SOC stands for System and Organization Controls, a widely recognized auditing framework that evaluates the effectiveness of a company’s internal controls over its information systems. Produced after a formal audit by a duly accredited accounting firm or professional, SOC reports are categorized into three main types. A SOC 1 audit focuses on financial reporting.
Organizations that process payments or provide services that impact the financial statements of their clients typically need to acquire SOC 1 reports to assure customers of the reliability of their financial reporting systems. Aside from building confidence in your brand, SOC 1 compliance also helps reduce financial reporting errors, drive alignment with industry regulations, and expand your market reach.
Here’s a SOC 1 audit checklist and some practical tips on how your company can simplify SOC 1 compliance.
What to Expect in a SOC 1 Audit
A SOC 1 audit is a rigorous process where an independent assessor examines your policies, procedures, and systems to validate the effectiveness of your internal controls. Expect the following engagements and milestones during such an audit:
- The auditor will meet your compliance team to discuss the scope of the audit.
- The auditor will review your policies, procedures, and system documentation.
- The auditor will interview officers, staff, and other stakeholders relevant to the internal controls being assessed.
- The auditor will test your internal controls to validate their effectiveness.
- The auditor will produce a report that details the audit process and includes an opinion on whether your internal controls comply with SOC 1 standards.
SOC 1 Audit Checklist
Take time to complete an audit requirements checklist. This will significantly organize and streamline your efforts in gathering evidence and providing documentation for the independent auditor.
A SOC 1 audit typically covers the following areas of your organization:
- Internal controls over financial reporting
- Policies and procedures
- Physical and logical access controls over your information systems
- Data backup and recovery
- Business continuity plan
- Monitoring activities
- Vendor management
The SSAE 18 (Statement on Standards for Attestation Engagements 18) published by the American Institute of Certified Public Accountants (AICPA) provides details that your compliance team can use as a more precise and comprehensive checklist for assessing the adequacy of your internal controls. Obtain a copy of the SSAE 18 document and review the requirements, preferably with an experienced auditor. This will give you a fair understanding of the control objectives you need to meet to achieve SOC 1 compliance.
Here are some guide questions related to the checklist:
- Is the organizational structure of your company clearly defined?
- Have you delegated the responsibility of developing policies and procedures to specific employees?
- What are the physical and logical controls that you have implemented?
- Are there procedures in place to manage change in a timely and effective manner?
- How do you conduct background checks on employees?
- What are your standards for employee conduct?
- How do stakeholders learn and understand how to use your systems?
- Have you identified areas where your internal controls are ineffective?
- Does your company regularly assess vendors?
- Does your company conduct an annual review of your policies and procedures to keep them updated?
- Have you performed a formal risk assessment to detect and address potential threats to your systems?
Final Takeaways
Diligent preparation is key to a successful SOC 1 engagement and an audit checklist is your primary tool for navigating the process. It will help you understand the framework’s requirements and map the controls you have implemented to meet standards.
Use the audit process as an opportunity to proactively improve relevant areas of your business, especially those that affect the trust of your customers, partners, and other stakeholders. Lastly, engage an experienced auditor to help you streamline the process, reduce the cost of compliance, and ensure a favorable SOC 1 report.
SOC 1 can be simplified and tailored to your unique needs. Talk to our expert for a free consultation.