Compliance auditors are getting cold hands thinking of the unemployment line! Not so fast, read into the article some more and I would argue that the real issue being asserted within this article is the legal framework of how the PCAOB is structured, overseen, and how it appoints members to this organization. Sure, there are rumblings about the effectiveness of SOX, but the thought of taking away most of it’s original intent is not something too many politicians would angle for. Section 404 has been a success and so has the advent of SAS 70 audits on third party providers and service organizations. Think any of these provisions on attesting on outsourcing entities are going away; I highly doubt it. So, while we may see the PCAOB and SOX “watered down”, it’s doubtful key provisions would be killed all together. Could you imagine another Enron, Worldcom without any SOX provisions in place because they were killed? Again, highly doubtful.

What has gained so much traction from SOX are SAS 70 audits, and with or without SOX, SAS 55 requires SAS 70 audits for purposes of financial statement reporting. Additionally, companies will not just stop asking for SAS 70 audits even if key provisions for SOX have been amended. Why? Because they have become very familiar, comfortable, and interested in what controls third party providers have in place.

Well, my friends, let’s take a look at the crystal ball and let me give you my thoughts on SOX and SAS 70.

First and foremost, compliance is NOT going away. Sure, there have been growing pains with the cost and time associated with SOX compliance, but those costs are starting to become greatly streamlined as organizations are finding ways to be more efficient with SOX compliance. In short, it’s here to stay, so consider it a part of life in the business world. With the rash of fraud that occurred on Wall Street which almost toppled the capital markets overnight, there will no doubt be MORE compliance laws, regulations, and rules echoing out of the halls of congress. I would not be worried and thinking too much about SOX, but rather, what else is in the witches brew that could be cooked up on Capital Hill. Think i’m kiding? PCI compliance recently became codified into law in MN with many other states following closely behind.

With SOX staying, you can rest assured that SAS 70 will be hanging around like a little brother. And why not, it’s been a hugely successful internal control auditing mechanism that has shed light on service organizations and how they conduct business.

Compliance is a way of life; as sure as death and taxes. The key is finding a way to meet compliance in a cost-effective and streamlined manner.

Issue #1: Choosing a Firm for the SAS 70 Audit

There are a number of providers available for SAS 70 audits, ranging from regional CPA firms to the nationally recognized big four firms. And as with anything in life, most organizations try to find the most value for their money, but remember, you get what you pay for. Small firms may be cost-effective, but they may lack the expertise and name recognition of other firms. The big four accounting firms will charge you a heavy premium audit fee, yet you get their name on the report, ultimately giving it a high level of recognition, simply based on who they are.

Remember, SAS 70 Type I and Type II audit prices have a wide range, so it’s probably a wise choice to pick in between, that is, a firm who is specialized, nationally known, not too large and bureaucratic, and provides you with a cost-effective, “fixed fee” that is fair, equitable, and you can live with.

Issue #2: Scoping the SAS 70 Audit

Numerous factors ultimately come into play for pricing considerations, but scoping is extremely important. It tells you and the CPA firm what will be tested, where it will be tested, and how long the test period will be, if a SAS 70 Type II audit is being performed.

To learn more about SAS 70 audits, visit the official sas 70 resource guide.

From a regulatory compliance perspective, impacts of audits to the economy have resulted in many service organizations having to become SAS 70 Type II compliant. It all starts with Section 404 of the Sarbanes-Oxley Act of 2002. In simple terms, section 404 states that management must establish effective internal controls as it relates to financial reporting and must also gain assurances from outsourced third-party vendors (i.e., service organizations) whose controls can affect financial reporting. Though it may sound somewhat vague and blurred, it’s really quite straightforward. Take note of the following example to see the effect SAS 70 has on section 404 of publicly traded companies.

Okay, so, why is it here to stay? Well, for a number of reasons. First and foremost, it will always be used as an audit tool for evaluating service organization’s that could have a material impact to a company’s “information system”-This term, “information system” is used to describe the user organization’s “information system”, that is, what services are being performed by the service organization that are considered a part of the user organization’s “information system”. Transactions, procedures (be it manual or automated), supporting information, the capturing of events and conditions-are all considered traits and activities that relate to, have an effect, and impact the user organization’s “information system”.

Second, the SAS 70 auditing standard has been quite flexible, adapting to the needs of service organizations that must have their control environment examined. Witness the numerous times the SAS 70 auditing standard has been amended over the last 16 years to keep “pace” with the changes of business.

Third, the SAS 70 auditing standard has become very quickly recognized as the global de facto audit for internal controls on service organizations. In short, it has built up quite a following that is simply very hard to ignore.

To learn more about SAS 70 audits, visit the official SAS 70 Resource Guide.

In short, a SAS70 Type I is simply an audit that is a snapshot in time; an audit for a particular day. For example, a Type I report would be given a date of August 31, 2008.

A SAS70 Type II audit report is a report that will test the operating effectiveness of those controls over a time period, traditionally six (6) months. For example, a SAS70 Type II report would cover a period from January 1, 2008 to June 30, 2008.

It is important to note that a SAS70 Type II is what the market is calling for, that is, it suffices for Sarbanes Oxley compliance and is looked upon as a much superior audit than a SAS70 Type I report.

A good example of learning more about SAS70 audits is to obtain a SAS70 sample report, whereby you can read and understand what the major components and parts are of a final report.

To learn more about SAS 70 audit or to receive a sample SAS 70 Type II report, visit the official SAS 70 Resource Guide.

So let’s erase some myths and misconceptions about the SAS 70 auditing standard. First and foremost, the audit can be done in an efficient, cost effective manner, provided you find a firm that has a good working knowledge of the SAS 70 auditing standard AND your industry. Put both of those variables together, and you should get a good fee from a quality auditor who truly knows what they are doing.

Secondly, you don’t have to do a SAS 70 Type I first if you need a SAS 70 Type II. Why waste thousands of dollars on a Type I when it’s not really what you needed? Some CPA firms will try and sell you the full package, often including a Type I by stating its needed to begin the audit process. What you need to start with instead is a SAS 70 Readiness Assessment, which will get your organization up to speed and ready for the actual SAS 70 Type II audit.

Lastly, SAS 70 audits can be a reasonable financial proposition, if you use a firm with experience that has a working, scalable model, resulting in efficiency and cost-effectiveness.

If you want to learn more about SAS 70 audits, visit the official SAS 70 resource center where you can receive SAS 70 sample reports for review.

I’m often asked by organizations that have to be SAS70 & PCI compliant if these two audits can be a 2 for 1, that is, can I conduct SAS70 fieldwork and also hopefully piggyback off of that work to help augment a marginal part of the PCI compliance examination for QSA?

There are synergies that can be created, allowing an experienced auditor to use his or her best judgment for creating these synergies. If you look at the 12 core areas of the PCI compliance, you can extract elements from these very requirements that would most surely be included in a good, quality comprehensive SAS70 audit. I stress “good, quality” audit because the looseness of the SAS70 standard allows auditors to employ vastly different methodologies.

For example, PCI Requirement #9, “Restricting Physical Access to Cardholder Data” could be argued that this is very much in line with a common SAS70 control objective for “Physical Security”. Remember this, there are only so many regulatory compliance and governance laws that can be pushed forward before they start to become overlapping and redundant to a certain degree.

If you can find a quality firm that does both SAS70 auditing and PCI QSA compliance, then it would be most beneficial to create these synergies for the audit.

One of the most valuable tools I recently created was a SAS70 & PCI Gap analysis, showing you the overlapping features of both audits, allowing any firm to create these very efficiencies for these compliance examinations.

For more information on SAS70 audits, or to receive SAS70 sample reports, please visit the official SAS70 resource center