SOC 1 is a financial control reporting framework developed by the AICPA. It applies to organizations whose services impact the financial reporting of their clients.
For companies managing processes like payroll, billing, or claims, SOC 1 provides a formal assessment of internal controls related to financial data. It’s a key part of vendor assurance for clients and auditors concerned with accurate financial reporting.
Understanding the SOC 1 Framework
SOC 1 is part of the AICPA’s System and Organization Controls (SOC) suite, designed to promote transparency and accountability among service providers.
SOC 1 focuses specifically on Internal Control over Financial Reporting (ICFR). It ensures that systems affecting clients’ financial transactions are secure, accurate, and properly managed.
If your organization’s services directly impact how your customers generate or report financial data, SOC 1 is often required to support their audit and compliance processes.
Is SOC 1 Right for Your Business?
SOC 1 is designed for service organizations that play a role in their clients’ financial operations. This includes:
- Payroll Processors – Manage employee compensation and tax withholdings
- Billing Platforms – Generate or transmit invoices and customer charges
- Claims Processors – Handle reimbursements, settlements, or insurance payouts
- SaaS Providers Linked to Financial Data – Impact entries in general ledger, revenue recognition, or expense tracking
If your clients’ auditors or compliance teams require assurance over financial-related systems, a SOC 1 report is likely expected.
SOC 1 Type I vs. Type II: What’s the Difference?
There are two types of SOC 1 reports. The right one depends on your organization’s audit readiness and your clients’ expectations.
- SOC 1 Type I
Reviews whether the relevant controls are designed appropriately as of a specific date.
Use Case: Startups or first-time audits where controls are newly implemented. - SOC 1 Type II
Assesses whether those controls operate effectively over a period of time (typically 6–12 months).
Use Case: Mature organizations with established processes and client assurance requirements.
Key Components of a SOC 1 Audit
SOC 1 reports are structured around control objectives that ensure the secure and accurate handling of financial data.
Key elements include:
- Control Objectives – High-level goals focused on the accuracy, completeness, and security of financial transactions
- Control Activities – Processes and safeguards used to meet those objectives
- Subservice Providers – Vendors whose systems influence your service delivery (e.g., cloud platforms or third-party processors)
- Risk Assessments – Identification of control gaps and potential impacts
- Monitoring Procedures – Internal oversight mechanisms to catch and resolve issues
- Evidence and Documentation – Artifacts reviewed by auditors to confirm control implementation and operation
Why SOC 1 Compliance Matters
SOC 1 helps your organization meet increasing demands for transparency, particularly when you play a critical role in clients’ financial workflows.
Benefits include:
- Stronger Client Relationships – Build trust with finance and audit teams
- Audit Readiness – Prevent delays during client audits by providing required documentation
- Control Validation – Prove that your internal processes are not only secure but also well-documented and consistent
- Competitive Edge – Gain an advantage when bidding for contracts involving sensitive financial functions
FAQs About SOC 1
To provide assurance over financial-related controls within service organizations whose systems affect their clients’ financial reporting.
Independent CPA firms licensed to issue AICPA reports.
Yes. If your services impact both financial and non-financial data, clients may request both reports.
Type I audits typically take 1–2 months. Type II requires 6–12 months of control operation prior to audit completion.
Payroll, fintech, insurance, HR tech, accounting SaaS, and claims processing firms often pursue SOC 1 due to their impact on client financials.