91 STUDY GUIDE

Question 1

ERP (enterprise resource planning) systems

7112.01

Answer 1

An ERP (enterprise resource planning) system is an integrated software solution designed to manage various business processes and functions across an organization in a centralized manner.

ERP systems aim to provide a unified, single source of truth that can be accessed by different departments such as finance, human resources, procurement, sales, manufacturing, and logistics. ERP systems automate complex business processes, making them more efficient and error-free. By implementing an ERP system, an organization can streamline its operations and improve data accuracy by eliminating the need for redundant data entry across multiple systems. ERP solutions typically offer modules for various business areas, allowing for a high level of customization based on the organization’s specific needs.

What are the advantages of an enterprise resource planning (ERP) system over multiple independent functional systems? ERP systems are customizable to align with an organization’s specific needs.

Question 2

ERP (enterprise resource planning) systems

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Answer 2

What they encompass:

ERP (enterprise resource planning) systems offer integrated applications to manage and automate various business processes.

• Integrated software suite: ERP systems offer integrated applications to manage and automate various business processes.
• Modules:These systems often consist of various modules such as finance, human resources (HR), supply chain management (SCM), and customer relationship management (CRM).
• Data centralization: ERP systems centralize data into one unified database, allowing for better data consistency and real-time analytics.
• Process automation: ERP systems automate complex business processes, making them more efficient and error-free.

Question 3

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Answer 3

An ERP (enterprise resource planning) system covers the following common functional areas. In many ERP systems, these are called and grouped as ERP modules:

• Finance and accounting: General ledger, accounts payable/receivable, and financial reporting
• Human resources (HR): Employee records, payroll, talent management, and benefits administration
• Customer relationship management (CRM): Sales tracking, customer databases, and customer service
• Supply chain management (SCM): Inventory management, procurement, and logistics
• Production and manufacturing: Production planning, scheduling, and quality control
• Reporting and analytics: Real-time dashboards, data analytics, and performance tracking

Question 4

ERP (enterprise resource planning) systems

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Answer 4

How they work:

ERP (enterprise resource planning) systems provide the following services:

• Data collection: Collect data from various sources, such as transactions and interactions.
• Data analysis: Analyze this data for actionable insights.
• Data implementation: Implement changes based on these insights into various departments via the relevant modules.
• Reporting: Produce detailed reports for management decision-making.

Question 5

a.

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Answer 5

An accounting information system (AIS) is a structured framework for collecting, storing, processing, and reporting financial and accounting data. These systems are primarily designed to support various accounting functions and activities like auditing and financial reporting within an organization. An AIS serves as the intersection of accounting and information technology, offering a centralized platform where financial data can be input, processed, and output as reports for decision making.

Question 6

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Answer 6

Key components of AIS:

Financial transactions: Accounting information systems (AIS) are designed to handle an organization’s accounting and financial transactions.
Compliance: AIA systems ensure compliance with accounting standards and tax laws.
Recordkeeping: AIS systems maintain systematic records of financial data, receipts, payables, receivables, etc.
Financial reporting: AIS systems generate financial reports, including income statements, balance sheets, and cash flow statements.

Question 7

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Answer 7

How AIS work:

Accounting information systems (AIS) provide the following services:

• Transaction processing: Capture and record the accounting transactions.
• Internal controls: Implement internal controls to ensure data accuracy and compliance.
• Audit trails: Maintain detailed logs and histories for auditing purposes.
• Financial statements: Compile financial data to generate periodic financial statements.

Question 8

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Answer 8

Key functions of AIS (accounting information systems):

• Financial accounting: Supports preparing and presenting balance sheets, income statements, and cash flow statements.
• Cost accounting: Helps capture and analyze the costs associated with producing goods or delivering services.
• Managerial accounting: Provides critical financial data and analyses for internal decision-making, such as budgeting and performance evaluation.
• Tax accounting: Assists in tax preparation, filing, and managing records necessary for compliance with tax laws.
• Audit support: Stores and organizes data in a way that supports both internal and external audits.

Question 9

7112.09

Answer 9

An accounting information system (AIS) can play a critical role in effective decision-making and strategic planning by providing an accurate, timely, and integrated view of an organization’s financial situation. Popular AIS software solutions include QuickBooks, SAP, and Oracle Financials. In a rapidly evolving business environment, it is crucial to reevaluate and upgrade the AIS to meet the demands of real-time data and analytics.

Question 10

7112.10

Answer 10

Interaction between ERP and AIS

Both enterprise resource planning (ERP) systems and accounting information systems (AIS) often need to share data. For example, payroll data from the human resources (HR) module in ERP may be required in AIS for expense accounting.

Many ERP systems include an AIS module, making the integration seamless. Data consistency is easier to maintain when both systems are part of the same software suite. ERP can automate the data collection and initial processing, which can then be fed into the AIS for more specialized accounting tasks. The AIS can generate detailed financial reports that are part of an overarching set of reports covering various business functions facilitated by the ERP system.

AIS ensures financial compliance, while ERP can ensure compliance across different business functions. Both can contribute to a unified audit process. With integrated systems, any changes in financial data can be updated in real time in the ERP, offering more timely and accurate insights. Information from AIS can be vital in strategic planning and decision-making processes, often core functions of ERP systems. ERP and AIS streamline internal processes and contribute to more effective decision-making and overall business strategy.

Question 11

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Answer 11

Blockchain is a distributed, decentralized, and immutable ledger technology that enables secure peer-to-peer transactions without the need for an intermediary, such as a bank or a government. A blockchain is a chain of blocks, each containing a list of linked and secured transactions using cryptographic hashes.

Question 12

COCO INTERNAL CONTROL FRAMEWORK AND BLOCKCHAIN

7112.17

Control Environment

Answer 12

Control Environment
It is important to evaluate whether management has the technical competency and ethical values to understand and manage blockchain technology—to assess human behavior and promote integrity and ethics.

The framework comprises five main components: Control Environment, Risk

Question 13

COCO INTERNAL CONTROL FRAMEWORK AND BLOCKCHAIN

7112.17

Risk Assessment

Answer 13

Risk Assessment
Blockchain creates new risks while at the same time helping mitigate risks by promoting accountability, maintaining record integrity, and providing an irrefutable record. (A person or organization cannot deny their role in authorizing or sending a message or record.)

Evaluating blockchain risks:

• Technological risks: Evaluate risks like smart contract bugs, consensus failure, or data breaches.
• Compliance risks: Assess if the blockchain complies with financial reporting standards and other regulatory requirements.
• Operational risks: Assess the vulnerability to errors, fraud, and loss of data integrity.
  An organization needs to create a detailed risk map specific to blockchain implementation; it is also important to establish mechanisms to ensure continuous compliance with financial reporting and other regulations.

The framework comprises five main components: Control Environment, Risk

Question 14

COCO INTERNAL CONTROL FRAMEWORK AND BLOCKCHAIN

7112.17

Control Activities

Answer 14

Control Activities

Evaluating blockchain risks:

• Evaluate if there are adequate controls over who has access to the blockchain data and to what extent.
• Assess if the blockchain ensures all transactions are complete, accurate, and authorized.
• Set up robust access control systems and authorization protocols.
• Use smart contracts or similar mechanisms to ensure transaction accuracy and completeness.

The framework comprises five main components: Control Environment, Risk

Question 15

COCO INTERNAL CONTROL FRAMEWORK AND BLOCKCHAIN

7112.17

Information and Communication

Answer 15

Information and Communication

Evaluating blockchain risks:

• Data integrity: Evaluate the blockchain’s data integrity loss risk.
• Transparency and privacy: Assess if the blockchain technology’s level of transparency is appropriate for financial reporting.
• Data audits: Implement regular data integrity audits.
• Communication protocols: Establish protocols for timely and accurate communication between all stakeholders.

The framework comprises five main components: Control Environment, Risk

Question 16

COCO INTERNAL CONTROL FRAMEWORK AND BLOCKCHAIN

7112.17

Monitoring Activities

Answer 16

Monitoring Activities

Evaluating blockchain risks:

• Evaluate if sufficient tools for monitoring blockchain activities are relevant to financial reporting.
• Use automated tools for real-time monitoring of blockchain transactions relevant to financial reporting.
• Periodically perform internal and external audits to ensure that the controls are adequate and continue to mitigate identified risks.

By applying the COSO Internal Control Framework in the context of blockchain and financial reporting, organizations can better understand the unique risks involved and develop robust controls to mitigate these risks effectively.

The framework comprises five main components: Control Environment, Risk

Question 17

7112.18

Answer 17

In order to improve the performance of an accounting information system (AIS) an organization should determine possible changes to its business processes, such as automation and outsourcing. The following example report (section 7112.19) shows typical changes an organization should consider to improve its AIS performance.

Question 18

Automation and Outsourcing

7112.19

Overview

Answer 18

Example: FinTech Innovations In the fast-paced financial landscape where precision, speed, and reliability are paramount, FinTech Innovations prides itself on providing cutting-edge financial solutions. The accounting information system (AIS) is central to its operations, ensuring the financial processes run smoothly and the records stay impeccable. However, as with any advanced system, there is an ongoing need for optimization. Recognizing this, FinTech Innovations embarked on a mission to enhance the performance of its AIS. This represents a commitment to operational excellence and is a testament to their promise of delivering unparalleled service to their clients and stakeholders. FinTech should determine potential changes to business processes to improve the performance of their accounting information system (e.g., automation, outsourcing).

Question 19

Automation and Outsourcing

7112.19

Answer 19

Automation:
* Data entry: Automate routine data entry tasks, such as importing bank transactions, to reduce manual input and minimize errors.
* Reconciliation: Use tools that can automatically match invoices to purchase orders or payments to receipts.
* Report generation: Schedule and automate the creation of standard financial reports, making them readily available without manual intervention.
Transaction recording example: Sarah from Sales is manually keying all transactions into the AIS. One time, she was out sick, and everything piled up. An API (application programming interface) could be introduced that automatically feeds all transactions from the sales and inventory systems into the AIS. Sarah could use her skills for more strategic tasks like customer relationship management.

Here are another two examples for better understanding:

1. Invoice generation and tracking:
   Current state: Invoices are manually created, sent, and tracked via spreadsheets.
   Automated solution: Use invoicing software that generates, sends, and tracks invoices, sending reminders for overdue payments.
2. Payroll processing:
   Current state: Manual data entry for payroll can lead to errors and delays.
   Automated solution: Utilize payroll software that calculates all aspects of payroll, including tax deductions, and executes direct deposits.

Question 20

Automation and Outsourcing

7112.19

Answer 20

Outsourcing:
* Specialized tasks: Outsource complex accounting tasks that require specialized expertise, like tax preparation or compliance reporting, to external professionals.
* Data processing: Engage third-party services for time-consuming data processing tasks, especially during peak financial periods.
Here are two examples for better understanding:
1. Data security and backup:
Current state: Data security is managed in-house, which can be costly and may need more specialized expertise. Outsourced solution: Partner with a cloud-based solution that provides top-notch security protocols and backup services.
2. Accounts receivable and collections:
Current state: Managing late payments impacts cash flow and staff time. Outsourced solution: Employ a specialized collections agency to handle accounts receivables, improving cash flow.

Question 21

7112.19

Answer 21

Integrating systems: Ensure that the AIS seamlessly integrates with other business systems, like CRM (customer relationship management), HRM (human resource management), or procurement software, to streamline data flow and reduce redundancy.
Data standardization: Implement standardized data formats and protocols to ensure consistency, especially if integrating multiple systems or transitioning data from one platform to another.
Optimized workflows: Review and streamline workflows within the AIS, ensuring they align with current business processes and eliminate redundant steps.
Regular training: Conduct regular training sessions to ensure staff understand how to use the AIS efficiently, maximizing system performance.
Implementing real-time processing: The transition from batch processing to real-time processing, where feasible, ensures that data is always up to date and reports are generated with the latest figures.
Cloud migration: Migrate the AIS to cloud-based platforms, which can offer scalability, real-time data access, and optimized performance without the need for maintaining extensive on-premises hardware.

Question 22

7112.19

Answer 22

Enhanced security measures: Implementing advanced security measures can improve system performance by ensuring data integrity and avoiding potential downtime due to security breaches.
Regular maintenance and upgrades:
** a. Invoice generation and tracking:**
Current state: Invoices are manually created, sent, and tracked via spreadsheets.
Automated solution: Use invoicing software that generates, sends, and tracks invoices, sending reminders for overdue payments.
** b. Payroll processing:**
Current state: Manual data entry for payroll can lead to errors and delays.
Automated solution: Utilize payroll software that calculates all aspects of payroll, including tax deductions, and executes direct deposits.

By implementing these changes, FinTech is not only upgrading its AIS but also making a fundamental shift in managing its financial processes. This will pave the way for faster decision-making, improve operational efficiencies, and ultimately contribute to FinTech’s bottom line.

Question 23

Reconciling AIS Practices to Documented Processes

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Answer 23

In the dynamic environment of the modern business world, consistency between practice and documentation is not only a matter of compliance but a cornerstone of operational efficiency. Organizations should ensure that on-the-ground operations align with documented processes, which is of paramount importance. This alignment reduces errors, provides a shared understanding among team members, and maintains the integrity of workflows.

Particularly in accounting information systems (AIS), where precision is crucial, the harmony between actual practices and documented guidelines is vital. The following example report (section 7112.21) offers a systematic approach to ensure this alignment, highlighting areas of consistency and discrepancy and offering pathways to bring practices and documentation into harmony.

Question 24

Reconciling AIS Practices to Documented Processes

7112.21

This is a report.

Answer 24

Example: HBC Corp.

HBC Corp. wishes to reconcile the actual sales process in its accounting information system (AIS) with its documented process to “identify gaps and areas for process improvement”.

Sales process: The sales team is working tirelessly; there are some hiccups and delays in processing. After reviewing the current operations, the need to reconcile the actual process with the documented process is clear to identify where processes can be improved.

The objective is to ensure that the sales process executed within HBC Corp. matches the company’s documented standards and protocols, optimizing efficiency, accuracy, and compliance.

1. Initial preparation:
   a. Gather materials: Obtain the current flowchart, business process diagram, or narrative documentation that describes the sales process.
   b. Appoint a process leader: Designate a knowledgeable team member (sales process manager) to lead this reconciliation initiative.
2. Map the current process:
   a. Conduct interviews: Speak with frontline sales personnel to comprehensively understand the ground-level process.
   b. Document observations: Note every step, the information used, the tools, the technology, and the documents involved in the sales process.
3. Compare with the documented process:
   a. With the help of an AIS specialist, compare the observed process against the documented process to identify deviations.
   b. Use specialized software tools to highlight areas of disparity visually.
4. Identify discrepancies: Determine steps skipped, added, or altered in the process.
5. Review the information flow:
   a. Verify that the actual flow of information, such as the transition from lead capturing to invoicing, is consistent with the documented procedure.
   b. Engage the IT department to ensure data transitions between AIS modules smoothly and as documented.
6. Analyze documents used: Ensure all forms, invoices, and other documents align with company standards. For example, the finance department could validate if the invoices generated match the company’s approved format.
7. Highlight technology and tool disparities: Ensure that any tools or technology utilized in the sales process, like CRM (customer relationship management) software or payment gateways, are as per the documented standard. If the team uses additional tools, those tools should be noted.
8. Recommendations and corrections:
   a. Based on discrepancies found, list recommended changes to the actual process or the documented standards.
   b. Consider organizing a workshop led by the training department to align the team with the standard process for major deviations.
9. Update documentation: If the deviations in the actual process are deemed more efficient or necessary based on the current business environment, update the flowchart, business process diagram, or narrative documentation accordingly.
10. Continuous review: Implement a quarterly review to ensure the sales process remains consistent with documented standards.

By following this structured approach, HBC Corp. can ensure that its actual sales process in the AIS aligns well with its documented standards, ensuring consistency, efficiency, and compliance across the board. This reconciliation process is not just an exercise; it is a roadmap for streamlining the sales process at HBC Corp.

Question 25

7112.22

Answer 25

A SOC 2® (System and Organization Controls) engagement aims to evaluate an organization’s security, availability, processing integrity, confidentiality, and privacy controls. The Trust Services Criteria (TSC) provide the framework for this evaluation. Detecting deficiencies in the suitability or design and deviations in the operation of controls within a SOC 2 engagement involves a rigorous assessment process using Trust Services Criteria. The process requires a deep understanding of the TSC, the nature of the service organization, and the specific controls implemented by the organization.

Below is an expanded approach that provides further details:

1. Understanding the service organization’s commitments and system requirements:
   (a) System documentation: Obtain detailed system documentation from the organization. This should cover the physical, logical, and procedural environment and the interaction of these components.
   (b) Interview stakeholders: Engage with management, IT personnel, and other staff members to understand how they perceive their roles in upholding system requirements and commitments.
2. Dive deep into the Trust Services Criteria:
   (a) Criteria breakdown: Understand not just the five primary categories but also the criteria under each category. Familiarize yourself with specific criteria, definitions, and points of focus.
   (b) Training: Ensure that the assessment team receives regular training on TSC updates and interpretations.
3. Evaluation of control design:
   (a) Map controls to the Trust Services Criteria: Align each control to specific criteria within the TSC, ensuring full coverage without redundancy. Understand the five TSC categories: Security, Availability, Processing Integrity, Confidentiality, and Privacy.
   (b) Control maturity assessment: Gauge how established each control is within the organization and if it is matured to its optimal state.
4. Test the operational effectiveness of controls:
   (a) Sampling: Ensure that samples are representative of the entire operation and consider using stratified sampling or other advanced sampling techniques for complex environments.
   (b) Simulation: Create hypothetical scenarios to challenge control effectiveness and see how they respond to unanticipated threats or disruptions.
5. Detailed deviation analysis:
   (a) Classify deviations based on their potential impact: minor, moderate, or severe.
   (b) Analyze root causes for deviations, considering both systematic issues and isolated occurrences.
6. Determine the impact of deficiencies:
   (a) Quantitative analysis: If possible, estimate the potential financial, operational, and reputational impact of deficiencies.
   (b) User impact: Consider the effects of deficiencies on end users or clients, especially in terms of data integrity and availability.
7. Documenting findings:
   (a) Create a centralized repository where all evidence, notes, and observations can be stored and easily accessed by relevant parties.
   (b) Include descriptions, impact assessments, and any evidence supporting the findings.
   (c) Allow for feedback from the organization’s internal teams on the preliminary findings before finalizing them.
8. Constructive recommendations:
   (a) Prioritize remediation: Not all deficiencies carry the same weight. Advise on which issues to tackle first based on risk and potential impact.
   (b) Leverage technology: Propose tech-driven solutions where they can enhance control effectiveness or streamline control operations.
9. Finalize and deliver the SOC 2 report:
   (a) Compile findings, assessments, and recommendations into the SOC 2 report.
   (b) Present the report to the organization’s management and other stakeholders, highlighting key areas of concern and recommended actions. By following this approach, auditors can thoroughly and objectively assess a service organization’s controls related to its security service commitments and system requirements using the Trust Services Criteria. Maintaining an unbiased viewpoint, ensuring meticulous documentation, and communicating findings transparently are essential.

Question 26

7112.23

Answer 26

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3. Comparable: For information to be comparable, it must enable users to identify similarities and differences between two sets of economic phenomena.
4. Timely: Information is timely if it is provided in time to enable decision makers to use it to make decisions.
5. Understandable: Information is understandable if it is presented in a useful and intelligible format.
6. Verifiable: Information is verifiable if two knowledgeable people acting independently would each produce the same information.-

Question 27

7112.24

Answer 27

According to the AICPA, an accounting information system (AIS) has five primary objectives:

• Identify and record all valid transactions. For example, if a company intentionally records a fictitious sale, it can overstate revenues and income. If a company forgets to record some expenses or understates expenses at the year’s end, it can overstate net income.
• Properly classify transactions. For example, improperly classifying an expense as an asset overstates assets and net income.
• **Record transactions at their proper monetary value. **For example, an account receivable that becomes uncollectible should be written off.
• Record transactions in the proper accounting period. Recording 20YY sales in 20XX overstates sales and net income for 20XX and has the opposite effect for 20YY.
• Properly present transactions and related disclosures in the financial statements. Failing to disclose a lawsuit or a contingent liability could mislead the reader of a financial statement.

Question 28

SOC 1®: Report

7310.05

Answer 28

**SOC 1®: Report on Controls at a Service Organization Relevant to User Entities’ Internal Control over Financial Reporting **(ICFR): SOC 1 reports are based on Statement on Standards for Attestation Engagements (SSAE) 16. SOC 1 addresses service organization system internal controls over financial reporting. A SOC 1 report is generated by auditors for other auditors. Use of these reports is restricted to the management of the service organization, user entities, and user auditors. There are two types of reports for these engagements:

• Type 1: Report on the fairness of the presentation of management’s description of the service organization’s system and the suitability of the design of the controls to achieve the related control objectives included in the description as of a specified date
• Type 2: Report on the fairness of the presentation of management’s description of the service organization’s system and the suitability of the design and operating effectiveness of the controls to achieve the related control objectives included in the description throughout a specified period
  The control objectives in the SOC 1 report assist the auditor of the user entity in determining how the controls at the service organization affect the user entity’s financial statement assertion. The control objectives address the risks that controls are intended to mitigate, whereas controls provide reasonable assurance that the control objectives are met. Individual internal controls are linked to these control objectives; these controls provide the process the service organization undergoes to ensure the achievement of the stated control objectives.

Question 29

SOC 2®: Report

7310.05

Answer 29

SOC 2®: Report on Controls at a Service Organization Relevant to Security, Availability, Processing Integrity, Confidentiality, or Privacy: SOC 2 reports are based on the AICPA’s AT 101 (Attestation Engagements) and the Trust Services Criteria used by service organizations. SOC 2 reports contain sensitive information and are not shared outside the company. SOC 2 reports are useful in the entity’s oversight, vendor management programs, and regulatory oversight. SOC 2 reports focus on a business’s nonfinancial reporting controls relating to the five Trust Services Criteria: security, availability, processing integrity, confidentiality, and system privacy.

Trust Services Criteria consist of professional attestation and advisory services based on principles and criteria that address the risks and opportunities of IT-enabled systems and privacy programs, including electronic commerce (e-commerce) systems. Trust Services Criteria are issued by the AICPA and the Canadian Institute of Chartered Accountants (CICA). The Trust Services Criteria are organized into four broad areas:
* Policies:The entity has defined and documented its policies (i.e., written statements communicating management’s intent, objectives, requirements, responsibilities, and standards for a particular subject) relevant to the particular principle.
* Communication: The entity has communicated its defined policies to responsible parties and authorized system users.
Procedures: The entity has placed procedures in operation to achieve its principles in accordance with its defined policies.
* Monitoring: the entity monitors the system and takes action to maintain compliance with its defined policies.

Question 30

SOC 2®: Report

7310.05

Trust Services

Answer 30

The Trust Services introduce a list of criteria against which these four areas are evaluated to assess whether one or more of the following five criteria have been achieved:

*** Security: **The system is protected, both logically and physically, against unauthorized access. Access controls help prevent potential system abuse, theft or unauthorized removal of data, misuse of software, and improper alteration or disclosure of information.
* Availability: The system, product, or service is available for operation and use as committed or agreed to by a contract or service-level agreement (SLA). This principle pertains to security-related criteria that may affect availability, monitoring such items as network performance and availability, site failover, and security incident handling.
* Processing integrity: Addresses whether a system achieves its purpose (i.e., delivers the right data at the right price at the right time). Accordingly, data processing must be complete, valid, accurate, timely, and authorized.
* Confidentiality: Information that is designated “confidential” is protected as committed or agreed to in the contract. Data is considered confidential if its access and disclosure is restricted to a specified set of persons or organizations (e.g., data intended only for company personnel, business plans, intellectual property, or internal price lists). Encryption is an important control for protecting confidentiality during transmission; network and application firewalls and access controls are used to safeguard information being processed or stored on computer systems.
* Privacy: Personal information is collected, used, retained, disclosed, and disposed of in conformity with the commitments in the entity’s privacy notice and with the privacy principles put forth by the AICPA. Personal identifiable information (PII) refers to details that can distinguish an individual (e.g., name, address, or Social Security number). Some personal data related to health, race, sexuality, and religion are also considered sensitive and generally require an extra level of protection.

Question 31

SOC 2®: Report

7310.05

Answer 31

There are two types of SOC 2 reports that service organizations can provide to user entities.

• Type 1: In a Type 1 report, the service auditor provides an opinion as to whether the service organization’s description “fairly presents” the system that was designed and implemented, and whether the controls were suitably designed to meet the criteria as of a specified date. Type 1 reports do not address the operating effectiveness of controls, nor do they provide an opinion over a period of time. In other words, the report only provides information on controls that are in place (designed) at a specific point in time and not whether the controls are operating on a continuous basis throughout a specified time period.
• Type 2: In a Type 2 report, the service auditor provides an opinion on whether the service organization’s description “fairly presents” the system that was designed and implemented; the controls were suitably designed to meet the criteria; the controls operated effectively during the specified period of time; and the service organization complies with the commitments in its statement of privacy practices, if the report covers the privacy principle. A Type 2 report is required if the user entity intends to use the report for reliance on internal control or if the user entity’s management or auditor plans to use the report for the assessment of internal controls.

Question 32

SOC 3®: Report

7310.05

Answer 32

SOC 3®: Report on Controls at a Service Organization Relevant to Security, Availability, Processing Integrity, Confidentiality, or Privacy: SOC 3 reports are “public facing” documents that give a high-level overview of information in the SOC 2 report. A SOC 2 report contains sensitive information about specific systems and network controls which should stay confidential; therefore, a SOC 3 report summarizes the non-sensitive content in a SOC 2 report for users who need assurance about the controls at a service organization relevant to security, availability, processing integrity, confidentiality, or privacy but do not have the need for or the knowledge necessary to make effective use of a SOC 2 report. Because they are general-use reports, SOC 3 reports can be freely distributed.