Agreed Upon Procedures
and
Audit Evidence Requirements
ASMC-PDI
2010
Gregory N. Sinclitico
Assistant Auditor General
2 June 2010
Financial Management and Comptroller
http://secnavportal.donhq.navy.mil/navalauditservices
Agreed Upon Procedures (AUP)
• What are they:
– A type of accepted work recognized by the
auditing profession used to give a level of
assurance that applies specific procedures to
a specific subject area.
– An auditor is engaged by a client to issue a
report of findings based on specific procedures
performed.
– GAO Government Auditing Standards (Yellow
Book) 1.23c and 6.13b/ Statement on Auditing
Standards (SAS) AT 201.03
2
Typical Agreed Upon Procedure
Memo
• Memo exchanged and signed among all parties
(activities and Audit Service)
• Memo details:
– Objective
– Criteria
– Scope
– Access requirements
– Tests to perform
– Sampling approach
– Communication
– Reporting/Distribution
photo by Sergeant Joseph R. Chenelly
3
Agreed Upon Procedure Subject Areas
• Accuracy/reliability of performance measures
• Activity compliance with laws, instructions and
policies
• Internal controls over financial reporting
• Quantity, condition and valuation of inventory or
assets
4
Typical Agreed Upon Procedures
Objectives
• Verify if audit trails and internal controls
exist for financial statement information
• Verify if corrective actions have been
taken on deficiencies noted in the
Financial Improvement Plan
photo by Mass Communication Specialist 3rd Class Michael Croft
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Examples of Typical AUP Tests
• Determine whether:
– Audit trails exist for acquisitions, disposal or financial
reporting
– Equipment is properly monitored in the record system
– Inventories are performed and fully documented
– Perform partial book (records)-to-floor and floor-to-book
inventories
– Reconciliations are performed and fully documented
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Agreed Upon Procedures
• Reporting details:
– Criteria used
– Tests performed
– Results of specific tests
– Related internal controls tested
• AUP is a “results-only” report
• Report distribution is generally limited to the
parties involved in the agreement
• Report can be released under the Freedom of
Information Act by the Auditor General
photo by Mass Communication Specialist
3rd Class Josue L. Escobosa
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Agreed Upon Procedures Will Not…
• Provide negative assurance
(“We found nothing…”)
• Address materiality/significance of results
• Report on any differences between the AUP
and a full-scope audit
• Render an opinion or any level of assurance
8
Completed AUP Engagements
•
•
•
•
•
Navy Other Liabilities Account - General Fund (FY2005)
Navy Environmental Liabilities Account - GF (FY2005)
NRL Working Capital Fund F/S (FY2008)
MSC Working Capital Fund F/S (FY2009)
NAVFAC Working Capital Fund F/S (FY2010)
• Marine Corps FBWT Account (FY 2006)
• Marine Corps Real Property Account (FY 2007)
• Marine Corps Personal Property Account (FY 2008)
• TRICARE Management Activity Financial Improvement
Initiative (FY 2007)
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Audit Evidence
Requirements
photo by Mass Communication Specialist 1st Class Geronimo Aquino
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Audit Evidence
(GAO Yellow Book 7.55-7.67)
• Auditors:
– Must obtain sufficient, appropriate evidence to
provide a “reasonable” basis for their findings
and conclusions
• Sufficient = a judgmental measure
– What is enough?
» Enough to persuade a knowledgeable
person the conclusion is “reasonable”
• Appropriate = a qualitative measure that
address relevancy, validity and reliability
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4 Types of Audit Evidence
• Documentary
– Existing information: contract records, receipts,
invoices, electronic data, etc.
• Physical
– Inspection or observation of people, property or
events
• Analytical
– Activity-based/auditor-based comparisons,
calculations, ratios and/or metric results, etc…
• Testimonial
– Inquiries, interviews or questionnaires
12
Audit Trails and Source
Documentation
•
What are audit trails?
– Records (either paper or electronic) that enable someone to
reconstruct a transaction
– Should be able to clearly answer the “who”, “what”, “when”,
“where”, “why” and “how” questions
•
What is source documentation?
– Evidence of initial input into the accounting process, and serves
as transaction evidence
– Serves as a part of the audit trail should validation of a
transaction be necessary
– Describes the basic facts of a transaction, such as:
• Who authorized the event?
• What was the event?
• When did it occur?
• Where did it occur?
• Why did it occur?
• How much was spent on the event?
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Management Assertions:
5 Categories
• Existence or Occurrence (do assets physically
exist?)
• Completeness (are all transactions included?)
• Rights and Obligations (does the entity own the
assets and/or owe the liabilities?)
• Valuation or Allocation (are values accurate?)
• Presentation and Disclosure (do the financial
statements contain all required information?)
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How Types of Evidence Support Assertions
Evidence
Existence
&
Occurrence
Completeness
Rights &
Obligations
Valuation
Presentation
&
Disclosure
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
PHYSICAL
Direct Inspection &
Observation
TESTIMONIAL
Inquiries, Interviews,
& Questionnaires
DOCUMENTARY
(Samples)
Relevant Laws &
Agency Regulations
Documents of Public
Record
Contracts,
Agreements, Deeds,
& Leases
Certified Appraisals
Transfer & Shipping
Reports
Inventory Reports
Purchase Orders,
Receiving Reports,
Invoices
Payment Vouchers,
Checks or EFT#
Maintenance Records
Systems Reports &
Client Prepared
Schedules
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
ANALYTICAL
Comparisons,
Ratios, Expected
Relationships
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Existence or Occurrence
• Assets and liabilities exist at a given date and recorded
transactions have occurred during a given period.
– Audit Tests (Evidence Required):
• Observe inventories
• Test transactions between a preliminary physical
inventory date and the balance sheet; reconcile
results
• Obtain confirmation from third parties
• Other tests (i.e., receipts/transfers, disposal
procedures and book-to-floor)
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Completeness
• All transactions and accounts that should be presented in the
financial statements are included.
– Audit Tests (Evidence Required):
• Test transactions for proper recording and
classification
• Test purchases to determine if they are properly
recorded
• Other tests: sight-backs (floor-to-book); consumable
and pilferable items
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Rights and Obligations
• Assets are the rights of the entity and liabilities are
the obligations of the entity at a given date.
– Audit Tests (Evidence Required):
• Test records and determine if recorded
property is owned by the entity as evidenced
by contracts, invoices, receipt/transfer
documents or other applicable records.
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Valuation or Allocation
• Asset, liability, equity, revenue and expense
components have been included in the financial
statements at appropriate amounts.
– Audit Tests (Evidence Required):
• Test records and determine if they are
recorded in the proper category and at the
right cost for the proper accounting period
• Test for actual, historical or depreciated costs
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Presentation and Disclosure
• Particular components of the financial statements
are properly classified, described and disclosed.
– Audit Tests (Evidence Required):
• Test whether footnotes contain all information
required to be disclosed
• Test categories (are they properly recorded
as acquisitions, disposals, repairable,
expendable, salvageable)
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Real and Personal Property Source
Documentation
• Audit trails exist within iNFADS and DPAS
• Real and personal property source documentation
to support “rights and obligations” is maintained
(DD-1354 and DD-1348)
• Real and personal property transactions are
capitalized at DON’s threshold
• Source documentation to support disposals is
being maintained for real and personal property
• Real property capital improvements and repairs
are categorized and reported
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Real and Personal Property Internal
Control
• Monthly reconciliations of real and personal
property are performed
• Resource Elevations Analysis (REAs) ensure that
real and personal property inventories are
performed, and that source documentation was
maintained
• Perform existence and completeness testing of real
and personal property
• Real and personal property financial information is
input timely into DPAS/iNFADS
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The Goal: Sustainment
Maintaining an audit readiness condition
through the execution of regular, consistent,
and well-controlled (internal controls)
business processes
photo by Photographer’s Mate 1st Class David M. Tilton
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Contact Information
Thank you for your time and attention
Gregory Sinclitico 202-433-6401
Gregory.Sinclitico@navy.mil
Barbara McCabe 202-433-6871
Barbara.McCabe@navy.mil
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