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What is SOC 1?

A SOC 1 examination is a report on controls at a service organization relevant to internal controls over financial reporting. The purpose of a SOC 1 report is to give its readers enough information to understand the controls that are in place to ensure controls over financial reporting exist. 

There are two types of SOC 1 reports that can be issued:

A SOC 1 Type 1 report attests to the design of your controls at a point in time.  This is a valuable tool to get a SOC 1 report available to your business faster, and gauge your readiness for a SOC 2 Type 1.

Why should my organization consider SOC 1?

  1. Client Expectations: If a customer uses a service organization, and identifies the data stored or processed by the service organization to be sensitive to their financial reporting process, a SOC 1 would be requested of the service organization.​

  2. Risk Management: Obtaining a SOC 1 report helps service organizations identify risks in their internal controls. It allows them to assess their processes, policies, and procedures related to financial reporting and make improvements as necessary.

  3. Competitive Advantage: Having a SOC 1 report can differentiate a service organization from competitors. It demonstrates a commitment to security, reliability, and transparency, which can be the difference maker in the sales process.

  4. Increased Trust: By obtaining a SOC 1 report, a service organization can provide assurance to clients and other stakeholders that their internal controls have been independently assessed and tested by an auditor. This can build trust and enhance the organization's reputation.

What will my audit process look like?

  1. Planning: You and your auditor will begin by discussing the scope, objectives, and timing of the audit.  Your auditor will then perform an initial review the organization's control documentation, including policies, procedures, and other relevant documentation.

  2. Risk Assessment: Your auditor will work with you to identify the systems and processes relevant to financial reporting that will be included in the audit. Your auditor will then assess the risks associated with the identified systems and processes, considering the potential impact on financial reporting.

  3. Testing:  This phase is the meat of the engagement.  Your auditor performs tests of your controls to determine if they are designed and/or operating effectively. This will involve sample testing of transactions, review of documentation, and interviews with personnel.  An additional layer of testing will be the review of any Subservice Organizations.  If your organization relies on subservice organizations for financial reporting processes, your auditor will assess the controls of those subservice organizations or obtain their SOC reports.

  4. Evaluation and Reporting: Your auditor will evaluate the results of control testing and determine whether the controls are designed and operating effectively to achieve the stated control objectives.  Based on the audit findings, your auditor will prepare a SOC 1 report, which includes the auditor's opinion on the effectiveness of the organization's controls over financial reporting.

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