In the world of SOC compliance, SOC 2 is more widely recognized than SOC 1. SOC 2 is a critical player in every successful B2B software-as-a-service (SaaS) firm’s story: once they have been audited & certified, they can gain the trust of their customers and win business much more quickly. SOC 1 compliance is the underrated sidekick that plays a narrower but equally vital role as SOC 2 Compliance.
In this blog post, we’ll put SOC 1 compliance in the spotlight, allowing you to learn about the key aspects of this framework.
What is a SOC 1 Report?
Created and defined by the American Institute of Certified Public Accountants (AICPA), SOC 1 reports are designed for firms (known as service organizations) that manage financial information on behalf of their customers. Having a SOC 1 compliance report confirms that the service organization has taken the necessary security measures to protect its customers’ financial data, particularly as it relates to financial reporting.
The goal of SOC 1 is to assess the design and operational implementation of service controls’ quality. A service organization identifies the key control objectives for the services it provides to its customers. Business processes (controls relating to the processing of customer information) and IT processes (controls concerning the security of customer information) are examples of controls designed to achieve those objectives.
There are two categories of SOC 1 reports:
- A SOC 1 Type I report describes an organization’s systems and generates a control evaluation at a specified point in time, whereas
- A SOC 1 Type II report assesses the operational effectiveness of controls over a specified period, typically 6 to 12 months.
These compliance reports reassure customers and stakeholders that the service organization has taken the appropriate precautions to safeguard company and customer data.
As a service provider, you must hire an independent, licensed CPA firm to perform a SOC 1 audit to assess your system-level and entity-level controls. The auditors will examine your organizational structure and its definition. They’ll also look to see if your organization has conducted formal risk assessments and implemented policies and processes to address all of the controls.
Which Industries Need a SOC 1 Report?
The focus of SOC 1’s applicability concerns service organizations that typically provide SaaS for outsourced tasks involving financial data, such as accounting, payroll processing, medical claim processing, and other similar services, where internal controls over financial reporting are important.
Here are some examples of industries that rely on SOC 1 compliance:
- Payroll administrators
- Loan processors
- Collection agencies
- Fulfillment companies
- Medical claim processors
- Accounting and financial service providers
Benefits of Having a SOC 1 Compliance Report
SOC 1 compliance demonstrates that your company can securely communicate with, transmit, and store financial data and financial statements from users.
A SOC 1 report demonstrates to management, investors, auditors, and customers that your financial reporting internal controls comply with AICPA requirements. Of all these audiences, it is typically customers and prospective customers who are the most important – if you’re not SOC 1 compliant, they won’t trust you and will likely not buy from you.
To pass their audits, many large companies require their providers also to provide a SOC 1 report. As a result, being SOC 1 compliant can help you expand your business.
Here are some benefits to a service organization of being SOC 1 certified:
For attracting new customers and retaining existing customers
- Build customer trust by providing them assurance that their information is safe
- Demonstrate to your customers that you are committed to information security
- Build customer confidence that your organization’s policies and business processes can support their operations
- Have the necessary internal controls in place to provide high-quality service to customers
For optimizing your company’s internal operations
- Develop security awareness and a compliance culture throughout your company
- Boost your cybersecurity defenses and reduce the chance of data leaks
- Overcome blind spots and find flaws that aren’t being noticed by the inside staff
- Optimize risk management and the strategic allocation of cybersecurity resources by the SOC 1 framework
Challenges You May Face in Getting SOC 1 Certified
- Manual Effort: Gathering, mapping, and managing audit evidence manually is both time-consuming and prone to errors.
- Coordination Issues: Poor collaboration across teams results in duplicate work and incomplete documentation.
- Growing Complexity: Cloud adoption and an increasing number of connected devices expand the cybersecurity attack surface.
- Regulatory Overload: Juggling multiple frameworks, such as HIPAA and SOX, strains resources and adds to the compliance burden.
Security, AI Risk Management, and Compliance with Akitra!
In the competitive landscape of SaaS businesses, trust is paramount amidst data breaches and privacy concerns. Akitra addresses this need with its leading AI-powered Compliance Automation platform. Our platform empowers customers to prevent sensitive data disclosure and mitigate risks, meeting the expectations of customers and partners in the rapidly evolving landscape of data security and compliance. Through automated evidence collection and continuous monitoring, paired with customizable policies, Akitra ensures organizations are compliance-ready for various frameworks such as SOC 1, SOC 2, HIPAA, GDPR, PCI DSS, ISO 27001, ISO 27701, ISO 27017, ISO 27018, ISO 9001, ISO 13485, ISO 42001, NIST 800-53, NIST 800-171, NIST AI RMF, FedRAMP, CCPA, CMMC, SOX ITGC, and more such as CIS AWS Foundations Benchmark, Australian ISM and Essential Eight etc. In addition, companies can use Akitra’s Risk Management product for overall risk management using quantitative methodologies such as Factorial Analysis of Information Risks (FAIR) and qualitative methods, including NIST-based for your company, Vulnerability Assessment and Pen Testing services, Third Party Vendor Risk Management, Trust Center, and AI-based Automated Questionnaire Response product to streamline and expedite security questionnaire response processes, delivering huge cost savings. Our compliance and security experts provide customized guidance to navigate the end-to-end compliance process confidently. Last but not least, we have also developed a resource hub called Akitra Academy, which offers easy-to-learn short video courses on security, compliance, and related topics of immense significance for today’s fast-growing companies.
Our solution offers substantial time and cost savings, including discounted audit fees, enabling fast and cost-effective compliance certification. Customers achieve continuous compliance as they grow, becoming certified under multiple frameworks through a single automation platform.
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FAQs
What is the difference between SOC 1 Type I and SOC 1 Type II audits?
Type I evaluates control design at a specific point in time, while Type II assesses control effectiveness over a period of 6–12 months. Type II provides stronger assurance for customers.
Which industries require SOC 1 audit reports for outsourced financial services?
Industries such as payroll, loan processing, and medical claims rely on SOC 1 to ensure the security of their financial data. It’s essential for regulatory trust and customer confidence.
What are the challenges of achieving SOC 1 certification without compliance automation?
Manual SOC 1 audits can lead to missing evidence, poor collaboration, and audit delays. Compliance automation streamlines processes and reduces human error.
