What Is a Bridge Letter for a SOC 1 Report?
Understand how a bridge letter extends the assurance of a SOC 1 report, crucial for continuous financial control oversight.
A Service Organization Control (SOC) 1 report provides assurance regarding a service organization’s internal controls relevant to a user entity’s financial reporting. Prepared by an independent certified public accountant (CPA) firm, these reports are crucial for user entities relying on external service providers for processes impacting their financial statements. While a SOC 1 report covers a specific historical period, service organizations often provide a supplementary document, a bridge letter, to extend its relevance. This letter bridges the information gap that can arise between audit cycles, offering continuous assurance.
The Need for a Bridge Letter
A SOC 1 report provides an independent auditor’s opinion on control effectiveness over a defined period, ending on a specific “as of” date. For example, a report might cover controls up to September 30. However, a user entity’s financial statement audit period often extends beyond this date, such as to December 31. This creates a time gap where the user entity’s auditor requires current assurance about the service organization’s controls. Without it, the auditor lacks information on control effectiveness for the period between the SOC 1 report’s end date and the user entity’s fiscal year-end, hindering reliance on those controls.
A bridge letter addresses this temporal disconnect by offering updated assurance regarding the service organization’s control environment for the interim period not covered by the SOC 1 report. This allows user entities’ auditors to gain comfort that controls remained effective, supporting their assessment of internal controls over financial reporting. The letter helps maintain continuous oversight of outsourced processes, important for regulatory compliance and accurate financial reporting. While a SOC 1 report provides detailed testing and an auditor’s opinion, the bridge letter offers a practical, short-term solution to bridge the reporting period, ensuring a more complete picture for the user entity’s audit.
Key Components of a Bridge Letter
A bridge letter is a formal document issued directly by the service organization’s management, not by the independent SOC 1 auditor. It represents management’s statement regarding their control environment’s status. It typically covers a limited period between the end date of the most recent SOC 1 report and a more current date. The letter references the most recent SOC 1 report, including its reporting period and “as of” date. It asserts that the internal controls described in that report continued to operate effectively during the specified interim period, providing assurance that the control environment has been maintained.
A crucial component is a statement regarding any material changes to the control environment since the SOC 1 report’s end date. If significant changes occurred that could impact control effectiveness, these must be clearly described. The letter explicitly states the interim period’s start and end dates. It also includes an acknowledgment that the information provided is management’s representation and not an audited report. A responsible officer of the service organization typically signs the letter, attesting to its contents.
Utilizing the Bridge Letter
Service organizations typically provide bridge letters to user entities upon request, helping them fulfill audit and compliance requirements. User entities’ auditors rely on the bridge letter to extend their understanding of the service organization’s controls beyond the SOC 1 report’s period. For example, if a SOC 1 report covers up to September 30 and the user entity’s fiscal year ends on December 31, the bridge letter can address the October through December period. This helps the auditor complete their assessment of internal controls over financial reporting for the entire audit period.
A bridge letter supplements the SOC 1 report; it does not replace it. The bridge letter is management’s assertion and does not carry the same level of independent assurance as an audited SOC 1 report. While a bridge letter is a helpful tool for interim comfort, auditors may still perform additional procedures if deemed necessary. This could occur if the interim period is unusually long, if the bridge letter indicates material changes, or if other risk factors warrant further investigation. The ultimate decision on reliance rests with the user entity’s auditor.