What Is a SOC Audit? Types and Process Explained

A System and Organization Controls (SOC) audit is an independent examination of a service organization’s internal controls. This assessment provides assurance about the effectiveness of controls related to security, availability, processing integrity, confidentiality, or privacy. The primary purpose of a SOC audit is to offer transparency and build trust between a service organization and its user entities. It provides an objective evaluation of how a service provider manages and protects data or systems for its clients.

Types of SOC Reports

SOC reports clarify the different forms an audit can take, each designed for specific purposes and audiences. Each report type addresses different aspects of a service organization’s control environment.

A SOC 1 report focuses on a service organization’s internal controls over financial reporting (ICFR). This report helps user entities and their auditors assess how the service organization’s controls might impact the user entity’s financial statements. Organizations that process financial transactions, such as payroll processors or medical claims processors, often provide SOC 1 reports.

In contrast, a SOC 2 report concentrates on controls related to security, availability, processing integrity, confidentiality, and privacy, collectively known as the Trust Services Criteria (TSC). This report is particularly relevant for technology and cloud service providers that handle sensitive data.

The Security criterion, which is mandatory for all SOC 2 reports, ensures information and systems are protected against unauthorized access, disclosure, or damage. Availability focuses on whether systems and information are accessible for operation and use to meet the entity’s objectives. Processing Integrity addresses whether system processing is complete, valid, accurate, timely, and authorized. Confidentiality pertains to the protection of information designated as confidential to meet the entity’s objectives. Privacy relates to the collection, use, retention, disclosure, and disposal of personal information.

A SOC 3 report is a general-use report derived from a SOC 2 audit. It provides a high-level overview of an organization’s controls without the detailed description of tests and results found in a SOC 2 report. This concise format allows for free distribution, often used for public consumption or marketing purposes.

Beyond the specific focus areas, SOC reports are further categorized as either Type 1 or Type 2. A Type 1 report describes the service organization’s controls and assesses the suitability of their design at a specific point in time. A Type 2 report goes further by evaluating the suitability of the design and the operating effectiveness of controls over a period of time, typically six months to a year. This type of report provides a higher level of assurance regarding the consistent performance of controls.

Why Organizations Undertake SOC Audits

Service organizations choose to undergo SOC audits for several compelling reasons, reflecting both external pressures and internal governance objectives. These audits serve as a mechanism to demonstrate accountability and strengthen relationships with clients and stakeholders.

A primary driver for SOC audits is customer and client demands. User entities frequently require service organizations to provide SOC reports as a prerequisite for engaging in or continuing business relationships, especially when sensitive data or critical processes are involved. This requirement helps clients assess the reliability and security of their third-party service providers.

Undergoing a SOC audit helps build trust and assurance with clients and other stakeholders. An independent validation of a service organization’s control environment enhances credibility and demonstrates a commitment to security and operational excellence. It provides an objective assessment of the control framework in place.

Regulatory and compliance requirements also play a substantial role. Certain industries or data handling practices may necessitate SOC reports to meet specific mandates, such as those related to healthcare data or financial reporting. While not always legally mandated across the board, these reports can help demonstrate adherence to industry standards and regulations.

A SOC audit contributes to effective risk management within the service organization. The audit process helps identify and address internal control weaknesses, thereby reducing operational and reputational risks. This ongoing assessment supports continuous improvement in data protection and system integrity.

Having a SOC report can offer a competitive advantage in the marketplace. It differentiates an organization from competitors that may not provide such independent assurance. A “clean” SOC report signals a robust control environment, which can attract new clients and strengthen existing partnerships.

Understanding the SOC Audit Process

The SOC audit process involves a series of structured phases designed to thoroughly evaluate a service organization’s controls. Each step requires collaboration between the service organization and the independent auditor.

The process typically begins with scoping and planning. During this initial phase, the service organization and the auditor work together to define the exact scope of the audit. This includes identifying the specific services and systems to be covered, determining which Trust Services Criteria are relevant for SOC 2 reports, and establishing the audit period.

Many organizations opt for a readiness assessment, which is an optional but frequently conducted preliminary step. This assessment helps identify any gaps or deficiencies in their control environment before the formal audit commences.

Following preparation, the fieldwork and evidence collection phase begins. Auditors gather evidence by reviewing documented policies and procedures, interviewing key personnel, and observing operational processes. They also perform tests on selected controls to determine their operating effectiveness. The service organization provides necessary documentation and access to systems and personnel during this period.

The audit culminates in the reporting phase, where the auditor compiles all findings into the formal SOC report. This comprehensive document details the audit’s scope, the controls evaluated, the testing performed, and the results.

In cases where control deficiencies are identified, the organization typically works to remediate them. While not strictly part of the audit itself, follow-up actions ensure that identified weaknesses are addressed.

Key Components of a SOC Report

A completed SOC report is a structured document that provides detailed insights into a service organization’s control environment. Each section serves a specific purpose, contributing to a comprehensive understanding of the audit’s findings.

One foundational component is Management’s Assertion. This is a formal statement from the service organization’s management affirming the accuracy of the system description and asserting that the controls were suitably designed. For Type 2 reports, management also asserts that the controls operated effectively over the specified period.

The Independent Service Auditor’s Report presents the auditor’s opinion on management’s assertion. This opinion is a critical part of the report, indicating the auditor’s professional judgment regarding the effectiveness of the controls. Opinions can range from “unqualified,” meaning the controls are effective, to “qualified,” “adverse,” or a “disclaimer,” each signaling varying degrees of concern or inability to form an opinion.

The System Description is a detailed narrative provided by the service organization, outlining the services offered and the system used to provide them. This section includes information about the people, processes, technology, and controls within the scope of the audit.

For SOC 2 and SOC 3 reports, the report will include the Applicable Trust Services Criteria. This section maps the service organization’s controls to the relevant criteria (security, availability, processing integrity, confidentiality, and privacy) that were included in the audit scope.

Finally, the report contains a Description of Controls and Tests of Controls. This section, particularly detailed in Type 2 reports, lists the specific controls implemented by the service organization to meet its objectives. It also presents the results of the auditor’s tests on these controls, including any identified exceptions or deficiencies.