Service Organization Control (SOC)

The delivery of financial services relies on digital tools and interconnected systems that are vulnerable to data integrity issues and cyberattacks. Users of these services need to know that the internal controls employed by service organizations protect user data and ensure that financial statements are accurate. Service Organization Control (SOC) reports are designed to evaluate and communicate the effectiveness of a service organization’s internal controls. SOC reports are typically prepared by independent auditors and are based on the American Institute of Certified Public Accountants (AICPA) standards.

SOC reports are critical to the financial services industry, not only to prove compliance with federal laws such as the Sarbanes-Oxley Act, but also for evaluating security and privacy strategies. Regular self-assessment of identity and access management processes is crucial in today’s global economy, where cybercrime is an omnipresent, ever-evolving threat.

There are several types of SOC reports, each tailored to different needs and levels of assurance. SOC 1 reports examine a service organization’s ability to achieve their objectives and usually focus on controls over financial reporting. SOC 2 reports address an organization’s controls over security, processing integrity, confidentiality, and other criteria prescribed by the AICPA. SOC 3 reports are similar to SOC 2 reports but are intended for general distribution and can be shared with a broader audience, including potential customers.

The process of obtaining a SOC report involves a thorough audit of the service organization’s controls. This includes an independent assessment of the design and operating effectiveness of these controls over a specified period. The auditor will review policies, procedures, and documentation to ensure that the controls are appropriately designed and functioning as intended. The resulting report provides user entities with a detailed understanding of the service organization’s control environment, helping them to make informed decisions about the risks associated with using the organization’s services. This transparency and assurance are crucial in the financial services industry, where trust and compliance are paramount.