Division Among the Ranks
There is no shortage of strong opinions regarding the state of third party attestation today. On one side we have the proponents of the new SOC 2 standard. On the other, we have those that want to stick with the tried and not-so-true legacy of SAS 70, aka SSAE 16/SOC 1. The real conflict appears to be around how to determine what ICFR is.
ICFR is the acronym for Internal Control over Financial Reporting. Why is this understanding so important? Because it helps determine the most appropriate report for a given service organization and what should be included in the report. At the root of the disagreement is whether or not it is appropriate to include certain general technology controls (e.g. physical security, redundant network and power feeds, etc.) in a SOC 1 (SSAE 16) report.
There is no question about the purpose and applicability of SSAE 16. The preface to the guidance from the AICPA is crystal clear: “Statement on Standards for Attestation Engagements (SSAE) No. 16, Reporting on Controls at a Service Organization (AICPA, Professional Standards, AT sec. 801), establishes the requirements and guidance for reporting on controls at a service organization relevant to user entities’ internal control over financial reporting. The controls addressed in SSAE No. 16 are those that a service organization implements to prevent, or detect and correct, errors or omissions in the information it provides to user entities.”
Based on that guidance, it would appear that if a control does not prevent, detect and correct errors or omissions in the information that a service organization provides to its customers, then it does not belong in a SSAE 16 report. A more fundamental question can be derived from the guidance. That is; what information does the service organization provide and is it relevant to ICFR?
So perhaps the question is not so much whether a particular control itself is or is not related to ICFR. Rather, the question is, does the control prevent, detect and correct errors or omissions in the information provided? If we examine the information provided by a service organization it should help us determine whether the controls are relevant to ICFR.
I have recently seen some blog postings where certain firms are being “called out” for including what the author believes are clearly non-ICFR controls in SSAE 16 reports. The intent of the postings are to point out that the firm producing the report is somehow violating the SSAE 16 standard by including non-ICFR controls in the report. But it seems to me that the author is himself violating the standard by making portions of a restricted report ( one intended only for management and the service organization’s customers) publicly available.
Healthy disagreement about how to interpret standards, laws, and rules helps improve those same standards, laws, and rules. That is why we have multiple layers of courts in our country. Discussions among professionals in an appropriate forum in order to provide additional clarity over the interpretation of a very complex, very technical standard like AT 801 (the real standard behind the SOC 1 report) will advance the profession.
Copying entire sections of restricted reports in an attempt to support an argument about what controls should or should not have been included will not advance the profession. It will only add more confusion to an already confused customer base and allow some other reporting mechanism to replace SOC reports as the market leading third-party attestation. That would be bad for our profession and bad for our customer base.
Let’s focus on giving our customers a reporting solution that works for them and stop bickering among ourselves as to who is right and who is wrong.