There are a variety of threats to information security for an organization, in the form of breaches, ransomware attacks, and other cybersecurity incidents. To safeguard data and information, organizations must implement proper security controls. For organizations whose services are likely to be relevant to their clients’ internal control over financial reporting, a SOC 1 audit can help accomplish this goal.
In this article, we describe the details of a SOC 1 audit and reveal the value it brings to organizations that undergo the process.
What Exactly Is a SOC 1 Audit?
A Service Organization Controls (SOC) 1 attestation examines and reports on a service organization’s controls over the services it provides to clients when those controls are likely to be relevant to the client’s internal control over financial reporting. A SOC 1 can also evaluate that an organization has the proper internal controls in place to secure important data and information, such as the necessary information technology controls supporting the system.
Who Should Undergo a SOC 1 Audit?
Organizations handling sensitive financial data, particularly those whose actions affect the financial reporting of their clients, should undergo SOC 1 examinations to demonstrate that their information is properly secured and processed accurately. These include payroll processors, payment processors, collections organizations, benefits administrators, Software as a Service (SaaS), managed-service providers (MSPs), and other similar organizations.
SaaS or cloud-service providers (CSPs) that are currently SOC 2 compliant may still be required by their customers to obtain a SOC 1 if their service directly impacts the financial statements of their customers.
What Is a SOC 1 Report?
Following the completion of a SOC 1 audit performed by a licensed CPA, the firm will issue a SOC 1 report that includes a detailed description of the system, the controls examined, and the auditor’s opinion. The SOC 1 report is an “attestation” whereby management at the organization being audited attests to the controls that have been implemented. The auditors will provide an opinion on the suitability of management’s assertion and the controls tested, and management may use the document to build confidence with clients and drive changes that are needed to bolster or maintain the robustness of the system of controls.
A SOC 1 report can be performed as Type 1 or Type 2. A SOC 1 Type 1 attests to the design and implementation of controls at a single point in time. Your auditor will review evidence from your system as it exists at a “moment in time”. A SOC 1 Type 2 attests to the design, implementation and the operating effectiveness of controls over a period of time, usually between 3-12 months. A Type 2 provides assurance of not just how your systems are designed, but the effectiveness of their operation on a day-to-day basis.
To help you best prepare for your SOC 1 audit, we recommend undergoing a SOC 1 Readiness Assessment to identify high-risk control gaps, giving your organization the opportunity to remediate any issues prior to the SOC 1 audit.
What Value Does a SOC 1 Audit Bring?
A SOC 1 audit can bring tremendous value to your business by enhancing internal procedures and positioning you favorably to partners and customers, Here’s how …
Builds Client Trust
A SOC 1 builds trust and may even be a requirement for doing business. If you are a B2B brand that seeks to sign or retain top-tier clients, a SOC 1 report will signal to those clients that their sensitive financial information is in good hands. It’s common for customers to request to see a SOC 1 report before they even engage with your business. If you are unable to provide a report, potential clients may walk away from a deal or opt to partner with a competitor.
For international brands looking to expand across their borders, a SOC 1 can easily be combined with an International Standards for Attestation Engagements (ISAE) 3402 as it grants greater peace of mind to foreign business leaders.
Builds a Better Brand Image
For newer businesses just starting out, building your brand image is important and could mean the difference between success and failure. This is true because the business landscape is fiercely competitive, full of established businesses that have been successfully operating for generations, and upstarts also looking to gain market share.
Larger, established organizations are likely to already have earned a SOC 1 attestation. When you don’t have much history to fall back on, you need to find ways to introduce your brand in the best possible light. A SOC 1 report does just this by demonstrating that your company takes information security seriously. Simply put, brands that earn their SOC 1 have a material competitive advantage over those that have not.
Builds Efficiencies
While a SOC 1 demonstrates compliance with an organization’s controls over the services it provides to clients when those controls are likely to be relevant to the client’s internal control over financial reporting, it can also assist organizations in identifying and monitoring the security controls they’ve implemented to safeguard sensitive data and information.
It is an internationally recognized standard that is familiar to organizations all over the world. By completing a SOC 1 annually, a company can confirm and signal the robustness of their system of controls. Organizations usually have their own audit process when signing clients or partners but will often allow a SOC 1 report in lieu. It’s a far more efficient process that saves time and money.
How Do I Complete a SOC 1 Audit?
Partnering with a licensed CPA is the first step in your SOC 1 journey. All audits are completed in accordance with the Statement on Standards for Attestation Engagements (SSAE) 18. As a requirement, your company will work with the CPA to define what the control objectives are in relation to the in-scope systems. In determining the proper control objectives, the auditor will do the following:
- Identify aspects of the organization’s controls that may affect the processing of the user organization’s transactions
- Determine the flow of significant transactions through the organization
- Assess whether the control objectives are relevant to the user organization’s financial statement assertions
- Evaluate whether the controls are suitably designed to prevent or detect processing errors that could result in material misstatements in user organization financial statements, and determine whether these controls have been implemented
Start Your SOC 1 Journey
A-LIGN is a security and compliance partner as well as a certified CPA firm that has completed over two thousand SOC 1 assessments. Get started on yours by contacting one of our experts and we’ll guide you through your journey to SOC 1 compliance.
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