SOC 1 Audit Frequently Asked Questions

A SOC 1 audit includes an evaluation of your internal controls over financial reporting, conducted by our specialized and experienced auditors. There are two types of SOC 1 reports:

• Type 1: This report focuses on the design of your controls. It provides an overview of the controls in place at a specific point in time and assesses whether they are suitably designed to achieve the control objectives.
• Type 2: This report includes everything in a Type 1 report but goes further by evaluating the operating effectiveness of the controls over a period of time, usually six months to a year. It tests how well the controls have been operating to ensure they are functioning as intended.

By understanding these differences, you can choose the SOC 1 report that best meets your organization’s needs and ensures your financial reporting controls are both well-designed and effectively operating. Below are some of the most frequently asked questions we receive about our services. These are designed to guide you toward a structure that aligns with your financial goals and growth strategy.

1. What is a SOC 1 audit, and why is it important for service organizations?
   SOC 1 audits evaluate a service organization’s internal controls over financial reporting (ICFR). These audits ensure that your systems are secure and capable of producing accurate financial reporting for the services which your customers use in their financial statements.
2. Who should consider undergoing a SOC 1 Type 1 or SOC 1 Type 2 audit?
   Any service organization that affects its clients’ financial reporting should consider a SOC 1 audit. This includes third-party service providers, payroll processors, insurance companies, and trust departments. These audits help build trust with clients and instill confidence in the financial information provided to them.
3. What is the difference between a SOC 1 Type 1 and a SOC 1 Type 2 audit?
   A SOC 1 Type 1 audit evaluates the design of your internal controls at a specific point in time (as of a specific date), while a SOC 1 Type 2 audit reviews the operational effectiveness of these controls over a defined period (usually 6-12 months). Since a Type 1 report only looks at control design, the Type 2 report provides your customers more confidence in your systems and processes as it looks at design and operations of controls over an extended period of time.
4. How do SOC 1 audits help organizations meet compliance and contractual obligations?
   SOC 1 audits provide documented proof that your financial controls meet the control objectives important to your clients. A SOC 1 report may be required as part of certain contractual requirements.
5. Why should I prepare for a SOC 1 audit, and what is the process?
   Preparing for a SOC 1 audit typically begins with a readiness assessment to identify control objectives and controls that will be of value to your company and your customers, identifying any control weaknesses. This proactive step ensures your organization is fully prepared for a successful audit, addressing control gaps early in the process to guarantee the effectiveness of your internal controls over financial reporting.