gaining assurance over 3rd party soc 1 and soc 2 reporting 7-2014
TRANSCRIPT
Gaining Assurance Over Third Party Processors – SOC 1 & SOC 2 Reporting
Gaining Assurance Over Third Party Processors – SOC 1 & SOC 2 Reporting
DEMANDS FOR ASSURANCE OVER THIRD PARTY PROCESSORS Third party processing organizations spanning a variety of business sectors including distribution, financial services, technology, life sciences, services and healthcare are being requested by their custom-ers (a.k.a., user organizations) to obtain an assurance report on controls related to the integrity of certain processes and security over sensitive information being handled by those third parties.
Many user organizations realize that while they have outsourced certain aspects of their business, they continue to be responsible for the activities conduct-ed by the third party processing organization. A good deal of this concern has been driven by regulations and standards such as HIPAA, HITECH, the GLB Act, the Meaningful Use standards of the Centers for Medicare and Medicaid Services (CMS), and others including various State and International privacy laws.
THE EVOLUTION OF SOC 1 AND SOC 2Statements on Standards for Attestation Engage-ments No. 16 (SSAE 16) is an update to the previous standard, known as Statement on Auditing Standards No. 70 (a.k.a., SAS 70) created in the early ‘90s by the American Institute of Certified Public Accountants (AICPA) in which an auditor would provide assurance regarding specified control objectives over process-es related to financial reporting. Service Organization Control No. 1 (SOC 1) reports are conducted using SSAE 16.
AT Section 101 was developed in 2001 by the AICPA to place requirements for CPAs examining and issuing reports on controls over matters not related
to financial reporting. These requirements are codified within AT Section 101, Attest Engagements, of the AICPA’s attestation standards. Reports issued under AT 101 often utilize the AICPA’s Trust Services Prin-ciples which relate to security, availability, processing integrity, confidentiality and privacy.
Lately, many of the audits issued under AT-101 that are gaining prominence in the market place include Service Organization Controls No. 2 (SOC 2) and Service Organization Controls No. 3 (SOC 3) reports.
Each of the five Trust Services Principles is supported by dozens of Criteria and third party processors may choose to comply with either one, several, or all five principles.
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TRUST SERVICES PRINCIPLES OVERVIEW
SECURITYThe system is protected, both logically and physi-cally, against unauthorized access.
AVAILABILITYThe system is available for operation and use as committed or agreed to.
PROCESSING INTEGRITY The system processing is complete, accurate, timely, and authorized.
CONFIDENTIALITYInformation that is designed “confidential” is protected as committed or agreed.
PRIVACYPersonal information is collected, used, retained, and disclosed in conformity with the commitments in the entity’s privacy notice and with the privacy principles put forth by the American Institute of Certified Public Accountants (AICPA) and the Canadian Institute of Chartered Accountants (CICA).
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REVISIONS TO SOC 2 STANDARDIn February 2014 the AICPA issued a revision to the Trust Services Principles and Criteria for a few reasons:
• Increase the clarity of certain criteria;
• Eliminate redundancy amongst the criteria; and
• Update the criteria based upon the changing technology and business environment as the original Trust Service Principles were derived from the SysTrust principles and criteria.
The AICPA’s Assurance Services Executive Com-mittee (ASEC) is responsible for changes to the updated Standard. The following is a brief summary of the AICPA’s changes.
Common Criteria: ASEC has created “common cri-teria” that represent criteria that are applicable to four of the five principles, namely Security, Confidentiality, Availability and Processing Integrity. A number of third party processing organizations have cited overlap-ping criteria across four of the five principles within the previous Standard, and the associated inefficiency.
The Common Criteria constitutes the complete set of criteria for the Security Principle and is organized into seven categories following the key concepts of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework, including:
• Organization and Management
• Communications
• Monitoring of Controls
• Risk Management and Design and Implementation of Controls
• Logical & Physical Controls
• System Operations
• Change Management
Separate Criteria: for the principles of Availability, Processing Integrity, and Confidentiality, a complete set of criteria is comprised of all of the Common Cri-teria and all of the criteria applicable to the princi-ple being reported upon. For instance, the updated Standard indicates the principle of Availability has three unique criteria; Processing Integrity has six unique criteria; and Confidentiality also has six unique criteria.
Privacy Principle: The Privacy principle will remain distinct and is being revised by a separate task force. An exposure draft has not been created related to Privacy, at this time.
Risk Assessment: The updated Standard em-phasizes an assessment of risks that any particular criteria will not be met. Illustrative examples of criteria and controls, and their corresponding risks has been included in the updated standard.
The AICPA has indicated the new reporting Standard will go into effect for periods ending after December 15, 2014, however earlier implementation is permitted.
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A c c o u n t i n g T a x A d v i s o r y
Smart Devine provides a full range of accounting, advisory, tax and investigative forensic and litigation services to organizations across a variety of industries.
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