1. MCNAIR, MCLEMORE, MIDDLEBROOKS & CO., LLC CHARLES HALL CHALL@MMMCPA.COM 478-330-5248 Agreed Upon Procedures and Consulting Engagements

2. What Type of Service? 3. Scenario Client needs fraud report, thinks someone is stealing cash 4. Scenario Client wants a comfort letter for a mortgage loan 5. Scenario Client needs a personal financial statement for bank loan 6. Scenario Client wants you to test inventory but nothing else 7. Scenario Client wants to issue an internal control report to a nonprofit board 8. Scenario The leadership of a church wants you to review how they collect and deposit funds each week 9. Engagement Letters are Important! 10. At a minimum, a write a memo describing what you have been asked to do. 11. Consider sending an email: "George, just to be clear, you have asked me to..." 12. Deciding Which Service to Provide 13. Will Third Parties Place Reliance on Your Work? Are you adding credibility? 14. If Yes, Use AUP Option 15. If No, Use Consulting Option 16. Agreed Upon Procedures Required wording in AUP report Follow attestation standards Tighter procedural requirements Less legal liability Usually at least three parties 17. Consulting No particular wording Follow consulting standards More flexibility Usually just two parties 18. Agreed Upon Procedures Engagements 19. Agreed Upon Procedures Subject to Peer Review 20. Agreed Upon Procedures If specified party asks for procedures that are not well defined, consider whether or not you should accept the engagement. 21. AUP Engagement Engagement letter not required by AT standards but recommended. Consider attaching your procedures to the engagement letter. 22. AUP Planning Get agreement from all parties. Consider drafting your report first and providing it to all parties. 23. AUP Procedures Be specific. Can procedure be reperformed? Make sure procedures satisfy third party. 24. AUP Language Responsible party - Person(s) assuming responsibility for the subject matter Specified parties - Persons (entities) that assume responsibility for the sufficiency of the procedures 25. Poor AUP Examples Read the minutes Review invoices Interview the accounts payable clerk 26. Reperform with Same Result? If another person can perform the same procedure and get the same result, then you have a good procedure. 27. Poor AUP Example Reading the minutes What is your objective? Can another person perform the procedure and come to the same conclusion? 28. Good AUP Example Agree every 25th check (from check register) to an invoice agreeing amount, payee and date. Can another person perform the procedure and come to the same conclusion? 29. General procedures (e.g., Reading Minutes) expose a CPA to potential legal liability. 30. Minutes may touch on a fraud- related issue that you are unaware of. 31. The Third party may want you to assume more responsibility. 32. Assuming more responsibility is fine, but make sure procedures are well defined. 33. AUP Report Procedure Finding Procedure Finding 34. AUP Report Too often AUP reports only reflect the procedure, but no finding. 35. AUP Planning If you provide a draft, mark it "Draft" and include language explaining: Results will depend on procedures. No additional procedures will be performed unless directed to do so. 36. Consulting Services 37. Consulting Not subject to peer review 38. Consulting standards list six categories of services. 39. Consulting Services Consultations - e.g., reviewing a business plan Advisory services - e.g., assistance with strategic planning Implementation services - e.g., assistance with a merger 40. Consulting Services Transaction services - e.g., litigation services Staff and other support services - e.g., controllership services Product services - e.g., providing training services 41. Consulting Examples Fraud investigation Internal control review Bankruptcy work Divorce settlement Controllership work 42. Consulting Characteristics Generally nonrecurring Specialized knowledge and skills to provide the service More interaction with the client and can be broader than attest work Generally done just for the client 43. Consulting - Engagement Letter If the nonattest service is for an attest client, Interpretation 101-3 of Rule 101 of the Code of Professional Conduct requires documentation of the understanding with the client. 44. Consulting - Engagement Letter The understanding can be in: 1. An engagement letter or 2.A memo 45. Consulting - Engagement Letter If the CPA is providing only nonattest services (e.g., consulting), then there is no professional standards requirement to have an engagement letter. Do so anyway - the written understanding will protect you. 46. Consulting - Workpapers Consulting standards do not require the consultant to prepare Workpapers. But, you should in most cases, prepare Workpapers. Workpapers are the link between your work and your report. 47. Consulting - Reports Report format and content are up to you and your client There is no opinion or other attestation reporting (e.g., compilation report or AUP report) 48. Consulting If no formal report (e.g., phone call where you discuss issues), consider a memo to the file to summarize your consultation. 49. Thanks for Your Attention! We have two relevant Checkpoint Guides: Nontraditional Engagements Small Business Consulting Engagements