Effective Management of SOC Reports: 3 Best Practices & Procedures
A SOC report (System and Organization Controls report) is an independent audit document that verifies the effectiveness of a service organization’s internal controls over financial reporting, data security, and operational processes. Organizations that rely on third-party service providers obtain SOC reports to confirm those providers’ controls are operating as intended.
Effective SOC report management requires three core practices: obtaining and thoroughly reviewing reports, establishing a formal management review process, and following up on Complementary User Entity Controls (CUECs). When these steps are executed consistently, organizations strengthen their control environment and support both internal and external audit requirements.
Key Takeaways
- SOC reports are critical for verifying internal controls over financial reporting, data security, and operational processes.
- Internal and external teams should follow documented best practices for obtaining and managing these reports.
- Best practice one: Obtain and thoroughly review SOC reports from third-party providers, comparing them with prior-period reports to identify changes or recurring issues.
- Best practice two: Establish a formal, documented review process involving senior management to assess and approve SOC reports.
- Best practice three: Prioritize and resolve control exceptions or unresolved CUECs promptly, tracking progress through to completion.
What Is a SOC Report Used For?
A SOC report is used to confirm that a third-party service provider’s internal controls are designed and operating effectively. Organizations use SOC reports during audits, vendor risk assessments, and compliance reviews. The report type selected depends on the nature of the services being provided and the controls in question.
There are three types of SOC reports:
- SOC 1 Report: Focuses on internal controls related to financial reporting. Typically used by organizations that provide services affecting their clients’ financial statements.
- SOC 2 Report: Evaluates controls related to data security, availability, processing integrity, confidentiality, and privacy. Relevant for organizations that handle sensitive customer data.
- SOC 3 Report: Provides a public-facing summary of the SOC 2 report, designed for general use without disclosing detailed control information.
Understanding which report type applies to your third-party relationships is the starting point for effective SOC report management.
What Is a SOC Report in Audit?
In an audit context, a SOC report is evidence used to assess whether a service organization’s controls are sufficient to rely upon. Auditors review SOC reports to determine if the controls covering outsourced functions — such as payroll processing, core banking systems, or investment platforms — are operating effectively during the audit period.
If the SOC report does not cover the full audit period, management must obtain a gap letter or bridge letter from the provider. A SOC 1 gap letter is a written statement from the service organization confirming that no significant changes to controls occurred during the uncovered period between the SOC report’s end date and the organization’s fiscal year end.
3 Best Practices for Running an Efficient SOC Report Management Process
1. Obtaining and Reviewing SOC Reports
SOC reports should be obtained whenever an organization relies on a third-party provider whose controls affect financial reporting or data security. Core systems, payroll platforms, and investment systems are among the most common reports addressed in an audit.
Once obtained, management should conduct a detailed review that includes:
- Analyzing control objectives, tests of controls, and audit opinions
- Assessing the effectiveness of controls and identifying any deficiencies
- Confirming the period the SOC report covers and whether a gap letter is required for any uncovered period
- Comparing the current report against prior-year SOC reports to identify changes or recurring issues
This review should be completed before the audit to allow sufficient time to address any identified concerns.
2. Management’s Formal Review of SOC Reports
A structured, documented review process is essential for SOC report management. Without formal documentation, organizations risk inconsistent oversight and reduced audit readiness.
The formal review process involves three steps:
- Build the review team. Identify the individuals responsible for reviewing the reports. Senior management must be directly involved at this stage.
- Review and acknowledge the report. Document management’s understanding and acceptance of the reported controls and any identified issues.
- Obtain formal approval. Management should formally sign off, confirming review completion and commitment to resolving any concerns.
All review activities should be documented with meeting minutes, key findings, and action items. This documentation serves as direct evidence of due diligence for both internal and external audits.
3. Following Up on Complementary User Entity Controls (CUECs)
Once identified, CUECs must be reported to the auditor and tracked through to resolution. Failure to act on CUECs is one of the most common gaps in SOC report management. For a deeper look at how CUECs work, see Wolf’s guide on Understanding Complementary User Entity Controls.
An effective CUEC follow-up process includes:
- Prioritizing CUECs based on their potential impact on operations and compliance requirements
- Delegating responsibility for each action item to a named individual
- Setting clear timelines for resolution
- Tracking progress and conducting periodic reassessments to confirm that corrective actions are working as intended
Organizations that establish this tracking discipline are better positioned to demonstrate control effectiveness during audits.
The Value of Effective SOC Report Management
Effective SOC report management confirms that an organization’s internal controls are strong, well-monitored, and capable of mitigating third-party risk. By obtaining and reviewing SOC reports on a consistent basis, implementing a formal management review process, and actively resolving CUECs, organizations build a more resilient control environment.
For additional guidance on the SOC audit process, Wolf’s resource library covers the full scope of SOC topics — from Type 1 vs. Type 2 SOC reports and SOC readiness assessments to how to avoid common SOC audit delays and the risks of low-cost SOC audits.
Contact Wolf’s SOC Reporting team to discuss your organization’s SOC reporting requirements or audit support needs.
