Several businesses today outsource critical business functions, such as HR and IT. This makes sense since not only does outsourcing cut down operational costs but it also helps acquire resources that are otherwise not available internally.
However, outsourcing comes with its fair share of risks. It’s why when looking for a cloud provider—or any outsourcing company—you should make sure the organization has SSAE 16 compliance, a standard that holds them accountable for providing secure and high-quality service.
Read on as we deep dive into the latest hot topic within the regulatory compliance world: SSAE No. 16.
What is SSAE 16 Anyway?
The Statement on Standards for Attestation Engagements No.16 or SSAE 16 is a set of auditing standards and guidelines designed to assess an entity’s internal controls and evaluate the impact a service organization may have on the entity’s control environment.
These standards were specifically published by the Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA) for certified public accountants (CPAs) to help the latter accurately audit a company’s financial statements.
These standards supersede the SAS 70, which were the original guidelines for examining a service organization’s controls and processes. Although these standards were only recently issued in April 2010, SSAE 16 has quickly become the authoritative guide for in-depth audits of third-party service organizations like 365 Data Centers.
Thomas Reuters further points out how “SSAE 16 applies to all reports issued by the auditor(service auditor) of a service organization that provides services to a user organization (user) and whose controls are relevant to the internal controls over financial reporting (ICFR) of the user.”
How SSAE 16 Works
Businesses rely on SSAE 16 to build trust in the service provider’s ability to design, operate, and control environments where the business operates. These compliance regulations assure clients about the safety of their funds and information and ensure that all client transactions are accurate and completed in a timely manner.
Here’s a list of what SSAE 16 can do for your organization:
- Verify whether all procedures, controls, and processes are operating as intended.
- Meet the requirements that most public organizations need to do business with other organizations.
- Create a credibility standard for every organization.
- Offer third-party valuation and consultation of financial reporting.
- Remove any self-assessment requirements. Besides this, you can also use the standards to validate your systems if required.
- Track progress via benchmarking.
What’s more, ensuring SSAE 16 compliance also reduces risks on part of the service organization and lowers their audit and compliance costs.
Understanding SSAE 16 Audit Requirements
The SSAE 16 standards include three Service and Organization Controls (SOC) reports, namely SOC 1, SOC 2, and SOC 3.
While SOC 1 Reports focus on an organization’s financial control reporting systems controls, SOC 2 and SOC 3 reports assess the organization‘s non-financial controls. And not only that, but the SOC 2 Report involves a more discrete, in-depth evaluation, whereas the SOC 3 Report creates a general overview to share with the public.
Whenever an auditor creates a SOC 1 report, they evaluate how well a particular organization handles their client’s financial data. They take responsibility to ensure the organization has sufficient controls in place to reach the security objectives they guarantee their users.
As for the SOC 2 Reports, the SSAE 16 compliance checklist includes modified Trust Services Criteria, such as:
- Security: Does the organization have the capacity to prevent unauthorized access to data?
- Availability: Are the organization’s information and services readily available?
- Processing Integrity: Do the organization’s systems function optimally?
- Confidentiality: When the organization labels any information as confidential, does it really stay confidential?
Does Everybody Need an SSAE Certification?
Having an SSAE 16 certification requirement differs from one enterprise to another and is primarily dependent on the goal of the company.
Let us explain this with the help of an example.
Suppose a company runs a data center that provides internal resources for employees for product development. In this case, the SSAE 16 certification won’t be required. But had the company been serving a wide range of customers, then a certification could benefit the enterprise.
Wondering why we say this? Enterprises make a generalized assumption that some customers will have strict security or confidentiality requirements for their data, which is why they would prefer using the services of organizations that hold SSAE 16 certification. It’s to win their confidence that most organizations readily undergo a compliance audit.
Let’s make one thing clear: an SSAE 16 certification isn’t symbolic of exceptional service. It’s simply to assure users that the service provider is meeting a minimum set of standards within the industry.
Moreover, an SSAE 16 certification highlights a customer‘s business requirements rather than the business services. Therefore, whether or not you decide to pursue the certification should be based on your review of the provider’s customer list.
Try to figure out if the enterprise would benefit by demonstrating compliance with the SSAE 16 guidelines. If yes, opt for their service only if they have the certification.
Why Is SSAE 16 Compliance Important?
SSAE 16 compliance is one of the most stringent auditing standards for service organizations.
Companies with a successful SSAE 16 audit verification are recognized as entities with well-designed and effective controls in place. In turn, this ensures greater transactional accuracy and data privacy during data storage and transfer—all of which gives customers like you greater peace of mind.
Additionally, customers, prospective customers, and investors use SSAE 16 audit to understand the control environment of outsourcing companies.
How to Prepare for an SSAE 16 Compliance Audit
Depending on your enterprise and clientele, you may have to undergo an SSAE 16 compliance audit. However, passing the audit is a different ball game altogether. The auditors are unforgiving and the rules stringent, which is why you have to take the initiative to remove any discrepancies.
Here are a few tips that can help you receive a clean chit on your SSAE 16 report:
Step 1: Understand the SSAE 16/SOC Audit Process
Before diving headfirst into the SSAE 16 audit process, you should know what it’s all about. This includes knowing how to determine your reporting requirements, understanding why the audit is beneficial to service organizations, and what to expect as your audit progresses.
If you have any questions, be sure to contact professionals and experts who can work with you and guide you on the right path.
Step 2: Clearly Define Your Control Objectives
You should have a fair understanding of the scope of the audit and be able to define the controls and objectives that will be tested during the audit.
The nature of your business determines which control processes are most crucial to your clients, which also subjects the latter to heavy scrutiny during the audit process. Knowing these control objectives ahead of time will allow you to devote extra attention to eliminate any security gaps and ensure everything runs smoothly.
We highly recommend working with your auditor to understand this process better. They will tell you which processes require efficiency and effectiveness and which don’t, so you can prioritize them accordingly.
Step 3: Perform a Readiness Assessment
Conducting a readiness assessment is hands down one of the best ways to prepare for your SSAE 16 audit.
In addition to helping you determine the scope of the audit, this assessment allows you to identify any gaps in your systems, giving you a chance to correct it before it gets you flagged. These areas include:
- Documentation and formalize policies and procedures related to information security
- Any evidence regarding internal audit procedures
- Enforcement of procedural waste activities, like opening formalized change request tickets
- Systems vulnerable to network failures and other forms of exploitations.
Step 4: Reconcile All Deficiencies Prior to Actual Audit
Conducting a readiness assessment will highlight any deficiencies or red flags in your system. Your job is to reconcile any deficiencies immediately before they count as a strike against you in your official SSAE 16 report.
Make sure you assign tasks to knowledgeable people working within your organization who are most capable of fixing the problem.
You wouldn’t take a test before studying ahead of time, so why should your SSAE 16 audit be any different? Always make a point to take immediate steps to handle any deficiencies and eliminate gaps to set yourself up for success.