Agreed Upon Procedures (AUP)

It is an engagement under Standard on Related Services (SRS) 4400 (Revised) where a Chartered Accountant performs specific procedures that have been agreed in advance with the engaging party, and reports the factual findings from those procedures. The practitioner does not express an opinion or any assurance conclusion. The reader of the report — the bank, franchisor, joint-venture partner, or other intended user — draws their own conclusions from the factual findings reported.

A statutory audit results in an opinion — typically whether the financial statements give a true and fair view — based on the auditor's own risk assessment and judgment about what to test, governed by the Standards on Auditing. An AUP engagement results in no opinion at all — only factual findings against procedures that were specifically agreed in advance, governed by SRS 4400. The scope of an audit is determined by the auditor; the scope of an AUP engagement is determined jointly by the practitioner and the engaging party.

No, not as a matter of good practice and standard drafting. SRS 4400 requires the report to state clearly that it is intended solely for the parties who agreed to the procedures, because a party unfamiliar with the specific scope could misinterpret factual findings as broader assurance than was actually provided. If a wider circulation is genuinely needed, that requirement should be identified during scoping — before the engagement letter is signed — so the intended users are properly defined and consulted on the procedures from the start.

Banks and NBFCs extending cash-credit or working-capital facilities secured against stock and receivables need periodic independent verification that the stock and debtor figures reported in monthly or quarterly statements are accurate — because the facility's drawing power is calculated directly from those figures. An AUP engagement gives the bank a fast, cost-effective, factual check — physical stock count against register, debtor balance confirmation against ledger — without requiring a full statutory-style audit each quarter.

We start with a scoping conversation focused on the underlying business question: what decision will this report inform, and what specifically needs to be checked to answer it? From there we draft procedures that are specific, objectively performable, and testable — for example, 'physically count stock at [location] as on [date] and compare to the stock register balance, reporting the quantity and value variance by item category' rather than a vague instruction to 'review stock'. We then circulate this draft to the engaging party for explicit written agreement.

SRS 4400 itself does not impose the same strict independence requirements as a statutory audit under the Companies Act. However, many engaging parties — particularly banks and franchisors — expect and often explicitly require the practitioner to be independent of the entity being examined, because the credibility of the factual findings depends on it. We assess and disclose our independence position (or any relationship) as part of the engagement letter, and we decline engagements where a genuine independence concern would undermine the report's credibility for its intended purpose.

An SRS 4400-compliant AUP report identifies the specific subject matter and the agreed procedures, states that the engagement was conducted in accordance with SRS 4400, explicitly states that no assurance conclusion is expressed, sets out the factual findings against each individual procedure (not a summary opinion), and includes a restriction-of-use and distribution paragraph naming the parties entitled to rely on it. It typically also references the engaging party's responsibility for the sufficiency of the agreed procedures for their purpose.

For a single-location business, a stock and book-debt AUP engagement typically takes 1–2 weeks from signed engagement letter to final report — covering fieldwork planning, physical stock count, debtor confirmation circulation and follow-up, and report drafting and review. Multi-location businesses or those with a large number of debtors requiring confirmation take proportionately longer, and the timeline should be planned around the bank's actual review or renewal deadline.

We report the factual finding — the quantified variance between physical stock and book records — exactly as agreed, without characterising the cause. If the variance appears unusually large or suggestive of something beyond normal operational variance (theft, fraud, systematic misreporting), we flag this to the engaging party as a matter requiring their attention outside the AUP report itself, and advise that a dedicated investigation or forensic engagement may be warranted. We do not expand the AUP scope unilaterally into an investigation.

Yes — this is one of the more common AUP applications in Indian practice. Procedures typically include recalculating the royalty due per the formula in the franchise agreement against the outlet's actual reported sales (drawn from POS system reports, GST returns, and sales registers), comparing the recalculated figure to what was actually declared and paid by the franchisee, and reporting any variance by period and outlet. The franchisor uses the factual findings to decide whether to pursue a formal reconciliation, renegotiation, or dispute with the franchisee.

Yes, provided the specific covenants to be tested are clearly identifiable and objectively verifiable — for example, a minimum revenue-share percentage, a minimum annual spend commitment, or an exclusivity clause tied to specific transaction records. Where JV compliance questions involve subjective interpretation of contract terms (rather than objectively testable facts), AUP is not the right instrument — that is better addressed through legal advisory or, in a dispute, arbitration.

Yes. ICAI's UDIN mandate requires a UDIN for all certificates, reports, and documents signed by a practising Chartered Accountant in their capacity as a CA, and this extends to AUP reports issued under SRS 4400 where the report is signed by the engagement partner. PNPC generates and attaches the UDIN to every signed AUP report as a standard part of our issuance process.

A compilation engagement, governed by SRS 4410 (Revised), involves the practitioner using accounting expertise to help management prepare financial information (such as financial statements) without performing procedures to verify the accuracy or completeness of that information, and without expressing any assurance. AUP, under SRS 4400, involves performing specific verification procedures on existing information and reporting factual findings. The two are entirely different in nature — one is about preparation assistance, the other about factual verification.

Under SRS 4400, the engaging party (and any other intended users involved in agreeing the procedures) is responsible for determining that the agreed procedures are adequate for their purposes — not the practitioner. The practitioner's responsibility is to perform the agreed procedures competently and report the findings factually and completely. This allocation of responsibility is one of the reasons the report is restricted to parties who participated in agreeing the procedures.

Yes, and this is a common use case. Donors and CSR funders frequently require a utilisation certificate or fund-utilisation report verified by an independent CA. An AUP engagement — tracing grant funds from the dedicated bank account through to vouchers and invoices supporting the approved budget heads — produces exactly this kind of factual, restricted-use report. Where the donor prescribes a specific format for the utilisation certificate, we align the AUP procedures and report structure to that format while keeping it SRS 4400-compliant.

This is common and manageable, but it must be handled formally. We do not simply add a new test to the workpapers — we discuss the additional procedure with the engaging party, confirm whether it should be formally added to the agreed scope (with a corresponding letter or amendment), assess any impact on timeline and fee, and only then proceed. This keeps the engagement letter an accurate record of what was actually agreed and performed.

AUP engagements are generally priced significantly lower than a statutory or full-scope audit, because the scope is narrower and precisely defined — professional time is spent only on the agreed procedures rather than a comprehensive risk-based examination of the entire financial statements. The exact fee depends on the number of procedures, number of locations, volume of transactions or debtors to be tested, and the timeline required. PNPC agrees and confirms the fee in writing as part of the engagement letter before fieldwork begins.

Yes. The international equivalent, ISRS 4400 (Revised), issued by the IAASB, is the basis for agreed-upon procedures engagements globally, including in the UAE, and UAE-based practitioners and banks are familiar with the framework. For clients with both Indian and UAE operations, PNPC's Dubai office can coordinate AUP engagements — for example, verifying UAE branch stock or receivables for an Indian bank's overseas exposure review, or vice versa — under the equivalent local standard.

Yes, in the sense that we share a draft with the engaging party (which is often, though not always, the entity being examined) to confirm factual accuracy of the underlying data referenced in the report — correct location names, correct invoice or account references. This is not an opportunity to alter the substance of the findings themselves; the factual findings from the agreed procedures are reported as determined during fieldwork.

The sampling basis — whether 100% coverage, a value-based threshold sample, or a statistical sample — is itself one of the procedures agreed with the engaging party before fieldwork begins, since it directly affects the reliability and cost of the engagement. We typically recommend covering debtors or locations representing a defined percentage of the total balance or value, supplemented by any specifically flagged high-risk items, and we document the sampling rationale clearly in the report so the reader understands exactly what was and was not covered.

Yes. AUP engagements are frequently commissioned by a bank, franchisor, or JV partner in respect of a company that is not otherwise a PNPC client, or the company itself may engage PNPC specifically for this purpose without any prior relationship. In either case, we conduct a standard client acceptance and independence assessment before accepting the engagement, consistent with ICAI's Code of Ethics requirements for any new engagement.

Non-response is common and is addressed through alternative procedures agreed in advance where possible — for example, tracing subsequent receipts against the outstanding balance, or matching the balance to underlying sales invoices and delivery documentation. We report the confirmation response rate and the alternative procedures applied transparently in the findings, rather than treating non-response as equivalent to a positive confirmation.

An AUP report documents the factual position as at the date and scope of the agreed procedures — it is a point-in-time factual record, not an ongoing guarantee. It can be a useful piece of evidence in a later dispute about the position as of that date, but it does not by itself protect either party from disputes about matters outside its agreed scope, or about the position after the engagement's cut-off date.

This is a specific internal quality-control step. Every AUP report drafted at PNPC goes through a senior partner review focused specifically on language discipline — checking for words like 'in our opinion', 'we are satisfied that', 'fairly presents', or any other phrasing that implies an assurance conclusion rather than a bare factual finding. Reports are structured procedure-by-procedure with the finding stated plainly, avoiding summarising or evaluative language.

Yes, provided the covenant is objectively calculable from defined financial data — for example, recalculating a specific financial ratio from the audited or management financial statements per the formula defined in the loan agreement, and reporting whether the recalculated figure matches what was reported to the lender. Where the covenant involves subjective judgment (such as 'material adverse change'), it is not suitable for AUP treatment and requires a different form of advisory or legal assessment.

It depends on the specific engagement terms, but it is common and generally advisable, particularly where the procedures rely on information or explanations provided by management that cannot be independently verified through other means. The representation letter documents that management has provided complete and accurate information relevant to the agreed procedures — it does not substitute for actually performing the procedures.

In addition to SRS 4400 (Revised) for the engagement performance itself, PNPC's AUP engagements are conducted under our firm-wide quality control framework aligned with the Standard on Quality Control (SQC 1) issued by ICAI (now transitioning to SQM 1/2 under the revised quality management standards), covering engagement acceptance, independence assessment, staff assignment and supervision, and pre-issuance review.

Yes — that is a common and entirely valid scope. AUP is specifically designed to allow a narrow, defined scope; there is no requirement that it cover multiple areas. A single-item AUP engagement — for example, inventory valuation and existence only — is scoped, documented, and reported exactly like a broader multi-area engagement, just with fewer agreed procedures.

We plan a coordinated multi-location fieldwork schedule, often deploying teams to multiple locations concurrently to minimise the window during which stock or transaction data could change between sites, and to meet the engaging party's timeline. Findings are consolidated location-by-location in the final report so the reader can see both the aggregate position and any location-specific variances, rather than a single blended figure that could mask a problem at one specific site.

A regulator-directed special audit (for example, under company law or banking regulation) is typically broader in scope, may carry statutory force and specific reporting obligations to the regulator, and often follows an investigative rather than a purely agreed-procedures approach — the scope may evolve as the auditor's own judgment identifies issues, rather than being fixed in advance by mutual agreement. AUP, by contrast, is voluntary, contractually driven, and strictly limited to the procedures agreed before fieldwork begins.

An AUP report documents factual findings with supporting workpapers and can be referenced as evidence, but it was not designed with the specific evidentiary and chain-of-custody discipline that a forensic engagement applies when litigation is anticipated from the outset. If litigation or arbitration is a likely or known outcome before the engagement begins, we recommend structuring the engagement as a forensic or litigation-support engagement from the start, rather than as a standard AUP engagement, so the evidentiary requirements are built in from Day 1.

AUP is offered as a fully standalone engagement — PNPC regularly performs AUP engagements for companies where we have no other advisory, accounting, or audit relationship, particularly where a bank or franchisor specifically requests an independent practitioner. It is also offered as part of a broader relationship for existing PNPC audit, tax, or accounting clients where a bank or partner requires a specific factual check alongside our other work.

AUP engagement fees are scoped individually based on the number of procedures, number of locations, sample size, and timeline, and PNPC confirms the fee in writing before fieldwork begins as part of the engagement letter — we do not begin work on an undefined or open-ended fee basis. Recurring engagements (such as quarterly bank stock audits) are often quoted at a standing per-cycle fee once the procedure template and locations are established, which tends to be more cost-efficient than re-scoping and re-quoting each cycle from scratch.

AUP engagements carry real reliance from banks, franchisors, and JV partners — the quality of procedure drafting, fieldwork execution, and report language directly affects whether the engaging party's decision is well-informed. PNPC has performed AUP engagements across a wide range of sectors and trigger types since 1986, understands the specific formats banks and franchisors typically expect, applies a disciplined senior-partner review focused on language and scope compliance, and is empanelled with several banks and NBFCs directly. A generic or low-cost provider without this depth risks producing a report that technically exists but does not actually satisfy the bank's or franchisor's real requirement — which then has to be redone.