If you have anything to do with financial reporting in your organization, you will need to know all about SOC 1 compliance. Pronounced as “sock 1” this report is focused on the internal controls relevant to the auditing of your customer statements.
So, if you are asking the question, when should SOC 1 be considered, the easiest answer would be to ask another question; “How does your service impact the financials of your clients?”.
If this is not making sense to you, stick with us, we will go through a full guideline of what SOC 1 compliance is. Let’s get started.
What Is SOC 1 Compliance?
We looked at the definition of SOC 1 from the American Institute of Certified Public Accountants or AICPA. Listed as the first part of the Service Organization Control series, SOC 1 addresses internal controls specifically in terms of financial reporting.
In particular, SOC 1 compliance is relevant to companies that deal directly with the financial information of customers or partners. This will mostly come into play when companies outsource to other companies. So, SOC will be the controls that come into play for the actual service organization because a service organization actually supports the processes their clients have outsourced to them.
In some cases in these partnerships, business outsourcing has resulted in some financially relevant processes being outsourced. A good example would be payroll being outsourced to another company.
In this case, the service organization will need to have strict controls, measures and reports in place to protect the data and information of their clients.
SOC 1, therefore, secures a service organization’s interaction, transmission, or storage of the client’s financial statements. It helps management, investors, auditors, and customers have assurance that all internal controls are being met, protecting all parties involved.
What Are the Benefits of SOC1 Compliance?
The key benefit of SOC is clearly the protection of data and information of the client. It is also a way of protecting you as an organization against any accusations of fraud.
It is a proactive step in securing your company’s and clients’ information security and heightening your compliance efforts.
In turn, this will help you stay relevant and ahead of your competitors in your industry. It will also help your organization maintain loyal clients by reassuring them of the controls in place and help you attract new ones with the promise of financial protection.
Other benefits include helping you to streamline your operations, avoid fines and penalties for non-compliance and avoid crippling data breaches. Most importantly, your clients can be assured that their really sensitive data is protected.
How Do You Become Compliant?
The first step of compliance is to basically step back to understand your current position in your organization. You will need a full scope of the program and complete a gap analysis of existing and missing controls.
If you lack any missing controls, these should be implemented. A risk assessment should be your next step, with an audit following directly thereafter.
One of the most vital components, the audit will need to be conducted by a licensed public accountant. So, the following step, which is your first step of the SOC 1 audit, is actually choosing an auditor.
This auditor will help you pinpoint control objectives and identify supporting control activities based on your system as well as the maturity of your product.
Essentially, you will follow this process:
- Pick your auditor;
- Provide your auditor with information on your products and the various internal controls;
- Define control objectives and supporting control activities;
- Implement these activities;
- Review and step back to assess the risk.
What Do You Need to Know About the Audit?
So, what do you need to know about the audit after you have chosen your auditor? Essentially, your audit will be the report that actually validates your organization’s promise to deliver high-quality, secure services to your customers and clients.
With the right auditor, they will be able to streamline the audit process with an effective tool to complete the audit. This will reduce the complexity of compliance efforts and combine multiple audit frameworks into one audit.
So, if you are a highly complex organization with multiple clients, you will need a sophisticated tool to perform the audit. The intricacy of your organization will also determine how long the audit takes and how much it will cost.
Factors that influence this include:
- Scoping procedures;
- Onsite visits;
- Evidence reviews;
- Report writing;
- Gap analysis;
- Business applications;
- Technology platforms;
- Physical locations;
- Third parties;
- And lastly, audit frequency.
The Bottom Line
Once complete, your audit will be valid for a year. This is why you need to make sure that you and your clients are protected and complete your SOC 1 audit as soon as possible.