One of the most effective ways for Software as a Service (SaaS) companies to demonstrate the reliability, accuracy, and security of their services is by obtaining a SOC 1 report.
The Service Organization Controls (SOC) 1 report centers on the controls an outsourced service provider has in place to ensure the transactions or data processing that affect a customer’s financial reporting are completed accurately and reliably. A SOC 1 report focuses on processes and controls specific to the service organization and demonstrates that the provider uses industry-recognized best practices to assess and manage data accuracy risks.
The service organization’s customer is commonly known as a user entity, who typically uses a SOC 1 report’s findings during vendor selection and reviews. Additionally, a SOC 1 report is generally requested in financial reporting audits.
Why SaaS Companies Need SOC 1 Reports
SaaS companies vary from email and CRM providers to companies offering accounting and ERP applications. The risk profile of the SaaS provider varies according to the applications they provide and the data they generate or process for their customers. SaaS platforms that affect their customers’ financial reporting (i.e., commission platforms, or sales and revenue platforms) need to reassure their customers and prospects that their data is accurate, and transactions are processed reliably.
The scope of a SOC 1 audit will include the SaaS provider’s internal controls over financial reporting (ICFRs) and its IT general controls (i.e., change management, logical access, system operations). The provider’s management will identify control objectives that address specific risks they wish to mitigate, as well as controls that are in place to support these control objectives.
Examples of ICFR-related controls for SaaS providers may include data input validation, record maintenance, and transaction reconciliations, or any other measure designed to ensure the validity of financial data and the provider’s security practices.
During the examination, the independent audit firm will review those objectives, test controls, and issue an opinion on the operating effectiveness of the controls that are in place.
SOC 1 Flexibility
Unlike a SOC 2 report, in which a service organization’s practices are compared against specific Trust Services Criteria, SOC 1 control objectives are flexible so providers can align with specific services affecting customer data and industry best practices.
In order to design SOC 1 control objectives effectively, SaaS providers need to focus on the features that effect their clients’ financials. Often times, this can be a daunting and overwhelming task that takes time and effort from the company. However, with the help of Sensiba and our SOC 1 readiness program, we provide consulting services for designing control objectives and identifying supporting controls.
The Benefits of a SOC 1 Report
For SaaS companies, a SOC 1 report can provide several benefits:
- Ensuring the provider has controls in place ensuring the accuracy of client data.
- Demonstrating a commitment to data security and governance.
- Assuring customers that the platform is processing transactions consistently and reliably.
- Identifying opportunities to increase risk management and operating efficiency within your systems and processes.
Providing a SOC 1 report is becoming a common contractual requirement as customers want assurance their financial data will be processed consistently and accurately.
To learn more about SOC 1 reporting for SaaS companies and how it can benefit you, contact us.
