Frequently Asked Questions on Auditor Automation and Frameworks

A SOC 1 report is a CPA attestation under SSAE 18 that evaluates a service organization’s controls relevant to customers’ Internal Control over Financial Reporting (ICFR). You typically need SOC 1 when your product or service (e.g., payroll processing, billing/invoicing, claims processing, loan servicing, fund administration, fintech platforms) can materially affect a customer’s financial statements (completeness, accuracy, existence, cutoff). Many RFPs and procurement teams explicitly request a SOC 1 Type I or SOC 1 Type II as audit evidence.

• Type I assesses the design of controls at a point in time (snapshot). It’s a fast way to prove you’ve documented and implemented controls.

• Type II covers both design and operating effectiveness over a period (commonly 6–12 months) and includes testing results. It’s the report most external auditors and enterprise customers prefer. Choose Type I if you’re early in your program or need a quick milestone for sales; choose Type II to meet most auditor expectations and reduce downstream testing and questionnaires.

• SOC 1 = ICFR: financial reporting impact (e.g., transaction processing, reconciliations, interfaces to the GL).

• SOC 2 = Trust Services Criteria: security, availability, confidentiality, processing integrity, privacy for technology and operations—not limited to ICFR. If your service impacts financial reporting assertions, start with SOC 1; if buyers ask for security assurance more broadly, SOC 2 may be the better fit (many organizations ultimately maintain both).

SOC 1 is a restricted-use report intended for your customers (user entities) and their independent/external auditors. They rely on it to plan and perform their own financial statement audits and to understand Complementary User Entity Controls (CUECs) they must operate. It should not be posted publicly or used as general marketing collateral (share under NDA instead).

If a subservice organization (e.g., a key processing vendor or hosting provider) supports your in-scope processes:

• Carve-out: You exclude the subservice org’s controls from your report but define CUECs your customers must operate and note the reliance. This is the most common approach and keeps your scope manageable.

• Inclusive: You include the subservice org’s relevant controls and testing inside your SOC 1. This can satisfy demanding customers but increases coordination and audit effort.

A strong SOC 1 Type I/Type II report typically includes:

• Independent Service Auditor’s Report (opinion)

• Management’s Assertion (scope, control objectives)

• System Description (services, boundaries, processes, relevant ITGC)

• Control Objectives and Related Controls

• Tests of Controls and Results (Type II: procedures, samples, exceptions)

• CUECs and Subservice Organizations (carve-out or inclusive)

  Some reports include other information (e.g., management responses, remediation notes).

Plan for:

• Readiness & scoping: ~3–8 weeks (document processes, map control objectives, remediate gaps).

• Operating period for Type II: 6–12 months (operate and evidence controls).

• Audit fieldwork & reporting: ~2–6 weeks after the period ends.

  SOC 1 is typically annual. Many organizations issue a “bridge letter” to cover the gap between report end date and present

Effective scoping focuses on services, systems, and transactions that drive ICFR assertions. Steps:

1. Identify in-scope services and relevant control objectives (input, processing, output, reconciliations, interfaces).

2. Decide carve-out vs inclusive for subservice orgs; define CUECs clearly.

3. Map IT General Controls (ITGC) (logical access, change management, operations/backup, incident/problem mgmt) to the financial processes they support.

4. Document policies, procedures, segregation of duties, and walkthroughs.

5. Stand up evidence capture: tickets, approvals, logs, reconciliations, interface reports, job schedules.

6. Perform a readiness assessment to surface gaps before the audit period

Expect testing of:

• Access management (joiner/mover/leaver, MFA, privileged access reviews)

• Change management (segregated approvals, testing evidence, deployment logs)

• Operations (backup jobs, batch processing, job monitoring, incident/problem tickets)

• Application controls (input validation, completeness/accuracy checks, reconciliations, exception handling, interface controls to the GL)
  

  Auditors select samples based on period length and control frequency (e.g., monthly, quarterly, per-transaction). They test population completeness (e.g., full user list, full change log) before sampling.

• Do startups need SOC 1? Only if your service impacts ICFR or buyers/auditors explicitly require it (common for payroll, payments, fintech, fund admin, BPO). Otherwise, SOC 2 often satisfies early-stage security reviews.

• Is SOC 1 a certification? No. SOC 1 is a CPA attestation (an auditor’s opinion), not a “certification.” It demonstrates your control design (Type I) and operating effectiveness (Type II) under SSAE 18.