 This is Professor Farhad in which we will discuss agreed upon procedure engagement, which is part of the statements on standards for attestation engagement or simply put attestation engagement. Now agreed upon procedure is considered three out of three. What do I mean by three out of three? It means this is the level of service that we provide under the attestation engagement. We discussed the examination, which is was one out of three. We discussed the review engagement two out of three. And in this session we will discuss the agreed upon procedures. Now for the examination, I explained the examination plus showed you a report for the review. I also did the same thing showed it to you explain it plus showed you a report. And for the agreed upon procedure will explain what is agreed upon procedures. Then I will show you in a separate recording a report for it. Let's go ahead and get started. What is agreed upon procedures? Agreed upon procedure engagement is an attestation engagement. That's the first thing we need to understand. And if you don't know what attestation engagement, please go back and view what is attestation engagement in which a practitioner perform specific procedures on subject matter or assertions. Just like we discussed in an examination or a review, we are attesting about a subject matter or an assertion, and we are going to prepare a report and a review. We end up with a conclusion and an examination. We had an opinion for an agreed upon procedures. We're going to have a report and we're going to have a finding. So when we when we discuss agreed upon procedures at the end of the day, we only have finding it's agreed upon between two parties without providing an opinion without providing a conclusion. Once again, conclusion is when we are discussing a review opinion is when we are performing an examination agreed upon procedure examination and reviews, they're all under the attestation standard. Now bear in mind because it's an agreed upon procedures. What does it mean agreed upon procedures? It's agreed upon between different parties. Usually it's two parties could be three parties. The distribution is limited because I am performing work based on what you want me to do. So it appeals to CPAs because you really have no liability in a sense. You're not issuing an opinion. You're not issuing a conclusion. So no opinion, no conclusion for an agreed upon procedure. It's a findings. Now you notice I keep repeating myself about review examination and agreed upon procedures because many questions on the CPA exam deals with which is which. So that's why you need to be familiar with which is which. Before we proceed any further, I have a public announcement about my company, farhatlectures.com. Farhat accounting lectures is a supplemental educational tool that's going to help you with your CPA exam preparation as well as your accounting courses. My CPA material is aligned with your CPA review course such as Becker, Roger, Wiley, Gleam, Miles. My accounting courses are aligned with your accounting courses broken down by chapter and topics. My resources consist of lectures, multiple choice questions, true-false questions, as well as exercises. Go ahead, start your free trial today. No obligation, no credit card required. Do you need an engagement letter? Of course you do, just like with a review, just like with an examination, especially with an agreed upon procedure. I'm agreeing with you. Let's put it down and writing either a formal engagement letter or an alternative form, basically a contract. What should we have in that engagement letter or contract? Well, we are performing an agreed upon procedure, the nature of the work. You specify this. Well, we are either dealing with a subject matter or an assertion. Well, we need to know what are we dealing with, identify it, and who's the responsible party. Identify the criteria. If we are attesting to a subject matter, what criteria are we using, or if we are attesting to an assertion. Who are the parties? Well, who are the intended parties, usually the agreed upon, the party that's engaging us to this engagement. We could also have non-participant can be added. For example, if the engagement party wants another party to be added as the user of this report, those are called non-participants and they can be added. That's fine. The party's acknowledgement of the responsibility of the sufficient of the agreed upon procedures and their goal purpose. So basically, they have to acknowledge that this is what we're doing. This is the agreed upon procedure and this is the purpose, the goal of the agreed upon procedure because that's exactly what we're doing, but we need an acknowledgement of this. We need to know the role of the practitioner. What's the responsibility of the practitioner? Well, to carry on the agreed upon procedures following the AICPA statements on standard for attestation engagement. The engagement will follow the AICPA standards. What procedures are we going to follow? Exactly, spell it out. List any disclaimer. If any disclaimer will are expected in this report. Restrict the report because this is an agreed upon procedure. There should be a restriction clause. If external help or any specialist help is provided, we need to identify them. If materiality is involved, if we have a materiality involved in this engagement, we need to list the materiality. For example, anything above 5,000 or 10,000 or 50,000, it does not matter. Do we need a written assertions? Of course we need. It's an agreed upon procedure. We should request a written assertion about the subject matter from the responsible party. If the engagement party is the same as the responsible party and the responsible party refuses to provide an assertion, the engagement letter should state that. That should not be the case. Think about it. If someone, this is a CPA firm and we have a client, let's assume Lehigh Valley Hospital. It's just a hospital. If they are engaging us to do some work, you would assume that they're giving us written assertions to work with. Well, that's the case. If that's not the case, the engagement letter should state that fact. Now, even if the responsible party was not present or in charge for a period of time covered by the written assertion, nevertheless they are still responsible for the practitioner's report, whatever that report period is. Same with examination and reviews. So they are always responsible for the period in which the report cover, whether they were there at that time or not. And the best example is a change of management. The management changes since, you know, for the first six months of the year, we had a different management. Now we have a new management. It does not matter. The new management is responsible for the old management if the agreed upon procedures cover one year period. Performance, how do we do the work? Proper planning, supervision of the members, apply the procedures agreed by the specified parties we have to do the work. We should not agree to procedures that are vague in meaning or open to interpretation. And the AICPA literature, if you Google AICPA attestation standards, they will show you that some words are unacceptable. For example, you cannot use the word no to review, general review, limited review, evaluate, analyze, check, interpret, verify. You should use more words that are more solid, that you can follow certain procedures like inspect, confirm, compare, agree. Like think of audit related words, trace, inquire, those are the things you should follow and then agree upon procedures. Recalculate, observe, mathematically check. And if you know how to perform an audit, financial statement audit, those are the words that we will use. Can you use the work of a specialist? Well, you should agree with the specified parties in advance. Remember, this is an agreed upon procedure and you should describe the work of the specialist. Internal control, it should not be involved in the work because, again, it's an agreed upon procedures. And if it's involved, it should be spelled out that it should not be involved. Written representation, similar to examination, similar to review. As per the engagement letter, the practitioner request a written representation from the responsible party about the assertion or the subject matter. When the responsible party is at the same time the engagement party and refuses to give us a representation letter, think about it. They're agreeing, they ask us to do something, but they refuse to tell us in writing the written assertions. Well, guess what? We should withdraw or determine the effect of the report. At the end of the day, we determine the effect of the report. If we're going to go through this, that's fine because it's between us and the engagement party and they refuse to give us a written assertion. But most likely you would withdraw. You don't want to get involved with something like that. If the engagement party is not the responsible party, and what do we mean by this? So there's a CPA firm, there's a hospital, Lehigh Valley Hospital, and there's the state government. Now, maybe the state government engages to report on the billing process of the hospital. Well, the state is the engagement party, the Lehigh Valley Hospital, because we are trying to get an agreed upon procedures about the billing, billing cycle. Well, it's not the responsible party. If the engagement party is not the responsible party, you would request more information from the engagement party. The practitioner also should make inquiries of the responsible party and seek oral responses. If oral responses are satisfactory, we will proceed. If oral responses are not satisfactory, either in writing or orally, for example, the hospital refuses, you would withdraw from the engagement or determine the effect of the report, usually you would withdraw. Bear in mind that the written representation and the practitioner's report, final report, the findings should have the same date, just like with the review, just like with the examination. Documentation, again, very similar to the review, very similar to the documentation. The documentation of an agreed upon procedure should be sufficient to determine that the specified parties agreed on the procedures are performed. Simply put, you can look at the documentation and see that indeed we did the work. And the practitioner, they have to follow professional standards because they are following the AICPA and rules and regulations, of course. What should we do? Who performed the work? Who reviewed the work? The date the work was completed? Any discussion that took place about any significant issues? Document any refusal for providing a written representation or if the written representation is not reliable? Simply put, documentation should stand alone. Simply put, if somebody looked at the documentation, they should exactly know what happened in this agreed upon procedures. It should be sufficiently determined the results of the procedures performed and the evidence was obtained. In the next session, we would look at an agreed upon procedures. I know agreed upon procedures is very unique in a sense that they should not have a standard report, but the AICPA does provide samples, just like they provided samples with examinations and review. And I believe if you look at the report, it will kind of wrap this up, wrap this up in a sense, show you what the end product looked like for an agreed upon procedures reviewing what we did in this session as well. What should you do now? Go to FARHAT lectures and work MCQs, multiple choice questions, true-false questions to help you understand this topic. The statements on standard for attestation engagement or simply put attestation engagement is very important on the CPA exam. In an audit course, it may not be as important, but on the CPA exam, it's important. Good luck, study hard, stay safe.