What Is a SOC 1 Report?

In summary, a SOC 1 report contains an independent auditor’s opinion on controls at a service organization that are likely to be relevant to a user entity’s internal control over financial reporting. This is often seen when a provider supports functions like payroll processing, billing, revenue support, transaction processing, or hosting services that run financial applications. There are two types of SOC 1s: Type 1 and Type 2 reports. The following table summarizes the differences between Type 1 and Type 2 reports:

Report Type	What It Tells You	Timing
SOC 1 Type 1	Controls are suitably designed	As of a point in time
SOC 1 Type 2	Controls are suitably designed and operating effectively	Over a period of time

Why Do SOC 1 Reports Matter?

Using a service organization can make a business efficient and more scalable. At the same time, it also raises a question: How do you know outsourced processes are controlled well enough to support your operations and financial reporting?

When a service organization performs activities that affect your financial data, you still bear risk. A SOC 1 report can be a great way to evaluate that risk, support vendor oversight, and reduce surprises come audit time. With that said, a careful review is crucial.

What User Entities Should Review in a SOC 1

Documenting your SOC 1 review supports oversight, governance, and provides a clear trail for auditors and stakeholders. Consider documenting the following when reviewing the SOC 1:

Scope. Verify the legal entity, locations, systems, platforms, and specific services in scope. Keep an eye out for exclusions that matter to you (such as certain products, regions, or processing steps).
Report period. Check the coverage period and whether there’s a gap between the report end date and the period of coverage. If there is, consider obtaining a gap letter or other procedures to bridge the gap.
System and services description. Review how transactions flow. Consider the inputs you provide, processing steps the vendor performs, outputs or reports you rely on, and any assumptions regarding your responsibilities.
Key control objectives and controls. Identify which control objectives are relevant to your organization (e.g., authorization, completeness and accuracy, access controls, change management, interface controls). More controls aren’t necessarily better, rather, the right controls are what matters.
Testing performed and results (Type 2 reports). For Type 2 reports, review what was tested, the nature of the tests, and any deviations. A clean overall opinion may still include exceptions. Be sure to read the details and consider whether exceptions relate to the services you use. A “qualified opinion” will have a basis for qualified opinion section explaining the reason for qualification.
Complementary user entity controls (CUECs). CUECs are controls that your organization must perform for the vendor’s controls to work as intended. Some examples include reviewing exception reports, approving transactions before submission, reconciling vendor reports to your records, and managing access within your own environment. Confirm whether relevant CUECs are designed and implemented. If CUECs are relevant but not operating, your reliance on the SOC 1 might be limited.
Subservice organizations. Find out whether the vendor uses subservice organizations and whether they’re included in the report or “carved out.” If carved out, you may need separate assurance for those components. Consider the significance of the subservice organization before obtaining additional SOC 1 reports.
Significant exceptions and vendor responses. Focus on what went wrong, how often, and which control objectives were affected. Exceptions in high-risk areas may require follow-up even if they appear isolated. Review the vendor’s explanations to determine whether they’re reasonable and whether remediation was timely.

Final Thoughts

SOC 1 reports are most valuable when used as a tool. Ensure that the report is applicable to your organization, focus on the controls that are relevant, understand the exceptions and CUECs, and document clear conclusions. When analyzed properly, the review process can result in smoother audits and greater confidence in outsourced services.

Need Help?

If you’d like, we can provide you with a template that you can use as a starting point when reviewing a SOC 1 report.

Contact Ruben Delgado Powell at ruben.powell@brontidellc.com for a copy of this template.

What is a SOC 1 and Why Does it Matter?

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