Who needs a SOC 1 report?
If your service affects what your clients report on their financial statements, their auditors will eventually ask for a SOC 1. Here's what that looks like across five industries.
The plain-English rule: if the work you do for clients shows up on their balance sheet, income statement, or cash flow statement, and your controls could affect the accuracy of those numbers, a SOC 1 audit applies to you. The formal term is "internal controls over financial reporting" (ICFR).
Fintech
Payment processors, lending platforms, financial data aggregators, and any company that moves money or financial data on behalf of clients are core SOC 1 candidates.
When your platform settles transactions, calculates loan balances, or feeds data into your clients' accounting systems, your controls directly affect what your clients report. Their auditors need to understand your system.
Common trigger: A new enterprise client's finance team says their auditors require a SOC 1 before they can process payments through your platform. This is often the first conversation that starts an engagement.
Common control objectives
- Transaction completeness and accuracy
- Settlement reconciliation and error resolution
- Access controls over financial data and processing
- Change management for systems affecting transaction processing
Payroll and HR processors
Payroll is one of the most scrutinized line items on any company's financial statements. If you run payroll for clients, you are directly responsible for the accuracy of figures their auditors will verify.
This includes payroll bureaus, HR platforms with integrated payroll, benefit administration, and any system that calculates and disburses wages, taxes, or employer contributions.
Common trigger: A client's CPA firm requests documentation of payroll controls during the annual audit. Without a SOC 1 report, the auditors have to test those controls themselves at your facility.
Common control objectives
- Payroll calculation accuracy and completeness
- Tax withholding and remittance controls
- Authorization controls for employee data changes
- Segregation of duties in processing and disbursement
Third-party administrators (TPAs)
Third-party administrators manage benefit plans, health insurance claims, 401(k) and pension plans, and other employee benefit programs on behalf of plan sponsors. The financial activity flowing through these plans appears on plan financial statements.
DOL regulations, ERISA requirements, and standard plan audit procedures require plan auditors to assess TPA controls. A SOC 1 report is the primary mechanism for satisfying that requirement efficiently.
Common trigger: Annual ERISA plan audits require independent CPA firms to assess TPA controls. Without a SOC 1, each plan sponsor's auditor performs separate, duplicative testing of your systems.
Common control objectives
- Participant enrollment and eligibility accuracy
- Contribution remittance and allocation controls
- Claims processing accuracy and timeliness
- Reconciliation of plan assets and liabilities
Loan and mortgage servicers
Loan servicers collect payments, manage escrow accounts, handle delinquencies, and report loan performance to investors and owners. Every one of those functions produces numbers that flow into someone's financial statements.
Mortgage-backed security trusts, loan portfolio owners, and GSEs often require servicer SOC 1 reports. It's a standard part of institutional investor due diligence.
Common trigger: A new institutional investor or GSE relationship requires a current SOC 1 Type 2 report as a condition of the servicing agreement.
Common control objectives
- Payment collection and application accuracy
- Escrow calculation and disbursement controls
- Delinquency and default reporting accuracy
- Investor remittance and reporting controls
Financial SaaS companies
Software platforms that host, process, or transmit financial data used in clients' accounting, reporting, or financial close processes may need a SOC 1 if the data they handle is material to financial statements.
This includes ERP integrations, financial close platforms, revenue recognition tools, and any software where the output feeds directly into a client's general ledger or financial reporting process.
Common trigger: An enterprise prospect's IT audit team asks for a SOC 1 as part of vendor due diligence. The deal stalls until the report is available.
Common control objectives
- Data completeness and integrity in processing
- Logical access controls over financial data
- Change management over financial calculation logic
- System availability and backup controls
Not sure if this applies to you?
Take the five-question quiz and get a clear answer. Or grab the readiness checklist to see where your controls currently stand.