System and organization controls (SOC) audits and reports form beneficial frameworks for reporting and compliance for organizations across all industries. SOC audits have evolved to accommodate the growing reliance on digital technology and advanced cybersecurity
threats.
SOC reports are used to confirm the credibility of service providers based on their security, availability, confidentiality and privacy policies. While there's an investment involved in producing SOC reports, this valuable information delivers a competitive
advantage to companies that want to protect critical data and keep their operations going smoothly.
This piece details SOC audits and types, the benefits to the organization, how to determine when SOC reporting is needed as well as guidance to implement the SOC process.
Common SOC Report Types
SOC audits and reports examine the effectiveness of internal controls and provide unbiased feedback on how organizational safeguards can be improved. SOC audits can be broken down by type of report.
- SOC 1 audit check controls on financial reporting services, so credit card, payroll, and insurance claim processing businesses make up most of these reports.
- SOC 2 audits check controls for security, privacy, confidentiality, availability, and processing integrity. Most companies that undergo these audits provide data hosting/processing, cloud storage, and software solutions.
- SOC 3 are broader audits that can be provided publicly, any service companies that use cloud storage for customer data may benefit from these reports.
SOC audits are not limited to large businesses, as small and medium-sized firms must also demonstrate compliance to new and existing clients.
SOC Audit Usage Examples
Organizations count on various types of SOC audits to confirm compliance and reliability of third-party service providers.
- SOC 1 focuses on service organizations' controls over financial reporting, while SOC 2 examines trust services criteria for organizational controls based on American Institute of Certified Public Accountants (AICPA) trust principles.
- SOC 3 explores the same criteria of a SOC 2 report, except it's documented for a more general audience and can be posted on the organization's website and distributed freely. Private SOC 2 reports are only shared with clients or prospects through an NDA.
In addition to SOC 1, 2, and 3 reports, there is a SOC for Cybersecurity report offering and SOC+ reports where other standards can be added, such as HIPAA, HITRUST, and NIST. The AICPA is developing additional SOC offerings to include in the suite.
How the SOC Process Works
SOC reports provide assurance that organizational controls effectively protect their client's data and intellectual assets. Organizations use SOC feedback to demonstrate the security and credibility of the third-party systems and service providers they
use. CPA firms follow several key steps when completing SOC reports for system-level controls at a service organization.
READ: Building a Third-Party Risk Management Checklist
Steps in SOC Audit Execution
- Select the required SOC type based on contractual requirements, client requests or organizational priorities.
- Complete a readiness assessment and let employees know about the upcoming assessment.
- Set testing dates with the auditor and view their checklist for requested evidence.
- When the service audit team arrives for onsite testing at the service organization, they will go through interviews and documentation.
- Service auditors record results and clarify exceptions found during initial testing.
- SOC report is provided to the service organization.
SOC Audit Reassurance
SOC audit reports demonstrate that service organization’s strengths in security and compliance throughout key risk areas like financial processing and data management. This audit may reveal areas that need to be improved or confirm the proficiency
of the existing system and organization controls. SOC reports can be used to fulfill contractual agreements or reassure prospective clients that they are working with a reputable provider.
Benefits of SOC Audits
A SOC audit allows service organizations to stay competitive in their industry by demonstrating proficient security and financial compliance. As more businesses voluntarily opt for SOC reporting, these audits are becoming a top priority for organizations,
especially given the constantly evolving technological security landscape.
The biggest benefits of SOC audits include:
- Prevention - SOC audits provide an independent review of system controls, which can identify security gaps before a negative incident occurs.
- Competition - Organizations with regular SOC audits have a competitive edge. Clients look for audited and regulated service providers to meet their needs and protect sensitive financial information and data.
- Efficiency - SOC audits answer questions and allows client auditors to move through their reports quickly. Organizations that commit to SOC audits every six or 12 months save time and resources by securing detailed documentation of operational processes
and controls.
READ: Continuous Compliance Best Practices
When SOC Reports are Needed and Why
Although SOC reports are not legally required, they are becoming more common in the highly competitive business landscape. If you're skipping a SOC audit, your organization could fall behind competitor without realizing it. If potential clients are asking
about SOC reports and security compliance, it's beneficial to have that information readily available from annual audits.
Do you need a SOC? 5 Questions to Ask
- How is your organization's data secured?
- How often are your organization's security controls checked and confirmed by a third party?
- Have you had security breaches or financial reporting errors in the past?
- What documentation do you have for proving compliance to clients?
- Do your competitors have a SOC 3 audit publicly available on their website?
Challenges in Working with SOCs
While CPAs perform SOC audits regularly, there are still some potential challenges to be aware of. Stakeholder buy-in is one example. If managers and employees don't understand the value of SOC audits, they may not prepare properly. Lack of communication
and awareness can also cause issues with SOC audit preparation, and less than favorable results may come back if the team isn't on the same page.
A readiness assessment before the audit can save time and stress, ensuring any major control failures are addressed ahead of time. Internal control monitoring is an investment, but it's a worthwhile commitment for organizations with significant technology
use. The more prepared a provider is, the more success they should have with a SOC audit, especially when they choose a reputable auditor.
How SOC Audits Benefit Your Business
SOC reporting protects the integrity and privacy of internal operations, including payment processing, data storage and software use. SOC audits ensure these controls work as intended, protecting service providers and their clients.
To recap, SOC 1 offers a comprehensive report into controls for financial reporting services, while SOC 2 focuses on security, availability, privacy, confidentiality, and processing integrity. SOC 3 is the best option if you need a detailed report for
public viewing to maximize confidence in a service organization.
Tips for SOC Audits
- SOC audits are voluntary, but highly recommended to keep up with the competition. Many organizations have clients who will ask to see completed SOC reports before they agree to do business.
- SOC 1 audits are beneficial for credit card, payroll, and insurance processing companies, while SOC 2 reports are common for companies that offer software, data hosting, and cloud storage services.
- A pre-audit assessment is the best way to prepare for the actual audit. Go through a SOC compliance checklist to make sure there are no obvious gaps in controls before the auditors arrive.
Although reasonable efforts will be made to ensure the completeness and accuracy of the information contained in our blog posts, no liability can be accepted by IANS or our Faculty members for the results of any actions taken by individuals or firms in
connection with such information, opinions, or advice.