SOC 1 - Internal Controls Over Financial Reporting
Strengthen Financial Reporting Trust
In today's interconnected business environment, organizations increasingly rely on service providers for critical financial processes—from payroll processing and transaction processing to payment services and benefits administration. When your clients depend on your services as part of their own financial reporting, the integrity and reliability of your internal controls become paramount. Financial statement auditors require assurance that your controls are adequate and operating effectively. SOC 1 reports provide that critical validation. At Glocert International, we specialize in conducting independent SOC 1 audits that evaluate your internal controls over financial reporting (ICFR). As experts in the Testing, Inspection, and Certification industry, we conduct thorough SOC 1 examinations under SSAE 18 and ISAE 3402 standards, helping service organizations demonstrate control effectiveness, meet audit requirements, build client trust, and support their customers' financial reporting obligations.
What is SOC 1?
SOC 1 (System and Organization Controls 1) is an audit report on a service organization's controls that are relevant to user entities' internal control over financial reporting (ICFR). SOC 1 reports are issued under two primary frameworks: SSAE 18 (Statement on Standards for Attestation Engagements No. 18) in the United States and ISAE 3402 (International Standard on Assurance Engagements) internationally.
SOC 1 reports focus specifically on controls that could materially impact the financial statements of client organizations (user entities). These reports are designed for users who need detailed information about the service organization's control environment and are restricted-use reports intended for user entities and their auditors.
Key Components of SOC 1 Reports
- Management Assertion: Service organization's description of its system and management's assertion about control objectives
- Service Auditor's Report: Independent CPA's opinion on the fairness of the description and effectiveness of controls
- System Description: Detailed description of the service organization's system including controls
- Control Objectives: Specific objectives that controls are designed to achieve
- Control Activities: Detailed description of controls implemented to meet objectives
- Test Results: For Type 2, results of testing control operating effectiveness
- Complementary User Entity Controls (CUECs): Controls that user entities must implement
- Other Information: Any exceptions, qualifications, or other relevant information
Why is SOC 1 Important?
SOC 1 audits are critical for service organizations that process financial transactions or handle financial data for clients. Here's why SOC 1 reports are essential:
1. Financial Audit Requirements
External auditors conducting financial statement audits need assurance about service organization controls:
- Auditing standards (AU-C 402, ISA 402) require auditors to understand and evaluate service organization controls
- Without SOC 1 reports, auditors must perform extensive alternative procedures at service organization
- SOC 1 reports reduce audit costs and timeline for both service organization and user entities
- User auditors rely on SOC 1 reports to assess impact on financial statement assertions
- SOC 1 Type 2 reports provide evidence of control operating effectiveness over time
2. Client Requirements and Trust
Organizations increasingly require SOC 1 reports from their service providers:
- Clients facing financial audits demand SOC 1 reports to satisfy their auditor requirements
- Public companies and regulated entities typically mandate SOC 1 for critical service providers
- SOC 1 reports demonstrate commitment to control excellence and transparency
- Absence of SOC 1 report may result in lost business or client attrition
- SOC 1 reports differentiate service providers in competitive markets
3. Risk Management and Internal Control
SOC 1 audits drive internal control improvements through independent assessment of control design, identification of control gaps and weaknesses, validation of control operating effectiveness, continuous improvement through annual examinations, and enhanced governance and accountability.
4. Regulatory Compliance
Many regulatory frameworks reference or require SOC reports including Sarbanes-Oxley Act (SOX) Section 404 compliance for public companies, banking and financial services regulations, healthcare regulations for financial transactions (HIPAA), and outsourcing risk management requirements from regulators.
SOC 1 Type 1 vs SOC 1 Type 2
SOC 1 examinations come in two types with different scopes and purposes:
SOC 1 Type 1
Focus: Design of Controls
Scope: Assesses whether controls are suitably designed to meet control objectives at a specific point in time (typically as of a specific date).
Testing: Service auditor evaluates control design but does not test operating effectiveness.
Use Case: Organizations establishing new controls, preparing for Type 2 examination, or where user entities only require design assessment.
Timeline: Shorter engagement, typically 4-8 weeks.
SOC 1 Type 2
Focus: Design and Operating Effectiveness
Scope: Assesses whether controls are suitably designed AND operating effectively throughout a period (minimum 6 months, typically 12 months).
Testing: Service auditor tests controls over the entire reporting period to validate operating effectiveness.
Use Case: Most user auditors and clients require Type 2 for financial audit purposes as it provides evidence of sustained control effectiveness.
Timeline: Longer engagement requiring testing throughout reporting period.
Recommendation: SOC 1 Type 2 reports are strongly preferred by user auditors and provide significantly more value to clients. Most service organizations should pursue Type 2 examination covering at least 6 months (preferably 12 months) of operations.
Benefits of SOC 1 Audit
Achieving SOC 1 audit provides service organizations with numerous commercial, operational, and reputational benefits:
Meet Audit Requirements
Satisfy user auditor requirements and reduce client audit costs.
Client Retention
Maintain and attract clients who require SOC 1 reports from providers.
Competitive Advantage
Differentiate from competitors without SOC 1 reports.
Control Excellence
Independent validation of internal control design and effectiveness.
Risk Mitigation
Identify and remediate control gaps before they cause issues.
Operational Efficiency
Streamlined processes and reduced redundant client audits.
Market Access
Access to enterprise and public company clients requiring SOC 1.
Stakeholder Confidence
Enhanced trust from clients, investors, and regulators.
Our SOC 1 Audit Process
At Glocert International, we follow a structured and systematic approach to conduct SOC 1 audits under SSAE 18 and ISAE 3402 standards:
Pre-Audit Assessment
Initial consultation to understand your services, identify financially relevant controls, and assess readiness for SOC 1 examination.
Engagement Planning
Define scope, control objectives, reporting period, and audit timeline. Develop detailed audit plan and request documentation.
System Understanding
Review management's system description, understand processes and controls, and validate control objectives.
Control Testing (Type 2)
Test controls throughout the reporting period including inquiry, observation, inspection, and reperformance.
Issue Identification
Document any control deficiencies, exceptions, or deviations discovered during testing.
Report Drafting
Prepare draft SOC 1 report including service auditor's opinion, system description, and test results.
Management Review
Review draft report with management, address questions, and finalize management assertion.
Final Report Issuance
Issue final SOC 1 report with service auditor's signature for distribution to user entities and their auditors.
Who Needs SOC 1 Audit?
SOC 1 audits are essential for service organizations whose services impact user entities' financial reporting. Common examples include:
Financial Services
- Payment processors and merchant acquirers
- Payroll service providers
- Benefits administration providers
- Loan servicing companies
- Transfer agents and registrars
- Claims processing organizations
Technology and Cloud Services
- SaaS providers with financial applications (ERP, accounting, billing)
- Cloud infrastructure providers hosting financial systems
- Data centers housing financial applications
Business Process Outsourcing (BPO)
- Accounting and bookkeeping services
- Accounts payable/receivable processing
- Revenue cycle management
- Financial transaction processing
Other Service Organizations
- Healthcare clearinghouses processing financial transactions
- Third-party administrators (TPAs)
- Investment management and custody services
- Any organization processing financial transactions for clients
Key Indicator: If your services are likely to be relevant to user entities' internal control over financial reporting, you need a SOC 1 audit.
SOC 1 Audit Pricing
Our SOC 1 audit pricing is transparent and based on your organization's size, complexity, and scope. We offer competitive rates with no hidden fees.
Request a Quote
Get a personalized estimate based on your organization's services, control environment, and audit requirements.
Contact Us for PricingWhat's Included in SOC 1 Audit Pricing:
- Pre-audit readiness assessment and consultation
- Engagement planning and scoping
- Control design evaluation (Type 1) or operating effectiveness testing (Type 2)
- Service auditor's examination under SSAE 18/ISAE 3402
- Comprehensive SOC 1 report with service auditor's opinion
- Management assertion review and support
- Draft report review sessions with management
- Post-audit consultation and remediation guidance
Note: SOC 1 pricing varies based on number of control objectives, complexity of services, number of locations, report type (Type 1 vs Type 2), and reporting period length. Contact us for a detailed, no-obligation quote.
Frequently Asked Questions (FAQ)
Find answers to common questions about SOC 1 audits:
SOC 1 is an audit report on controls at a service organization that are relevant to user entities' internal control over financial reporting (ICFR). Service organizations need SOC 1 when they process financial transactions, maintain financial data, or provide services that impact clients' financial statements. Common examples include payroll processors, payment processors, benefits administrators, loan servicers, claims processors, and SaaS providers with financial applications. If your clients' auditors ask about your controls, you need a SOC 1 report.
SOC 1 Type 1 reports on the design of controls at a specific point in time without testing operating effectiveness. SOC 1 Type 2 reports on both design and operating effectiveness of controls over a period (minimum 6 months, typically 12 months) and includes testing results. Type 2 is strongly preferred by user auditors as it provides evidence that controls operated effectively throughout the period. Most clients and auditors require Type 2 reports.
The timeline varies by audit type and complexity. SOC 1 Type 1 typically takes 4-8 weeks from engagement to report issuance. SOC 1 Type 2 requires a minimum 6-month reporting period (preferably 12 months) plus 6-10 weeks for testing and reporting after the period ends. First-time audits take longer than subsequent annual examinations. Organizations should begin planning 3-6 months before they need the report.
SOC 1 focuses on controls relevant to user entities' financial reporting, while SOC 2 focuses on trust service criteria (security, availability, processing integrity, confidentiality, privacy). SOC 1 is required when your services impact clients' financial statements. SOC 2 is required when clients need assurance about your security and data protection controls. Many service organizations need both—SOC 1 for financial processes and SOC 2 for security. The reports have different users (SOC 1 for auditors, SOC 2 for management).
Control objectives are the specific aims that controls are designed to achieve at the service organization. They should be relevant to user entities' internal control over financial reporting. Examples include completeness and accuracy of transactions processed, proper authorization of transactions, timely recording of transactions, safeguarding of assets and data, and restricted access to systems and data. Control objectives are tailored to each service organization's specific services and should align with financial statement assertions (existence, completeness, accuracy, valuation, rights and obligations).
CUECs (Complementary User Entity Controls) are controls that user entities (clients) must implement to achieve the complete set of control objectives. Service organizations cannot control all aspects of the process—user entities must implement certain controls on their end. For example, a payroll processor cannot prevent a user entity from entering fraudulent employee data, so the user entity must maintain controls over data entered into the payroll system. CUECs should be clearly identified in the SOC 1 report, and user auditors must test these controls at the user entity.
SOC 1 audit costs vary significantly based on organization size, number of control objectives, complexity of services, number of locations, Type 1 vs Type 2, and whether it's a first-time or subsequent examination. Costs typically range from $15,000 to $50,000+ for most service organizations. Type 2 audits cost more than Type 1 due to extended testing. Multi-location audits increase costs. First-time audits are more expensive than renewal audits. The investment is typically justified by client retention, new business opportunities, and reduced user entity audit costs. Contact us for a specific quote.
SOC 1 audits should be performed annually to maintain continuous assurance for user entities and their auditors. Most organizations maintain a rolling 12-month Type 2 reporting period, obtaining a new SOC 1 report each year. Some organizations obtain interim (bridge) reports to provide continuous coverage between annual reports. User auditors typically require SOC 1 reports that cover the user entity's fiscal year or at least a substantial portion of it. Gaps in SOC 1 coverage may require user auditors to perform alternative procedures.
Yes, SOC 1 reports are intended to be shared with user entities (clients) and their auditors. However, SOC 1 reports are restricted-use reports under professional standards, meaning they should only be distributed to specified parties (user entities and their auditors) who understand the purpose and limitations of the report. You should not publicly post SOC 1 reports on your website. Many organizations require non-disclosure agreements (NDAs) before distributing SOC 1 reports to protect sensitive information about their control environment.
If the service auditor identifies control deficiencies or exceptions during testing, they must be disclosed in the SOC 1 report. Deficiencies don't necessarily result in a qualified (modified) opinion if they don't prevent the achievement of control objectives. However, significant deficiencies may lead to a qualified opinion or disclaimer of opinion. Service organizations should remediate deficiencies and may choose to extend the reporting period to demonstrate corrected controls. User auditors will assess the impact of deficiencies on their audit and may need to perform additional procedures. Proactive identification and remediation of deficiencies demonstrates strong governance.
Why Choose Glocert for SOC 1 Audits?
Expertise in SOC Audits
Our team of experienced auditors possess in-depth knowledge of SSAE 18, ISAE 3402, internal controls over financial reporting (ICFR), and financial audit requirements. We understand what user auditors need and how to structure SOC 1 reports that satisfy their requirements. Our auditors bring backgrounds in public accounting, financial auditing, and service organization controls, ensuring thorough and credible SOC 1 examinations.
Tailored Solutions
We understand that every service organization is unique with different services, control environments, and client requirements. Glocert International offers customized SOC 1 audit approaches tailored to your specific services and control objectives. Whether you're a payroll processor, payment service provider, SaaS company, or BPO organization, we adapt our examination to your business model and ensure your SOC 1 report addresses your clients' needs.
Independence and Impartiality
As an independent CPA firm conducting SOC 1 examinations, Glocert International provides unbiased, objective assessments of your control environment. Our independence ensures that your SOC 1 report will be trusted and accepted by user auditors globally. We maintain strict quality control standards and professional skepticism throughout our examinations.
Efficient Process
We recognize that SOC 1 audits can be resource-intensive. Our structured, efficient approach minimizes disruption to your operations while ensuring thorough examination. We leverage technology, clear communication, and experienced teams to streamline the audit process and deliver your SOC 1 report on schedule.
Related Services
Many service organizations need multiple types of assurance. Glocert International also provides SOC 2 audits for security and trust service criteria, as well as ISO 27001 certification for information security management systems. We can coordinate multiple engagements to maximize efficiency and reduce costs.
Unlock the Full Potential of Your Organization
Contact us today to learn more about our SOC 1 audit services and how we can help you demonstrate control excellence to your clients and their auditors.
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