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Assurance >> Handbook postauditor reporting >> Other Canadian Standards >> Related Services [CSRS 4460 — Section 9200] >> 9110
AgreedUpon Procedures Regarding Internal Control over Financial Reporting
RELATED SERVICES
SECTION 9110
agreedupon procedures regarding internal control over financial reporting
(Effective for agreedupon procedures engagements regarding internal control over financial reporting entered into on or
after May 1, 2007)
CONTENTS Paragraph
Introduction
Scope of this Section 14
Effective Date 5
Objectives 6
Definitions 7
Requirements
General 8
Terms of the Engagement 911
Performance and Documentation of Procedures 1213
Reporting 1416
Application and Other Explanatory Material
General A1
Terms of the Engagement A2A6
Performance and Documentation of Procedures A7A9
Reporting A10A14
Appendix 1: Example of an Engagement Letter
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Appendix 2: Example of a Public Accountant's Report of
Findings on an Agreedupon Procedures Engagement
Regarding Internal Control over Financial Reporting
Appendix 3: Examples of Appropriate and Inappropriate
Descriptions of Findings Resulting from the Application of
Certain Agreedupon Procedures
Introduction
Scope of this Section
1. This Section establishes standards and provides guidance on the public accountant's professional responsibilities in
conducting an agreedupon procedures engagement regarding internal control over financial reporting and on the
form and content of the report that the public accountant issues in connection with such an engagement. This
Section may also serve as guidance for engagements to perform agreedupon procedures related to other aspects
of an entity's system of internal control.
2. This Section applies to agreedupon procedures engagements regarding an internal control over financial reporting.
The purpose of such an engagement is solely to assist those charged with governance, those having oversight
responsibility for the financial reporting process, or management in assessing the design, implementation or
operating effectiveness of the entity's internal control over financial reporting. The public accountant reports the
results of the agreedupon procedures without providing assurance or an opinion on the design, implementation or
operating effectiveness of the entity's internal control over financial reporting. Users of the public accountant's report
would consider both the findings included in the public accountant's report and other relevant information available to
them when assessing the design, implementation or operating effectiveness of the entity's internal control over
financial reporting and drawing conclusions thereon.
3. When conducting an engagement in accordance with this Section, the public accountant does not perform the
procedures that, in the public accountant's judgment, would be necessary to express an opinion in an audit or review
engagement. Instead, the public accountant performs only those procedures requested by the engaging party who is
solely responsible for the scope and sufficiency of the agreedupon procedures for their purposes.
4. This Section does not apply to engagements to report on an entity's internal control over financial reporting to external
parties who are not in a position to determine whether the agreedupon procedures to be performed by the public
accountant are sufficient and appropriate for their purposes. For guidance on such engagements, see CSAE 3000. 1
Effective Date
5. This Section is effective for agreedupon procedures engagements regarding internal control over financial reporting
entered into on or after May 1, 2007. However, the Board encourages earlier adoption.
Objectives
6. For the purpose of this Section, the objectives of the public accountant are:
(a) To reach an agreement with the engaging party on the specific procedures to be performed; and
(b) To perform and report the results of the agreedupon procedures without providing assurance.
Definitions
7. The following definitions apply to this Section:
(a) Agreedupon procedures engagement regarding internal control over financial reporting – An engagement in
which the public accountant carries out procedures of an audit nature, to which the public accountant and the
engaging party have agreed, and reports the findings. An engagement to perform agreedupon procedures
regarding internal control over financial reporting may involve performing procedures related to individual
controls, one or more segments of an entity, or one or more control processes over account balances, classes
of transactions or disclosures.
(b) Internal control over financial reporting – A process designed by, or under the supervision of, the entity's
principal executive and principal financial officers, or persons performing similar functions, and effected by the
entity's board of directors, management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with the applicable financial reporting framework and includes those policies and procedures that:
(i) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the entity;
(ii) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with the applicable financial reporting framework, and that receipts
and expenditures of the entity are being made only in accordance with authorizations of management
and directors of the entity; and
(iii) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the entity's assets that could have a material effect on the financial statements.
Requirements
General
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8. The public accountant and assistants who are conducting the engagement and preparing the report of findings shall
have adequate technical training and proficiency in performing procedures of an audit nature. The public accountant
shall ensure that:
(a) The engagement is adequately planned;
(b) The engagement is conducted and the report of findings prepared with due care and with an objective state of
mind; and
(c) The assistants employed on the engagement are properly supervised. (Ref: Para. A1)
Terms of the Engagement
9. The public accountant shall establish an understanding of the terms of the engagement with the engaging party. The
public accountant shall document these terms, including the responsibilities of the public accountant and the
engaging party, in a written agreement. (Ref: Para. A2, A6)
10. When agreeing upon the procedures to be performed, the public accountant shall agree to perform only procedures
that are not overly subjective. (Ref: Para. A3A4)
11. The public accountant shall include in the written agreement documenting the terms of the engagement:
(a) A description of the procedures to be performed and the timing and extent of those procedures;
(b) Details regarding the period of time, or the point in time, to which the agreedupon procedures are to be
applied; and
(c) A statement that the engaging party is responsible for determining the suitability and sufficiency of the agreed
upon procedures for their purposes, and that the public accountant accepts no such responsibility. (Ref: Para.
A2, A5A6)
Performance and Documentation of Procedures
12. The public accountant shall perform the agreedupon procedures and use the resulting findings as the basis of the
public accountant's report. (Ref: Para. A7A8)
13. The public accountant shall document the procedures performed, and the results thereof, to support the report and to
demonstrate that the engagement was carried out in accordance with this Section and the terms of the engagement.
(Ref: Para. A9A10)
Reporting
14. The public accountant shall report all findings from the application of the agreedupon procedures but, consistent with
the purpose of the engagement, shall not include the following in the report of findings:
(a) Views or conclusions regarding whether findings represent deficiencies in internal control over financial
reporting; or
(b) Recommendations for addressing findings that may indicate deficiencies in internal control over financial
reporting. (Ref: Para. A11A12)
15. The public accountant shall not provide positive or negative assurance in the public accountant's report. (Ref: Para.
A13)
16. The public accountant's report shall contain:
(a) An addressee (ordinarily the engaging party);
(b) A statement that the procedures performed were those specified by the addressee;
(c) A statement that the engagement was performed in accordance with the Canadian generally accepted
standards for agreedupon procedures engagements regarding internal control over financial reporting;
(d) A description of procedures performed and the timing and extent of those procedures, which may include a
description of the controls to which the procedures were applied;
(e) A description of the public accountant's findings;
(f) A statement that the procedures performed do not constitute an audit or a review engagement and, accordingly,
no assurance is expressed;
(g) A statement that had the public accountant performed additional procedures, an audit or a review
engagement, other matters might have come to light that would have been reported;
(h) A statement that the public accountant has not determined the sufficiency and appropriateness of the agreed
upon procedures for the purpose for which the report was requested or for any other purpose;
(i) A statement that the report relates only to the controls over financial reporting on which the agreedupon
procedures were performed and that it does not extend to the entity's internal control over financial reporting
taken as a whole;
(j) A concluding paragraph restricting the use and distribution of the public accountant's report to the parties that
have agreed to the procedures performed in connection with the issuance of the report, and stating that it is
not intended and should not be used for any other purpose;
(k) The date of the report;
(l) the public accountant's address; and
(m) The public accountant's signature. (Ref: Para. A13A15)
***
Application and Other Explanatory Material
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General (Ref: Para. 8)
A1. The public accountant's independence 2 will bear on the public accountant's ability to perform the agreedupon
procedures engagement regarding internal control over financial reporting with an objective state of mind. Adequate
planning helps to ensure that the engagement is properly managed and performed in an effective manner. The
nature and extent of planning activities and the degree of supervision that assistants require will vary according to
the terms of the engagement, the public accountant's previous experience with the entity, and the particular
circumstances of the engagement.
Terms of the Engagement (Ref: Para. 11)
A2. The written agreement documenting the terms of the engagement confirms the public accountant's acceptance of the
appointment and helps avoid misunderstanding regarding such matters as the scope of the engagement, the extent
of the public accountant's responsibilities and the form of report to be issued. In agreeing upon the procedures to be
performed, the public accountant and the engaging party may discuss the sufficiency and appropriateness of the
procedures for the engaging party's purposes. Nevertheless, the procedures that the public accountant will perform
are those specified by the engaging party. Consequently, it is the engaging party who is responsible for determining
the sufficiency and appropriateness of the agreedupon procedures for their purposes.
A3. The agreedupon procedures should result in observable outcomes that can be described (for example, "in
agreement with", "existed", "was evidenced by", "stated") such that if other suitably qualified parties reperformed the
procedures, they would observe outcomes similar to the findings reported by the public accountant. The nature of
the observable outcomes may vary depending on the procedures performed, and some interpretation of the outcome
may be required of the public accountant when reporting the findings (for example, in describing the results of inquiry
as illustrated in Appendix 2).
A4. The nature and extent of evidence that a specific control has been implemented or operated may vary depending on
the timing of applying agreedupon procedures. For example, the nature and extent of management's followup
procedures related to the operation of the control and the manner in which management performs and documents
such procedures may vary during the period for which agreedupon procedures are being applied. Consequently, it is
unlikely that the engaging party will be able to describe the agreedupon procedure to be performed by the public
accountant with such a degree of specificity that the public accountant is not required to exercise any judgment
whatsoever when performing the agreedupon procedure and reporting findings.
A5. Language that is vague or open to different interpretations could result in misunderstandings about the procedures to
be performed and the timing and extent of those procedures. Consequently, clear language would be used to
describe the procedures to be performed and the timing and extent of those procedures. Terms of uncertain meaning
(for example, review, check, interview or test) would not be used in describing the procedures to be performed
unless such terms are defined in the agreedupon procedures.
A6. In addition to the matters set out in paragraph 11, the written agreement documenting the terms of the engagement
ordinarily includes matters such as:
• The nature of the engagement including the fact that the procedures performed will not constitute an audit or a
review engagement and that, accordingly, no assurance will be expressed.
• The scope of the engagement.
• The anticipated form of the report.
• The responsibility of the engaging party for conducting their own review of the design, implementation or
operating effectiveness of internal control over financial reporting (for which purpose they should not rely
solely on the public accountant's report).
• The public accountant's responsibility to carry out the procedures and report the findings in accordance with the
Requirements of this Section.
• A statement as to restrictions on the distribution and use of the report to the specific parties that have agreed to
the procedures to be performed (when such restrictions would be in conflict with legal requirements, the
engagement would not be accepted).
• Any restriction of the auditor's liability when such possibility exists.
• Arrangements regarding fees and billing.
Appendix 1 contains an example of an engagement letter used in an agreedupon procedures engagement regarding
internal control over financial reporting.
Performance and Documentation of Procedures (Ref: Para. 1213)
A7. The procedures applied in an engagement to perform agreedupon procedures may include inquiry, observation,
inspection and reperformance. Examples include:
• Performing walkthroughs of specified documented controls.
• Performing procedures relevant to the operating effectiveness of specified controls.
• Reperforming procedures already conducted by the entity.
Appendix 2 contains an example of a public accountant's report of findings on an agreedupon procedures engagement
regarding internal control over financial reporting.
A8. Work performed by parties who are not part of the engagement team (for example, internal auditors, other company
personnel or third parties working under the direction of management or the audit committee to provide information
related to the effectiveness of internal control over financial reporting) and their findings cannot be a suitable basis
for the public accountant's report. For example, there may be internal audit reports that include the internal auditors'
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findings from having performed procedures that are similar to those agreed upon by the public accountant and the
engaging party. It would be inappropriate for the public accountant to use the internal auditors' findings, or a
description thereof, as the basis of the public accountant's report. Instead, the public accountant would perform the
agreedupon procedures and use the resulting findings for the public accountant's report.
A9. The work performed is documented to provide a clear link to the findings, and to provide sufficient information to
enable an experienced public accountant having no previous connection with the engagement to understand:
(a) The procedures performed and the timing and extent of those procedures; and
(b) The results of the procedures.
However, it is neither necessary nor practicable to document every matter the public accountant considers during the
course of the engagement.
Reporting (Ref: Para. 1416)
A10. The engaging party specifies the procedures that the public accountant is to perform so that the engaging party
may use the findings reported by the public accountant, along with other available information, to assess the design,
implementation or operating effectiveness of internal control over financial reporting. Consequently, all findings
resulting from the performance of the agreedupon procedures are to be included in the public accountant's report.
A11. Including matters such as conclusions regarding whether findings represent deficiencies in internal control over
financial reporting and recommendations for addressing the findings identified in the public accountant's report would
be inconsistent with the purpose of the engagement which is to provide the engaging party with the results of the
agreedupon procedures so that they make their own assessment of, and draw their own conclusions on, the design,
implementation or operating effectiveness of internal control over financial reporting.
A12. An agreedupon procedures engagement regarding internal control over financial reporting is not an assurance
engagement. The public accountant's report is therefore worded in such a manner that it does not imply that any
level of assurance is being provided. Appendix 3 contains examples of appropriate and inappropriate descriptions of
findings resulting from the application of certain agreedupon procedures.
A13. The use and distribution of the public accountant's report is restricted to the engaging party who determined the
agreedupon procedures to be sufficient and appropriate for its purposes and who understands the limitations of the
engagement. Accordingly, the public accountant's report would not be included in a document such as an annual
report that will be distributed to parties other than those the public accountant has agreed will receive the report.
A14. Vague or ambiguous language may imply that the public accountant has performed procedures in addition to the
agreedupon procedures or that some level of assurance is being provided. As a result, such language is to be
avoided (see Appendix 3).
Appendix 1
(Ref: Para. A6)
Example of an Engagement Letter
The following letter is presented for illustrative purposes only. The illustrative wording would be modified to the
requirements of the specific engagement. The letter may also include information regarding fees and other
administrative matters, as determined by the public accountant and agreed upon with the engaging party.
[May 1, 20X7]
To: CEO [or other person with the authority to sign on behalf of the entity], Client Limited
Dear Sir / Madam:
This letter is to confirm our understanding of the terms and objectives of our engagement, and the nature and
limitations of the services we will provide. Our engagement will be conducted in accordance with the
Canadian generally accepted standards for agreedupon procedures engagements regarding internal control
over financial reporting which we will indicate in our report.
We have agreed to perform the following procedures specified by you and to report to you the findings resulting
from our work:
[Description of the procedures to be performed, and the timing and extent of those procedures.]
In agreeing to perform the above procedures, we have made no attempt to assess their sufficiency and
appropriateness for your purposes, as such an assessment is your responsibility.
The procedures we will perform are solely to assist you in making your assessment of [the design,
implementation or operating effectiveness] of internal control over financial reporting [specific procedures, for
example, component of control, segment of the entity or control processes].
Our report will provide appropriate descriptions of:
(a) The procedures that were performed; and
(b) Our findings from having performed the agreedupon procedures.
The procedures we will perform will not constitute an audit or review engagement and, accordingly, we will not
express an opinion or provide assurance in our report.
You are responsible for assessing the design, implementation or operating effectiveness of internal control over
financial reporting and should not rely solely on our report for making your assessment.
Our report on the results of the procedures conducted should not be distributed to third parties without our prior
written consent, as it is not intended for any purpose other than assisting you [those charged with governance,
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those having oversight responsibility for the financial reporting process or management] with your
assessment. Any use that a third party makes of our report, and any reliance or decisions made based on it,
are the responsibility of such third party. We accept no responsibility for any loss or damages suffered by any
third party as a result of decisions made or actions taken based on our report.
We look forward to full cooperation with your staff, and we trust that they will make available to us whatever
records, documentation and other information we request in connection with our engagement.
Please sign and return the attached copy of this letter to indicate that it is in accordance with your understanding
of the terms of the engagement, including the specific procedures that we have agreed will be performed.
Yours very truly,
....................................................
PRACTITIONER
The services and terms set out are as agreed.
Client Limited
Per: ...............................................
[name and title of the addressee]
[date] ..........................................
Appendix 2
(Ref: Para. A7)
Example of a Public Accountant's Report of Findings on an Agreedupon Procedures Engagement Regarding
Internal Control over Financial Reporting
The following report is presented for illustrative purposes only. The illustrative wording would be modified to the
requirements of the specific engagement.
To: CEO, ABC Company [or other appropriate person, or other appropriate representatives of the party(ies) that
engaged the public accountant]
We have performed the procedures specified by you and enumerated below. Our engagement was performed in
accordance with the Canadian generally accepted standards for agreedupon procedures engagements regarding
internal control over financial reporting.
The procedures were performed solely to assist you in evaluating whether controls were operating effectively. The
agreedupon procedures and related findings are as follows:
Control Environment — Code of Conduct
Agreedupon Procedures
1. Select five employees from the company's personnel directory covering five different positions within the
organization.
2. During the period March 115, 20X0, make the following inquiries of each selected employee:
(a) Did you read the code of conduct?
(b) Did you attend the last quarterly meeting and, if so, was the code of conduct discussed?
(c) Could you give an example of a violation of the code of conduct?
(d) Would you ever override controls, and, if so, under what circumstances?
Findings
Employee Inquiries
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John Doe Yes Attended last Fraud is an example Believes it is
V.P. Finance quarterly meeting. of a violation of the appropriate to override
Recalls that the code code. controls with
was mentioned. appropriate input and
documentation.
Monitoring — Budget to Actual Analysis
Agreedupon Procedures
1. Obtain the Monthly Balance Sheet Review (MBSR) conducted by senior finance and operating personnel for
the months of August and November 20X0 and inspect evidence of approval by the Chief Financial Officer
and Chief Operating Officer.
2. For each of the two months, select a variance that exceeds the company's threshold for followup and inspect
evidence of followup by the controller.
Findings
Approval
Month Evidenced? Variance and Followup
Application Controls — Twoway Match
The system compares the supplier invoice amounts to the company's purchase order and will not permit the invoice to
be processed if there are differences in quantity or extended price that exceed preapproved tolerance levels for
variances.
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Agreedupon Procedure
1. Attempt to process two supplier invoices during the month of November 20X0 of which:
(a) One has a quantity difference that exceeds the preapproved tolerance level of 10 units; and
(b) One has a price difference that exceeds the preapproved tolerance level of $1,000.00.
Findings
The system produced error messages that indicated the invoices could not be processed because of such differences.
This report relates only to the controls specified above, and does not extend to internal control over financial reporting of
ABC Company taken as a whole.
The procedures we performed do not constitute an audit or review engagement and, accordingly, no assurance is
expressed. Were we to have performed additional procedures or an audit or review engagement, other matters may
have come to our attention which we would have reported to you.
The sufficiency of these procedures is solely the responsibility of the parties specified in this report. Accordingly, we
make no representations regarding the sufficiency of these procedures either for the purpose for which this report
has been requested or for any other purpose. Further, we have addressed solely the controls identified in [reference]
and make no representations regarding the effectiveness of internal control over financial reporting or regarding
whether any material facts have been omitted.
This report is solely for the information and use of [addressee] in connection with your assessment of [the design,
implementation or operating effectiveness] of internal control over financial reporting [specific procedures, for
example, component of control, segment of the entity or control processes], and is not intended and should not be
used for any other purpose. Consequently, the report should not be distributed to other parties without our prior
written consent. Any use that a third party makes of this report, or any reliance or decisions made based on it, are
the responsibility of such third party. We accept no responsibility for any loss or damages suffered by any third party
as a result of decisions made or actions taken based on this report.
City (signed) ....................................................
Date PRACTITIONER
Appendix 3
(Ref: Para. A12, A14)
Examples of Appropriate and Inappropriate Descriptions of Findings Resulting from the Application of
Certain Agreedupon Procedures
Appropriate Description of Inappropriate Description of
Agreedupon Procedures Findings Findings
Document ID: 9110
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