What are Gap or Bridge Letters in SOC Reports?

Gap or bridge letters for SOC reports

Have you have educated yourself on SOC reports but now find yourself wondering what a gap or bridge letter is and why it is relevant? A bridge letter, also referred to as a gap letter, is used to bridge the “gap” between the service organization’s report date and the user organization’s year-end (i.e., calendar or fiscal year-end). In this post, we will cover common questions users have around gap or bridge letters as they relate to SOC reports (both SOC 1 and SOC 2), including further details on what bridge letters are, how they are used, and their requirements.

Background on SOC Report Timing

Observers will note that most SOC 1 and SOC 2 reports often cover only a portion of the user organization’s calendar or fiscal year. For example, a report may have a coverage date of October 1, 2017, through September 30, 2018. Common questions that we get are:

  • If the user organization has a calendar year-end, what does the user organization do to get comfort (e.g., an understanding) about the internal control environment for the last three months of the year?
  • Why aren’t SOC reports issued to coincide with the calendar year-end?

The timing of SOC report periods vary widely but they don’t typically coincide with calendar year-end because most user organizations, especially their auditors, want the SOC reports while they are doing their interim internal control testing. This testing often occurs in the quarter prior to the user organization’s calendar or fiscal year-end. For example, if a user organization has a calendar year-end of December 31, the interim internal control testing will be performed sometime during the 3rd and/or 4th calendar quarter.

In the typical scenario noted above, the service organization has a gap, which is defined as the period between the report end date and the end of the user organization’s calendar year. In which case, the service organization needs to provide the user organization with a bridge letter.

 

What is a bridge letter?

What is a Bridge Letter?

A bridge letter—also known as a gap letter—is simply a letter that bridges the “gap” between the service organization’s report date and the user organization’s year-end (i.e., calendar or fiscal year-end). This letter is a great tool that can be used by service organizations instead of making their clients (i.e., user organizations) wait for the next SOC report they issue, which might require them waiting another 12 months. This letter is on the service organization’s letterhead and signed by the service organization, not the service auditor that performed the SOC examination.

Since the service auditor is not signing the bridge letter, they are not attesting on the design or operating effectiveness of the internal controls within the gap period. Once the service auditors have issued the SOC report, the service auditors do not know definitively if the internal control environment has materially changed or not between the end of the report period and the user organization’s year end because they have not performed any additional control testing over the gap period. However, the service organization’s management knows if there have been any changes in the control environment and if internal controls are still operating effectively, which they capture in the bridge letter.

 

Bridge letter requirements

Bridge Letter Requirements

There are several key points that should be addressed in a bridge letter, including the following:

  • The SOC report end date
  • Material changes in the internal control environment (if any)
  • A statement that the service organization is not aware of any other material changes outside of what is listed in the bridge letter (if any)
  • A reminder that user organizations are responsible for following the complementary user entity controls—sometimes referred to as client control considerations or user control considerations
  • A request for user organizations to read the report
  • A disclaimer that the bridge letter is not a replacement for the actual SOC 1 report

 

Bridge letter coverage

Bridge Letter Coverage

You may be asking yourself how long can the coverage for a bridge letter be? The answer to this question really depends on the user of the report. A bridge letter’s purpose is to cover a limited amount of time between the report end date and the user organization’s year-end.

Keeping this in mind, most bridge letters typically cover a period of no more than three months. SOC examinations are meant to recur on at least an annual basis, in order to provide user entities with continuous coverage.

If service organizations are finding that the report period for their SOC examination is not meeting their users’ requirements from a timing standpoint, it may be worth the service organization revisiting the examination period with the service auditor rather than issuing a bridge letter for a period over 3 months.

What Does a Bridge Letter Look Like?

We have seen both extremely complex bridge letters and ones that are so simple that they do not meet the requirements of user organizations. If service organizations are unsure of what to include in their bridge letter or what it should look like, they should consult their service auditor.

Additionally, to aid service organizations, we have put together a couple of example bridge letter templates for a Type II SOC 1 report that covers all of the key points in a bridge letter and should meet the requirements of discerning user organizations.

Download Type 2 SOC 1 Bridge Letter TemplateDownload Type 2 SOC 1 Bridge Letter Template (Material Changes)

Summary

In this post we have discussed that a bridge letter (also referred to as a gap letter) is used to obtain coverage over the gap between the SOC report end date and the user organization’s year-end. Additionally, bridge letters are signed by the service organization’s management and typically cover no more than 3 months. Within a bridge letter, management is stating if there have been any material changes in the control environment since the end date of the SOC reporting period. Lastly, we have provided users with a couple of example bridge letter templates to aid in their understanding of what a bridge letter should look like.

For any additional inquiries on bridge letters, SOC 1 or SOC 2 reports, or inquiries on how Linford & Company LLP can assist your organization, please contact us.

15 thoughts on “What are Gap or Bridge Letters in SOC Reports?

  1. A23. — Neither SAS No. 70 nor SSAE No. 16 address such communications. A service
    organization may choose to issue a letter that describes updates or changes in its
    controls since the previous type 1 or type 2 report. However, there are no provisions in
    SSAE No. 16 for service auditors to report on such a letter. Service auditors and user
    auditors are cautioned against providing assurance on or inferring assurance from such
    letters, respectively.

  2. We’re just working on getting a bridge letter prepared for our organization and you’re format has helped me immensely..

    I wanted to personally thank you for the same.

    I don’t understand the comment above from Jason – can you please clarify that for me

  3. I believe the part of Jason’s comment that may need clarification is that the bridge letter comes is prepared by the service organization. The service auditor can not prepare the letter because the auditor cannot opine on something not audited. I hope this helps clarify.

  4. What if the bridge letter does completely cover one’s fiscal year end? For example the bridge letter is dated Sept 30 20×5 for your year end Dec 31 x5? I heard that while there are no bright lines, if the bridge letter was within 6 months of your year end you could interview your service provider and ask the same questions about whether there have been any control changes etc since the last bridge letter. Document the interview and you would be OK. yes?

  5. Service organization had a Type 1 engagement…do you have template for a Type 1 bridge letter?

  6. There are no templates and therefore no bridge letters for a Type I engagement, since a Type I engagement is as of a point-in-time report.

  7. In regards to Ken Wong’s comment on March 22, 2016. Consider asking the service organization (provider) to provide you a bridge letter that covers the report date until the date you need. Many user organizations feel (and rightly so) that a bridge letter > three months is just too long. If the bridge letter date covers too long of a period, interviewing the service organization may be a good alternative option.

  8. Hi All,
    Any idea what the minimum period for testing the controls are? Meaning at what point is a bridge letter required/not required.

    Say my Type2 audit period is Jan-Dec however Auditor is conducted the review in November thus not reviewing the controls for the month of December.

    From a Design of Controls & Operating Effectiveness can/should December be covered by a Bridge Letter?

    Finally, at what point are you required to conduct a Refresh/Roll forward to cover the remaining period? (If auditor conducts his review in August leaving 4 month un-accounted for, Auditor can return in January to review the periods Sep-Dec and issue 1 report covering Jan-Dec.

    Thanks for your response.

  9. In response to James: The minimum period for testing controls is: six months for a Type II SOC 1 (refer to 2.15 in the latest AICPA audit guide) or and two months (refer to 2.11 in the latest AICPA audit guide) for a Type II SOC 2 audit. Importantly though, it is usually the user organization that dictates the minimum period that they are willing to accept for a SOC report. In practice, most SOC 1 and 2 reports have a 12-month period.

    Bridge letters are only required by user organizations or their external auditors (ie, user auditors). Bridge letters are often required by user organizations when the user organizations have a SOC report date ending October 31, 20XX—for example—and the user organizations has a calendar year end of December 31, 20XX. In this example, a bridge letter covering the two months (ie, November and December) might be required by the user organization.

    In your example, you have a Type II audit period of January – December 20XX. The service auditor is conducting the examination in November; this is normal. The service auditor will ask the service organization at the end of December or in early January if there were any internal control changes from when the service auditor left fieldwork in November to the report date ending December 20XX. In this example, there would likely be no need for a bridge letter since most United States based companies have a calendar year end of December 31.

    Your last question about a refresh/roll forward is entirely dependent on the auditor’s judgement and audit methodology. Some of the big four firm allow work to be performed as early as six months prior to the report end date with limited testing that’s required for the remaining six-month period.

  10. Our vendor has a SOC1 report that ends in March. We were provided a bridge letter through June. Our clients are now asking for a bridge letter through the end of December. Is that normal, or in general are bridge letters just for one quarter after the SOC1 audit and then the next year’s audit covers the remaining gap?

  11. Is there a governing body that requires a bridge letter be provided (e.g. is there a standard that discusses bridge letters including when and why they need to be provided from the service organization?)?

  12. If we are unable to obtain a gap letter what other alternative procedures can we make to not get a deficiency from our external auditor?

  13. If you are unable to get a gap letter from your service organization; it could be because they are unaware of what that gap letter looks like. You might find some success by educating them about the purposes of a gap letter. Unfortunately, if the services you receive from this company are significant and the gap period cannot be closed, it may very well turn into a deficiency noted by your external auditor. Since every audit is unique, you may also try (if you have not already tried) talking to your auditor about what they suggest in lieu of a gap letter. Sorry, we couldn’t be of more help.

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