Introduction to SOC 1 Audits
If your company provides services that impact a client’s financial information, your clients and stakeholders need to know you have strong controls in place that protect that financial information.
That’s the purpose of a SOC (System and Organization Controls) 1 audit: to show clients and stakeholders your controls are well designed and operating effectively in order to protect their financial information.
But what does a SOC 1 audit entail and how will it benefit your company? Keep reading to find answers to these questions and more.
Key Takeaways:
What Is a SOC 1 Audit?
A SOC 1 audit is a formal review to assess how well your company handles financial data for clients. The goal is to demonstrate the company has the right systems in place to keep financial information accurate, secure, and reliable.
Many clients will require you to provide a SOC 1 attestation
before doing business with you.
Think of it this way:
Imagine a payroll company that processes employee paychecks for many businesses.
If there are errors or security issues in their system, employees could receive paychecks that are incorrect. A SOC 1 audit confirms that the payroll company has strong controls in place to prevent mistakes like this one.
A SOC 1 audit follows guidelines set by the American Institute of Certified Public Accountants (AICPA) and is performed by an independent auditor.
At the conclusion of the audit, the auditor will issue a SOC 1 report, which is an attestation that evaluates the effectiveness of a company’s internal controls over financial reporting.
Why Is a SOC 1 Audit Important for Service Organizations?
Your clients must be able to trust you to handle financial transactions and/or sensitive financial information. A SOC 1 audit helps establish credibility and trust for service organizations by:
- Building client confidence. Clients need to know service providers are reliable and trustworthy. A SOC 1 audit shows that a company has proper controls in place to safely manage financial data.
- Mitigating risk. Mistakes in financial reporting can lead to fraud, legal issues, and financial loss. A SOC 1 audit helps identify weaknesses before they become major issues.
- Demonstrating regulatory compliance. Several industries require third-party vendors to have a SOC 1 report before doing business with them.
Who Needs a SOC 1 Audit?
Service companies that manage financial transactions of other organizations need a SOC 1 audit and include:
- Payroll Processing Companies
- Third-Party Accounting & Bookkeeping Firms
- Tax Preparation Firms
- Payment Processors
- Loan Servicing Companies
- Employee Benefit Plan Sponsors
- Third-Party Benefits Administrators
- 401(k) & Retirement Plan Administrators
- Medical Billing & Health Insurance Claims Processing Firms
- ERP Software Providers
- Cloud-Based Accounting Software
- Wealth Management & Advisory Firms
- Investment Fund Administrators
- Private Equity & Hedge Fund Services
If your business handles, processes, or stores financial transactions or data on behalf of other companies, you will likely need a SOC 1 audit to prove your internal controls are reliable.
Which SOC Audit Is Right for You?
Choosing the right type of SOC audit depends on your industry, the services you provide, the regulatory requirements that govern your organization, and the intended users of the attestation.
Use this table to see which SOC audit best fits your needs:
Learn More
Your clients and stakeholders want to know that your internal controls are working and compliant. That’s nothing new. But here’s the interesting part:
A SOC 1 audit is more than a compliance exercise — it’s also an opportunity to improve controls and significantly enhance operational efficiency.
As a trusted public accounting firm, the Risk Advisory team at PBMares helps clients go beyond compliance to optimize business processes and drive measurable performance improvements.
Contact us today to learn how you can propel your business toward unparalleled security and compliance excellence.
Contact Our SOC 1 Report Team
PBMares provides SOC 1 reporting services to companies that need to demonstrate the effectiveness of internal controls over financial reporting. If you have questions or need assistance with your SOC 1 examinations, complete the form below and a team member will follow up with you shortly.
“PBMares brings the knowledge and industry experience necessary to thoroughly evaluate Service and Organizational Controls (SOC). They successfully advised our company on control measures needed to satisfactorily comply with SOC audit requirements. PBMares’ professional services have proven to be a huge enhancement to our compliance program as well as a positive marketing tool for new prospective clients.”
Christopher A. Plyler
CPA Chief Financial Officer
CREDIT CONTROL CORPORATION