlined in an engagement letter.
Upon completion, CPAs issue a written report that details the procedures performed and summarizes the findings. According to accounting standards, an AUP report must include:
- A title with the word “independent” to indicate the report is from an independent accountant.
- Identification of the engaging party, the subject, and the responsible party (if different from the engaging party).
- The intended purpose(s) of the engagement.
- A statement clarifying that the practitioner did not conduct an examination or review.
- A statement that the practitioner does not express an opinion or conclusion.
- Any reservations or restrictions concerning procedures or findings.
AUPs can be customized to fit your organization’s needs, offering a focused analysis of key areas in your business operations.
Real-World Applications of AUPs
AUPs can provide valuable insights into various areas for clients and third parties, such as:
- Internal control evaluations
- Grant compliance
- Franchise agreement compliance
- M&A due diligence
- Construction project progress and spending practices
- Royalty payments under a licensing agreement
Lenders may also require AUPs to confirm a company’s compliance with loan covenants. If a lender waived a loan covenant violation during a year-end review or audit, they might request AUPs to verify key financial metrics midyear as a condition of the waiver.
How We Can Help
AUPs are among the diverse services CPAs offer. These engagements can serve as a flexible, time-saving alternative or addition to financial statement reviews and audits, though they come with certain limitations. Contact us to determine whether an AUP engagement is suitable for your specific needs.
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