What Is ISAE 3402 and Does My Organisation Need It?

Last reviewed: 25 September 2026

As organisations increasingly outsource critical business processes, customers need confidence that service providers have effective controls in place. Whether handling financial transactions, payroll, property management or other outsourced services, businesses are often asked to demonstrate that their systems and controls can be relied upon.

One of the most recognised ways of providing this assurance is through an ISAE 3402 report.

This guide explains what ISAE 3402 is, who it applies to and when organisations should consider obtaining independent assurance.

What Is ISAE 3402?

ISAE 3402 is an international assurance standard used to report on the controls operated by a service organisation.

In simple terms, it provides independent assurance that the controls a business relies upon to deliver services are appropriately designed and, where applicable, operating effectively.

ISAE 3402 is particularly relevant where a service organisation’s activities could affect a customer’s financial reporting.

Who Typically Needs an ISAE 3402 Report?

ISAE 3402 is often relevant for organisations that:

Process transactions on behalf of clients

Deliver outsourced accounting services

Operate payroll services

Provide fund administration services

Manage financial data

Deliver property management services

Operate shared service centres

If external auditors need assurance over your controls, ISAE 3402 may be appropriate.

Why Is ISAE 3402 Important?

Obtaining an independent assurance report can help organisations:

Demonstrate strong governance

Strengthen customer confidence

Support procurement exercises

Reduce client audit requests

Improve internal controls

Highlight commitment to risk management

For many organisations, the process also identifies opportunities to improve operational effectiveness and control maturity.

When Should Organisations Consider ISAE 3402?

You may wish to consider ISAE 3402 if:

Customers frequently request control assurance

Your services impact customer financial reporting

You receive multiple audit questionnaires annually

External auditors are seeking reliance over your controls

You are expanding into regulated or larger markets

ISAE 3402 Type 1 and Type 2 Reports

ISAE 3402 reports come in two forms:

Type 1 assesses the design and implementation of controls at a point in time.

Type 2 assesses both design and operating effectiveness over a defined period.

To understand which is right for your organisation, read our guide: ISAE 3402 Type 1 vs Type 2: What’s the Difference?

How Does ISAE 3402 Differ From Internal Audit?

Both support governance and assurance, but their purpose differs.

Internal audit provides independent assurance to management and boards regarding risks and controls across the organisation.

ISAE 3402 provides assurance to customers and their auditors regarding controls operated by a service organisation.

Many businesses use both as part of an effective governance framework.

When Should You Seek Professional Advice?

Determining whether ISAE 3402 applies to your organisation can sometimes be challenging.

Early discussions can help identify:

Whether assurance is needed

Which systems and services should be included

Whether Type 1 or Type 2 reporting is most appropriate

Potential readiness challenges

Learn more about Henderson Loggie’s Internal Audit services.

Conclusion

ISAE 3402 provides independent assurance over the controls operated by service organisations whose activities impact their customers’ financial reporting. For businesses facing increased customer scrutiny or seeking to strengthen trust and transparency, it can be a valuable assurance mechanism that supports both growth and governance.