How to Prepare for a SOC 1 Examination

Key Takeaways

• Define Scope and Perform a Pre-Assessment: Establish audit scope (Type 1 vs. Type 2) early and use a pre-assessment to identify control gaps before the audit begins.
• Implement and Document Strong Controls: Strengthen or add key financial, access, change management, and incident response controls, supported by clear policies and procedures.
• Train Staff and Assess Risk Regularly: Ensure employees understand control responsibilities and conduct documented financial and IT risk assessments at least annually.
• Test and Monitor Controls Continuously: Perform control testing prior to the audit period and treat SOC 1 compliance as an ongoing process, not a one-time effort.

A SOC 1 audit assures that a service organization’s internal controls are designed and operating effectively to safeguard financial data. Preparing for a SOC 1 audit can be a time intensive exercise, but it will benefit an organization to verify that internal controls related to financial reporting are well-documented, implemented, and in a SOC 1 Type 2 operating effectively. Below are the steps involved in preparing for a SOC 1 audit.

Scope of Engagement & Pre-Assessment

The first step in the process is determining the scope of the engagement. Scope encompasses what system(s) and process(es) are part of the audit, as well as whether the controls will be tested as of a point in time (Type 1 – Design of the control objectives are tested only) or over a period of time (Type 2 – Design and operating effectiveness of the control objectives are tested). Once the scope is determined, most companies undergo a pre-assessment process. This step allows the company to identify control objectives and related controls for security and transactions, as well as identify any control gaps that may need to be filled, prior to the start of the audit.

Controls

If control gaps are identified as a result of the pre-assessment, new controls will need to be implemented. In some cases, existing controls can be strengthened to meet the requirements identified as part of the pre-assessment. Types of controls frequently encompassed in a variety of SOC 1 reports are:

• Access Controls – Restricting access to financial systems to appropriate personnel
• Change Management Controls – Standards for financial system updates and modifications
• Financial Processing Controls – Maintain the accuracy and completeness of financial transactions and how they are recorded
• Incident Management Controls – Plans to address financial system failures, breaches, or errors.

Concurrent with the gap analysis, employees should receive training on their internal control related responsibilities and upcoming audit expectations. This is also a good time to validate that good documentation is in place for policies and procedures, especially those covered by controls in the organization’s SOC 1. In most cases, controls will test that a policy is in place and then verify that processes or controls are being handled in accordance with the documentation. Finally, a risk assessment covering both financial and IT security should be undertaken and documented on an annual basis at a minimum. Part of the audit, regardless of whether there is a formal control around it or not, will be for the auditor to evaluate whether the company performs regular risk assessments.

Testing Controls

The last step involves abbreviated control testing to verify that all controls are in place, and, in the case of a Type 2 report, operating prior to the start of the audit period. This activity helps identify and remediate any exceptions that might be uncovered during the audit prior to the audit period starting.

Completing all of the above steps should put an organization down the right path for a successful SOC 1 examination. Keep in mind, the SOC 1 audit is an ongoing process, not just a one-time thing. It is important to monitor controls and respond to auditor feedback to ensure that they remain effective.

For more information on these services and more, be sure to visit our SOC services pages. If your entity is interested in obtaining any additional information on SOC 1 reports, or if there are any other questions related to SOC, don’t hesitate to contact Dave Hammarberg, CPA, CFE, CISSP, GSEC, MCSE, CISA, CHQP, CCSFP, CCA.

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