What is a SOC 1 Audit and Why Do I Need One?
by Joseph Kirkpatrick / September 15th, 2017
Have you had a client tell your organization that it needs to have a SOC 1 audit performed? If your immediate reaction was, “What is a SOC 1?”, that’s completely normal. You’re in the right place!
Have you ever had your boss ask you “What is a SOC 1 audit?” and need a project timeline as soon as possible? You’re also in the right place! Have you seen competitors announce their compliance and wondered, “What is a SOC 1 and why is the competition pursuing one?” Don’t worry, we’ll cover that, too. Let’s answer three basic questions about SOC 1 audits:
- What is a SOC 1?
- Why do I need a SOC 1?
- What are the benefits of a SOC 1?
What is a SOC 1 Compliance Audit?
A Service Organization Control 1 (SOC 1) engagement is an audit of the internal controls (policies, procedures, and technologies) which a service provider has implemented to protect client data. SOC 1 audits are performed in accordance with the Statement on Standards for Attestation Engagements No. 18 (SSAE 18). SOC 1 reports were primarily designed to report on the controls of service organizations that are relevant to their client’s financial statements. SOC 1 audits are intended to aid service organizations in eliminating potential errors to client information and ensuring efficiency in their controls.
We most commonly perform a SOC 1 for small to medium-sized service providers who deliver managed services, application services, or any type of third-party service. Now that we’ve figured out what a SOC 1 is, the next thing to consider is: why do I need a SOC 1?
Why do I need a SOC 1?
If you’ve ever asked, “What is a SOC 1?” then you’ve probably also wondered, “Why do I need a SOC 1?” Let’s say your organization is a service provider, providing payment processing services. Why would you need a SOC 1? SOC 1 engagements are designed specifically for service providers. If you provide payment processing services to clients, your service organization may need a SOC 1 because you could potentially impact clients’ financial statements. Your service organization may need a SOC 1 report because your client or regulatory body is requesting it, or maybe because you’re being proactive with information security and compliance.
A SOC 1 report demonstrates to your clients that you take the security of sensitive data seriously. You’ve hired a third-party auditing firm to validate your controls are suitably designed and operating effectively, you’re gaining assurance, you’re maturing your environment – all things that assure your clients that their sensitive information is being handled in accordance with their expectations and with SSAE 18.
Culture of Compliance
We see many service organizations initially engage in an audit, like a SOC 1, because it’s something they are required to do by a client or regulatory body. An audit can be costly, time-consuming, and confusing – we know. So when something like a SOC 1 audit is forced on an organization, it can create a negative outlook on the entire auditing process. This attitude towards compliance makes organizations reluctant to give the audit their full effort or attention. Because a SOC 1 audit deals with something as important as internal control over financial reporting, it’s vital that the engagement receives the full attention it deserves.
We believe that the best-kept industry secret to achieving compliance success is creating a culture of compliance within your organization. Compliance isn’t a quick fix to all of your security needs; it’s a constant cycle of improvement. Audits are healthy for any organization. They help you see how you can grow and mature. After two or three years of audits, our clients come to appreciate the advantages that an audit brings.
The Benefits of a SOC 1 Audit
A SOC 1 audit can bring so many benefits to your company, especially if a culture of compliance has been created. The top six benefits of a SOC 1 include:
- Verifying that your organization has the proper internal controls and processes in place to deliver high quality services to your clients.
- Evaluating your policies and procedures, which are crucial to the operability of your organization.
- Assuring clients that their sensitive data is protected, building trust between service providers and user organizations.
- Removing the internal blinders; personnel often can’t or don’t want to see vulnerabilities that an experienced auditor does.
- Strengthening your environment, and teaching you ways to mature your practices.
- Giving you a competitive advantage by demonstrating your commitment to security.
View more SOC 1 compliance resources.
The SSAE 16 (now SSAE 18) is a Service Organization Control Report. Most of the service organizations that we audit are small to medium size service providers who are delivering managed services, application services, or any type of third party or outsourced service that a client has hired you to do. I’ve found that clients initially do this audit because they’re being required to do it, they’re being forced to do it, but later on in the process, they come to appreciate what an audit does for them.
An audit is very helpful to you as a small to medium size service provider because it helps you to validate what you’re doing, it helps you to see whether or not the controls that you’ve put into place are effective, and it’s a very valuable resource for an experienced auditor to review you without the blinders that sometimes we have on internally. When an external auditor comes in, they’re able to bring their experience and perspective to your environment and controls and provide you with very valuable guidance and recommendations to strengthen your environment. We’ve had clients who’ve been working with us for three or more years say, “The first year, I didn’t want to do it. It was just a task that we had to do.” But after year two and three, they start to see that an audit is very helpful and healthy for an organization to receive that validation and recommendations about how they can mature in their practices.
