Auditing Basics Archives

Implementing Internal Controls for SOC 1 Compliance

When an organization pursues SOC 1 compliance, they’ll be tested against the COSO Internal Control – Integrated Framework. This framework is one of the most common frameworks used to design, implement, maintain, and evaluate internal controls.

For an organization to successfully complete a SOC 1 audit, they’ll need to meet the three objectives of internal control, demonstrate that they have the five components of internal control in place and functioning, and implement the 17 COSO principles related to internal control outlined in the framework.

While we’ve already covered how organizations can meet the objectives of internal control, let’s take a look at the five components of COSO and what they mean for SOC 1 compliance.

What is the COSO Framework?

The COSO Framework is an industry-standard model for evaluating and implementing internal control systems within organizations. COSO stands for the Committee of Sponsoring Organizations of the Treadway Commission, a private-sector organization that develops frameworks and guidance on organizational governance, internal controls, risk management, and financial reporting.

The framework gives organizations a structure for managing risks and ensuring the reliability of financial reporting. It emphasizes the importance of internal controls, the procedures and processes organizations should use to safeguard assets, and improves the accuracy of financial records.

The 5 Components of COSO: C.R.I.M.E.

The five components of COSO – control environment, risk assessment, information and communication, monitoring activities, and existing control activities – are often referred to by the acronym C.R.I.M.E. To get the most out of your SOC 1 compliance, you need to understand what each of these components includes.

Control Environment

How has management implemented policies and procedures that guide the organization? What kind of tone has management set in the organization so that everyone knows that they are supposed to make sure that your controls are operating effectively and are achieving the results that they expect?

Risk Assessment

How does your organization assess risk in order to identify the things that threaten the achievement of their objectives?

Information and Communication

How does management communicate to their internal and external users what is expected of them? How do you make sure that you receive acknowledgement from those people that they understand what you’re asking them to do?

Monitoring Activities

How does management oversee the entire organization’s functionality? How do you identify when things aren’t working correctly and correct those deficiencies as quickly as possible?

Existing Control Activities

What are the controls that you currently have in place? Were they in place and operating effectively over a period of time?

Who Uses the COSO Framework?

The COSO Framework is primarily used by two parties: organizations looking to improve internal controls and auditors assessing those controls.

Internal Control Enhancement

Businesses adopt the COSO Framework as a strategic tool to enhance and maintain effective internal control systems. The framework provides a comprehensive guide to creating policies, processes, and procedures to manage risks and ensure accurate financial reporting.

For example, the COSO Framework helps businesses establish a robust control environment by fostering an organizational culture emphasizing integrity, ethical values, and the importance of internal controls.

By following each of the five COSO: C.R.I.M.E. components and 17 COSO principles, businesses and other organizations can systematically implement controls that will help them successfully complete audits, including SOC 1 audits.

Internal Control Audits

Auditors use the COSO Framework as a structured benchmark to assess the design and operational effectiveness of an organization’s internal controls. It guides the auditor’s assessment of the reliability of financial reporting and other factors governed by industry standards and regulations.

What Is the Relationship Between the COSO Framework and SOC 1 Audits?

SOC 1 is an audit focused on a service organization’s controls relevant to its clients’ financial reporting. It is governed by the Statement on Standards for Attestation Engagements (SSAE) No. 18.

SOC 1 is an essential report for service organizations that manage financial transactions or related client data. A successfully completed audit gives businesses confidence that a service provider has effective controls in place.

When a service organization undergoes a SOC 1 audit, the auditors use the COSO Internal Control Framework to evaluate the effectiveness of its internal controls. They assess whether the controls are suitably designed, properly implemented, and effectively operated to safeguard the accuracy and integrity of financial data.

What Should Organizations Do When They Discover Non-Compliance with One or More COSO Components?

It’s crucial to act swiftly and methodically when your organization finds it is not compliant with COSO Framework components. The first step is a detailed assessment to identify the areas of non-compliance and understand the underlying reasons.

Once you have identified areas of non-compliance, you should:

Develop a Remediation Plan: Create a detailed plan outlining corrective actions, resource allocation, responsibilities, and timelines. The plan should prioritize actions based on impact and urgency.
Implement Changes: Execute the remediation plan, which may involve revising policies, enhancing training, introducing new control activities, or upgrading systems. Ensure that these changes are well-managed and that staff are adequately supported.
Monitor and Document: Continuously monitor the effectiveness of changes and maintain detailed documentation throughout the process for audit and compliance purposes.
Seek External Expertise if Needed: If the compliance issues are complex, consider consulting COSO Framework or SOC 1 experts for specialized guidance and insights.

Partner with KirkpatrickPrice on Your Compliance Journey

Security and compliance are intimidating topics whether you’ve been through a hundred audits before or if this is your first one. That’s why we’re here to help. Security and compliance don’t have to remain a mystery. When you work with an auditing firm that cares about your well-being and success, audits won’t seem as scary anymore. If you are ready to start your audit or want to learn more about the COSO Internal Control – Integrated Framework, connect with one of our experts today.

What is an Audit Scope and How Does it Impact an Audit?

Knowing where your assets reside and which controls apply to them are critical for any organization. Why? This is the only way you can manage and secure them from a potential data breach or security incident.

During the initial phases of a SOC 1 or SOC 2 audit, an auditor will walk you through defining the scope of your audit. What does that entail? Below, we define an audit scope, explore scope requirements, and help you determine the right scope for your business audit needs.

What Is an Audit Scope?

Defining an audit scope sets boundaries for the assessment by requiring organizations to outline anything that could otherwise impact the security of the protected information. Understanding the scope is crucial for both the auditors and the entity being audited, as it sets clear expectations and focuses the audit efforts.

Key Audit Scope Components

By clearly defining the audit scope, auditors and stakeholders can ensure the audit is focused, efficient, and aligned with the organization’s objectives. Below are some key components to include in your audit scope.

Extent of Examination: Specifies which departments or functions of the organization or which processes will be included in the audit.
Time Period: Identifies the specific duration or financial year(s) the audit will cover, such as a fiscal period.
Depth of Audit: Determines how thoroughly each area will be examined and if the audit will be a high-level overview or a detailed examination.
Objectives and Goals: Outlines what the audit aims to achieve, such as compliance verification, financial accuracy, or process effectiveness. It also anticipates potential recommendations, improvements, or corrective actions that may follow the audit.
Regulatory Framework: Includes any specific laws, standards, policies and procedures, or regulations that the audit is designed to assess compliance with.
Resource Allocation: Details the resources (like manpower, technology, documentation, and data) that will be dedicated to the audit.
Reporting: Defines what content is included in the audit results, how the findings are reported and formatted, and to whom they are delivered to.

How Do You Define the Scope of a SOC 1 or SOC 2 Audit?

When an organization partners with their auditor to define the scope of their SOC 1 or SOC 2 audit, they’ll typically answer questions, such as:

Which locations are involved?
Do you have any third parties? What services do they provide?
How many business applications and technology platforms are involved?
Which systems are involved?
What people are responsible?
Which processes focus on internal control over financial reporting?

How Can a Well-Defined Audit Scope Help Identify Potential Risks and Issues?

A well-defined audit scope identifies potential risks and issues within an organization. Targeted risk assessment focuses on specific areas where risks are most likely to be present. It also ensures the audit is not only efficient but also effective in pinpointing where attention is needed most.

Additionally, a clear audit scope allows for optimal resource allocation, directing efforts and resources to the areas that are of high risk, thereby maximizing the effectiveness of the audit process.

Clarity is another significant benefit, ensuring the audit’s alignment with the most relevant risk areas and critical issues are not overlooked. This alignment is essential for the audit to be truly effective in assessing and mitigating risks.

When mitigating risks, early detection of issues is critical. A focused audit scope helps identify problems at an early stage, allowing your business to take corrective actions in a timely manner. This proactive approach can prevent minor issues from escalating into major problems, saving the organization time and resources in the long run.

Lastly, a well-defined scope offers comprehensive coverage, ensuring the examination of all critical organizational areas without wasting resources on unnecessary or redundant areas. This thorough approach guarantees a complete and successful audit, covering everything and leaving no risk unnoticed.

Can Your Audit Scope be Too Broad or Too Narrow?

The scope of an audit can greatly impact the overall effectiveness. If the scope is too broad, an auditor could miss critical items during the assessment. If the scope is too narrow, an auditor might be unable to perform an accurate assessment or give an accurate opinion of an organization’s controls because some may have been left out.

This is why partnering with an expert, senior-level Information Security Specialist, like those at KirkpatrickPrice, is so critical. If you want to get the most out of your investment in a SOC 1 or SOC 2 audit, effective scoping is key.

Can the Scope of an Audit Vary for Different Organizations or Industries?

Yes, the scope varies significantly and depends on several elements, including:

Industry-Specific Requirements: Different industries have unique regulatory and compliance requirements influencing the audit scope.
Organizational Size and Complexity: Larger or more complex organizations may require a broader and more detailed audit scope.
Nature of Business Activities: Companies engaged in different activities (e.g., manufacturing vs. service) have distinct focus areas.
Risk Profile: Organizations with different risk exposures (financial, operational, technological) will have tailored audit scopes.
Previous Audit Findings: Past audit outcomes can influence the focus of future audits.

One of the very first things that you will do as part of your audit is work with your auditor on the definition of scope. You’ll go through a scoping process with us where we identify the policies and procedures, the people, and the locations. For example, is there application development that’s in scope? Where are those developers located? Where do they do their work? What cloud applications are involved in this? What part of that is or isn’t in scope? What IT resources are in scope? Are there parts of the network that should be included or excluded from the audit? We’ll go through that and define it because it is a very important step, and we have to know what the boundaries of the system are so that we can collect evidence from the appropriate people, processes, and technologies. Contact us today and enjoy working with one of our expert Information Security Specialists who will guide you through the scoping process.

Starting an audit is overwhelming.

Our Audit Readiness Guide will tell you what you need to know.

You know you need an audit, but don’t know what to expect or how to get started. This guide will prepare you for what will be tested and how to confidently begin your compliance journey.

It is Cybersecurity Awareness Month! Every October we are reminded of the potential threats that are up against our cybersecurity. It is no surprise that employees make their way to the top of the vulnerability lists each year. It is time we created a culture of cybersecurity in the workplace.

Employees are often an organization’s weakest link. Whether it be the lack of funding or misunderstanding of cybersecurity best practices, security awareness training often becomes an afterthought. The reality is that security awareness training is a vital part of your cybersecurity that cannot go without doing. If there is even one person naive of cybersecurity best practices, they could unknowingly compromise the integrity of your security and dismantle your business processes. There is an endless number of ways this can happen, whether it be someone failing to recognize a phishing attempt, recycling weak passwords, not properly disposing of sensitive documents, neglecting company-wide security policies, or falling victim to any other attack tactics, techniques, and procedures (TTPs) of malicious hackers.

To battle the outbreak of human error in cybersecurity, many information security frameworks and regulations have made security awareness training a requirement.

What are the security awareness training requirements from each framework?
What does your organization need to do to ensure compliance with these standards?
How can security awareness training offer you peace of mind?

What Do Common Frameworks Require for Security Awareness Training?

SOC 2
- AICPA (American Institute of Certified Public Accountants) explains that to earn compliance with common criteria 2.2, entities must “communicate information, including objectives and responsibilities for internal control, necessary to support the functioning of internal control.”
ISO 27001/27002
- According to Requirement 8.2.2 of ISO 27001, “All employees of the organization and, where relevant, contractors and third-party users should receive appropriate awareness training and regular updates in organizational policies and procedures, as relevant for their job function.”
PCI DSS
- According to requirement 12.6 of the PCI (Payment Card Industry) DSS (Data Security Standard), entities must implement a formal security awareness program to make all personnel aware of the cardholder data security policy and procedures.
NIST 800-53
- According to requirement AT-2, an organization is responsible for “providing basic security awareness training to information system users.” There are also two control enhancements that encourage the practical exercise of insider and outsider cyber-attack simulations.
HIPAA Security Rule
- According to the administrative safeguard, 45 CFR 164.308(a)(5), covered entities and business associates must “implement a security awareness and training program for all member of its workforce.”
HIPAA Privacy Rule
- According to administrative requirements under the HIPAA Privacy Rule, 45 CFR 164.530(b)(1) says, “A covered entity must train all members of its workforce on the policies and procedures with respect to protected health information… as necessary and appropriate for the members of the workforce to carry out their functions within the covered entity.”
GDPR
- According to article 39(1)(b), Data Protection Officers are responsible for “monitoring compliance with this Regulation, with other Union or Member State data protection provisions and with the policies of the controller or processor in relation to the protection of personal data, including the assignment of responsibilities, awareness-raising, and training of staff involved in processing operations, and the related audits…”
FISMA
- According to U.S.C. 3544. (b). (4). (A), (B) under FISMA, entities are required to implement “security awareness training to inform personnel, including contractors and other users of information systems that support the operations and assets of the agency, of information security risks associated with their activities and their responsibilities in complying with agency policies and procedures designed to reduce these risks.”

Prepare Your People for Cyber Threats

How can the regular training of your employees be a critical component of your organization’s compliance and security? It can have everything to do with it. By offering these resources to your employees you are ensuring that they are aware of your company’s cybersecurity policies and industry’s best practices. Security awareness training can help minimize your organization’s risk of a data breach, thus protecting your sensitive company data and your brand reputation. Security awareness training costs less than 1% of what the average breach costs, this makes the regular training of your employees worth the investment 100 times over.

SOC 1 and the COSO Framework

If you’re new to the SOC 1 audit process, you might be wondering what framework is used to evaluate the effectiveness of internal controls. This would be the Committee of Sponsoring Organizations of the Treadway Commission, or COSO Internal Control – Integrated Framework. This framework is one of the most common frameworks used to design, implement, maintain, and evaluate internal controls. It outlines three objectives, five components of internal control, and 17 principles related to internal control that organizations must meet to demonstrate compliance.

When undergoing a SOC 1 audit then, organizations should strive to meet COSO’s three objectives for internal control: operations, reporting, and compliance. Let’s take a look at what those are and how they could impact your SOC 1 compliance journey.

How Do the 3 Objectives of COSO Impact a SOC 1 Audit?

Because a SOC 1 audit places a large emphasis on the concept of internal control, meeting the three objectives of COSO is especially important. To do so, consider the following questions:

Operations: Are the controls that you’ve put into place operating effectively so that you can be certain about the ways that your operations are running the ways you’re expecting them to perform?
Reporting: What types of reports do you provide to your clients? What is it that they rely upon from you to verify that your services are operating the way they expect them to operate?
Compliance: What laws and regulations apply to the services that you’re performing so that your clients can rely on your services and be in compliance as well?

Want to get started on your SOC 1 compliance journey? Learn more about the COSO Internal Control – Integrated Framework and how you can meet the three objectives of COSO. Contact us today.

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A SOC 1 audit focuses quite a bit on the concept of internal control. There’s a publication out there from COSO known as the Internal Control Framework, and there are three objectives that you are striving for internal control. The first one has to deal with operations. Are the controls that you’ve put into place operating effectively so that you can be certain about the ways that your operations are running and the ways you’re expecting them to perform? The second one is reporting. What types of reports do you provide to your clients? What is it that they rely upon from you to verify that your services are operating the way they expect them to operate? The third objective is compliance. What laws and regulations apply to the services that you’re performing so that your clients can rely on your services and be in compliance as well?

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What is a SOC 1 Report?

Once you’ve made it through the evidence gathering portion of the SOC 1 audit process, our specialized team of professional writers will take the information gathered by our auditors and provided by you in our Online Audit Manager to create a final SOC 1 report. What is a SOC 1 report? It is a report that is based on the Statement on Standards for Attestation Engagements Number 18, Section 320 (SSAE 18) and reports on the effectiveness of your internal controls that may be relevant to your client’s internal controls over financial reporting (ICFR). What’s included in this report? How do you use a SOC 1 report? Let’s find out.

What’s Included in Your SOC 1 Report?

When you’ve finished your SOC 1 audit, you’ll receive a SOC 1 report that begins with an opinion letter that’s issued by an independent certified public accountant. This opinion letter will include the following:

The scope of the engagement
What the service organization’s responsibilities were
An opinion on the design of the controls
The description of the controls that management provided
An opinion on whether or not the controls were in place and operating effectively
The auditor’s final opinion on the effectiveness of an organization’s internal controls

In addition to the opinion letter, the report will also include a description of the tests conducted throughout the audit as well as an analysis of exceptions to the effectiveness of internal controls.

How Do You Use a SOC 1 Report?

Once you’ve received your SOC 1 report, you might wonder how you can actually use your report. If you pursued SOC 1 compliance because a client requested it, you’ll provide this audit report to their auditors for review. If you proactively pursued SOC 1 compliance without being asked for it, there’s many ways to leverage your compliance efforts to give your organization a competitive advantage.

Want to learn more about how we can help you get started on your SOC 1 compliance journey? Contact us today.

More SOC 1 Resources

Understanding Your SOC 1 Report Video Series

SOC 1 Compliance Checklist: Are You Prepared for an Audit?

How to Read Your Vendors SOC 1 or SOC 2 Report?

What is a SOC 1 report? A SOC 1 report is an audit that is specifically designed for service organizations. It’s based on a Statement on Standards for Attestation Engagements, and in this case, SSAE No. 18. Section 320. The way the report is formatted is that it starts out with an opinion letter. The opinion has to be issued by an independent certified public accountant. An auditor that is independent from the service organization issues an opinion that covers what the scope was of the engagement, it talks about what the service organization’s responsibilities were, it talks about what the service auditor’s responsibilities were, and ultimately, it provides an opinion on the design of the controls, the description that management provided, whether or not the controls were in place and operating effectively over a period of time for a Type II report, and what the auditor’s opinion was after conducting all of the testing and the examination. Once you have the report in hand, the service organization can hand that to their clients, which are known as user organizations. User organizations rely upon that report usually in the course of their own audit as they are concerned with internal control over financial reporting. You should look for a qualified, independent CPA who has particular expertise in performing SOC 1 engagements.