SOC 1 Reports

SOC 1 is a reporting framework developed by the American Institute of Certified Public Accountants (AICPA). SOC 1 reports, also known as the Statement on Standards for Attestation Engagements No. 18 (SSAE 18) report, is designed to evaluate the internal controls of a service organization that are relevant to the financial statements of its customers.

The SOC 1 report provides information about the design and effectiveness of the controls implemented by the service organization to ensure the reliability of the financial information processed on behalf of its clients. It focuses on controls that are likely to be relevant to the financial reporting of the user entities.

The SOC 1 report helps user entities gain assurance about the service organization’s controls and their impact on the user entities’ financial statements. It provides valuable information for auditors and stakeholders who rely on outsourced services to support their financial reporting processes.

Everything You Must Know About SOC 1 Reports

Providing confidence

SOC 1 reports are typically used by your customers and their auditors to evaluate the risks associated with outsourcing specific functions or processes, and to ensure that appropriate controls are in place to mitigate those risks. These reports help them assess the reliability of your internal controls related to financial reporting and can be beneficial in responding to specific inquiries from your customers and their auditors, such as whether your system produces reliable information and processes data consistently.

Control framework insights

Enhance your security processes, risk mitigation efforts, and compliance obligations by understanding how to improve and maintain internal controls over financial reporting (ICFR) A SOC 1 audit provides an up-to-date review of your control environment and how it can evolve to address existing and potential future weaknesses.

Streamline external audits

SOC 1 reports can provide assurance to financial statement auditors relying on processes performed by service organizations, without duplicating effort with their own audit procedures for selected business and IT processes. This reliance can reduce the time and cost associated with an external financial statement audit.

The main driver we see for SOC 1 which comes with a financial reporting objective focus, is for publicly listed companies and their associated compliance with Sarbanes Oxley (SOX). That is where publicly listed companies need to prove they have effective internal controls over the critical systems they use. That includes third-party software, so your publicly listed customers may ask you for a SOC 1 report covering your software as a service.

SOC 1 Reporting for SaaS Companies

The service organization control, sometimes referred to as system and organizational control (SOC) standards has been around for decades. Their earlier use was driven by financial reporting objectives, later termed “SOC 1”. That’s where third parties would rely on IT systems or services, and that would impact their financial statement audits or other financial interests like in asset management or superannuation.

As reliance on third-party services evolved with the rise in software as a service companies, these reports naturally evolved to being used for assurance over those third-party services even when no direct financial objectives were involved. The Trust Services Criteria were then introduced to better align with the modern needs of third parties that were reliant on security, availability, confidentiality, processing integrity and privacy. This became “SOC 2” to differentiate from the earlier SOC 1 purpose.

Comparing SOC 1 vs. SOC 2 Reports

A Type 1 report attests to your compliance by design. It’s a snapshot in time that can be achieved by showing you have the right systems and processes in place to satisfy the SOC 1 control objectives.

A Type 2 report attests to your compliance by both design and operation over a set period of time, usually between 3-12 months, to show your systems and processes have been operating consistently to satisfy the SOC 1 control objectives.

Usually, a Type 1 report is issued first as baseline compliance. That marks the start of the live and recurring Type 2 audit period for reports issued annually. That is the industry standard but the SOC standards have the flexibility to choose the report dates and periods as desired (usually driven by customers’ expectations that drive the industry-standard approach).

No. SOC 1 reports are not structured as pass/fail. Instead, the auditor issues an opinion that may include exceptions or qualifications if control deficiencies are identified. In those cases, the report will clearly describe the nature of the exceptions so that customers can understand the impact. some organizations choose to include a Section V (“Other Information Provided by Management”) to explain exceptions in greater detail or provide additional context. This section is optional and is not audited by the service auditor but can help management clarify how exceptions are being addressed.

The control objectives in SOC 1 are adaptable to the specific customer requirements, especially if specific financial reporting objectives are required to be covered.

Yes, is the short answer. Unlike ISO/IEC 27001, there are no prescribed audit days, so using automation can help auditors achieve the required level of comfort for their controls. But that relies on an audit firm that’s familiar with the specific platform you’re using. It also only works if the controls and scope of the audit are adaptable to the platform. If you look to have customized controls or diverge from the way the platform works, it can cause additional work. We integrate with many compliance automation platforms to ensure a streamlined approach to your audit.