Designed to look into the financial statements of service organizations, SOC reports can be incredibly valuable. They can provide companies with information about service organizations they’re interested in working with, such as payroll companies, to ensure the service organization has proper controls over their finances and other aspects of the business, depending on the SOC report that’s requested. For due diligence, the SOC 1 report may be the most common one to be requested. Before requesting a SOC 1 report, there are a few things the company’s owner should understand.
What is in a SOC 1 Report?
A SOC 1 Report will include various components that overview the system being tested and the results of those tests. The tests are designed to review the internal controls over the financial reporting for the company. The first section of the report will have the auditor’s report with their opinion. The auditor’s opinions can be an unqualified opinion or a qualified opinion. Two other types of opinions that might be found are the adverse opinion or a disclaimer of opinion. The following sections will have the management’s assertion, the description of the system, and the rules used for testing. There may be other information added to the report as needed.
What Restricted-Use Means
SOC 1 reports are considered restricted-use because of the information they contain. The information contained in the SOC 1 report can include specific financial information as well as information about the controls used by the company, so it’s important the document does not become public. This report is intended to be viewed only by management of the service organization, any companies that need it to work with the service organization, and the auditors for those companies.
How the SOC 1 Report is Different From Other SOC Reports
There are 4 different SOC reports, each of which will cover a different topic. The SOC 1 includes information on the internal control over financial reporting. SOC 2 includes information on controls for security, availability, confidentiality, and related topics. The SOC 3 focuses on similar topics but is a general-use report. The information in the SOC 3 is limited so it can be shared with more people who may want to review it. The last SOC report is the SOC for cybersecurity, which focuses on the effectiveness of the service organization’s risk management system with regard to cybercrimes.
The Two Types of SOC 1 Reports
The SOC 1 can be Type 1 or Type 2. Type 1 includes a test of the controls at a certain period of time, typically a single day. They might test the design of the controls, but this type of report generally doesn’t cover the effectiveness of those controls. Type 2, on the other hand, covers a period of time instead of one particular date. This type overs the design and the effectiveness of the controls, typically over 12 months. Those who need to view the SOC report may prefer Type 1 or Type 2 depending on what their concerns are.
Businesses planning on working with a service organization will want to make sure they do their due diligence. As a part of this, they might want to take a look at the SOC reports, especially the SOC 1, so they can review the internal controls of the service organization. This helps prevent a variety of issues that could occur if the system is poorly planned or there are limited internal controls for the financial reporting of the service organization.
