The Difference Between SOC 1 Type I and Type II: The Audit Period

While SOC 1 Type I audit engagements evaluate a service organization’s internal controls that could impact their user organizations’ internal control over financial reporting (ICFR) at a specific point in time, a SOC 1 Type II audit evaluates a service organization’s internal controls that could impact their user organizations’ internal control over financial reporting (ICFR) over a period of time, usually between six and twelve months. How do go about choosing your audit period? There are a few things you need to know.

Choosing Your Audit Period for SOC 1 Type II Engagements

One of the first steps that organization’s must take when pursuing SOC 1 Type II compliance is choosing their audit period. When choosing your audit period for a SOC 1 Type II audit, you’ll pick a period of time from the past as auditors cannot make statements about what would happen in the future. Once you’ve determined the length of your audit period, your auditor will review the effectiveness of your organization’s internal controls during that time period.

To find out what audit period works best for your organization’s SOC 1 Type II compliance efforts, 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?

One of the things that you have to do to prepare for a SOC 1 Type II audit is to define what the audit period is going to be. These reports are based on the AICPA’s standards, and just like in SSAE 18, the audit period will be a period of time that’s in the past. We’ll be looking back at what did happen during that period; we can’t make any forward statements about what would happen in the future. An audit period is typically six months or twelve months, and the auditor issues an opinion and performs testing on controls that were in place over a period of time. So, get with your auditor at KirkpatrickPrice and talk about what your audit period should be and what would be most appropriate for your situation.

If your organization is making the investment in information security audits, it’s understandable to question whether or not you will pass or fail the audit. After all, many organizations pursue compliance because they have something at stake, like a new client or big product launch, and if they do not pass the audit, there could be severe consequences. However, there’s good news when it comes to SOC 1 audits: the framework is build on the SSAE 18, a standard that is not based on a pass or fail model. Instead, your SOC 1 compliance is determined based on reasonable assurance. What exactly does that mean? Let’s take a look.

What is Reasonable Assurance?

During the audit process, your auditor will perform various tests, interviews, and observations to determine whether or not there is reasonable assurance that your organization has internal controls in place and operating effectively. Because there is no way to give absolute assurance that these internal controls are operating as intended, auditors must be able to give reasonable assurance that controls are in place and operating effectively.

What’s the Difference Between a Qualified and Unqualified Opinion?

When an auditor determines if there’s reasonable assurance, they’ll issue either a qualified or unqualified opinion. An unqualified opinion means there are no qualifications or significant exceptions being issued and reasonable assurance has been determined. On the other hand, if an auditor issues a qualified opinion, this means that there are exceptions. So, for example, “Except for control X, internal controls are in place, suitably designed, and operating effectively.” In cases where a qualified opinion is issued, we will list the specific aspects of your system that were not operating effectively in your SOC 1 audit report.

Want to learn more about how KirkpatrickPrice can assist you 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?

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It’s very common for us to get asked, “Am I going to pass this audit? What if I fail? Is it going to be bad for our organization if the audit doesn’t go well and we get a failing grade?” Well, a SOC 1 audit is based on the SSAE 18 standard, and the standard does not work on a pass or fail system.  The benchmark is something called reasonable assurance. We can’t have absolute assurance that something is operating a particular way, so the highest level is called reasonable assurance. The auditor has to come to a conclusion using testing and analytic procedures to form a reasonable basis for their opinion, which answers: Is this control designed properly? Is it in place? Is it operating effectively over a period of time? We’re looking for reasonable assurance. If we issue an unqualified opinion, that is an opinion where there are no qualifications to our opinion. It means that an organization’s controls are in place, operating effectively over a period of time, and our opinion has not been qualified. A qualified opinion has the line “except for”. So, for example, “Except for X, the controls are in place, suitably designed, and operating effectively.” We would qualify the opinion by calling out individual aspects of the system that maybe were not operating effectively during the opinion. Ask yourself the question, “Can my auditor form an opinion that’s based on reasonable assurance that our controls are operating effectively?” Talk to one of our Information Security Specialists and let us talk to you about what your environment looks like and the types of practices that you’ve had in place, and let us give you our opinion on what reasonable assurance would look like for your organization

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If you’ve been asked to demonstrate SOC 1 compliance, you’ll need to determine what exactly is being asked of you. For example, do you need a SOC 1 Type I or SOC 1 Type II audit? Do you need both? Let’s take a look at the difference between a SOC 1 Type I and SOC 1 Type II audit and how you can determine which is most suitable for your organization’s compliance efforts.

What’s the Difference Between a SOC 1 Type I and SOC 1 Type II?

Understanding the difference between a SOC 1 Type I and SOC 1 Type II is simple; it comes down to the audit period. While both a SOC 1 Type I and SOC 1 Type II report on the controls and processes at a service organization that may impact their user entities’ internal control over financial reporting, the main difference between the two types of audits is the period in which the auditor verifies the effectiveness of internal controls. For example, if an organization opts to engage in a SOC 1 Type I audit, the auditor will assess their controls and processes that could impact their user entities’ ICFR for a specific point in time. On the other hand, if an organization wants to pursue a SOC 1 Type II audit, the auditor will assess their controls and processes that could impact their user entities’ ICFR over a period of time.

What Type of SOC 1 Audit Do I Need?

The type of SOC 1 audit your organization needs depends on your organization’s compliance goals. Has a client asked for a SOC 1 audit? Did they specify which type of SOC 1 audit you need? In many cases, clients will not specify which type of audit they want you to have. In these instances, we always recommend that organizations begin with a Type I audit and then move onto a Type II audit, if needed. Why? Because beginning with a Type I audit allows your organization and your auditor to focus on the design and implementation of your internal controls, whereas a Type II requires additional time, testing, and resources that might make the audit process more challenging if you’ve never reviewed your internal controls before.

Want to learn more about the difference between a SOC 1 Type I and SOC 1 Type II or how KirkpatrickPrice can help you with your SOC 1 compliance objectives? 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?

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When I get asked about SOC 1 Type I and SOC 1 Type II audits, I usually tell clients, “It’s going to come down to what your client is asking for.” Is your client specifically requiring you to go to the Type II, which many times will come after doing a Type I the first time. We’ve seen clients that have simply been required to do a Type II first, but if your client isn’t specifying that, because many times they’ll just tell their clients that they need to do a SOC 1 audit or an SSAE 18 audit. In other words, it will just be broad like that in their request. If this is the case, you have the luxury of starting with a SOC 1 Type I report. The benefit of starting there is that it allows you to focus with your auditor and work with your auditor on the description of your controls and the suitability of the design of those controls and really focus on that and getting those controls in place. That’s the threshold for a SOC 1 Type I report. What happens with a SOC 1 Type II report is that there is additional time spent testing, because in addition to those things, the auditor also has to test operating effectiveness over a period of time. It takes extra time and resources to do that because you need some time to make sure that the controls were in place and operating for a period of time. So, if a client is requiring you to go there first, then that’s the best approach to spend the time there to do the SOC 1 Type II audit, but if at all possible, try to start with the SOC 1 Type I audit so that you can focus on each step individually.

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What is a SOC 1 Audit and Why Do You Need One?

Often times, clients might ask you to complete a SOC 1 audit, which might leave you asking, “What is a SOC 1 audit? Why does my organization need one?” If your organization has the ability to impact your customers’ internal controls over financial reporting (ICFR), then you’re likely to be asked by those customers to undergo a SOC 1 audit. But what is a SOC 1 audit exactly? A System and Organization Controls 1 (SOC 1) audit is an audit designed to test the internal controls that a service organization has implemented to protect user entities, or their customers’, data, specifically the internal controls that could impact financial reporting. SOC 1 audits are conducted in accordance with the Statement on Standards for Attestation Engagements 18 (SSAE 18), which is used to regulate how companies conduct business and report on compliance controls.

What are the Benefits of a SOC 1 Audit?

If you’re wondering “What is a SOC 1 audit?”, you’re probably also wondering “What are the benefits of a SOC 1 audit?” too. In fact, if you’ve never engaged in a SOC 1 audit before, chances are the process seems a bit intimidating. But when you pursue SOC 1 compliance with KirkpatrickPrice, it doesn’t have to be. Whether it’s your first time undergoing an audit, or you’ve been through audits before, our streamlined approach to the audit process will leave you with the following benefits upon the completion of your SOC 1 audit:

  • Peace of mind that your organization has the proper internal controls and processes in place to deliver high-quality services to your clients
  • An in-depth evaluation of your policies and procedures
  • Assurance for your clients that the sensitive assets they’ve entrusted with you are effectively protected
  • A stronger, more robust security hygiene because a third-party verified your internal controls not just your internal audit team
  • A competitive advantage by demonstrating your commitment to security

Has your organization been asked to demonstrate SOC 1 compliance? Are you unsure where to begin? Contact us today to learn how KirkpatrickPrice can help you get started on your compliance efforts.

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?

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A SOC 1 report is a System and Organization Controls report. Most service organizations are offering services to their clients, such as managed services, application services, or any type of third-party service that’s being outsourced to them from their clients. They’re being asked to do this report as a way to prove to the client that they’re working with that their controls are mature enough and that they’ve been tested by a third-party auditor. We’ve found that a lot of people who call us the first time, they’re small- to medium-sized service providers, and they just found out that their biggest client is requiring them to do this audit that they’ve never heard of. They feel under-the-gun and pressured to do this in order to check a box because it feels like something that’s been forced upon them. But one of the really great things as to why you should do a SOC 1 audit is because it does validate your controls; it does validate what you’re doing. You might be competing against another company in your industry that has not taken the step of having an independent third-party come in and evaluate those controls. When you have an experienced auditor, like those we have here at KirkpatrickPrice, come in with years of experience and perspective and provide you with guidance and expertise on what your controls are or are not doing, it’s a very good process for you to strengthen your environment. It’s a very healthy process to go through to have that external opinion of what you’re doing. Sometimes we have our own internal environments and we have blinders on because we’ve never had a third-party come in and look at it from a different vantage point. We find our clients telling us, “In year one when we did the audit with you, we just thought it was something we were just going to have to do and get it over with, but after years two and three, we’ve started to see that this is a very healthy process, and it actually helps our business get stronger and to grow.”

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How Do You Know the Difference Between SOC 1 Type I and SOC 1 Type II?

When you begin thinking about pursuing SOC 1 compliance, you’ll have the option of choosing a Type I or Type II audit. While both of these audits assess a service organization’s controls and processes that may impact their clients’ internal control over financial reporting (ICFR), the biggest difference between SOC 1 Type I and SOC 1 Type II is the audit period. For example, if you decide to undergo a SOC 1 Type I audit, an auditor will assess your controls and processes and their impact over user entities’ ICFR for a specific moment in time. On the other hand, if your organization pursues SOC 1 Type II compliance, an auditor will assess your controls and processes and their impact over user entities’ ICFR over a minimum six-month period.

Do I Need to Start with a SOC 1 Type I or SOC 1 Type II Audit?

Determining whether you want to begin your SOC 1 compliance journey with either a Type I or Type II audit depends on your organization’s needs and what is required of you. At KirkpatrickPrice, we generally recommend that service organizations begin with a SOC 1 Type I before moving onto a SOC 1 Type II. Why? Because we want our clients to get the most out of their audit, which means that we want to set them up for success by preparing them with the tools they need to get through an information security audit. To do this, we offer a streamlined Type I process that combines our gap analysis service with a remediation project plan, resulting in the Type I audit report being delivered within weeks of the engagement kick off. By beginning with a SOC 1 Type I using this streamlined approach, service organizations can then pursue their Type II compliance with a better understanding of the audit process and more clear expectations of how a SOC 1 audit works.

Has your organization been asked to demonstrate SOC 1 compliance? Are you still unsure if you need a Type I or Type II audit? Contact us today to learn how KirkpatrickPrice can help you get started on your compliance efforts.

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?

 

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There are two types of SOC 1 reports: there’s a SOC 1 Type I report, and there’s a SOC 1 Type II report. The SOC 1 Type I report is an opinion on the fairness of the presentation of the description provided by management of the service organization, and there’s also an opinion on the suitability of the design of the controls. We also validate that the controls are in place as of a particular date. The SOC 1 Type II report has the exact same sections that I just mentioned for the Type I, but it adds on an additional section, which is testing performed by the service auditor on the operating effectiveness of the controls that are in place over a period of time. So, the Type I report cares about controls that are in place as of a particular date, whereas the Type II report cares about the operating effectiveness of those controls over a period of time. If you need help talking to an auditor about what report is right for you and what your audit period should be for your report, please contact one of our Information Security Specialists today.

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