A lender email comes in two days before quarter end. They are not asking for audited financial statements. They want comfort that two covenant inputs are not misstated, the debt service coverage ratio is computed from the agreed definition, and the reported cash balance ties to support. The first decision is what deliverable fits that request, since an agreed-upon procedures report reads as procedures performed and findings, while an examination report expresses an opinion and a review report expresses a conclusion. Before we pick procedures or start testing, we have to name what the users expect to do with the report. If the lender intends to rely on our assurance over the ratio as a whole, an AUP that lists findings will not meet that expectation. If the lender only wants transparent testing on specified items and will draw its own conclusion, AUP can fit cleanly. Put the request in front of you and decide which output it points to:
HarborView Manufacturing, LLC is a nonissuer with a 12/31/20X6 draft covenant package showing a draft DSCR of 1.12 against a minimum of 1.15. Cash is $410,000, debt outstanding is $5,000,000, the stated interest rate is 7.0%, and EBITDA per the draft schedule is $980,000. The loan requires quarterly reporting to the lender, and the intended users of the report are HarborView and the Bay Street Bank credit team. One scoping question matters immediately. Is the lender asking us to attest to the DSCR itself, or to apply specific tests to the underlying inputs and report what we found. We will use the same covenant data either way, but the level of service changes the report wording, evidence depth, and who is responsible for drawing the conclusion from the work.
Start from what the bank needs to do with the information. If Bay Street Bank wants an assurance report over whether the DSCR meets the covenant definition and is fairly stated, that points to an examination or a review. If Bay Street Bank wants us to recompute DSCR using specified inputs and to tie cash to bank evidence, that points to an agreed-upon procedures engagement where the bank reads the procedures and findings and decides what they mean for the covenant. In AT-C 215, the practitioner performs specific procedures on subject matter and reports findings without providing an opinion or conclusion. The scoping choice becomes clearer when we compare what each service communicates and how deep the evidence needs to go for HarborView’s fact pattern. Make the selection across assurance, report wording, evidence depth, and whether the users are suited to the service here: