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The Ultimate Guide to SOC 1 Compliance

Today's organizations must ensure that their sensitive data is secure. But how can they be sure if they use and share data with third-party service providers?

This is where SOC 1 compliance comes in to help companies ensure that the service organizations they hire are equipped to protect their sensitive information.

If your company provides services that impact your clients' internal controls over financial reporting (ICFR) you'd likely be asked to produce an audit report to show that you have the proper measures in place to ensure data security.

Here's what you need to know about becoming SOC 1 compliant.

What Is a SOC 1 Report and SOC 1 Audit?

The System and Organization Controls (SOC) framework was developed by the American Institute of Certified Public Accountants (AICPA) to meet the need for information privacy and confidentiality as more sensitive data is stored and processed in the cloud.

The SOC framework applies to service organizations that provide data center and warehousing services, cloud computing, software-as-a-service (SaaS), and other outsourced functions, such as accounting, payroll processing, medical claim processing, and financial services.

An inforgraphic titled "Who is SOC 1 audit for?". The graphic lists the following: cloud service providers, data centers, SaaS companies, Payroll administrators, Loan processors, Collection agencies, Fulfillment companies, Medical claim processors, and Accounting and financial services

There are four types of SOC audit reports: SOC 1, SOC 2, SOC 3, and SOC for Cybersecurity. In this article, we'll focus on SOC 1, which covers the requirements of the Statement on Standards for Attestation Engagements №18 (SSAE 18, formerly SSAE 16.)

A SOC 1 report was previously called the SAS 70 (Statement on Auditing Standards 70.) It documents a service organization's internal controls that could affect the audit of a customer's financial statements.

There are two types of SOC 1 reports. A SOC 1 Type 1 audit describes an organization's systems and produces a point-in-time assessment of the controls on a specific date. Meanwhile, a SOC 1 Type 2 audit covers the operating effectiveness of the controls over a specific period, which is typically 6 to 12 months.

These reports on controls provide assurances for clients and stakeholders that the service organization has taken the necessary steps to protect company and client information.

A SOC 1 audit must be conducted by an independent, licensed CPA firm, which examines a service organization's system-level and entity-level controls. The auditors will look at how the company defines its organizational structure. They will also check if the company has performed formal risk assessments and implemented policies and procedures to address all controls.

Why Is SOC 1 Important?

Achieving SOC 1 compliance shows that your organization can securely interact with, transmit, and store users' financial statements.

A SOC 1 report shows management, investors, auditors, and clients that your internal controls on financial reporting meet AICPA's guidelines.

Many large enterprises require their vendors to produce a SOC 1 report to pass their audits. Being SOC 1 compliant can therefore help you open up more business opportunities.

A SOC 1 audit offers these benefits:

  • Verify that you have the appropriate internal controls to deliver high-quality services.

  • Ensure that policies and business processes can support the organization's operations.

  • Inform risk management and the strategic allocation of cybersecurity resources.

  • Foster a culture of security awareness and compliance within your organization.

  • Build trust with clients by assuring them that their data is secure.

  • Overcome blind spots and uncover vulnerabilities overlooked by internal personnel.

  • Strengthen your cybersecurity posture and minimize the risk of data breaches.

  • Gain a competitive advantage by showing a commitment to information security.

How To Become SOC 1 Compliant

During a SOC 1 audit, a third-party auditor will examine various aspects of your company. They'll cover security, availability of service, processing integrity, confidentiality, as well as controls related to financial reporting and cybersecurity.

When preparing for a SOC 1 audit, you must determine the control objectives concerning your business processes (e.g., how you handle customer information) and information technology processes (e.g., how you secure customer information.)

Scope out your program before engaging with an auditor. Perform a gap analysis to identify existing and missing controls and understand the options to address these deficiencies.

Next, implement the missing controls and conduct a risk assessment. Finally, engage with an auditor who will help you identify control objectives and guide your control activities.

Now you may wonder, how long does a SOC audit take?

The timeframe of a SOC 1 audit depends on the size of a company and the program scope. A SOC type 2 report will require an evaluation over a specific period, typically 6 to 12 months, to determine the controls' effectiveness.

After the initial report, you should have a SOC audit performed annually to maintain transparency and establish continuous coverage.

An infographic entitled "Key Steps To SOC 1 Compliance". The listed steps are: 1. Establish program scope. 2. Perform gap analysis. 3. Implement missing controls. 4. Engage with an auditor. 5. Show auditor how processes interact with clients' financial system. 6. Define control objectives and the supporting control activities. 7. Implement control activities based on specific control objectives. 8. Review and access risk

Another common question is: how much does a SOC 1 report cost?

It depends on many factors, including the size of your company, the complexity of your IT system, the risks involved, your cloud infrastructure, the number of control objectives, and whether you're getting a type I or type II report.

The preparation and audit process can cost anywhere from $15,000 to $100,000.

What Does a SOC 1 Audit Evaluate?

During a SOC 1 audit, auditors will check your internal controls to ensure that your business processes and operations meet specific requirements, laws, and policies. Here are the four types of controls that an auditor will examine:

Manual Controls

They rely on human actions to ensure that a business process is performed consistently and correctly. For example, a supervisor must verify the amount of cash in a lockbox against the number on the ledger.

IT-Dependent Manual Controls

These controls rely on manual processes with the help of IT systems. For example, an administrator needs to review a system-generated report on lapsed users before disabling their accounts.

Application Controls

They cover system configurations and settings that are used to detect or prevent issues. These include role-based access control and multi-factor authentication to ensure only authorized personnel can access sensitive data.

IT General Controls

The focus of most SOC audits, these controls combine manual and application controls. They cover policy management, logical access, change management, and physical security, such as how you authorize, approve, and implement organizational changes.

What To Provide To a SOC 1 Service Auditor

To start an engagement with an auditing firm, you should have these two documents ready:

  • A description of the processes and controls your organization uses to achieve its service commitments and objectives around security, availability, processing integrity, confidentiality, and privacy.

  • A control matrix that maps the specific controls to relevant criteria and the individuals responsible for performing the controls.

During the audit, you may need to produce additional documentation, such as:

  • Administrative and security policies
  • Cloud infrastructure agreements
  • IT security documentation
  • Third-party vendor contracts
  • Documents of previous security assessments or audits
  • List of users who have access to your systems
  • Record of system configurations and settings

The Challenges of Achieving SOC 1 Compliance

Meeting the requirements of a SOC 1 audit isn't a walk in the park. You need to set up procedures to collect evidence of implementing controls and map your information assets to the specific controls.

For SOC 1 Type 2 report, you also need the ability to continuously upload, organize, and retrieve the evidence throughout the year as you prepare for the audit.

Communication and coordination of all the personnel and activities can be challenging. If you don't have a well-orchestrated collaboration and tracking system, your process could become plagued by duplicate work and missing items.

Most organizations also need to meet multiple regulatory guidelines (e.g., HIPAA, the Sarbanes–Oxley Act,) regional and national laws, and industry standards — making things even more complicated.

The challenges multiply as companies implement more systems to handle business processes, and the number of devices used by employees proliferates, which can vastly increase the attack surface you have to safeguard.

How To Become SOC 1 Compliant Cost-Effectively

To overcome the various challenges and achieve ongoing compliance, savvy organizations are leveraging automation technologies to support policy and procedure creation, provide continuous reporting, map controls to control frameworks, conduct risk assessments, track remediation tasks, deliver security awareness education, identify vulnerabilities, and more.

One of the keys to achieving and maintaining SOC 1 compliance is to ensure that every employee is doing their part as they perform their day-to-day duties.

But companies realize that the traditional top-down "big brother" approach isn't the best way to keep all the endpoint devices safe and ensure that employee behaviors aren't impacting data security.

To stay SOC 1 compliant cost-effectively, you need to get everyone on board through employee training and education.

But we all know, getting the whole company on a Zoom meeting and making everyone watch yet another boring Powerpoint presentation won't get you very far.

There's a better way.

Alerting end-users of issues and providing easy-to-follow self-remediation steps at the point of performance is the most effective way to help employees adhere to your policy for ongoing compliance.

Built on the principles of Honest Security, Kolide is a new breed of device management software that enables you to crowdsource cybersecurity. You can communicate your policy and rally employees around your information security goals without rigid management.

Try Kolide for free and see how we can help you pass your SOC 1 audit with flying colors.

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