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By the Guillen Pujol CPA Group Editorial Team
Executive Summary
- Context: When a company with international operations seeks to renew, refinance, or maintain a credit line, the lender may request specific evidence on financial covenants, metrics, schedules, or reconciliations.
- Why it matters in cross-border structures: financial information can come from several entities, currencies, accounting systems, and jurisdictions. That dispersion calls for documentation that is traceable, comparable, and clear for third parties.
- What an AUP report provides: an agreed-upon procedures report allows a CPA to perform agreed-upon procedures and report factual findings on selected information. It does not issue an opinion or replace an audit.
- What the company should prepare before the engagement: clarify what the lender needs to review, gather the loan agreement, identify the applicable covenants, prepare the financial schedules, and organize the reconciliations and data sources.
In an international financing transaction, the lender’s review is driven by the specific financial information required under the loan agreement: metrics, covenants, reconciliations, or financial schedules within a structure spread across several countries, currencies, legal entities, and reporting systems.
The request can arise during a credit renewal, a refinancing, a waiver request, or a periodic covenant review. In those scenarios, the lender may need factual findings on concrete items: financial covenants, debt coverage ratios, EBITDA calculations, borrowing base certificates, intercompany balances, or cross-border financial schedules.
An agreed-upon procedures engagement can be appropriate in that context when the lender needs factual findings on specific subject matter. Unlike an audit, an AUP applies agreed-upon procedures to that subject matter and reports the resulting findings.
Why a Lender May Request an AUP Report to Review Covenants
A lender may request an AUP report when it needs specific evidence related to selected provisions of the loan agreement, but not a full audit of the company.
One possible scenario is a company that has received a waiver for a prior covenant breach. In that context, the lender may request agreed-upon procedures in a later period to obtain factual findings on specific metrics relevant to ongoing credit monitoring.
Depending on the financing terms and the specific information to be addressed, an AUP may also be requested in connection with a refinancing, a credit line renewal or increase, the monitoring of a borrowing base, or the review of specified financial requirements.
In all these cases, what the lender needs to know is what the data shows about a specific covenant, a reconciliation, a calculation, or a particular financial schedule.
What an Agreed-Upon Procedures Report Does––and Doesn’t Do
An AUP engagement is an attestation engagement performed under the applicable AICPA attestation standards, including AT-C section 215, Agreed-Upon Procedures Engagements, as amended.
In this type of engagement, the CPA performs procedures agreed upon with the engaging party on specified subject matter, and then reports the findings: which procedures were performed, what they were applied to, and what was observed.
An AUP report has concrete limits worth understanding before requesting it. The CPA expresses no opinion, conclusion, or assurance, and does not certify the company’s overall compliance. The findings cover only the items actually examined and are not extrapolated beyond them. The engaging party, not the CPA, is responsible for determining that the procedures are appropriate for its purposes.
Cross-Border Complexity: Where Tax, Currency, and Financing Intersect
When a company operates across multiple jurisdictions, reviewing a loan covenant becomes more complex because it involves information distributed across multiple entities, currencies, and reporting systems.
Technical elements add another layer to that dispersion of sources and affect how financial metrics are interpreted: currency translation, transfer pricing, withholding taxes, cash repatriation, and differences between local and consolidated reporting.
An international structure can be impeccably designed from a tax standpoint and still lack something: organized, traceable documentation that can be presented to a lender evaluating a specific metric.
International tax considerations and agreed-upon procedures can intersect without serving the same purpose. An AUP engagement can be appropriate when a lender needs factual findings on specific subject matter affected by the company’s international structure—for example, a covenant ratio, an intercompany balance, or a translated amount. Tax advisory addresses the relevant tax treatment, structuring considerations, and supporting documentation, while the AUP engagement applies the agreed-upon procedures and reports the resulting findings.
How a Borrower Should Prepare for an AUP Engagement
The efficiency of an AUP depends largely on two factors: the clarity of the lender’s request and the organization of the borrower’s documentation.
Before starting the engagement, the company should organize the key documents related to financing, the covenants, and the metrics to be reviewed. Among the most relevant supporting documents are:
Credit Documents
- An up-to-date copy of the loan agreement.
- Technical definitions of the applicable financial covenants.
- Written instructions from the lender.
- The reporting package prepared for the lender.
Financial Information
- Trial balances.
- ERP system exports.
- Financial statements of the relevant entity or group.
- Bank statements.
- Financial schedules specific to the engagement.
Cross-border Supporting Documents
- Reconciliations tied to the credit requirement.
- Schedules or reports from international subsidiaries.
- Active intercompany agreements.
- Support for the exchange rates used.
- Up-to-date ownership structure.
Finally, it is important to clarify from the outset the intended purpose of the engagement, the expected recipients of the report, and whether any contractual or professional restrictions on its use or distribution will apply. These matters should be addressed before the report is issued.
The clearer the lender’s question, the more useful the design of the procedures will be. An AUP engagement works best when the scope, the criteria, the data sources, and the intended users are clear from the start.
AUP Reports for Lenders: Key Questions Before Starting the Engagement
What Is the Main Purpose of an Agreed-Upon Procedures Engagement?
To report factual findings derived from agreed-upon procedures applied to selected information. An AUP report does not express an audit opinion or offer a general conclusion.
Can a Lender Request an AUP Report to Review a Single Loan Covenant?
Yes. An AUP can be designed around a covenant, a calculation, a reconciliation, a financial schedule, or a specific data point, according to the lender’s request and the agreed-upon procedures.
Who Defines the Procedures in an AUP Engagement?
The engaging party and the CPA agree on the procedures. Depending on the loan agreement, the report’s intended use, and the information the lender needs the CPA to review, the lender may help shape the request.
Can an AUP Report Be Shared with the Lender?
Yes. An AUP report may be provided to the lender, subject to the terms of the engagement and any applicable restrictions on its use or distribution. That is why these matters should be clarified before the report is issued.
Do You Need to Respond to an AUP Request from Your Lender?
In international operations, documentary clarity is critical for lenders and other interested parties that need to evaluate financial information in complex contexts. Many companies have financial statements, internal reports, and tax documentation, but do not always have the specific evidence a lender needs to review organized and ready.
At Guillen Pujol CPA Group, we assist companies with cross-border operations in preparing financial, tax, and operational documentation to respond to third-party requests.
Our related services include:
- Agreed-Upon Procedures (AUP): scope definition, criteria, procedures, data sources, intended users, and intended use to report factual findings on selected information.
- International Tax Consulting: analysis of international structures, cash flows, transfer pricing, treaty planning, withholding, and documentation prepared for third-party review.
- International Tax Compliance: coordination of reports, multi-jurisdictional obligations, intercompany documentation, and compliance calendars.
- Cross-Border Transaction Support: assistance in organizing financial and tax information for lenders, investors, buyers, advisors, and other stakeholders.
If your company needs to respond to an AUP request from a lender, the next step is an evaluation session with our senior team. We review the context of the request, the loan agreement, the applicable covenants, the available data sources, and the documentation needed to define the scope of a proposal tailored to the case.
The session is exploratory. It allows us to understand the request before preparing a technical proposal.
[Request your evaluation session]
Disclaimer: This content is provided for informational purposes only and does not constitute legal, tax, or financial advice. Before taking action, consult with qualified legal, tax, and financial professionals regarding your specific circumstances.
Editor’s Note: This post is part of the ‘GPCPAs Info Hub,’ an initiative dedicated to empowering you with the knowledge and strategies needed to navigate the complexities of the U.S. tax system and financial decision-making. Visit our Information Hub, a curated resource offering the latest in tax, economic, and business news, alongside actionable guidance on tax strategies, accounting, and business advisory—because Planning Tomorrowstarts here.
