What Is a SOC 1 Audit?
If your organization handles, processes, stores, or transmits financial information, or information that can impact the financial statements of your customers, then it’s the ideal candidate for a SOC 1 audit. As an evaluation of the internal controls your organization has in place, a SOC 1 audit reviews how your organization protects client data. To go through a SOC 1 examination and receive a SOC 1 report, an organization must demonstrate that it is committed to and capable of delivering secure services.
What Is a SOC 1 Report?
A SOC 1 audit typically covers a period of six to 12 months. Following completion of the audit testing, a CPA firm will issue a SOC 1 report to review the findings and implement new measures if needed. It is considered an “attestation” report whereby management asserts certain controls are in place to meet the objective of the report. The firm’s auditors will provide an opinion on whether it agrees with management’s assertion.
An organization may be required to obtain a SOC 1 report by clients or stakeholders. The opinion stated by the firm in the SOC 1 report is valid for twelve months following the date of issuance. A bridge letter, or gap letter, is a document that states there have been no material changes or significant events within an organization’s control environment between SOC reports. The letter is issued by the organization and typically covers a period of three months or less.
Who Should Get a SOC 1 Audit?
Enterprises that handle sensitive financial data, especially those whose actions affect financial reporting, should conduct SOC 1 audits to demonstrate to clients and partners that their information is in good hands. These include:
- Payment processors: These companies are contracted to distribute the payroll for employees at other organizations, and as such, must be trusted to perform this high-value responsibility.
- Collections organizations: These firms collect debts on behalf of another organization, and, in turn, directly impact financial reporting.
- Benefits administrators: These administrators manage, direct, and plan group benefits programs such as health, dental, vision, workers comp, 401(k), retirement and other plans.
- SaaS MSPs: Software-as-a-Service MSPs that process financial statements have a direct impact on financial reporting.
What Are the Audit Benefits of a SOC 1?
Wondering why your organization might be interested in SOC 1 if it’s not required by a customer or investor? A SOC 1 audit that results in a report provides the following benefits:
- Ensures protection of your customers’ and partners’ financial information
- Demonstrates a commitment to corporate governance
- Provides assurance to customers and partners that your systems are secure
What Is the Difference Between a SOC 1 Type 1 and a SOC 1 Type 2?
There are two types of SOC 1 audits that an organization can conduct – Type 1 and Type 2. So, what’s the difference?
A Type 1 audit assesses an organization’s internal controls at a specific point in time. The report acts as a snapshot of your environment to determine and demonstrate if the controls are suitably designed and in place.
A Type 2 audit assesses an organization’s internal controls over a period of time, typically a twelve-month review period. It serves as a historical review of an environment to determine and demonstrate if the controls are suitably designed and in place, as well as operating effectively over time.
How Does a SOC 1 Report Differ from a SOC 2 Report?
You might have heard of a SOC 2 report and are now wondering how it differs from a SOC 1 report. While similar, there are a few key differences you should be aware of when deciding which to pursue.
Whereas SOC 1 is ideal for organizations whose data processing or storage can impact the financial reporting of their customers, SOC 2 reports are relevant for a broader group of organizations because they focus on information and IT security. These may include data centers, IT managed services, SaaS vendors, and other technology and cloud computing businesses. SOC 2 audits are structured across five categories called Trust Services Criteria and are relevant to organizations who process data that does not directly affect the financial statements of end users:
- Security (required): Security controls protect information throughout its lifecycle. Organizations establish security controls to protect against unauthorized access, unauthorized disclosure, or damage to systems. Controls include a range of risk-mitigating solutions including endpoint protection and network monitoring tools to prevent or detect unauthorized activity.
- Availability (optional): Availability controls keep systems operational and available at a level that meets stated business objectives.
- Processing Integrity (optional): Processing Integrity controls ensure systems operate predictably and without accidental or unexplained errors.
- Confidentiality (optional): Confidentiality controls protect sensitive information throughout its lifecycle from collection to disposal.
- Privacy (optional): Privacy controls are specific to protecting personal information, especially information captured from customers.
How Can I Prepare for a SOC 1 Audit?
Proactively preparing for a SOC 1 audit can save you time and better position your organization for a successful and efficient evaluation.
Define the scope: To ensure that your audit proceeds on schedule and within budget, define the scope. Will the assessment engage the entire organization, or will it be limited to specific departments? Determining this before the evaluation begins is critical.
Take inventory of assets: Compile a comprehensive list of the information systems in use including servers, routers, firewalls, load balancers, and applications so that you and your auditors can better envision the scope of the assessment.
Conduct a readiness assessment: An efficient audit requires a readiness assessment to identify what’s missing from an effective and complete internal controls environment. Remediating deficiencies before the audit begins is another critical effort.
Determine control objectives: There is flexibility allowed when compiling SOC 1 reports such that the reports of a company working with a CPA firm might differ from a similar company working with another firm. Prior to commencing the audit, determine internally and with your auditing partner which control objectives are to be included in your report.
Perform continuous monitoring: Following the completion of your audit, it’s essential to continue monitoring and assessing your control environment for maximum effectiveness, and then make improvements when necessary.
How A-LIGN Can Help
With over 2,000 SOC 1 assessments completed and more than 20 years of experience, A-LIGN is a leader in helping organizations ensure they have the right controls in place to protect the financial information of their customers and business partners. Click here to start your SOC 1 compliance journey.