The growing importance of System and Organization Controls (SOC) audits

By Mark W. Banks, CPA, CFE, MAFF and Alexis Aucker, CPA 

Trust and transparency have become the cornerstones of successful business relationships in an increasingly interconnected and digital world. 

System and Organization Controls (SOC) reports, a product of SOC audits, are emerging as essential tools for organizations to demonstrate their commitment to integrity, reliability, and operational excellence. 

The demand for SOC reports has been steadily growing across industries. Potential vendors, customers, donors, and grantors often request these reports before entering into business relationships or providing funding. Without one, organizations risk missing out on valuable opportunities.  

Obtaining a SOC report is no longer just a competitive advantage; it’s becoming an industry best practice. Organizations that wait until the need becomes urgent may already be too late to meet client or regulatory expectations. Proactively engaging in a SOC audit enhances your organization’s credibility and ensures you're ready to answer questions. 

What Is a SOC Report? 

A SOC report is the outcome of a SOC audit conducted by independent auditors to evaluate an organization’s internal controls. The report allows users to gain comfort that an organization is operating in a compliant and ethical manner. There are two primary types of SOC reports:  

• SOC 1 Report: SOC 1 Audits focus on financial processes and financial reporting, assessing whether internal controls are robust enough to ensure accurate financial reporting, confirm that data and systems are secure, and communicates your risk management framework to users of your organization. For example, a SOC 1 audit might reveal financial data transmission software vulnerabilities, prompting the organization to adopt more secure systems. 

• SOC 1 Type 1: Assesses the design of controls as of a specific date. 

• SOC 1 Type 2: Examines controls' design and operational effectiveness over a specific period, typically six to twelve months. 

• SOC 2 Report: Audits delve into the organization’s cyber resilience and data protection practices, examining criteria such as safeguards against unauthorized access, system reliability and capacity to meet demands, accuracy and completeness of data processing, and protection against unauthorized access and data breaches. Auditors also evaluate employee training, software suitability, and system updates to ensure comprehensive risk management.  

• SOC 2 Type 1: Assesses the design of controls as of a specific date. 

• SOC 2 Type 2: Examines controls' design and operational effectiveness over a specific period, typically six to twelve months. 

Both types follow a standardized structure, including independent auditor opinions, management assertions, descriptions of systems, and detailed control evaluations. 

Determining the right SOC report for your organization 

The choice between SOC 1 and SOC 2 depends on the report’s intended users: 

• SOC 1 Reports: Primarily used by management, user entities, and auditors evaluating financial reporting controls. The report includes five sections: 

1. Independent Service Auditor’s Report
2. Management of the Service Organization’s Assertion
3. Description of Service Organization’s Systems
4. Control Objectives and Related Controls (SOC 1 Type 1)
5. Control Objectives, Related Controls, Service Auditor’s Tests of Controls, and Results of Tests (SOC 1 Type 2)
6. Other Information Provided by the Service Organization’s Management (Optional)

• SOC 2 Reports: Often requested by management, stakeholders, and regulators to assess broader operational and cybersecurity controls, fostering trust in the organization’s systems. The report includes five sections: 

1. Service Organization Management’s Assertion
2. Independent Service Auditor’s Report
3. Description of Service Organization’s Systems
4. Trust Services Categories, Trust Services Criteria (TSC), and Related Controls (SOC 2 Type 1)
5. Trust Services Categories, Trust Services Criteria (TSC), Related Controls, Service Auditor’s Tests of Controls and Results of Tests (SOC 2 Type 2)
6. Other Information Provided by the Service Organization Management (Optional)

As data security concerns grow and more organizations are reliant upon service organizations, SOC audits are becoming particularly important for organizations in order to make informed decisions.  

Preparing for a SOC audit: Readiness assessments 

Before undergoing a full SOC audit, many organizations benefit from a readiness assessment. This preliminary evaluation is designed to assist you in evaluating the design of your internal controls, and to assess your preparedness for a SOC audit. The assessment will help you identify key controls as well as any control gaps that may exist in your processes. 

Comprehensive documentation of processes is critical for both readiness assessments and SOC audits. Organizations must update their written policies and procedures as operations evolve to reflect current practices.  

Bottom line 

SOC audits are more than just compliance checkboxes — they are opportunities for organizations to identify and address weaknesses in internal controls. They help assure clients that their information is safe, and services are reliable while helping businesses refine operations. 

At Boyer & Ritter, we specialize in guiding businesses through SOC audits, ensuring they meet industry standards and stand out as reliable partners. Let us help you protect your operations and earn the trust of your clients. 

About the authors

Mark W. Banks, CPA, CFE, MAFF is a Manager with Boyer & Ritter in the Advisory Services group and oversees the firm’s SOC services. Contact Mark at 717-761-7210 or mbanks@cpabr.com

Alexis Aucker, CPA, is a Senior Associate and a key member of the firm’s Advisory and Dealership groups. Contact Alexis at 717-761-7210 or aaucker@cpabr.com