SSAE 18

What does Management Need to Provide the Auditors?

If you have never been audited before, as is the case with many service organizations, you are probably wondering what kind of documentation will I need to give the auditors? What will they do with it once they have it?

A high level explanation per the SSAE 16 Guidance:

(1) access to all information, such as records and documentation, including service
level agreements, of which management is aware that is relevant to the
description of the service organization’s system and the assertion;
(2) additional information that the service auditor may request from management for
the purpose of the examination engagement;
(3) unrestricted access to personnel within the service organization from whom the
service auditor determines it is necessary to obtain evidence relevant to the
service auditor’s engagement; and
(4) written representations at the conclusion of the engagement

Basically, you must give up anything needed by the service auditor that will permit them to attest to “Management’s description of the service organization’s system”, the main change associated with SSAE 16.

Many of the controls at your organization will be reliant upon documents such as service level agreements and subservice organization’s SSAE 16 reports. Controls will also require you to pass off policies and procedures, organizational charts, job descriptions, firewall configurations, and other internal documentation.

The most intrusive part of the SSAE 16 Review is that the auditors will need to talk to any and all of the employees that have a role in performing the controls being tested. Without that access, it would be impossible for the auditors to have a clear understanding of the processes when testing your controls. However, this shouldn’t be viewed as a negative, it will help your employees improve their processes in the future by gaining tips and insight from the auditors that will help them be better prepared for next year’s audit. Also, it will help clear up any potential findings or issues the auditors find, as in many cases there is no problem and an explanation is all that is needed, making the audit go MUCH smoother.

All of the documentation and information provided will never be seen by anyone other than the auditors performing the testing. The documentation is needed for the service auditors to assess the design and operating effectiveness of your controls. Once the testing and review phases are complete, your report will be issued and all that will be included is whether you either passed or failed that control, so don’t worry!

If you have any questions feel free to leave them in the comments section below and we will do our best to respond!

This information is also consistent with SSAE-18 which is effective as of May 1, 2017.

The biggest update in SSAE 18 as it relates to this post is a Company is now required to provide the auditor a detailed risk assessment based around key internal risks where there is potential for material misstatement and supporting controls.

Please use the contact provider form to connect with a qualified professional to answer anymore questions.

The SSAE 18 Audit Standard (Updates and Replaces SSAE-16)

SSAE 18 is a series of enhancements aimed to increase the usefulness and quality of SOC reports, now, superseding SSAE 16, and, obviously the relic of audit reports, SAS 70. The changes made to the standard this time around will require companies to take more control and ownership of their own internal controls around the identification and classification of risk and appropriate management of third party vendor relationships. These changes, while, not overly burdensome, will help close the loop on key areas that industry professionals noted gaps in many service organization’s reports.

SSAE18 is now effective as of May 1, 2017, and if you have not made the necessary adjustments required, now is the time to find a quality provider to discuss the proper steps. All organizations are now required to issue their System and Organization Controls (SOC) Report under the SSAE-18 standard in an SOC 1 Report. The SOC 1 report produced will look and feel very similar to the one issued under SSAE-16, it will just contain a couple additional sections and controls to further enhance the content and quality, and thus, the ability for third parties to rely on.

What’s New in SSAE 18?

As mentioned above, there are a couple key changes that Companies currently performing a SOC 1 or 2, or, will be performing one in the near future, need to take into consideration this year and going forward.

  1. Service Organizations will need to implement a formal Third Party Vendor Management Program
  2. Service Organizations will need to implement a formal Annual Risk Assessment process

In addition to the control based changes, your SOC report should also now contain two additional sections describing the risk assessment process, as well as, the Subservice Organizations that play a role in the overall operation of the system and the corresponding controls they impact or have complete ownership of. These two components were typically present in SOC 2 reports previously, but, not formally required. Now, this concept is being formalized and extended to all SOC reports going forward.

Now, for companies that have not previously undergone a SOC 1 audit because their service / operations were not financially significant, SSAE 18 now expands the definition of what is allowed to be reported on to include an entity’s compliance with certain laws or regulations, contractual arrangements, or another set of defined agreed-upon procedures – just about any outsourced service where 3rd party validation would be beneficial and add assurance. This now allows for an official, independent review, of a wide-range of operations under a trusted and consistent set of auditing and reporting guidelines.

Who Needs an SSAE 18 (SOC 1) Audit?

A service organization’s services are part of an entity’s information system if they affect any of the following:The classes of transactions in the entity’s operations that are significant to the entity’s financial statements. The procedures, both automated and manual, by which the entity’s transactions are initiated, recorded, processed, and reported from their occurrence to their inclusion in the financial statements.The related accounting records, whether electronic or manual, supporting information, and specific accounts in the entity’s financial statements involved in initiating, recording, processing and reporting the entity’s transactions. How the entity’s information system captures other events and conditions that are significant to the financial statements. The financial reporting process used to prepare the entity’s financial statements, including significant accounting estimates and disclosures.If your Company (the ‘Service Organization’) performs outsourced services that affect the financial statements of another Company (the ‘User Organization’), you will more than likely be asked to provide an SOC 1 Type II Report, especially if the User Organization is publicly traded.
Some example industries include:

  • Payroll Processing
  • Loan Servicing
  • Data Center/Co-Location/Network Monitoring Services
  • Software as a Service (SaaS)
  • Medical Claims Processors

How Does My Company Best Prepare?:

Before starting the SSAE 18 process, there are a number of considerations one must take into account that can save considerable time, effort, and money in the long run. Use the following items as a mini checklist for yourself:

  • Does my Company need an SSAE18, or, are we doing it just because someone asked?
  • Reports on the low end can run at least $15,000 a year, will the business lost be less of a burden than the cost of the report itself?
  • Does your company have defined Business Process and IT controls in place, or, will you need assistance developing and implementing them (readiness assessment)?
  • Have you determined the controls in place which affect the outsourced services being provided?
  • Have key stakeholders been defined and included in discussions?

There are many other issues to consider before engaging a CPA firm to help with your SSAE 18, for a more detailed ‘checklist’ – please see The SSAE 18 Checklist.

SSAE 18 / SOC 1 Type 1 Report – Background Information

A SSAE 18 / SOC 1 Type I Report shows Company’s that your Organization has appropriate controls designed and in place as of the date the report is issued. It does not provide assurance that controls are executed consistently, which, is the purpose of the Type 2 report and what most Company’s are hoping to see when asking for evidence of a SOC report.

So, while, the Type II is preferred, the Type I report is an important step in the right direction for an Organization who has never undergone an audit and looking to show they are serious about compliance.

A Type I Report is specifically defined by the SSAE 18 guidance as a “report on a description of a service organization’s system and the suitability of the design of controls”, essentially, a determination of if your company’s controls designed appropriately. When performing a Type I report, the auditors will test the design effectiveness of your Company’s controls by examining a sample of 1 item per control, review of policy, or through inquiry. This provides a user organization with some comfort that your company (the service organization) has controls in place (but not evidence of operating effectiveness). This can be useful when trying to obtain a contract to show good faith to potential user organizations or to maintain current contracts when Customers may have updated compliance requirements they must meet.

The SSAE 18 Type I report has 3 sections which include Management’s Assertion, the Auditor’s Opinion, and the System Description of the service offerings under review and corresponding control objectives and activities.

Why Perform an SSAE 18 (SOC 1 or SOC 2 Report)?

Some organizations have heard of SAS 70, SSAE 16, and now SSAE 18, but, haven’t seen the value, other than because one of their customer require it. Truth is, that’s a large part of the value, as many companies will not even think about outsourcing functions to a Company who does not have a clean SOC 1 or SOC 2 Type II Report in place, especially since Vendor Management reviews are now required.

Some benefits of having a SOC report in place include:

  • Ability to perform outsourcing services for Public Companies.
    • If performing financially significant duties for a Public Company, they are required to use a a provider with a valid SSAE 18/SOC 1 in place to give investors assurance over controls that are performed by the outsourcing Company.
  • Public and Private companies are more likely to trust your organization with their data.
    • Beyond any compliance requirements, if you were to trust a company with your data, you would want assurance it will be handled with the utmost care.
  • A year round accessible knowledge source (your auditors).
    • As a service organization, large or small, you will always have questions regarding your business and having a set of auditors in place with access to a wide array of business knowledge, it will allow you to bounce questions and concerns off of a group of trusted individuals who know your business.
  • A third party to review your controls and activities to ensure they are functioning appropriately, and give advice on how to improve upon them.
    • Sometimes your internal audit department is good, but, not always as stringent as they should be. This will help to serve as a check on their work, as well as your staff. Additionally, if there were any findings noted, your auditors are in a great position to give you some tricks and tips to improve and help ensure everything functions well the following period.
  • Improving performance of the organization.
    • Just the knowledge that a review is being performed of an employee’s work that can have far reaching consequences for the company as a whole. No more, “Oh, I didn’t realize that reviewing user access was THAT important to do this month, sorry”, now, everyone knows that if it’s not done, the success or failure of the organization could rest upon them.
Think of the SSAE-18 audit as an annual investment into your company, increasing potential new clients, productivity and accountability.