SOC 1 Type I & Type II (SSAE 18)

Last Updated: December 23, 2024

SOC 1: Financial Control Audits Certification

SOC 1 (Service Organization Control 1) is an audit report under SSAE 18 that evaluates internal controls at a service organization relevant to user entities' financial reporting (ICFR). It's required for organizations whose services impact clients' financial statements—payroll processors, billing platforms, and financial SaaS. Type I assesses control design; Type II tests operating effectiveness over time.

Essential for service organizations that impact customers' financial statements. SOC 1 demonstrates your controls are reliable for financial reporting purposes.

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What is SOC 1: Financial Control Audits?

SOC 1 reports (formerly SAS 70) evaluate internal controls at a service organization relevant to user entities' internal control over financial reporting (ICFR). It's designed for organizations whose services impact their customers' financial statements—payroll processors, data centers, SaaS platforms handling financial data, and similar service providers.

SOC 1 reports follow the SSAE 18 standard (AT-C Section 320) and use the COSO framework for internal control. Unlike SOC 2's fixed Trust Service Criteria, SOC 1 control objectives are customized based on the specific services provided and their relevance to customers' financial reporting. The report includes a 'Complementary User Entity Controls' (CUECs) section describing controls customers must implement. Most enterprise customers conducting SOX compliance require SOC 1 reports from critical service providers.

Meet enterprise customer audit requirements
Reduce customer audit burden and right-to-audit requests
Demonstrate financial control reliability
Support customers' SOX compliance

Typical Timeline

4-8 weeks

Pass Rate

100%

Controls

12+

Clients Certified

50+

Deep Dive

SOC 1: Financial Control Audits Control Requirements

Click each control to see implementation guidance and required evidence

SOC 1: Financial Control Audits for Your Industry

How SOC 1: Financial Control Audits applies to different business sectors

Payroll & HR Services

Payroll processors directly impact customers' payroll expense and liability accounts, making SOC 1 essential for enterprise clients.

Key Requirements

✓Payroll calculation accuracy controls
✓Tax withholding and remittance controls
✓Report accuracy and completeness
✓Data change authorization controls

Example Use Case

A payroll SaaS provider completes SOC 1 Type II to serve Fortune 500 clients whose auditors require ICFR assurance from critical payroll vendors.

Financial Services & FinTech

Banks, payment processors, and fintechs handling transactions directly impact client financial statements and face regulatory requirements.

Key Requirements

✓Transaction processing accuracy
✓Settlement and reconciliation controls
✓Regulatory reporting controls
✓Fund movement authorization

Example Use Case

A payment processor provides SOC 1 reports to bank clients who must demonstrate their critical vendors have audited financial controls.

SaaS & Cloud Platforms

SaaS platforms handling billing, accounting, or financial data need SOC 1 when their processing impacts customer financial statements.

Key Requirements

✓Revenue recognition data controls
✓Subscription billing accuracy
✓Financial data integration controls
✓Multi-tenant data isolation

Example Use Case

A billing SaaS platform serving enterprise CFOs achieves SOC 1 to support customers' revenue recognition and accounts receivable controls.

Data Centers & Hosting

Data centers supporting financial applications provide SOC 1 for physical controls and availability relevant to financial processing.

Key Requirements

✓Physical security controls
✓Environmental controls
✓Availability and uptime
✓Backup and recovery

Example Use Case

A colocation provider includes SOC 1 controls covering physical security and availability for clients' financial processing systems.

Business Process Outsourcing

BPO providers handling finance and accounting functions need SOC 1 to demonstrate control reliability for outsourced processes.

Key Requirements

✓Transaction processing controls
✓Reconciliation and reporting
✓Segregation of duties
✓Exception handling

Example Use Case

An F&A BPO firm provides SOC 1 reports covering accounts payable, accounts receivable, and general ledger services for enterprise clients.

Transparent Pricing

SOC 1: Financial Control Audits Certification Costs

What to budget for your SOC 1: Financial Control Audits certification journey

📊 Typical Investment Ranges — These are industry-standard ranges based on company size (50-500 employees). Your actual investment depends on scope, existing controls, and compliance maturity.

Cost Component	Starting From	Up To	Notes
Readiness Assessment	$8,000	$20,000	Gap analysis and control design review
Control Documentation	$10,000	$30,000	Policies, procedures, control matrices
Remediation Support	$15,000	$50,000	Depends on gap severity
Type I Audit	$25,000	$60,000	Point-in-time design assessment
Type II Audit	$35,000	$100,000	Includes observation period testing
Annual Maintenance	$5,000	$15,000	Ongoing documentation and prep

💡 Get your personalized quote: Costs vary significantly based on organization size, infrastructure complexity, and existing security controls. Our SOC 1: Financial Control Audits readiness assessment provides a tailored cost estimate within 48 hours.

Get a Personalized Quote

Framework Comparison

SOC 1: Financial Control Audits vs Other Frameworks

How SOC 1: Financial Control Audits compares to related compliance standards

Aspect	SOC 1: Financial Control Audits	SOC 2	ISO 27001
Focus	Financial reporting controls (ICFR)	Security, availability, privacy	Information security management
Audience	User entity auditors & management	Customers & prospects	Customers, regulators
Control Framework	Custom objectives + COSO	Trust Service Criteria	Annex A controls
Report Restrictions	Restricted use report	Restricted (general for SOC 3)	Certificate is public
Regulatory Driver	SOX compliance support	Enterprise security requirements	Global security standard

Avoid These Pitfalls

Common SOC 1: Financial Control Audits Mistakes

Learn from others' mistakes so you don't repeat them

Treating SOC 1 like SOC 2

Consequence

Wrong control objectives. SOC 1 focuses on ICFR relevance, not general security. Controls must tie to financial statement assertions.

Prevention

Define control objectives based on how your services impact customers' financial statements. Work with auditors to ensure ICFR relevance.

Poorly defined control objectives

Consequence

Audit scope mismatch. Customers may find the report doesn't cover their ICFR needs. Report provides limited value.

Prevention

Engage customers to understand their control needs. Map services to financial statement line items. Review objectives with auditor.

Ignoring Complementary User Entity Controls (CUECs)

Consequence

Gap in overall control environment. Customers don't implement their part. Potential control failures.

Prevention

Clearly document CUECs in the report. Communicate to customers during onboarding. Reference in service agreements.

Insufficient evidence of control operation

Consequence

Type II exceptions. Controls may be well-designed but lack operating evidence. Qualifications in audit report.

Prevention

Implement evidence collection from day one. Automate where possible. Conduct internal testing before audit.

Not addressing subservice organizations

Consequence

Incomplete coverage. Critical processing at subservice organizations isn't covered. Potential ICFR gap.

Prevention

Identify all subservice organizations. Choose inclusive or carve-out method for each. Obtain their SOC 1 reports.

Starting Type II before controls are mature

Consequence

Multiple exceptions. Failed tests during observation period. Poor first report impression.

Prevention

Complete Type I first. Operate controls for 2-3 months. Conduct internal testing. Then begin Type II window.

Multi-Framework Efficiency

SOC 1: Financial Control Audits Control Overlap

Leverage shared controls when pursuing multiple certifications

SOC 1: Financial Control Audits ↔ SOC 2

60%

Shared control areas:

Access controlsChange managementMonitoringIT general controlsVendor management

SOC 1: Financial Control Audits ↔ ISO 27001

50%

Shared control areas:

Access controlsChange managementIncident managementRisk assessmentDocumentation

SOC 1: Financial Control Audits ↔ PCI DSS

45%

Shared control areas:

Access controlsChange managementLoggingNetwork security

SOC 1: Financial Control Audits ↔ SOX (Sarbanes-Oxley)

85%

Shared control areas:

ICFR controlsIT general controlsSegregation of dutiesDocumentationMonitoring

Your Path to Certification

Our proven process gets you certified faster

Scoping & Planning

1-2 weeks

Define control objectives based on services provided and customer financial reporting needs.

Control Documentation

2-3 weeks

Document control activities, policies, and procedures aligned with control objectives.

Gap Remediation

2-4 weeks

Address identified control gaps and strengthen control design and operation.

Type I Audit

2-3 weeks

Complete Type I audit validating control design at a point in time.

Observation & Type II

3-12 months

Operate controls during observation period, then complete Type II audit.

Expert Insights

What compliance experts say about SOC 1: Financial Control Audits

"SOC 1 is often underutilized—companies jump to SOC 2 when their enterprise customers actually need SOC 1 for their auditors. If you're touching financial data, billing, or any process that flows into customers' financial statements, SOC 1 is your entry ticket to enterprise deals. We often recommend a combined approach tackling SOC 1 and SOC 2 together with shared IT general controls."
H
Heena Sharma
Privacy & Compliance Lead at isauditr

Frequently Asked Questions

What's the difference between SOC 1 and SOC 2?

SOC 1 focuses on controls relevant to financial reporting (ICFR), targeting user entity auditors. SOC 2 addresses security, availability, processing integrity, confidentiality, and privacy for operational assurance. Many organizations need both depending on their services.

Do we need SOC 1 or SOC 2?

If your services impact customers' financial statements (payroll, billing, transaction processing, loan servicing), you likely need SOC 1. If customers care about data security and availability, SOC 2 is appropriate. Many service organizations need both.

What are Complementary User Entity Controls (CUECs)?

CUECs are controls that your customers must implement for the overall control environment to be effective. For example, your payroll system works correctly, but customers must approve payroll before processing. We clearly define CUECs in your report.

How long is a SOC 1 report valid?

SOC 1 reports cover a specific period (Type II: typically 6-12 months) or point in time (Type I). Most customers expect annual reports with continuous coverage. Reports older than 12 months may face questions.

What's the difference between Type I and Type II?

Type I evaluates control design at a specific point in time. Type II evaluates both design and operating effectiveness over a period (typically 6-12 months). Type II provides more assurance and is what most enterprise customers require.

What is the inclusive vs. carve-out method?

When you use subservice organizations, 'inclusive' includes their controls in your report scope (more work, more complete). 'Carve-out' excludes them but references their reports (simpler for you, but customers need their reports too).

Who should receive our SOC 1 report?

SOC 1 reports are restricted-use, intended for user entities (your customers) and their auditors. Unlike SOC 2, they're not for general distribution. Use NDAs before sharing. Most customers' auditors will request during their audit season.

How does SOC 1 support SOX compliance?

Public companies must assess internal controls under SOX. When they outsource functions to you, your controls become relevant to their ICFR. Your SOC 1 report provides audited evidence for their SOX documentation and testing.