Why Businesses Need SOC Audits
There is an obligation for companies concerning the maintenance of an effective system of financial reporting controls. The main reason businesses refuse to choose any such vendors, which can negatively impact their compliance status, is the government’s intense stress for mitigating financial controls and auditing risk. Therefore, vendors need to acquire system and Organization Controls, SOC attestation reports, which is compulsory by SSAE 18 and SSAE 16.
SOC audits are confirmable auditing reports that a Certified Public Accountant designated by the American Institute of Certified Public Accountants performs. As a collection of a CPA’s provided services, it concerns a service organization’s systematic controls. With the SOC audits, it becomes quite relatively to confirm if people perform financial audits or not. It also ensures the performed audit’s effectiveness and if the audits are performed following the serviced company’s definition. Generally, SOC audits check if the safeguards work or not as the safeguards’ compendium is created within the data control base. Businesses need to ask their vendors to provide a SOC report as an organization regulated by the law. And since those vendors may be dealing with your business’s high-risk operations, it becomes more critical for them.
Businesses can get a SOC 1 report or SOC 2 from some of the vendors. In some situations, companies can also get a combination of the two SOC audits. There is also the existence of SOC 3. Both have significant differences, and there is no evidence that Systems and Organizational Control is an unfamiliar domain.
SOC Audits Requirements and Whether to Pursue It
Service organizations used to have Statements on Auditing Standards Number 70. It was an auditing standard that the American Institute of Certified Public Accountants developed and broadly accepted. A need to conduct a more comprehensive system of evaluation is required, and that can be more than a financial statement audit. Therefore, in April 2010, AICPA issued the Statement on Standards for Attestation Engagements Number 16, and it became effective in May 2011. They then replaced the Service Auditor’s Examination, which CPAs conducted under SAS 70, with System and Organization Controls reports under SSAE 16.
There are some similarities in some aspects between the older SAS 70 and the SSAE 16. However, people can have different upgrades from the older standard. Part of the enhancements is the issue of attestation by the company to confirm that they have the described controls and are entirely operational. Also accountable for financial information and record-keeping disclosure standards law are the public companies. SSAE 16 mandated SOC audits, and it helps businesses comply with section 404 to demonstrate successful internal controls concerning financial reporting and auditing.
Businesses must request and analyze the SOC audits from their prospective vendors. Since the controls work effectively, adequate controls must be put in place as it is an invaluable piece of information. Not only that, but the SOC audits, including SOC 1, SOC 2, and SOC 3, will help ensure companies’ compliance with the regulatory expectations is up to the mark