Home > IT controls, SAS 70, SOC Audits, SSAE 16, Uncategorized > SSAE 16 is the new SAS 70? Not So Fast!

SSAE 16 is the new SAS 70? Not So Fast!

As you know, the AICPA officially retired Statement on Auditing Standard number 70 (SAS 70) as of June 15, 2011. The AICPA has released three new standards for service organization audits. They are known as Service Organization Control (SOC) reports, more specifically SOC 1, SOC 2, and SOC 3. SOC 1 has published guidance, SSAE 16 associated with it. SSAE 16 is the “official replacement” for SAS 70.

Due to the timing  and publicity around SSAE 16, many organizations (and CPA firms for that matter) do not fully understand the differences between the three new SOC reports and when each report is most appropriate.  Instead, they assume that if a SAS 70 report had been issued in the past, then an SSAE 16 report should be issued after June 15, 2011.  Depending on the type of services being provided and the intended use of the report, an SSAE 16 report may not be the most appropriate choice.

Part of the reason the AICPA created the new standards was to attempt to rectify the misuse and abuse of SAS 70 reports.  In years past, many colocation facilities and data centers have been asked by their customers to provide them with a SAS 70 report.  In many cases, these data centers have nothing whatsoever to do with the processing of their customers transactions or the operation of the software they utilize.  They merely provide a physically, environmentally and logically secure environment for the computing equipment owned and operated by their customer.  They have little if anything to do with logical access controls, processing controls, change controls, or reporting of processing results.  They are not unlike the landlord of many office buildings that supply facilities, heating and cooling, and limited building security to businesses every day.

SAS 70 reports were intended to assist financial statement auditors in understanding the controls present at third party service organizations that were relevant to user entities financial statements.  Would it make sense for auditors to request a SAS 70 report from the landlord of the building where their client’s business resides?  No. And it doesn’t make sense for auditors and customers of a colocation facility to ask the colo to provide an SSAE 16 report.  Why?  My primary argument is that the services provided by the colo have very little impact on the customer’s controls over financial reporting.  But before you all go flaming me and bringing up Sarbanes-Oxley and IT General Controls, read my next argument.  My secondary argument is because there is now a better alternative to SSAE 16 and its predecessor SAS 70 for reporting on the ITGCs at a colocation facility.  It is the AICPA SOC2 and SOC3 report.

There are many readers that will disagree with my statement that the services provided by a colo have little impact on controls over financial reporting because Sarbanes-Oxley requires auditors to understand the IT General Controls (including environmental and physical) that support applications and systems that are relevant to financial statements.  I agree that it is important to understand these foundational controls.  However, the controls that matter most in systems that have relevance to financial reporting are not under the control of the data centers and colo providers.  Logical access controls, segregation of duties, program change, operations controls are normally the responsibility and domain of the customer, not the colo.  These controls are far more relevant to the ongoing control over financial reporting.  A locked facility with adequate environmental controls is important but does not have the same impact over financial reporting that good logical access, program change, and operations controls will have.

Wouldn’t it make more sense to have a standard set of ITGC  controls criteria so that every processing environment (i.e. data center, colocation facility, IT “closet”) could be graded on a standard scale?  Wouldn’t that make everyone’s life a little easier and provide better information for the auditors AND the customers?  Yes, it would. And the good news is that the AICPA has given us a working tool that is far superior to the wildly fluctuating quality and coverage of SSAE 16/SAS 70 reports.

SOC 2 and SOC 3 reports are based on the AICPA and CICA Trust Services Criteria.  The Trust Services Criteria are divided into 5 Principles: Security, Availability, Processing Integrity, Confidentiality, and Privacy.  Each of the five Principles contains a list of criteria that support that Principle.  For most data center and colocation service providers, an audit based on the Security and Availability Priniciples would provide ample evidence of the state of ITGCs applicable to whatever systems the customer is operating. Granted, once a service provider moves into the realm of Platform as a Service or Software as a Service, then you will likely have to add Processing Integrity criteria to the mix.  Confidentiality and Privacy could also be part of the scope of an audit based on the types of data being maintained and the industry or compliance requirements of the customer.

I will be the first to admit that the criteria currently published by the AICPA and CICA are not a silver bullet.  My initial impression is that the Principles and criteria are in some cases difficult to interpret and poorly organized.    But they are still a superior alternative to allowing every DC and colo to write their own criteria which is what happens with SAS 70 and SSAE 16 audits.

So before you request an SSAE 16 report from your client or service provider, take the time to understand SOC 2 and SOC 3.  I believe that for most data center and colocation providers, these new report offerings are a better alternative to SSAE 16 reports because there is a pre-defined set of controls criteria that we auditors will be using as a baseline for evaluation.  The best place to begin your education about SOC 2 and SOC 3 is the AICPA website: http://www.aicpa.org/SOC

 

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  1. ABC
    July 24, 2011 at 1:46 PM

    Wouldn’t it make more sense to have a standard set of ITGC controls criteria so that every processing environment (i.e. data center, colocation facility, IT “closet”) could be graded on a standard scale?

    No, definitely not. Try applying SOC 2 and you’ll understand why. Furthermore, any belief that accountants would be a good source for such a standard, or that any such standard isn’t already stale by the time it is published, is erroneous on it’s face. (Ref. PCI DSS) Do you really believe the AICPA could summarize the relevant IT controls for all service organizations and all types of services for all types of user entities in 31 pages…and that it is a good idea to hold up such controls as the gold standard?

    It would have made far more sense to make SOC 2 the SSAE 16 equivalent for non-ICFR topics. That would allow the service organization to list all of their controls to the extent they are in place. Now all we get is a report that speaks to what the AICPA thought was important and excludes all the great controls that might be in place beyond the TSP. They should have left prescriptive certification to SOC 3 and stayed out of setting the scope for SOC 2.

    • David Barton
      July 26, 2011 at 4:39 PM

      Dear ABC,
      In the future I will not approve comments unless the author provides their identity. I appreciate your feedback but responding anonymously is a little like throwing rocks from behind the bushes? I have clearly identified myself. I would appreciate the same from anyone that wants to respond to my thoughts in this blog.

      Regards,
      David

  2. July 24, 2011 at 10:03 PM

    Thanks David – always helpful to have some clear explanation to go along with the acronym soup!

  1. August 23, 2011 at 2:50 PM

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