Why SOC 1 Matters for Financial Reporting
Read our latest article to take a deep dive into why SOC 1 helps services maintain financial compliance with financial controls.
What is SOC 1 (System and Organisational Controls 1)?
Service organisations play a vital role for businesses who don’t have the time or resources to manage their financial data. But with increasingly technical IT processes at play, the need for greater control is expanding.
SOC 1 is an assurance report used to help businesses, and their service providers meet this demand. In this internationally recognised standard, in-depth auditing assesses outsourcing services for performance, security and anti-fraud measures, ensuring their clients’ financial reporting isn’t negatively affected.
Why is it important for financial reporting?
SOC 1 (System and Organization Controls 1) is important for financial reporting because it focuses on the internal controls at a service organisation that could impact a client’s financial statements.
Why it matters:
- Assurance for auditors
- External auditors rely on SOC 1 reports to understand whether the service provider’s controls are designed and operating effectively.
- This helps auditors reduce the need for extra testing at the client level.
- Accuracy of financial reporting
- If a company outsources key processes (like payroll, transaction processing, or fund administration), errors on the service provider side could directly affect the company’s financial statements.
- A SOC 1 report provides evidence that those processes are properly controlled.
- Regulatory and compliance needs
- Public companies (and many private ones) need to show strong internal controls to comply with laws like SOX (Sarbanes-Oxley Act) in the US or equivalent frameworks elsewhere.
- SOC 1 helps demonstrate that outsourced services don’t weaken that control environment.
- Trust with stakeholders
- Investors, regulators, and partners gain confidence knowing that financial data handled by third parties is safeguarded against misstatements or inaccuracies.
Is SOC 1 right for you?
If your organisation handles financial processes for its clients, you’re trusted with read access of important data to deliver a service that enables their function. To attract, attain and reassure clients of your credibility, a SOC 1 certification is key.
It applies to any organisation that provides outsourced financial services, for example: loan servicing companies, payroll processors, Software as a Service (SaaS)/Infrastructure as a Service (IaaS)/Platform as a Service (PaaS) providers, or data centre providers.
In conclusion:
SOC 1 is important because it provides independent assurance that outsourced processes won’t compromise the reliability of a company’s financial reporting. By demonstrating reliable internal controls over outsourced processes, SOC 1 supports audit requirements, regulatory compliance, and stakeholder confidence in the accuracy and integrity of financial reporting.
For more information
To find out more about this rewarding and beneficial assurance report, visit our website: SOC 1 Reports | Centre for Assessment
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