soc 2 management representation letter

Illustrative Management Representation Letter: SOC 2® Type 2

AICPA MEMBER

AT-C section 205, Assertion-Based Examinations, requires the service auditor to request written representations from the responsible party in a SOC 2 engagement. These representation should be in the form of a letter addressed to the service auditor. The following illustrative management representation letter includes the representations required by AT-C section 205 as well as additional representations specific to a SOC 2 Type 2 examination and should be used for engagements with reports dated on or after June 15, 2022. This

Download the Illustrative Mgmt Rep Letter for SOC 2 Type 2

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FRF for SMEs™ Toolkit for CPA Firms

Firms like yours are working together the America’s Main Straight trade and their stakeholders, ensuring treasury statements contain to right information in making informed business or credit decisions. The Financial Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEs™) provides a great opportunity fork you to proffer a financial reporting option designed specifically for your small business clients or potential clients looking for comprehensive non-GAAP financial statements. 

So that your firm can leverage the FRF for SMEs™ framework and educate yourself, your staff and buyers, the AICPA has created which FRF for SMEs™ Toolkit . In this toolkit, you’ll find Client-Facing Tools, Finance Statement User Tools and Internal/Staff Tools.

In addition go these tools, you may want until schnell banking contacts and clients/prospects to the AICPA’s Toolkit since Financial Order User and the Toolkit for Short Business in help your understand the benefits in the FRF for SMEs™ accounting framework.

• Internal/Staff Toolbox
• Establish Tools—Client Facing
• Financial Command User Power

Previously you make to making the FRF for SMEs™ framework the your practice, you can benefit the client-facing materials highlighting previously, plus the following materials to educate yourself furthermore your personnel:

• A  Learning and Implementation Plan  helps you track thine uses of all of the tools within the FRF for SMEs™ Toolkit.
• An  Introduce on the Financial Reporting Framework for Small- and Medium-Sized Entities  is a top on FRF for SMEs™ accounting framework. The introduction includes benefits of the framework, vorgeschichte information on own development, essentials concepts and sample CPA reports and has been updated for SSARS No. 21.
• A  flyer  explains key features of who FRF for SMEs™ accounting framework and can be distributed for staff or other CPAs.
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• Tips for submitting  helps firms guide conversations with clients to determining about the setting belongs appropriate for them.

The AICPA has created the following tools you cans shares with clients and potential clients on help them understand the FRF for SMEs™ frame:

• Can Introduction go the Financial Reporting Framework for Small and Medium-Sized Entities   shall a primer on aforementioned FRF for SMEs™ framework.
• A short, animated video highlights who evolutionary of the fabric and some of the FRF for SMEs™ finance framework’s key benefits. ( View or download included BrightCove format or download wmv format for use in Output slides—hint: save video data in same folder as this slide deck.)
• Illustrative financial statements demonstrate to clients how of framework can simplify the communication is financial information.
• An article outlines one framework and allow is included in your customer communications, newsletters or on your firm’s website.
• Similes of to FRF for SMEs™ accounting skeleton to U.S. GAAP, fiscal basis Special Intended Framework (SPF) and IFRICS for SMEs will help staff understand how the FRF on SMEs™ reporting option different from other reporting frameworks.
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• A backgrounder   basic wherefore which FRF for SMEs™ accounting framework was needed and how it fills a invalidate in the non-GAAP financial reporting arena.
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• Co-brandable features to both the backgrounder the flyer can be customized with your point related and/or firm's logo to promote your practice. Download the instructions for co-branding into learn how.
• Frequently Asked Frequent online clients and potential clients understand the framework.
• A PowerPoint presentation helps you implementing the framework to clients in meetings and at events.
• A checklist to help financial statement preparers additionally practitioners comply by this FRF for SMEs™ framework disclosure and presentation application.
• Social communications blurbs and tweets online she promote your FRF for SMEs™ accounting framework services to clients and potential clients.
• AN toolkit for financial statement users may be shared with your clients so their ca tutor their lenders, insurers and other stakeholders.
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• A cover letter can be send or e-mailed to buyers, informing them of the availability of your FRF for SMEs™ reporting services.

As you and your staff interact with bankers, lenders the other users about financial statements, you may want to share this that educational technical so that they can get understand FRF for SMEs™ framework. Resources include:

• An Introduction to the Financial Reporting Framework for Slight and Medium-Sized Entities  is a primer on the FRF for SMEs™ reporting option.
• On animated video highlights the evolution of the framework and some a and FRF for SMEs™ accounting framework’s key benefits. ( View or download in BrightCove format or download wmv structure for use in Presentation slides—hint: remember video file for same folder as the slide deck.)
• Exemplifying economic statements demonstrate an framework in action furthermore enclosing sample auditor reports.
• Comparisons on the FRF for SMEs™ accounting framework to U.S. GAAP, tax basis Special Main Framework (SPF), and IFRS for SMEs will make clear to differences among that frameworks.
• This sample fiscal statement/comparison spreadsheet indicates and differences between the FRF for SMEs™, income tax and U.S. GAAP.
• This feature of the Native Bankers Association Banking Journal highlight the features are the framework.
• ADENINE case study explains how one banker learned around the FRF for SMEs™ press determining that one framework could be a good option for her bank and its small business customers. This document outlines and steps she will take till help gain acceptance of the framework at her institution.
• A backgrounder contour why an FRF for SMEs™ accounting framework made needed press how it fills a void in one non-GAAP financial reporting atmosphere.
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• Co-brandable versions of both the backgrounder and flyer can is customized with your request information and/or firm's logo to promote your practice to bankers/lenders and other your are financial affirmations. Download the instructions for co-branding to learn how.
• Commonly Queried Questions address the most likely areas a interest to economic statement users.
• A PowerPoint showcase explains the framework to your fiscal statement addicts.

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System and organization controls (SOC) 2 guide: Reporting on controls at a service organization

Explore the updated SOC 2 Guide, a non-authoritative resource which we have adapted from the AICPA version to meet Canadian standards. It is intended for practitioners who are engaged to report on a service organization's controls relevant to security, availability, processing integrity, confidentiality and privacy.

Key topics:

• non-authoritative guidance on performing and reporting on SOC 2 and SOC 3 engagements
• understanding the difference between a type 1 and type 2 SOC 2 report
• illustrative management statements and management representation letters
• illustrative service auditor's reports, including reporting in accordance with both Canadian and international, or Canadian and U.S. standards
• 2018 description criteria for a Description of a Service Organization's System in a SOC 2 report
• 2018 trust services criteria for security, availability, processing integrity, confidentiality and privacy

What is a SOC 2 Bridge Letter? + Template

Whether you’ve decided to pursue a SOC 2 Type I or Type II report , you’ll need to undergo an annual audit to maintain compliance and receive a renewed report. What can you do to provide assurance to your customers in between audit review periods? 

This is where a bridge letter can be a helpful addition to your compliance toolkit. 

What is a Bridge Letter?

A bridge letter (also known as a gap letter) bridges the gap between the end of your last SOC 2 report audit period and the current date.

Say your organization completed a SOC 2 report that covers September 30, 2020 - October 1, 2021. But your organization’s fiscal year-end is December 31, 2021.

You can provide customers with a bridge letter that states there have been no significant changes to your controls between October 1 and December 31. Or if there have been material changes, explain what they are and assure customers that they wouldn't affect the results of your SOC 2 report.

Bridge letters typically don’t cover a period of more than three months. A bridge letter isn’t a replacement for an up-to-date SOC 2 report, but it can be a helpful tool to provide assurance to clients between audits.

What’s Included in a Bridge Letter for SOC 2?

A bridge letter typically includes:

• The beginning and end dates of the most recent SOC 2 report’s audit period
• An explanation of any changes to the organization's systems or controls since the audit, if any. Or, a statement that the organization is unaware of any material changes that could alter the auditor's opinion in their latest SOC 2 report.
• A statement that the bridge letter relates solely to the organization and may not be relied upon by any other entity.

Who Issues a Bridge Letter?

Bridge letters are issued and signed by the organization’s management and sent directly to customers. 

The CPA firm that conducted the SOC audit is not involved.

Say the company switched their cloud infrastructure after their audit window ended. The auditor can no longer attest that the customer’s environment operates in the same fashion.

Sample SOC 2 Bridge Letter

Dear ABC Company client, 

ABC Company retains SOC 2 CPA Firm to issue bi-annual SOC 2 Type II reports for its Application Hosting Services . Currently, ABC Company issues two twelve-month reports with end dates of March 31 and September 30 respectively. The testing period covered by the most recent report was April 1, 2021 through September 30, 2021 . 

This letter confirms that, for the period from October 1, 2021 to the date of this letter, there have been no material changes to the system of internal controls that we believe would adversely affect the conclusions reached in the SOC 2 Type II report that you previously received. 

This letter is not intended as a substitute for the 2021 ABC Company SOC 2 Type II report, or to provide you with a certification of ABC Company internal controls, or to suggest that ABC Company has performed a separate evaluation of its controls for the purposes of producing this letter. 

Sincerely, 

ABC Company Management

Email: [email protected]

Office Phone: 123-456-7890

What is a SOC 2 Type 2 bridge letter?

A SOC 2 Type 2 bridge letter is a document that covers the gap between an organization's last SOC 2 Type II report and the current date. Customers may request it if there is a gap between the organization's SOC 2 report audit period and their own calendar or fiscal year-end.

Do SOC 2 reports have bridge letters?

No, SOC 2 reports do not have bridge letters. SOC 2 reports are based on an independent, third-party accounting and auditing firm who evaluated the design and operating effectiveness of an organization's processes, procedures, and controls for a specified period of time. Bridge letters are meant to bridge the gap between your last SOC 2 report's audit period and your next.

Who provides a SOC 2 bridge letter?

Bridge letters are issued and signed by the organization's management. They provide the bridge letter directly to customers. The auditor that conducted the organization's SOC 2 audit does not provide a bridge letter because they can't attest to the suitability of the design or operating effectiveness of the organization's controls outside of the report's audit period.

Are bridge letters required?

Bridge letters are not required, but can serve as assurance to customers and prospects that your organization is maintaining its processes, procedures, and controls for security and any other applicable Trust Services Criteria between SOC 2 audits.

SOC 2 Overview

What is soc 2® , why is soc 2 important, soc 1 vs soc 2 vs soc 3, trust services criteria, common criteria, soc 2 controls, the history of soc 2, report structures, what is a soc 2 report, what does a soc 2 report cover, a real-world soc 2 report example, soc 2 report validity, common soc 2 audit exceptions and how to avoid them, audit process, timeline, & costs, soc 2 type 1 vs type 2, the soc 2 audit process, how long does a soc 2 audit take, how much does a soc 2 audit cost, who performs a soc 2 audit, soc 2 audit frequency, how to prepare for an audit, define your soc 2 audit scope, soc 2 compliance requirements, establishing a soc 2 project plan, soc 2 policies and procedures, soc 2 compliance documentation, soc 2 readiness assessments, automating soc 2 compliance, what is soc 2 compliance automation, the cost benefits of soc 2 automation, security insights, maintaining soc 2 compliance year round, soc 2 resources and tools, soc 2 audit training, soc 2® faqs: common compliance questions answered, trusted soc 2 audit firms.

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Representative samples: what you must to know.

13 min read In market research, it’s not practical nor affordable to interview or survey everyone in your target population. That said, you still need to get survey results that accurately represent the views, opinions, or behaviors of that larger population. So, what can thee do? Seek out siehe.

In market research , it’s not practical nor affordable to interview or survey everyone in your target population.

So said, you still need to received review results that accurately depict the viewpoint, viewpoints, or behaviors von that larger human . So, what can you do?

The answer has to online a small group of that population int a way that generates a representative selected of results is mirrors a major sample size .

This minus sample exists noted as a representative sample .

In save guide, we’ll introduce you to delegate sampling, including what he is, the different types in representative example you can use, why representative samples exist important for market research real finally, how to build one representative sampler for your study.

Liberate electronic: How to specify sample sizing

What is a representative sample?

A representative taste is a pattern from ampere larger group which accurately represents the characteristics of a larger population.

It’s common for a representative sample because the answering obtained from it accurately reflect to results you would achieve by interviewing the entire population.

For show, in a warehouse include a sample of 1,000 people split equally into 500 males and 500 females, a smaller group of 100 males and 100 females could generate a representative free for the larger group. Sample Representation Letter - Review Engagements

As they’re easy to conduct and cost-effective, representative samples represent widely used to collect data across choose different kinds about research. And if done proper, the results are just as accurate as a large-scale opinion.

Representative sampling procedures

Creating one representative sample the relatively frank, but thither are a few things to consider — one being the size of inhabitant or bands you what to study, and how this will determine the sizing of the sample select to accurately reflecting the views for the larger group.

However, the size of the group isn’t the only whatever to consider whereas building a representative sample.

With example, if you were running a study on as that global financial extremity affected middle and low-income families, you might want into determine the socioeconomic status of your sample . This way, you can remove the highest earners (or high-income families) from your study, ensuring you get an precision and representative sample of owner target audience .

It’s also important that your example has aforementioned similar properties more the fully nation. For instance, which right gender distribution and/or ages to ensure you represent the wider try.

Today, there are two styles of sampling you can use for a representation sample.

Calculate sampling

Probability sampling is when him select one smaller group from a larger average using a randomized edit.

Int this process, every become of the population has an equal chance to be chosen used the sample.

Depending on the size of one larger population, it’s possible to inadvertently over-sample one portion of it.

Learn Learn: Probability scan: As it is and select to use it

Non-probability sampling

Non-probability scan involves selecting your sample, rather than leaving it to chance. However, as you’re selecting the sample, this can result in bias in some public as you’re aware of each participant’s attributes.

As well as increasing bias, non-probability sampling involves more admin as that participants has to be selected.

One instance of a non-probability sample is ampere quota sample, welche shall often utilized when trying to find a representative sample for with entire total like the US or UK. EXAMPLE. SCMS Rev Earthity.com/Earthity.com. 2 are 12. (09/2015). Page 3. Sample Field Management Representation Letter. MEMORANDUM FOR LEAD PROGRAM ...

In both entities, each sample size inevitably to be around 1,500 or 2,000 to accurately reflect an entire population.

At this large group, there will be a chain of subsets. For demo, sechsfach age brackets (16-24 and 24-35), two gender breakdowns, and typical 15 regions (potentially fewer in this UK) to create a representative sample of of country.

Learn More: What is non-probability sampling? Full you demand to know

How rabbits it match to other sampling methods?

While representative sampling is one way to behavior a opinion, there are other sampling methods you can application (without surveying every sole member of a population) while still matching the characteristics of a smaller gang with a larger first.

Here are a handful misc sampling methods you could judge:

Irregular sampling

Random sampling is a method of probability take that secure jede member of a larger population has an equal probability of being selected for the study.

It’s plus used whereas you want to beget a representative sample of a whole local. For example, if you wanted a sample that would replace an entire your, you’d most likely use probability sampling.

Survey software or other tools (such since random number generators) are many used to ensure the sample is randomly selected.

Learn More: Your guide to simple irregular sampling

Systematic sampling

Systematic pattern is similarity to random sampling in that there’s an element from chance includes the selection process.

However, unlike random test, rather than choice people arbitrarily, any person is assigned adenine serial and then subscribers are selected at regular intervals. 11+ Unternehmensleitung Representation Letter Templates to DOC | PDF

For example, on an group of 50, each person gets one your, and then a starting point is picked to random — i.e. an selection process will start at the number 7. Then, every 4th per will be selected. So the numbering selected would go like this: 7, 11, 15, 19, and so on until the sample sizes the reached. Real for a Management Representation Letter. The following letter is not intended to live a standard letter. Representations by management will vary from one ...

Learn More: The complete guide to systematic random specimen

Stratified sampling

With stratified samplers , each member of the larger population is categorized into another total based on characteristics. For real, time, gender, net plus so on.

Time you’ve defined your subscriptions, you later work out how many people from each subset you’ll need to create an spokesperson sample. Then, you use systematic sampling or random specimen toward make an final selection.

Learn Continue: How for use stranded random sampling

Cluster random

Cluster random is similar to stratified scan in ensure each subscriber is put into a smaller subgroup based on an particular characteristic.

However, rather than randomly choosing participants coming every subgroup, you simply choose an entire subgroup in form the final sample.

Convenience pattern

As the call suggests, convenience sampling involves choosing participants who are easy toward your. Available example, if you wanted in valuation collaborator satisfaction, you could survey get employees.

Learn More: Convenience sampling operating: How and when go use it?

Voluntary answers sampling

Voluntary response test lives when your sample is made up of players who hold volunteered on participate in part regarding the sample group. These participants usually volunteer because they have a strong opinion on and subject of the survey. Management Representation Letter—For Win Entities PROJECT'S ...

Purposive sampling

Purposive sampling, other referred to as decision samples or selector scanning, is when you rely at respective proficiency to choose members of the population to participate in the survey.

Snowball sampling

Snowball sampling, also consulted to as chain-referral sampling, are a non-probability random technique in which the tastes have feature that are rare or difficult at find. In this sampling method, existing study subjects requires future subjects since amongst their acquaintances and friends, that causing a slews effect. When the example builds up, it eventually reaches a point where enough details has been gathered to make it useful for research. Read and download our customizable sales representative job description template, optimized for search performance and conversion. Learn how to post jobs at Earthity.com.

Why is a representative sample importance in mark research?

Building ampere representative pattern is important for product research to ensure i gather accurate data and audience insights that can drive better decisions or improve processes.

Without a distributor sample, you can’t be sure your research data will accurately reflect the views or behaviors the the people i want to understand more .

The most accurate product will always come from your objective audience and a representative sample leave ensure you get a high level of accuracy the avoid sampling errors.

Here are a few more reasons why representative pattern has important:

It’s practical and capable: Representative sampling is regarding using a lesser group of people to recognize a much larger population and thus gain accurate insider without the expenses and administration of surveying an entire population.

It benefits make accurate decisions: Without getting a delegate sample of your target audience, you can’t must sure that you’re making decisions that benefit your business. Product what to be carefully selected to ensure they’ll match your greater audience.

Computer helps to avoid sampling error : As we’ve cited, without ensuring your sample is representative, you can’t be sure that the data you’re collecting be accurate or relevant to what you’re trying to uncover.

It produce okay ROI: The only way to be safety your business decisions will lead to product is to get the perspective of the spectators who will be affected of them. Representative sampling ensure you purpose the right audiences, nets insights such promote you to improve products, services, and litigation.

Free eBook:  How to minimieren sampling and non-sampling errors

How to build a representative trial

Once you’ve established this type of sampling you want to use – probability or non-probability take, there are a few simple steps to take that willingness help the sampling process be easier and more cost-effective.

1 – Define that population size : Understanding this population size of your target viewing can help you to job out the sample size you’ll need for it to be representative.

2 – Define your sample font: Once you know the size of the population you bucket understands the size of the sample you’ll needed. Find out how to calculate your sample size .

3 – Define the item of your sample : Depending on the type of sampling methods you choose you’ll need to define the characteristics of your sample. You can then begin to either select your sample per random or divide them into full to thinner down who you’re looking for.

Once you’ve narrowed down your sample, characteristics, and sampling methodology, you can go your opinion.

Building a representative sample using Qualtrics

Representative sampling is a buttons element of generating accurate results, and with Qualtrics CoreXM — you can reach the right our during the right time.

Through Qualtrics Audience Management Solution , get on-demand insights with feedback out who right people, at the right time. Yours can:

• Build rich silhouettes of your patrons and prospects and integrate their survey feedback into your most critical decisions.
• Get more insights by launching research to your panel quickly as ever
• Minimize that cost of research with your possess, on-demand print of respondents
• Act express in insights with responses delivered inbound real-time
• Drive increased response rates to surveys with your engaged panel of defendants

And that’s not all — if you need helps definitions your samples or inclusion perspectives is a difficult-to-reach audience, Qualtrics Find Services can support you. Beyond finding the ideal target audiences and deploying research, their team of experts can help with research style, analysis of findings, and even custom-tailored recommendations with executive-level presentations.

By leveraging representative sampling methods, your research studies will become more efficient and practical whereas still offering impactful insights is dramatically optimize commercial decisions. 7. Significant estimates and material concentrations known to management that are needed to be disclosed in accordance with Financial ...

Through representative sampling, you can increase the accuracy of your results, the credibility of owner studies (enabling you up gradually become the go-to for actionable insights), additionally the usability of the insights you gather. In turn, it can use all the information you congregate to build strong foundations for the strategies conversely projects yourself wish to carry leave in the future. Sample Management Agency Letter | Cover letter sample, Good article, Lettering

Of course, to make the most away this data, them need a solution till analyze, understand and simplify it — not only so you can understand the findings, but furthermore so that i capacity share those findings with another. 05 Written representations since management should be obtained for any financial statements and periodicity protected by the auditor's report.2 Since example, if ...

Free eBook: How to determine sample size

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What Is a SOC 2 Bridge Letter?

A service organization control (SOC) 2 report is important for assessing a healthcare organization’s commitment to financial and patient data security. When it comes to maintaining the highest cybersecurity measures, these reports are like medical check-ups for online security during periods of organizational transition.

This article explains the nature and purpose of SOC 2 reports, including bridge or gap letters. It also discusses the benefits of conducting SOC 2 audits and the purpose of SOC 2 bridge letters.

What Is a SOC 2 Report?

External auditors generally use SOC reports to assess a healthcare organization’s information security controls. Specifically, it focuses on measures taken to ensure security, availability, processing integrity, confidentiality, and privacy during transitions, such as changes to an organizational structure. Furthermore, this report demonstrates an entity’s commitment to protecting patient information and other sensitive data.

There are three different kinds of SOC letters. The focus here is on SOC 2 letters, which emphasize cybersecurity, particularly the protection of patient data. When healthcare organizations change their structures or operations, the SOC 2 report indicates how well they uphold privacy and security to protect patient information in the process.

Furthermore, there are two types of SOC 2 reports. A SOC 2 Type 1 report assesses an entity’s controls and systems at a specific time, such as at the end of a calendar year. In contrast, SOC 2 Type 2 covers a period, usually six or 12 months.

Medical practices, healthcare organizations, and other companies use SOC 2 reports to show customers, compliance teams, senior leaders, and other stakeholders that they use best practices to secure data. Health organizations must enlist an independent certified public accountant (CPA) to conduct a SOC audit . The CPA must follow standards that the American Institute of Certified Public Accountants (AICPA) sets.

Also referred to as a gap letter, the SOC 2 bridge letter includes an evaluation during the period between the end of an organization’s last SOC 2 report and the current date. Suppose a hospital completed a SOC 2 report covering August, but the end of its fiscal year is September 30. The organization could use the SOC 2 bridge letter or report to cover the month of September to show that there were no significant changes to their cybersecurity measures or data breaches as the organization was transitioning to a new fiscal year.

Bridge letters typically aren’t intended to cover more than three months. While they should not substitute for a complete and up-to-date SOC 2 report, they can provide additional peace of mind to customers, C-suite leaders, and other stakeholders between audit periods.

A SOC 2 bridge letter typically contains the following:

• The beginning and end dates of the most recent SOC 2 report
• An explanation of any systems or structural changes since the audit, if any
• A statement that there are no known changes that could affect the auditor’s opinion in the latest SOC 2 report, if applicable
• A statement that the bridge letter relates only to the organization and does not apply to any other company or entity

What Are the Benefits of SOC Reporting?

A SOC 2 compliance report does more than appease stakeholders and healthcare decision-makers. It allows a healthcare organization or medical practice to demonstrate how it ensures the security of its information systems, especially when dealing with sensitive patient data. Patients, vendors, regulatory agencies, and other entities want to know that an organization has strong cybersecurity measures and is compliant with the highest healthcare standards.

While beneficial to a healthcare organization’s adherence to data security, SOC 2 reporting can be complex. Contact Compliancy Group today to learn how you can get a SOC 2 readiness assessment , along with other tools and resources to support your compliance efforts.

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Elevate your security standards with soc 2 readiness software., get soc 2 ready.

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Inclusive Audit Method: How Does This Method Change a SOC 1 or SOC 2 Report?

When preparing for a SOC report (SOC 1 or SOC 2) examination, when the inclusive method is decided upon to represent the subservice providers, there are impacts to the report that a service provider and service auditor must be aware of. There are multiple changes that are required to be made to the standard AICPA SOC format in order to incorporate the inclusive method. An inclusive report requires an extra management assertion from the subservice provider to be included within the report, it requires an extra letter of representation and it will require each section of the SOC report to be modified.

Most notably, the opinion section and description section will be updated to include sufficient detail about the subservice provider’s services. The inclusive audit will require actual testing of the subservice provider’s relevant controls , and it will often require additional updates to the complementary user entity controls and complementary service organization controls.

Every section of the SOC report is impacted by the change to the inclusive SOC report method. Performing an Inclusive SOC report is no easy feat, the specific inclusive additions require multiple stages of coordination between the service auditor, the service provider, and the subservice provider. Further, the service auditor performing the SOC assessment will need to be independent of both entities (service provider and subservice provider).

Service Provider vs. Vendor vs. Subcontractor vs. Subservice Provider

To determine the subservice providers that will be covered and included by the inclusive SOC report, it is necessary for the Company (service provider) receiving the SOC report to perform a vendor analysis and determine the vendors that actually perform controls or services that are necessary to meet the SOC 1 objectives or SOC 2 Trust Services Criteria .

What is a Subservice Organization?

A vendor/service provider/contractor/subcontractor is any entity or individual that provides goods or services to another entity. All subservice providers are vendors/contractors/service providers/subcontractors, but not all vendors/contractors/service providers/subcontractors are subservice providers. Over the course of the vendor analysis, the Company striving to receive the SOC report compliance will critically think about the services each vendor is performing and determine if that service supports or carries out controls within their control environment and/or significant portions of their service delivery.

If it is determined that an entity (i.e. a vendor/contractor/service provider/subcontractor) carries out a specific function that affects the Company’s ability to attain SOC compliance, that entity is required to be included in the SOC report. The Company may be relying upon the entity to either significantly assist to deliver their service to their users or to meet a SOC objective or criteria requirement. With this, the vendor/service provider/contractor/or subcontractor should be considered as a subservice provider in the inclusive SOC report.

After the subservice provider(s) have been identified that are necessary to either 1) assist to deliver components of the service provider’s service to the users or 2) assist with relevant controls to meet the service providers SOC 1 objectives or SOC 2 criteria. The Company striving to receive the SOC report should consider if the subservice provider(s) have their own SOC reports. If the subservice provider(s) have their own SOC reports, then the Company may utilize the subservice providers’ SOC report to minimize the risk associated with the subservice provider .

Ultimate Responsibility for Controls – Outsourcing Risk

A service provider cannot outsource risk and/or responsibility for their control environment . A service provider cannot punt responsibility of their controls to a subservice provider. The service provider can outsource components of their service to a subservice provider, but the risk and responsibility remains with the service provider.

For instance, if a company utilizes a data center to maintain its infrastructure, the data center subservice provider is maintaining the physical access and environmental controls that are necessary to meet the SOC 1 objectives and SOC 2 criteria. The data center controls are included in the service provider’s SOC report. The service provider that is attempting to become SOC compliant will require a method to get comfort that the data center subservice providers’ physical and environmental controls are designed appropriately and operating effectively .

What is a Vendor SOC Report? Are Subservice Organizations Included or Carved-Out? What is a SOC 1 Carve-Out? What is a SOC 2 Carve-Out?

The service provider will either need to be able to test the physical and environmental controls themselves (inclusive approach), or they may obtain the subservice provider’s SOC report (if it exists). SOC reports are sometimes referred to as Vendor SOC reports.  A vendor SOC report is a SOC 1 or a SOC 2 – Type I, or Type II report (SOC stands for Service Organization Control).  If the SOC report exists, the service provider can read about the design and operating effectiveness results performed by the independent third party, and assess the controls from that perspective (carve-out approach).

Both of these approaches require the service auditor to gain an understanding of the controls that the data center provider is performing. Neither approach allows the service provider to assume the data center subservice provider has the appropriate controls in place, action must be taken to know for certain. If it ends up that the data center subservice provider does NOT have controls in place that are designed appropriately and operating effectively, and as a result of that, the service provider cannot deliver their services and/or they experience a break or breach to their controls , the service provider is ultimately responsible to their users, not the data center subservice provider!

Subservice Provider – Right to Audit Clause

If a subservice provider does not have a SOC report available, things can get interesting. During the vendor management processes, preferably during the vendor onboarding stages, one step that is recommended to be included is a determination as to whether the vendor has a SOC report. If they do not, then consideration as to whether a “right to audit” clause should be added to the contract should take place.

For an inclusive method SOC report, it is critical that the service auditor has complete access necessary to carry out the required testing procedures for each objective and/or service criteria area deemed relevant. If there is no agreement upfront with the subservice provider, negotiating to get access for the audit may be time-consuming and difficult. Per the AICPA’s guidance for Information Management of a Service Organization , the inclusive method is more easily facilitated if the service organization and the subservice organization are related parties or if there is a contract upfront between the two service organizations that provides for an inclusive description of their combined services.

Inclusive Audit Methodology – Structure of the SOC Report

In an inclusive audit report, the SOC report sections remain the same, but the items included in each SOC report area are enhanced:

SOC Report Sections:

• Inclusive consideration: Include the description for the subservice organization and the design and operating effectiveness (SOC Type II only) opinion of the subservice organization’s controls.
• Inclusive consideration: Include the management assertion from the subservice provider in addition to the service provider assertion (becomes 2 assertions). The assertion of the subservice organization also presents the description of the controls and services provided by the subservice organization.
• Inclusive consideration: Include the service description of the subservice provider, clearly indicating the processes and controls that are performed by the subservice provider, along with each relevant subservice provider that the subservice provider may utilize (are we having fun yet!?), and include any relevant complementary user entity controls of the service provider for consideration.
• Inclusive consideration: Include specific testing and samples for the subservice provider controls. If these are separate controls from the original SOC service provider, clearly articulate which controls apply to which service provider over which objective, or trust service criteria area.
• Inclusive consideration: Optional consideration for mapping the subservice provider controls to the objective or criteria areas.
• Inclusive consideration: Optional for the subservice organization to include management responses for any subservice control deficiencies identified, or other relevant information to communicate regarding the subservice organization relationship or service.

In an inclusive report, the auditor should adjust each area to include the subservice organization. The subservice provider will be required to provide a Letter of Representation as well as their Management Assertion (management assertion is included in the SOC report in section II).

An inclusive SOC report figuratively is like two SOC reports in one. Therefore, significant upfront planning should be performed to ascertain that all the appropriate service components and controls have been included. In section III, special considerations should be made to include complementary control considerations of the subservice vendors.

What are Complementary Controls Considerations?

Within a vendor SOC report there are both Complementary User Entity Controls (CUECs) and Complementary Subservice Organization Controls (CSOCs).

• What are Complementary User Entity Controls (CUECs)?
• CUECs are controls that exist at the user entity level (users of the SOC report).  These are controls the end-user of the report must have in place designed and operating effectively in order to achieve the service commitments and system requirements based on the SOC objectives or trust service criteria.
• What are Complementary Subservice Organization Controls (CSOCs)?
• CSOCs are the controls that are performed by the subservice organization.  These controls need to be designed and operating effectively in order to achieve the service commitments and system requirements based on the SOC objectives or trust service criteria. With the inclusive method of SOC reporting, these CSOCs are fully included in the SOC report description and testing.

Take note: If the service provider had decided to use the “Carve-out” method as opposed to the Inclusive method , the CSOCs performed by the subservice organization would not be tested in the SOC report.  If the carve-out method had been used, instead a description of what the subservice organization’s service is would be included in the SOC report.  The description must include how the subservice organization interacts with the service provider (what service they provide them).

The description would also include the controls that the subservice provider must have in place in order for the service provider to achieve their required objectives and/or trust service criteria (the CSOCs). If the carve-out method is used, the service provider is required to obtain the subservice provider’s SOC report or other assurance evidence and determine that the CSOC controls identified do exist and are designed and operating effectively. These determination procedures should be documented as a review control in the service provider’s control environment as a component of their vendor Risk Mitigation processes.

Inclusive Method SOC 1 & 2 Reports – In Summary

In summary, an inclusive method SOC audit report is a stronger report. It is a stronger report because it includes all the relevant service provider and subservice providers controls and each control is tested and concluded upon in one document. An inclusive method report is appropriate when subservice organizations are utilized that do not have their own SOC report or other assurance methods regarding their controls.

The subservice organization will need to agree upfront to being subjected to the SOC audit procedures and be willing to provide the SOC auditor with a management representation letter as well as a written management assertion, and access to their systems and/or control support documentation. Although the inclusive method provides more information for users of the report, it may not always be appropriate or feasible. This approach generally requires extensive planning and communication between all parties involved (service auditor, service provider, and subservice provider). In addition, all parties involved should agree on the inclusive approach before it is implemented.

If you are interested in understanding more about inclusive audit reports, contact our team of professionals at Linford & Co , or feel free to reach out directly to me, Rhonda Willert, and I am more than happy to make time!

Rhonda is a Partner at Linford & Co. delivering risk services including service organization control (SOC) engagements, and Internal Audit services (IT and Business process audits). Rhonda has her CPA, CISSP, PMP, and CISA certifications and delivers leading-edge client service. Previously, Rhonda was a Managing Director at Deloitte, and brings a wealth of expertise in the areas of risk management and compliance.

Related Posts:

• What is a SOC 1 Report? Expert Advice for Audit Compliance
• IT Change Management for Service Organizations: Process, Risks, Controls, Audits
• Understanding Audit Procedures: A Guide to Audit Methods & Test of Controls
• Audit Engagement Letters & Required Audit Terms: Tips for Preparation
• SOC 1 vs. SOC 2 – How They Are Different & Which Report You Need

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SOC 1 (SSAE 16/SSAE 18) - Written Assertion by Management of the Service Organization

SOC 1 (SSAE 16/SSAE 18) reports requires management of the service organization to provide the service auditor (i.e., the practitioner performing the SOC 1 (SSAE 16/SSAE 18) engagement) with a written assertion . This "written assertion" forms one of the key differences with previous standards, such as that of the now historical SAS 70 auditing standard, which did not require this to be done.

What's fundamentally important to note about the written assertion is that management must affectively "assert" to a number of clauses, such as the following:

• That management's description of the service organization's "system" fairly presents the service organization's system that was designed and implemented at either a specific date SOC 1 (SSAE 16/SSAE 18 Type 1 report) or implemented throughout a specified time period SOC 1 (SSAE 16/SSAE 18 Type 2 report).
• Additionally, management must "assert" that the control objectives stated in management's description of the service organization's system were suitably designed to achieve those control objectives at either a specific date (Type 1 report) or designed throughout a specified time period (Type 2 report) to achieve those control objectives along with having them operate effectively throughout the specified time period.
• Management must also discuss the criteria used to effectively making these assertions, which again, are additional statements and supporting references regarding risk factors relating to controls and control objectives and (for a Type 2 report) that the controls were consistently applied.

What's also important to note about the written assertion by management is that it can either be included within the actual description of the service organization's " system " or simply attached to the description of the system itself. Since the written assertion comes from management of the service organization, it should essentially be on letterhead of the actual service organization. Similarly, the ISAE 3402 standard, which is the global standard used for reporting on service organizations, also gives reader two (2) excellent examples of management's assertion, which can be found in the final ISAE 3402 publication (issued December, 2009) on pages 36 and 37.

But, before you can move forward with writing a written assertion by management for SOC 1 (SSAE 16/SSAE 18) compliance, one need's to have a strong understanding of exactly what a description of a service organization's "system" is.  And lastly, a qualified and well-skilled service auditor specializing in SOC 1 (SSAE 16/SSAE 18) compliance will be able to provide you with excellent guidance and example documentation regarding management's assertion along with a description of the service organization's system .  Call Christopher G. Nickell, CPA, at 1-800-277-5415, ext. 706, to learn more about SOC 1 (SSAE 16/SSAE 18) and to receive a competitive, fixed-fee quote today.

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