Introduction to SOC Reports
Service Organization Control (SOC) reports are becoming a vital part of today’s business landscape. SOC reports are independent audit reports that examine how a service organization manages data, specifically focusing on the controls in place to protect it. These reports are issued by Certified Public Accountants (CPAs), like our firm at SingerLewak LLP, and come in three types: SOC 1, SOC 2, and SOC 3, each serving a different purpose and audience.
For the purpose of this education series, we will be focusing on both SOC 1 and SOC 2 reports.
Why SOC Reports are Important for Certain Businesses
In an era where cyber breaches, both internal and external, are becoming increasingly more common, SOC reports have become more important than ever. These reports provide assurance that service organizations have adequate controls and processes in place to secure their client’s data via the SOC 2, or for financial reporting in the case of a SOC 1 report.
Here are a few reasons why SOC reports are crucial for businesses:
Trust and Transparency:SOC reports provide transparency into a service organization’s operations and the effectiveness of its controls. This level of transparency helps build trust with clients, stakeholders, and other users that depend on their information and/or data processing systems.
Risk Mitigation: By identifying that proper internal controls are in place, and that potential weaknesses in a service organization’s controls have been identified (and hopefully remediated), SOC reports help businesses mitigate risks associated with data security, privacy, and confidentiality. A SOC report can be very cost and time efficient in that you only need to be audited once, by your SOC audit firm (e.g., SingerLewak LLP), instead of by each client’s internal or external auditors.
Regulatory Compliance:Many industries may have requirements stating that businesses must demonstrate that they have effective internal controls in place over financial reporting or information security (e.g., healthcare, defense, payment card processing). A SOC report be shared with specified report users (e.g., clients) and can help communicate how you meet these certain control requirements.
Competitive Advantage:In a crowded vendor marketplace, having performed a SOC audit can differentiate a business from its competitors by sending a signal to your current clients and prospects that you are serious about internal controls and data security. Having received an unqualified SOC report opinion from a reputable audit firm (e.g., SingerLewak LLP), sends a strong signal to potential clients about your business’s commitment to data security and risk mitigation posture.
Real-World Examples of How SOC Reports Provide Value
Let’s look at some real-world examples of how SOC reports provide value:
Example 1:A cloud solutions provider obtains a SOC 2 report to demonstrate to its clients that it has robust data security controls in place. This not only helps the provider meet regulatory requirements, but also gives it a competitive edge in the market with prospects that require these controls to be in place with their key vendors. Companies of frankly all sizes are now requiring SOC 2 reports of their key cloud solutions providers as part of their third-party risk and cybersecurity programs.
Example 2:A financial institution outsources its data processing to a third-party service provider. The institution requests the provider to furnish a SOC 1 report to ensure that the provider has effective controls in place to ensure that the institution’s financial data is processed securely with proper IT general controls (ITGCs) in place. In this instance, the third-party service provider would likely lose its financial institution client without a SOC 1 report.
Example 3:A healthcare company uses a third-party IT managed services provider (MSP) to host its patient data. The company requests that IT MSP provide a SOC 2 report to verify that the firm has appropriate controls in place, which align with their own IT internal controls framework, to protect its patients’ protected sensitive health information.
Conclusion
SOC reports play a critical and increasing role in today’s business environment, especially considering the prevalence of cyber breaches. These reports provide valuable insights into a service organization’s control environment and the effectiveness of these controls. The availability of SOC reports, from a reputable audit firm (e.g., SingerLewak LLP), help businesses mitigate risks, meet regulatory requirements, and build trust with their own clients and stakeholders.
If you have any questions about SOC reports, the process to become ready for a SOC audit, or whether you think you may need a SOC report in the future, please contact me at [email protected]. We are here to help!