Tag Archives: SSAE 16

SOC 1 & SOC 2 Preparation Checklist


I’ve been hearing from various people in the marketplace that they were interested in learning about some steps, at a high level, that they need to take to get off the ground and on their way to completing their SOC 1/2 Report Type I or Type II. So, I will give you all a breakdown of some of the things organizations should be doing now, and some things to think about down the line as you progress.

This SOC Reporting Checklist is geared towards service organizations whom have never undergone a SAS 70, SSAE 16, etc. in the past and will be taking up the task this coming year. A more detailed version geared towards companies that have some experience being audited will be coming down the line.

  • Do your research.
    • You have already come across our site, so you have begun the process of researching SSAE 16 and the responsibilities that come with performing one. I would continue to search for SAS 70 related information as well, as most of that knowledge is applicable.
  • Find a few CPA firms who perform over 75 SOC Reports annually.
    • You will want to research a number of firms that could perform and sign off on your SOC Report, which, only CPA firms are permitted to do. This process should be handled with the utmost care as you are putting a lot of trust into the company you choose, they can make or break you.
    • Some things to consider:
        1. The size of your company – You may not be able to afford a large CPA firm.
        2. The clientele you are attracting – Some companies will not feel secure with the quality of your SSAE 16 if it was performed by a firm that isn’t well known.
        3. Total SOC 1 or SOC 2 reports performed – You do not want to use a company who has never done such work in the past, unless they are comprised of former employees of another quality firm and have decided to take off on their own.
        4. The methodology employed – You will want to quiz the companies and gain comfort around their methods and ensure you are comfortable with their responses and agree based upon your research.
  • Narrow your search.
    • Based upon how you felt about each company, the people, the methodology, their previous experience, and of course, cost,  you should narrow down your search to the top 2 companies.
    • Pricing for a SOC report can vary greatly depending upon the company performing the work, the size of your organization, and audit scope. On average, company’s should be expected to spend between $15,000-$30,000 for a Type II audit.
      • You should look for a fixed rate fee so there is no potential for them to raise rates on you as the project progresses.
  • Define the scope.
    • Once you have engaged a firm to perform the work, make sure you define the scope of the audit early on in the process. Not doing so could lead to excessive delays and potential cost overruns.
  • Define your control objectives and activities.
    • In conjunction with your CPA firm, define the controls and test steps to be tested and make sure that they have been reviewed by process owners and any of the stakeholders at the CPA firm who may be reviewing and/or signing off on the report to ensure everyone is in agreeance. If this isn’t completed prior to testing, you are asking for a world of trouble.
  • Perform a Readiness Assessment.
    • You can either choose to perform a readiness assessment on your own, based upon the test steps already defined, or, if you do not have the capacity or ability to do so internally, you can look towards either the firm performing your review or another firm who is skilled in preparing companies for audits.

These steps laid out here will set you on your way to getting your SSAE 16 started up and going and should help to guide you through the toughest parts of the process. Once you have completed all of the steps we have laid out, you should be able to rely on the knowledge of your CPA firm to take you through the finish line.

If you have any further questions please Contact Us!

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

Why have an SSAE 16 Review Performed?


Some organizations have heard of SAS 70, SSAE 16, and soon to be SSAE 18, but, don’t really know WHY they need to pay to have a bunch of auditors trounce through their company for a month or two during the year, especially right after their financial audit just finished.
The answer is simple: Many companies will not even think about using your company to perform services for them without a clean Type II Report in place.
Some benefits of having an SSAE 16 performed:

  • Ability to perform outsourcing services for Public Companies.
    • If performing financially significant duties for a Public Company, they are required to use a SSAE 16 qualified provider as it is the only way to give investors assurance over controls that are not performed by the Company in question.
  • Public and Private companies are more likely to trust your organization with their data.
    • If you were to trust a company with your data, you would want complete 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 your questions and concerns off of a group of trusted individuals.
  • 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 to 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 16 or SSAE-18 audit as an annual investment into your company, increasing potential new clients, productivity and accountability.

SSAE 16 Terminology – Carve-out Method


When performing a SSAE 16 Review, you will be inundated with various terms that you may have never heard of before. We plan on continuing with a serious of posts dedicated to explaining the various terminology that you should be aware of to ensure when the auditors are explaining things to you, you don’t lost in the jargon.

Today we will discuss the Carve-out Method.

When management is in the process of writing their description of their system (‘management’s description of the service organization’s system’), there are various ways to address controls or functions relevant to the processes that are outsourced to another organization (‘subservice organization’). Using the carve-out method, you would exclude the subservice organization’s relevant control objectives and related controls from management’s description and scope of the service auditor’s engagement.

Now, this doesn’t mean you don’t need to address the controls that take place at a subservice organization, what it means is that you will need to have controls in place to monitor the effectiveness of the controls at the subservice organization. The most typical way to address this would be to obtain an SSAE 16 from the subservice organization, assuming the relevant controls were covered within their report.

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

SSAE 16 Type I Report Background Information


There are significant differences between a Type I and Type II report, however, we aren’t going to discuss that here, thats for another day. We will discuss the basics of a SSAE 16 Type I Report and some areas that should be focused on if this is the direction your company wants to take.

While the Type I Report doesn’t carry much weight, there are benefits, and that’s why it exists as an option. A Type I Report is specifically defined by the SSAE 16 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 defined controls by examining a sample of 1 item per control. This provides a user organization with some comfort that your company (the service organization) has at least some controls in place. This can be useful when trying to obtain a contract and to show good faith to the potential user organization that your company is moving in the right direction. Most user organizations will require a Type II Report before contracting your company as a service organization of theirs.

The Type I Report is made up of 3 major areas, per the SSAE No. 16 Guidance:

a description of the service organization’s system prepared by management of the service organization.

– Management will need to prepare a description of the control objectives that are in place and being tested at their organization, as it relates to the process that is being reviewed for use by a User Organization. This will read sort of like a narrative of the process and how your control objectives tie in to each other and the process as a whole, giving a User Organization an overview of what and how, at a high level, their data will be handled.

a written assertion by the Service Organization’s management about whether, in all material respects, and based on suitable criteria:

1. the description of the service organization’s system fairly presents the service organization’s system that was designed and implemented as of a specified date.
2. the controls related to the control objectives stated in the description were suitably designed to achieve those control objectives as of the specified date.

– Management will need to prepare a written assertion attesting to the fair presentation and design of controls. Previously under SAS 70, it was the auditors who reported directly on the controls and management was not required to attest to anything. (There will be a separate post describing this in detail as this is a major difference)
The final component:

a service auditor’s report that expresses an opinion on the matters in b1-2.

– The auditors that are hired to perform the testing will need to review the Management’s assessment of the design of controls and attest to the validity of Management’s opinion. The auditors will walk through the control objectives and control activities in place at your company and verify they are, in fact, designed as Management noted. This is where the auditors will obtain a sample of 1 to support each control activity and express the results of their testing.

Specifics of reporting details for a SSAE Type I will be discussed later on!

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