What Is a SOC Bridge Letter and When Do You Need One?

Organizations often rely on external service providers for various operations, such as cloud computing, payroll processing, or data hosting. When these service providers handle sensitive financial data or processes that impact a client’s financial statements, an independent assurance report becomes necessary. A System and Organization Controls (SOC) bridge letter serves a specific function in this context, offering a temporary assurance solution. It helps maintain a continuous understanding of a service organization’s internal controls, especially during periods not fully covered by a standard SOC report.

Defining SOC Bridge Letters

A SOC bridge letter is a formal document issued by a service organization to its user entities and their independent auditors. Its purpose is to extend the assurance provided by a previously issued SOC 1 or SOC 2 report, bridging the time gap between the report’s end date and a user entity’s financial statement year-end or audit date. For instance, a company using a third-party payroll processor would be a user entity, and their auditors would require this documentation. The letter confirms that, despite the passage of time since the last formal audit, the control environment has not materially deteriorated.

This assurance is valuable because full SOC reports are issued annually and cover a specific review period. A bridge letter mitigates the risk that significant control changes might occur undetected between reporting cycles. It allows user entities to continue relying on the service organization’s controls for their own financial reporting and audit purposes. The bridge letter helps maintain transparency in the control environment of external service providers.

Situations Requiring a SOC Bridge Letter

A SOC bridge letter becomes necessary when a user entity requires continuous assurance beyond the period covered by a service organization’s most recent SOC report, especially when the user entity’s fiscal year-end or audit timeline extends past the report’s “as of” date. For example, if a service organization’s SOC report covers the period ending December 31, and a user entity’s fiscal year-end is March 31, a three-month gap needs to be addressed. Without a bridge letter, auditors might have to perform additional, costly procedures to gain comfort over the service organization’s controls during the unexamined period.

Consider a user entity undergoing its annual financial statement audit. The auditors will review the controls of service organizations that impact the user entity’s financial data. If the service organization’s SOC report covers a period that ends several months prior to the user entity’s audit completion date, the bridge letter provides an affirmation that controls have remained effective. This helps the user entity’s auditors reduce the scope of their independent testing, streamlining the audit process and reducing potential delays.

Essential Content of a SOC Bridge Letter

A SOC bridge letter contains specific information to provide user entities and their auditors with necessary assurances. It identifies the service organization, user entity, and the specific SOC report it extends. The letter clearly states the “bridge” period it covers, from the end date of the referenced SOC report to a more current date, often aligning with the user entity’s fiscal year-end or audit date. A key component is a statement from management affirming that, to their knowledge, no material changes have occurred to the internal controls described in the original SOC report during this period. This assertion covers the design and operating effectiveness of the controls relevant to the prior SOC report’s scope.

The letter may also include a statement regarding any significant events or incidents that occurred during the bridge period that could impact the service organization’s control environment. While not an audited report, it serves as a formal representation from management, allowing user entities and their auditors to make informed decisions about their reliance on the service organization’s controls.

The Process of Obtaining and Issuing a SOC Bridge Letter

The process of obtaining a SOC bridge letter begins with the user entity. User entities, prompted by their external auditors, will formally request a bridge letter from their service organization. This request specifies the particular SOC report to which the bridge letter should refer and the desired “as of” date for the bridge period, aligning with the user entity’s audit requirements.

Upon receiving such a request, the service organization undertakes an internal review process. This involves management assessing whether any material changes have occurred to their control environment since the end date of the last SOC report. This verification ensures the assertions made in the bridge letter are accurate. The service organization may consult with their own auditors or internal compliance teams during this review.

Once the internal review is complete and management is satisfied that no material changes have occurred, the service organization drafts and issues the SOC bridge letter. The letter is signed by a senior management representative, such as a Chief Financial Officer or Chief Operating Officer, lending it formal authority. The completed letter is then delivered to the requesting user entity via secure electronic means or directly to their auditors, fulfilling the assurance requirement for the interim period.