For asset managers, maintaining data security and achieving proper management of company systems is a top concern. Indeed, strategic management of a company’s IT assets enables the business to manage its operational costs while maintaining a high standard of data safety.
Part of proper asset management involves outsourcing key organizational functions to service providers. These service organizations may be better positioned to offer services that you would otherwise incur a high cost for when providing them in-house. However, the use of external service organizations often brings about the question of data security. Your company’s information is only as secure as the environment maintained by that external company.
This is where SOC compliance comes in. An SOC report provides you, the user company, with evaluations that cover a service organization’s controls.
Defining an SOC 1 report
An SOC 1 report can be defined as an evaluation of a service organization’s internal controls and operational environment, as it relates to data security and your company’s financial reporting. The purpose of the report is to serve as a risk assessment of your service provider’s controls because they can directly impact your company’s data security.
Therefore, asset managers will typically collect SOC 1 reports from all vendors to whom the company is outsourcing. This provides a realistic and actionable overview of the data environment of your company. Indeed, any data that you outsource to a third party vendor will only remain as secure as the vendor’s internal controls.
There are 2 main types of SOC reports; type 1 and type 2. A type 1 report provides details about the internal controls of a service organization, how they work, and how they will be enforced. In essence, it is a point in time assessment of the service organization’s systems and practices. You can refer to a type 1 report to determine how your service organization ought to carry out its internal controls.
A type 2 report works in much the same way as type 1. The difference is that it is an actual assessment of a period of time under which the service organization was implementing its internal controls. It can be used to determine how effective the controls were and whether they meet the standards of your organization.
Why an SOC 1 Report is necessary
Due to the need for data security in today’s business world, the importance of SOC reporting cannot be overstated. Companies outsource critical business functions to third party vendors. From payroll processing and cloud services to SaaS providers, you will often deal with multiple vendors when managing your company’s assets. An SOC 1 report is important in ensuring that all vendors are implementing and enforcing relevant internal controls. The reports can also serve as a risk assessment of your company’s data and help determine how vendors can affect your data security.
In most cases, you will collect SOC reports from all service organizations in order to prepare your financial reports for a particular quarter.
SOC vs Sarbanes-Oxley Reporting
While there are certain areas where SOC and Sarbanes-Oxley reporting overlap, they’re not exactly the same. Similarities do arise where they both relate to financial reporting. Sarbanes-Oxley primarily covers the internal controls of your company’s financial reporting and how investors can keep track of these controls before they make critical decisions.
On the other hand, an SOC report is primarily meant for your company to assess the controls implemented by third party vendors. In other words, companies that rely on services outsourced to various service organizations will use SOC 1 reports collected from various vendors to assess their internal controls. SOC 1 reporting also applies to sub-service organizations (organizations to whom you may outsource and they, in turn, outsource to yet another company).
Using Automated Solutions to Streamline SOC 1 Reporting
The reality is that outsourcing improves operational efficiency and reduces the cost of processes that you would otherwise have to carry out in-house. Therefore, asset managers will often have to collect, review, and manage reports from multiple vendors. This often results in large amounts of data that need to be securely stored and easily retrieved for review when necessary.
Automated solutions that are optimized for GRC reporting facilitate this process. They provide a single source from which audit information gathering can be carried out. Access to the information can also be limited based on roles, making it easier for relevant personnel to carry out their functions effectively.
GRC control software can streamline SOC 1 reporting, asset management, and risk mitigation. By providing a single source for data access, all relevant stakeholders can ensure that SOC-relevant data is appropriately managed.