Agreed-Upon Procedures Engagements
Posted on Wednesday, June 27, 2018 Share
Not every nonprofit organization is required or needs to have a financial audit performed. Often an audit is required by a funder or by a federal or state government entity. A bank may also require a nonprofit to have an audit as a condition of a loan. Some nonprofits require an annual audit as part of their bylaws. But if your organization does not have any of these requirements, is an audit necessary?
It depends. An audit provides assurance as to whether your financials are reported in accordance with a set of accounting standards. But maybe that’s not what your organization is concerned about. Maybe your organization is more concerned that procedures are not being followed properly or that you are missing some controls. Under these circumstances, an agreed-upon procedures may be more beneficial to the organization.
During an agreed-upon procedures engagement, an accountant performs a specific set of procedures on a specific subject matter. Agreed-upon procedures allows a greater focus on what matters to the organization, as opposed to an audit that takes a broader view over the whole entity. The procedures and subject matter are determined by the organization but because of the flexibility allowed under this type of engagement, it can cover a wide variety of areas and be done for a different time period that of the organization’s fiscal year.
A common engagement includes the review of current accounting policies and procedures, performing walkthroughs to test whether those procedures are actually being applied, and recommendations for any missing policies or improvements.
Another popular engagement is selecting a set of receipts and disbursements to test to see if they have been properly recorded in the accounting records. In addition, the supporting documentation is reviewed to determine if it is adequate and if disbursements have been properly approved for payment. As part of these procedures, the monthly bank reconciliation is normally reviewed as well. The number of receipts and disbursements tested varies with the organization. If an organization has a limited number of transactions, all activity may be tested, whereas a larger organization may only have one month’s activity tested.
As a result of the procedures performed, the accountant issues a report that includes any findings and/or recommendations for management. This allows management to obtain information needed to meet their specific needs and make better decisions. An agreed-upon procedures engagement can especially help smaller nonprofits with improving their processes without the large expense of an audit.
Posted by: Carrie Minnich, CPA
Posted in Mission Minded Nonprofits
Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.