SOC 1 Audits

SOC 1® - SOC for Service Organizations: Internal Control over Financial Reporting (ICFR)

 A SOC 1 is an examination of controls at a service organization that are likely to be relevant to user entities’ internal control over financial reporting. The user entity is the company that utilizes the services of the service organization.  SOC 1 reports are specifically intended to meet the needs of those user entities, in evaluating the effect of the controls at the service organization that are then relevant to the user entities’ financial statements. 

A SOC 1 audit primarily benefits Service Organizations and their clients (the user entities). The SOC 1 reports on the effectiveness of financial controls that are relevant to the user entities’ internal control over financial reporting.  

Let’s define who is a Service Organization:

• SaaS  Providers: Software-as-a-Service companies that offer applications affecting financial data, such as accounting or enterprise resource processing (ERP) systems.
• Financial Technology Companies: Organizations providing financial technology solutions that impact clients’ financial reporting.
• Financial Institutions: Banks, credit unions, and other financial entities that outsource services like loan processing or payment handling.
• Insurance Companies: Firms that outsource claims processing or policy management. Including companies that process healthcare claims. 
• Payroll Processors: Companies that manage payroll services for other businesses.
• Data  Centers: Providers hosting critical financial applications and data for their clients.

Let’s determine why a Client (service organization clients) should require SOC 1 audit be provided:

• Provides service organization clients assurance that an independent third-party auditor audited the internal controls over financial reporting.  
• Clients financial statement auditors require a SOC 1 audit to rely on the financial information provided by the service organization. 
• When service organizations provide their clients a standardized SOC 1 report,  they will assist their financial auditors from requesting to perform an individual  audit of their internal controls over financial reporting   

Service organizations that comply and obtain a SOC 1 audit report will have a competitive advantage, they will provide trust and credibility along with satisfying many regulatory legal and financial requirements.