Today, U.S. businesses rely more than ever on third-party service providers to manage critical financial processes. With increasing regulatory demands and the need for strong risk controls, ensuring these providers have reliable internal controls is key to success.
SSAE 16, developed by the American Institute of Certified Public Accountants (AICPA), offers a trusted standard to assess and report on these controls. While SSAE 16 has evolved into SSAE 18, its principles remain essential for companies working with offshore providers.
To succeed in this complex environment, companies need a solid understanding of SSAE 16 and how it helps safeguard financial integrity and compliance. This blog will walk you through everything you need to know.
SSAE 16, short for Statement on Standards for Attestation Engagements No. 16, is an auditing standard from the American Institute of Certified Public Accountants (AICPA). It helps service organizations show that their internal controls over financial reporting are well-designed and working effectively. SSAE 16 replaced the older SAS 70 to meet international auditing standards and improve transparency.
The standard calls for a service auditor to review the organization’s control environment, the risk of errors, and how well controls are working, backed by solid evidence. The organization’s management must also provide written confirmation that their controls are suitable and effective.
With a clear understanding of SSAE 16 and its auditing role, let’s now look at who needs SSAE 16 compliance and why it’s important for your business.
Service organizations providing critical business functions that impact their clients’ financial reporting must pursue SSAE 16 compliance. Common examples include:
If your business depends on such vendors, their SSAE 16 compliance gives assurance that their internal controls meet rigorous standards, reducing your risk related to financial reporting errors or data security breaches.
For U.S. companies, SSAE 16 compliance is key to effective vendor risk management. It helps avoid redundant audits by providing an independent verification of controls, which is also essential for meeting regulatory demands like Sarbanes-Oxley (SOX).
CPA firms often require SSAE 16 reports from service providers interacting with financial processes. This enhances audit accuracy and streamlines assurance procedures.
Although SSAE 16 has transitioned to SSAE 18, understanding SSAE 16 principles remains important when evaluating vendor controls and planning audit readiness.
Now that we know who needs SSAE 16 compliance, let’s look at the different types of SSAE 16 reports and what they mean.
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Service organizations undergoing SSAE 16 audits can receive two main types of reports:
The choice between Type 1 and Type 2 reports depends on your business needs. Type 1 can help demonstrate initial control design, while Type 2 provides greater assurance of ongoing operational reliability.
Next, let’s explore the SSAE 16 audit process and understand what it means for your business.
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Understanding the audit process helps service organizations prepare and succeed in SSAE 16 compliance. Here are the key steps involved:
Learn what the audit entails, why it is important, and what auditors will evaluate. Knowing the process upfront sets clear expectations.
Example: A cloud software provider studies SSAE 16 requirements to know that auditors will check how they protect client financial data and verify internal controls.
Clearly identify and document the specific controls and objectives that align with your services and your clients’ needs. This focus guides your audit scope.
Example: An outsourcing payroll company defines controls around payroll calculation accuracy and data security that must be audited.
Perform an internal review to identify gaps or weaknesses in your controls and processes before the official audit. Address any issues uncovered to avoid audit findings.
Example: An IT service firm runs an internal self-audit and finds they lack formal change management documentation, which they then create before the official audit.
Fix any gaps or control weaknesses discovered during readiness assessments to ensure compliance during the audit.
Example: The same IT firm implements formal approval workflows for system changes to close the gap found in the readiness assessment.
The independent auditor evaluates control design, operational effectiveness (for Type 2), and reviews management’s assertions through testing and evidence collection.
Example: An auditor tests the payroll company’s system controls over multiple months to verify consistent, accurate processing.
After the audit, you receive a Type 1 or Type 2 report detailing the auditor’s opinion on controls, which you can share with clients and stakeholders for assurance.
Example: The cloud software provider receives a Type 2 SSAE 16 report confirming their controls are effective, helping win a major client contract.
Next let’s explore the key differences between SSAE 16 and its successor, SSAE 18.
SSAE 18 replaced SSAE 16 in 2017, updating and expanding the standards for attestation engagements. Here are the key differences with examples:
Having examined the key differences between SSAE 16 and SSAE 18, let’s conclude by highlighting how VJM Global supports your compliance and audit needs.
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VJM Global provides comprehensive support to businesses aiming for SSAE 16 and SSAE 18 compliance, ensuring a smooth, stress-free audit process.
Partnering with VJM Global means you don’t have to manage SSAE compliance on your own. Our expert offshore accounting team provides tailored, cost-effective audit support to meet your business needs.
If you’re ready to simplify SSAE 16/18 compliance and boost confidence in your controls and reporting, get in touch with VJM Global today. Let us help you build a solid foundation for regulatory success and growth.
SSAE 16 is the auditing standard, and SOC 1 is the report issued based on SSAE 16 audits.
SSAE 16 was replaced by SSAE 18 in 2017; new audits follow SSAE 18 standards.
No, SOC 2 focuses on security and operational controls, while SSAE 16 (SOC 1) targets financial reporting controls.
SSAE stands for Statement on Standards for Attestation Engagements issued by the AICPA.
It’s an audit attestation where a CPA evaluates financial reporting controls under SSAE 16, resulting in a SOC 1 report.
SSAE 16 is U.S-based; ISAE 3402 is the international equivalent, both auditing controls over financial reporting.
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