Why SOC 1 and SOC 2 Compliance Matter for CFOs: Ensuring Secure and Accurate Financial Consolidation with SaaS Solutions

With the evolving digital landscape the importance of robust security measures cannot be undermined, especially for areas related to finance and investments. For CFOs and other finance leaders, some of the biggest challenges lie in decision-making in low-exposure areas, like security and compliance related to services.

Being a board member of a company that has earned SOC 2 certification indicates that the company’s fiduciary duty to investors and other stakeholders is properly aligned with the industry standard that meets the fundamental pillars of IT information security and privacy. Because the certification eliminates a layer of complexity in assessing the IT operating effectiveness, system, and organization controls. CFOs who oversee assets thus understand the importance of SOC 2 compliance in their governance and management roles. This blog discusses SOC1 and SOC2, its significance, and its ramifications for CFOs and other finance leaders.

What is the SOC 1 report?

SOC 1 report focuses on the effectiveness of your internal controls related to financial reporting. It assures clients that their financial data is managed securely and accurately. This report is crucial when your company’s bookkeeping and financial operations directly impact your clients’ financial reporting. For example, SaaS companies that handle financial tasks like billing or claims processing should consider a SOC 1 report.

The SOC 1 audit is based on the Statement on Standards for Attestation Engagements (SSAE) 18, specifically AT-C Section 320. It requires your organization to identify key control objectives related to business processes and information technology processes. These controls might include things like managing customer data or ensuring data security.

SOC 1 reports are primarily intended for your customers and their external auditors, helping them to evaluate how your internal controls impact their financial reporting. This report provides a detailed overview of how your organization handles controls over customer financial information.

What is the SOC 2 report?

SOC 2 report evaluates whether your company can provide a secure, reliable, confidential, and private service to its customers. The audit is conducted by an independent certified auditor, who assesses your internal controls based on the Trust Services Criteria (TSC). These criteria cover Security (mandatory), Availability, Confidentiality, Processing Integrity, and Privacy.

The SOC 2 report includes the auditor’s opinion on whether your controls are designed and operating effectively. Essentially, it demonstrates the strength of your information security practices, giving your customers (and their stakeholders) confidence in your ability to manage risk and protect sensitive data.

SOC 2 compliance is essential for companies like data centers, SaaS providers, IT-managed services, and other cloud-based businesses. If your company hosts data or deals with sensitive information, particularly for large customers, SOC 2 compliance is often a must.

What is the difference between SOC 1 and SOC 2 Report?

A service organization can choose the scope of its SOC 2 report based on the criteria that meet its needs at best. The report can focus solely on the Security criteria (also called the common criteria), cover all five Trust Services Criteria (TSC), or combine some of them. The readers of the SOC 2 report may not include just compliance officers, financial executives, and auditors, but also IT executives, regulators, and business partners.

Key Differences Between SOC 1 and SOC 2 Reports

• The SOC 1 report focuses on the internal controls that are relevant to a service organization’s client financial statements. It ensures that the organization’s processes are properly safeguarding the client’s financial data.
• The SOC 2 report evaluates a service organization’s controls that are relevant to its own operations and compliance, based on the AICPA’s Trust Services Criteria (TSC), which include security, availability, confidentiality, processing integrity, and privacy.

Read also: IFC vs SOX

Why SOC 2 is Essential for CFOs?

As the financial steward of an organization, a CFO plays a critical role in ensuring that the company’s financial data is secure, compliant with regulations, and optimized for operational efficiency. Achieving SOC 2 compliance offers several significant advantages that can directly impact a CFO’s ability to manage financial integrity, investor confidence, and overall business performance.

•  Financial data is a highly valuable and sensitive asset for any company. The SOC 2 compliance guarantees that your organization has the right controls to protect this data from breaches and unauthorized access.
• The security compliance factors demand that the organizations are better equipped and prepared to meet the compliance and assess the risks associated with data security. When you approach the investors for funding, these compliance factors can play a crucial role in helping you obtain the funds, as security is the top priority. By obtaining SOC 2 certification, CFOs can show that their company is at par with compliance, managing risks, protecting data, and investing in robust security, thus helping to attract and retain investors.
• Regulatory requirements like GDPR, CCPA, and other data protection laws, demand that your company is aligned with the security compliance requirements. SOC 2 compliance ensures these requirements are catered to. For CFOs, this is crucial not only for avoiding potential penalties and legal complications but also for ensuring that the company is compliant with the listed security measures and regulatory standards.
• The SOC 2 compliance ensures that the company’s internal processes are streamlined and this leads to improved operational and financial efficiency. These are some of the critical areas in which the CFOs are aiming to optimize resource allocation and reduce operational risk.
• In today’s competitive market, clients, partners, and stakeholders increasingly look for organizations that demonstrate strong security measures in relation to data protection and privacy. With SOC 2 certification in place, it can strengthen market trust and credibility, client relationships and help to secure business deals.

Type I VS Type II Reports

The Type 1 report verifies the adequacy of the design and audits control at a specific moment in time. The Type 2 report, on the other hand, examines controls that have been in place throughout time and assesses their operational efficacy and applicability.

In essence, a Type 1 report is a snapshot, whereas a Type 2 report is an assessment conducted over three to six months. If you want to provide a report quickly Type I may be a good starting point, but a more thorough deep assessment of controls is shown better with Type II.

Stay a step ahead with compliance measures…
As the guardians of financial integrity and security, finance leaders must prioritize platforms that meet the rigorous standards outlined by SOC 2. This ensures that sensitive financial data is protected against breaches and mismanagement, maintaining trust with clients and partners. SOC 2 helps organizations mitigate risks, enhance security, and streamline operations, all while demonstrating a commitment to regulatory compliance.

At ResultLane, our dedicated security team works hard to ensure that your data stays protected, and we actively collaborate with our clients to address emerging threats and challenges.