SOC Reports: Strategies for Overcoming Common Challenges

As service organizations grow and expand their services, they may find themselves in need of a system and organization controls (SOC) report.

A SOC report is an independent assessment of a service organization’s internal controls and processes, providing assurance to customers and stakeholders their data is being handled securely and accurately.

Issuing a SOC report for the first time can be daunting, and there are several common challenges service organizations may face. Explore these challenges and strategies to successfully overcome them.

SOC report challenge 1: Not understanding the requirements

One of the biggest challenges service organizations face when issuing a SOC report for the first time is not understanding the requirements. The American Institute of Certified Public Accountants sets required guidelines to issue a valid SOC report. Outside of the independent auditor’s opinion, a SOC report consists of several required parts:

• A description of the service organization's system and services provided. The service organization takes ownership of this part of the report. 
• A written assertion by the service organization’s management about the fairness of the presentation of the system’s description and the suitability of the design and operating effectiveness of the controls to achieve the related control objectives stated in the system’s description. The service organization takes ownership of this part of the report.
• A description of the service auditor's tests of controls and the test results. The independent auditor takes ownership of this part of the report.

SOC 1 reports are intended to be used by user entities and their auditors as part of the user entities' evaluation of internal control over financial reporting to comply with laws and regulations. SOC 2 reports evaluate the service organization’s controls that matter for the trust service criteria. These criteria include security (which is required) and availability, processing integrity, confidentiality, and privacy of a user entity's data (which are optional). 

SOC report challenge 2: The report’s scope 

Another challenge service organizations face is determining the SOC report’s scope. Here are some factors to consider when scoping a SOC report:

• Customer requirements — The service organization should consider its customers and stakeholders’ specific requirements and choose a SOC report meeting their needs.
• Type of service provided — The type of service provided by the service organization can also influence the choice of SOC report. For example, if the service organization provides services impacting customers' financial statements, a SOC 1 report may be more appropriate.
• Trust services criteria — The trust services criteria relevant to the service organization's services can also influence the choice of SOC report. For example, if the service organization provides services involving the processing, storage, or transmission of sensitive data, a SOC 2 report may be more appropriate.
• Reporting objectives — The service organization should consider its reporting objectives and choose a SOC report meeting those objectives.

SOC report challenge 3: Lack of internal controls and documentation 

Probably the most significant challenge for issuing a SOC report for the first time is a service organization must have strong internal controls in place. This can be a challenge for service organizations that are still in the process of developing internal controls or have identified weaknesses in existing controls. 

Service organizations may need to invest time and resources into strengthening internal controls before they can issue a SOC report. A SOC readiness assessment can help service organizations identify and address potential issues in their systems and controls before the SOC examination begins.

As a quick test for maturity of your service organization’s control environment, here are the five most common exceptions typically noted in SOC reports (particularly in your first Type 2):

• System access is not removed for terminated employees within 24 hours (or in accordance with company policy)
• System access approval is not documented
• A risk assessment was not performed/updated during the audit period
• Servers are not patched in a timely manner
• Testing and approval of system changes are not documented and/or performed

Having key controls in place is typically half of the battle for SOC reports. For auditors to appropriately test controls, there needs to be documented support provided as evidence. Documenting key controls can be a challenging task, but it’s an important part of verifying an organization's internal controls are effective and that the organization complies with relevant laws, regulations, and industry standards.

SOC report challenge 4: Time and resource constraints

Issuing a SOC report can be a time-consuming process. Organizations must complete a detailed controls assessment, document their findings, and work with auditors to issue the report. Reports are typically issued annually, with the testing and reporting phase typically taking anywhere between one-to-three months, depending on the maturity and complexity of the service organization’s control environment. 

How CLA can help with overcoming SOC report challenges

Obtaining a SOC report is a valuable investment for service organizations — to better serve existing clients and help pursue new ones. SOC reports can help provide valuable assurance to customers and stakeholders and help companies build trust and credibility in the marketplace.

Issuing a SOC report for the first time can be a complex and challenging process but CLA can help. We have deep understanding of SOC examination and reporting trends, spanning many industries and relevant frameworks. Engaging the right auditor with the correct skillset, experience, and knowledge is vital to completing a high-quality SOC examination.

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