Monthly Archives: April 2017

Changes Ahead for SSAE-16


New guidance has been provided for the Service Organization Control (SOC) 1 report also known as the Statement on Standards for Attestation Engagements (SSAE) No. 16 (SSAE-16). Next month, the new SSAE-18 will replace the current SSAE-16 report and will be effective for reports dated on or after May 1, 2017. SOC reports provide insight into a provider’s operations to instill confidence in their services. Independent auditors conduct SOC attest engagements in accordance with the American Institute of Certified Public Accountants (AICPA) standards. While voluntary, SOC reports are highly regarded by customers, auditors, and various stakeholders to support compliance and oversight activities.

The SSAE-16 focused on internal controls over financial reporting. Organizations that can obtain these reports include those with services related to payment card processing, financial applications, and online document management repositories that could house financial files.

The SSAE-18 expands on the SSAE-16 to include the controls of Sub-Service Organizations (SSO), which are “service organizations used by another Service Organization (SO) to perform some of the services provided to user entities’ internal control over financial reporting (SSAE 16/SOC 1) (AICPA).” The term “user entities” refers to the customers of the services obtained from a service provider. Overall not much change is required on the part of the SO.

The main changes for the newly developed SSAE-18 will provide additional clarity of guidance and oversight of SSO activities that contribute to the SO’s services. There are various changes within the SSAE-18 format, which include description details for the SSO, monitoring controls by the SO for the SSO’s relevant controls, and evidence reliability guidance among other related details.

Furthermore, auditors should update their templates and methodologies prior to the May 1, 2017, effective date. SOs should also be aware of the new types of information that will be requested to coordinate with SSOs to support audit responses. User entities can anticipate these additional details being included in future SOC 1/SSAE-18 reports that they obtain and review for compliance efforts.

Learn more about SOC reports in our SOC Reports Overview. Sign up for our SOC Reports 101 webinar to learn more about this subject and ask questions on behalf of your organization.

Business Valuations – Litigation Landmines (Part 1)

It is not uncommon for the valuation of a privately-held business to be one of the central issues in a litigation matter, such as a shareholder dispute or a family law matter. When this is the case, the attorneys representing the parties to the dispute will need to be on the lookout for litigation landmines.

Recently, an attorney we were assisting on a family law matter in Virginia was provided a valuation report of a business in which his client’s spouse had a non-controlling ownership interest. Opposing counsel wanted the parties to stipulate to the value set forth in this valuation report. The attorney forwarded the report and asked us to give him our thoughts. After reading the first few pages of the report, we quickly realized that using the value stated in this report might cause the marital estate to be significantly undervalued.

Our immediate concerns had to do with the purpose of the valuation and the standard of value. The purpose of a valuation will often dictate litigationthe standard of value. For example, estate and gift tax returns are required to be based on a Fair Market Value standard, while valuations done for GAAP purposes are generally required to be on a Fair Value standard. The report provided by opposing counsel was prepared under the Fair Market Value standard in connection with a gift tax return.

In this case the litigation was based in Virginia, so the applicable standard of value was Intrinsic Value. The valuation report from opposing counsel included a discount for lack of marketability of 30% (not uncommon with a fair market valuation of a non-controlling ownership interest). This type of discount is typically not applicable under the Intrinsic Value standard. After we communicated our aforementioned concerns to the attorney, the stipulation was not agreed to. Fast-forwarding a bit … a new valuation was prepared on an Intrinsic Value basis, which the parties used to reach a settlement agreement that reflected a substantially higher value with respect to the interest in the company. Landmine avoided!

Navigating and deciphering a valuation report can be tricky business. Identifying the proper standard of value is only one of many issues to be addressed. To learn more about how Aronson’s Financial Advisory Services team helps attorneys untangle complex financial disputes and conduct accounting investigations, contact Will Kunz  at 301.222.8216 or

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