What is the difference between SOC 1 Type 1 and Type 2?

Type 1 reports on the design of controls at a point in time; Type 2 reports on the design and operating effectiveness over a review period (commonly 6–12 months).

Who needs a SOC 1 report?

Service organizations whose controls may impact their customers’ financial reporting (ICFR), such as payroll, claims processing, fintech back-office, or revenue operations platforms.

How long does a SOC 1 audit take?

Type 1 can typically be completed in weeks once controls are ready; Type 2 requires an operating period (often 6–12 months) plus fieldwork and reporting.

What does a SOC 1 audit usually cost?

Costs vary by scope, complexity, and readiness. Firms often budget by control domain and locations in-scope; efficiencies from automation and clean evidence can reduce total effort.

How should we prepare for SOC 1?

Define system boundaries affecting ICFR, map processes to control objectives, assign owners, and collect evidence that demonstrates design and (for Type 2) operating effectiveness.

Frameworks Explained

SOC 1 (SSAE 18)

SOC 1 is an attestation report under SSAE 18 that evaluates a service organization’s controls relevant to Internal Control over Financial Reporting (ICFR). Its goal is to give user entities and their external auditors assurance that transactions processed by the service provider won’t compromise financial statement assertions (completeness, accuracy, existence, cutoff). Reports are Type I (design at a point in time) or Type II (design + operating effectiveness over a period).

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What is SOC 1’s target audience & industries?

Finance-impacting providers: payroll, billing/invoicing, claims processing, loan/fund administration, fintech processors, BPOs, and IT platforms whose outputs feed customers’ financial statements.

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Does it apply to my organization?

You likely need a SOC 1 audit if you:

Provide services that impact customers’ financial statements or key ICFR assertions (completeness, accuracy, existence, cut-off)
Are asked for SOC 1 (SSAE 18) in RFPs, contracts, or due-diligence
Host or process financial/transactional data used by your customers’ accountants/auditors

Often not required when:

Your service doesn’t affect ICFR (e.g., HR engagement tools without payroll, marketing automation)
You have no role in processing/hosting data that feeds customers’ financial reporting

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What are the benefits of conducting a SOC 1 Audit?

Reduces external auditor testing at your customers
Speeds RFPs/procurement where ICFR impact exists
Clarifies CUECs (customer responsibilities) and subservice reliance
Differentiates vendors that support audit-ready financial reporting
Accelerate sales & renewals: satisfy procurement and audit evidence requests
Reduce audit friction: give customer auditors a reliable, independent report
Demonstrate control maturity over financial processing and ITGCs

What are the core SOC 1 requirements?

ICFR scoping & boundary definition: Identify services/transactions that affect customers’ financial statement assertions; diagram inputs, processing, outputs, and GL interfaces.
System description (management assertion): Narrative of services, control environment, relevant systems, subservice orgs, and complementary user entity controls (CUECs).
Control objectives & controls: Formal RCM mapping services → ICFR assertions (completeness, accuracy, existence, cutoff) → control objectives → controls (reconciliations, interface totals, exception handling).
IT General Controls (ITGC): Identity & access (SSO/MFA/JML + quarterly reviews), change management (segregation of duties, approvals, testing), operations (backups, job monitoring, capacity).
Application controls: Input, processing, and output controls; reconciliations to source/GL; cut-off controls; interface validation and error handling.
Subservice organizations: Carve-out vs inclusive method; obtain vendor reports/bridge letters; define and disclose CUECs.
Evidence completeness: System-of-record exports, timestamps, population completeness testing, and traceable samples.
Type selection & period: Type I (design at a date) or Type II (design + operating effectiveness over 6–12 months).
Independent auditor testing & opinion: CPA testing procedures, exception handling, and restricted-use report issuance.
Annual cadence & bridge letter: Renew reports yearly; provide a bridge letter to cover gaps to current date.

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What are the general guidelines for executing a SOC 1 audit ?

Confirm ICFR relevance: Identify services/transactions that affect customers’ financial statement assertions (completeness, accuracy, existence, cutoff).
Define scope & boundaries: In-scope systems, locations, data flows, reporting interfaces to the GL; pick carve-out vs inclusive subservice approach and draft clear CUECs.
Control objectives & RCM: Map services → transactions → ICFR assertions → control objectives → controls in a Risk & Control Matrix.
ITGC backbone: Enforce SSO/MFA, JML access workflows with quarterly reviews, change management with SoD, and operations controls (backups, job monitoring).
Application controls: Reconciliations, interface totals, exception handling, completeness/accuracy checks, cutoff controls—document procedures and evidence.
Evidence hygiene: Use system-of-record exports (full populations), timestamps, approver identity, and traceability from population → sample → artifact.
Readiness & gap close: Run a pre-audit readiness; remediate gaps and dry-run evidence collection.
Type selection & period: Start with Type I if new; plan Type II (6–12 months) once controls operate consistently.
Audit logistics: Lock dates, sample windows, PBC list, and secure exchange; prepare SMEs for walkthroughs.
Year-over-year cadence: Maintain controls, issue bridge letters between periods, and track remediation/exception trends

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What are estimated timelines to complete a SOC 1 audit?

Type I (point-in-time):

Startup: 3–8 weeks
Small: 6–12 weeks (readiness 4–8; audit 2–4)
Medium: 12–18 weeks
Large: 16–24+ weeks

Type II (6–12 month period):

Startup: 6–10 months total
Small: 8–14 months (incl. operating period)
Medium: 9–15 months
Large: 10–18 months

What are the typical costs?

Costs vary by size, scope, and readiness by organizations: (T1 / T2)

Startups: 1 - 25 employees, single product, 1 prod environment, 1 region, few to no vendors - 18k–$50k / $40k–$85k
Small Companies: <100, 1–2 products, 1–2 environments, low vendor count - $30k–$80k / $50k–$120k
Medium Companies: 100 - 1,000 employees, multi-product, multi-region, moderate vendor count - $60k–$120k / $120k–$250k
Large Companies: >1,000 employees, complex/regulatory environment, high vendor count - $120k–$250k+ / $250k–$500k+
TSC scope (Security only vs +Availability/Confidentiality/etc.) and evidence automation materially affect cost.
(Ranges include typical readiness + audit/assessment (and operating period where applicable). Costs are USD and combine internal enablement/consulting + external auditor/assessor/cert body where relevant).

Where to Learn More

ISACA: Understanding the New SOC Reports — https://www.isaca.org/resources
CPA Journal: SOC Resources & Articles — https://www.cpajournal.com
FFIEC IT Handbook (Outsourcing & Third-Party Risk) — https://ithandbook.ffiec.gov