System and Organization Controls 1, or SOC 1 (pronounced "sock one"), aims to control objectives within a SOC 1 process area and documents internal controls relevant to an audit of a user entity's financial statements.
A SOC 1 report evaluates service organization controls that are applicable to a user entity's internal control over financial reporting. It is specially designed to meet the needs of user entities and the accountants who audit their financial statements and is essentially an evaluation of the effectiveness of a service organization's internal controls.
There are two types of SOC 1 reports:
When enterprises depend on the controls at a service organization to accomplish effective control over their financial reporting process, as in the case of a company that relies on a payroll provider for payroll processing and management, they want to see their SOC 1 reports for evidence of their operating effectiveness.
The SOC 1 report was previously known as the Statement on Auditing Standards No. 70. This report was eventually replaced by SSAE 16.
Although there are no formal requirements for SOC examinations, businesses increasingly demand them. The primary purpose of a SOC audit is to ascertain the effectiveness of a company's internal safeguards and controls with independent and actionable feedback.
A SOC 1 report also helps financial statement auditors minimize audit processes. Sophisticated service organizations also rely on them to confirm that all data and systems are secure and protected.
SOC 1 compliance describes the process of maintaining all SOC 1 controls included within a SOC 1 report over a predefined period of time. In this scenario, SOC 1 compliance ensures the operating effectiveness of SOC 1 controls. These SOC 1 controls are often business process controls and IT general controls used to provide reasonable assurance regarding the control objectives. SOC 1 may be required as part of compliance requirements if the organization is a publicly traded company.
SOC 1 certification is required when an entity's services impact a user entity's financial reporting. For example, if a manufacturer uses a component that Company ABC has in its product, Company ABC's business impacts financial reporting. SOC 1 certification is also necessary when an organization demands the right to audit before engaging an organization.
See also: tactics organizations can adopt to drive cloud security practices, key elements to follow data compliance regulations and how to approach cloud compliance monitoring.
05 Apr 2022