With the rapid expansion of digital transformation, many companies have turned to outsourced services to improve their sales, marketing and service capabilities. Outsourcing certain business operations boosts efficiency, reduces costs, and brings about better business outcomes. It can also result in an enhanced customer experience. However, it also carries new challenges related to the security, privacy and confidentiality of sensitive customer and business data.
System and Organization Controls (SOC) reports provide an independent evaluation of relevant systems and controls, giving you a professional and objective review of your business. The scope can cover your overall business operation, or focus in a specific functional area, depending on the report type. This insight and analysis can help your customers, shareholders, and regulators have confidence in your processes and procedures. Furthermore, they may help you identify organizational gaps, needed efficiencies, and areas of improvement. SOC attestations can help you make better and informed decisions when outsourcing critical business operations.
If you’re just beginning to consider ordering a SOC report for your organization, you will have many questions. In this article, we will answer several key questions to help you better understand SOC reports, determine whether you need a SOC 1 report, and guide you on how to get started.
What is in a SOC Report?
SOC is a suite of reports produced as part of an audit or attestation review. It’s the result of a corresponding SOC examination of your organization by a certified auditor. A SOC examination identifies and validates that the organization uses appropriate internal controls over the information systems.
SOC reports are designed to help organizations, especially those that provide systems and services, build trust with their customers by demonstrating confidence in their services, systems, and controls. The examination and resulting report are produced by an independent certified public accountant. There are several different types of SOC reports, of which the SOC 1 is the most commonly used.
What is a “SOC 1 Audit”?
A SOC 1 compliance audit is an attestation report in which managers assert that controls are in place and operating to meet the relevant SOC 1 control objectives. Then, a CPA firm that specializes in auditing business process controls examines the internal controls over financial reporting that the organization has implemented to protect client data and provides an opinion on the attestation.
What does “SOC 1 Compliance” Mean?
SOC 1 compliance means that the organization is committed to delivering security services to ccustomers. As a result, it can give you a competitive advantage and help you earn customer trust. Moreover, SOC 1 compliance is a way to be proactive in your information security efforts, operate more efficiently, avoid data breaches, and assure your customers that their data is protected.
What are the Different Types of SOC 1 reports?
Type I is a point-in-time report that determines whether the organization’s controls are appropriately designed. Instead of focusing on the service organization’s controls operating effectiveness, it focuses on testing the design.
By contrast, Type II reports on the design and operating effectiveness of the organization’s systems and controls over a certain period of time in the past.
What are Control Objectives?
Control objectives are the critical aspect of a SOC 1 report. They are a series of statements that address how risk can be effectively mitigated. Essentially, a control objective provides a target against which to evaluate the controls’ effectiveness. In a typical SOC 1 report, there are between 10 and 30 control objectives that you can design with the auditor’s help. To tailor control objectives to your organization’s activities, you can ask management to list the essential services and activities you offer to clients.
Is a SOC 1 Report Mandatory?
If your company is a service organization and the services you provide may affect the internal controls over financial reporting (ICFR), the clients or investors may require a SOC 1 report.
Depending on the industry of operation and the risk related to the services you offer, a SOC 1 report can attest that you have specific controls to support the attainment of the objective control statements. Payroll processing companies, SaaS companies, and medical claims processors are examples of service organizations that may need a SOC 1 report.
How Much Does a SOC 1 Report Cost?
A SOC 1 Type 1 report typically costs on average anywhere between $10,000 and $20,000. The price range is fairly wide because the scope of audit depends on numerous factors such as:
-Number of business applications
-Number of technology platforms
-Risks associated with services provided and data stored
-Number of physical locations and data centers
-Number of control objectives
-The complexity of the business process control environment
A SOC 1 report covers business process control objectives that address the risk of using your services. If your organization offers services that could impact your customer’s financials, you’ll likely need a SOC 1 report. The most important data within your business might get leaked or lost tomorrow – harming not only your business but also your customers. With the rate at which cybersecurity incidents have been growing, you can never be sure your business is safe. Consider auditing your Systems and Organization Controls (SOC) to minimize the risk of a breach and protect the continuity of your business and your customers.
Hopefully, we shed light on the most important aspects of SOC reports and answered the important questions to help you get started. If you want to keep up with how data security and privacy is transforming the business world as we know it, follow @TopRightPartner on Twitter, connect with me on LinkedIn, subscribe to my blog, and buy a copy of my latest book published by Harvard Business Review, Strategic Analytics.