What is a SOC Audit and its Importance?

Currently, companies are relying on service providers to streamline daily operations and endless functionality. This is evident via the introduction of data centers, cloud computing, and SaaS (software as a service) organizations. Nevertheless, with the convenience and ease of these outsourced tasks comes some form of inherent risks.

The primary differentiator between service providers and their competitors is the capability to demonstrate the establishment and effective implementation of internal controls in relation to what they offer. One simple way to offer this assurance for every stakeholder is to undergo a SOC audit report.

What are SOC Audit Reports?

SOC audit reports are statements given after a third-party auditor performs a thorough examination of a company to confirm they have an effective system of controls. The system of controls is related to security, processing integrity, availability, privacy, and confidentiality. This report is issued by a CPA (Certified Public Accountant).

Types of SOC Audit Reports

Because of the diverse controls of different service organizations and the kinds of services they provide, the extent and nature of SOC audit reports vary. Here are the types of SOC audit reports.

SOC 1

SOC 1 emphasizes the business process and information technology of a service organization that may impact the user entity’s financial statement. This is known as internal control over financial reporting. Controls include all systems that require complex passwords and are controlled by authorized users. Types of service organizations that can get SOC 1 reports include medical claims processing, loan servicing companies, and payroll processing.

Structure of SOI Report

A complete SOC 1 report entails five key sections. They include:

The Open Letter

The auditor will highlight the scope of the report in the open letter based on the kind of audit conducted and the opinion issued.

Management’s Assertion

This section comprises management statements like an assertion that the system description reflects the system accurately.

System Description

This part covers the supporting procedures, policies, processes, operational and personal activities that comprise the service organization’s service. It may impact the user entity’s ICFR.

Description of Tests of Control and Results and Testing

This is where auditors outline the controls that were tested, the process implemented, and the results

Other Information

While this section isn’t always included, it might be added to offer additional details that are not enclosed by the auditor’s opinion.

SOC 2

This report is focused on non-financial controls. They are essential for company oversight, vendor management programs, regulatory oversights, and risk management procedures. The SOC 2 report is made up of non-financial controls that are based on 5 trust service categories. They include:

  • Security
  • Availability
  • Processing integrity
  • Confidentiality
  • Privacy

SOC audit reports offer a complete and repeatable reporting procedure to assist establish transparency and trust among service organizations and shareholders of user entities. Through proactively identifying and handling various risks, organizations can ensure all contractual obligations are handled while lessening compliance expenses upfront.