$18-7$ An Opinion Based on Agreed$-$Upon Procedures

Management often calls for an independent auditor$$s assistance. For example, an audit client$$s management might request that their auditor apply agreed$-$upon procedures to some but not all of the financial statement accounts of a company that management considers a serious candidate for acquisition. Assume that Uclean Corporation, an audit client, has requested that your firm perform agreed$-$upon procedures at Ajax Corporation. At the completion of the engagement, an audit assistant prepared the following report for your review:

We have applied certain agreed$-$upon procedures, as discussed below, to accounting records of Ajax

Corporation, as of December $31,2007,$ solely$-$to assist Uclean Corporation in connection with the proposed acquisition of Ajax Corporation.

We have examined the cash in bank and accounts receivable of Ajax Corporation as of December $31,2007,$ in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the cash and receivables referred to above are presented fairly, tn all material respects, as of December $31,2007,$ in conformity with generally accepted accounting principles. We therefore recommend that Uclean Corporation acquire Ajax Corporation pursuant to the proposed agreement.

$18-8$ Describing Findings in an Agreed$-$Upon Procedures Engagement

Agreed$-$upon procedures engagements on financial statement elements, accounts, or items of a financial statement and on nonfinancial statement assertions require that the independent accountant describe both the procedures and the findings in his or her report. Following are two agreed$-$upon procedures$$one for cash and another for invoices$$and two alternative means of reporting findings for each procedure.

Agreed$-$Upon Procedure: Cash

Trace all outstanding checks appearing on a bank reconciliation as of a certain date to checks cleared in the bank statement on the subsequent month.

Description of Findings A

All outstanding checks appearing on the bank reconciliation were cleared in the subsequent month$$s bank statement.

Description of Findings B

Nothing came to my attention as a result of applying the procedure.

Agreed$-$Upon Procedure: Invoices

Compare the amounts of the invoices included in the over ninety days column shown in an identified schedule of aged accounts receivable of a specific customer as of a certain date to the amount and invoice date shown on the outstanding invoice, and determine whether the amounts agree and whether the invoice dates precede the date indicated on the schedule by more than ninety days.

Description of Findings A

All outstanding invoice amounts agreed with the amounts shown on the schedule in the over ninety days column, and the dates shown on such invoices preceded the date indicated on the schedule by more than ninety days.

Description of Findings B

The outstanding invoice amounts agreed within an approximation of the amounts shown on the schedule in the over ninety days column, and nothing came to our attention that the dates shown on the invoices preceded the date indicated on the schedule by more than ninety days.

Required: For each agreed$-$upon procedure, explain which description of findings, A or B$,$ is appropriate, and why.