SOC Reporting for Private Equity: What to Expect from a Readiness Assessment

A System and Organization Controls (SOC) report is valuable in virtually any industry but holds unique benefits for private equity (PE) firms and their portfolio companies (portcos). Specifically, PE should view SOC reports as a strategic method to build trust, attest that they have controls in place, and help safeguard client information and assets. Ultimately, a SOC report can help an organization protect its bottom line and grow revenue. 

Once your organization has identified which SOC report is right for your business, a trusted advisor can work with you to conduct a readiness assessment that pinpoints control design gaps and helps address them before a formal SOC examination. Following your decision to pursue a SOC report, it’s important to validate your organization is prepared to undergo the examination. With a readiness assessment, organizations can confirm the adequacy of their controls. 

The readiness assessment acts as a “warm-up” for the SOC report and allows organizations to resolve potential issues in advance. In addition to uncovering gaps, a readiness assessment can provide a remediation plan ahead of a SOC examination. For example, it can highlight where required documents such as configurations and other system-generated listings are available from your applicable systems, providing a clear roadmap for adjusting controls that are not designed the way they’re intended to operate. 

Readiness assessments are also helpful to identify areas of potential greater risk within the business that require deeper evaluation. For example, incident response (IR) plans, change management policies, risk assessments, and internal controls governance should be surveyed early, often, and thoroughly. 

Generally, the readiness process takes a month, but timelines can vary depending on an organization’s level of preparedness, as well as how quickly auditors can deliver their findings and recommendations on control gaps. Once control issues have been identified by a readiness assessment, the remediation period can help address them. This part of the process often takes two to three months to complete. Here’s how the readiness process will look from start to finish:

What to Expect During a Readiness Assessment:

A thorough readiness assessment can be divided into four key steps: Walkthroughs, evidence collection and testing, evaluation and follow-up, and the remediation plan. Each phase plays a critical role in ensuring an organization is set up for success going into the SOC examination.

Walkthroughs

During the walkthrough phase, an external auditor will likely start by providing your team with a questionnaire that asks about your policies, infrastructure, regulatory changes applicable to your business, and technical controls. The real value, however, is in joint meetings with your auditor and control owners. During these discussions, the auditor will have the control owners walk through each process in scope, identify the relevant controls, and review supporting documentation. These meetings are critical to ensuring you have sufficient controls in place, and that they are designed to meet the examination and your customer requirements.

Evidence Collection and Testing

During this phase, process owners provide evidence that demonstrate they have controls in place. Depending on the size and complexity of your organization, a dedicated internal compliance team might support this part of the assessment. If not, you will need to identify a point person who has the knowledge and authority to take on this important responsibility. They help ensure proper documentation is ready and all necessary stakeholder meetings are set up promptly. A compliance team can also delegate and oversee the roles and responsibilities of employees as they relate to controls. This will help ensure individuals are adhering to policy and that processes are operating as intended.

At this point, companies must establish an organization-wide understanding of the time and commitment required to pursue a SOC report. Business leaders should prioritize educating employees on the importance of a readiness assessment and the potential impact of a SOC audit. Pursuing a SOC attestation is not a one-time check-the-box exercise. Throughout the process, it is paramount that leadership encourages buy-in from all employees and emphasizes the need for an ongoing commitment to a well-controlled environment. 

Evaluation and Follow-up

Following the evidence collection and testing phase, an auditor may follow up to request additional evidence or answers to any final questions about current controls. The auditor will then evaluate and highlight potential gaps within the organization’s controls. 

Remediation Plan

After an auditor has assessed the effectiveness of your organization’s controls, they will advise you on developing an effective remediation plan.  To maintain independence, your auditor cannot implement the plan, however, they can and should be there for you along the way to answer questions and review documentation you prepare. When you confirm your remediation plan, you should first review the identified gaps against your written policies and documented procedures to confirm all key controls are in place and align with your organization’s stated objectives. Then, review any recent risk assessments to confirm you fully understand your organization’s risk landscape. Remember to verify that processes and controls are in place to mitigate any applicable risks. The remediation plan should be embraced by the whole compliance team to strengthen controls in preparation for the upcoming SOC report. 

Finding the Right Firm

SOC readiness assessments can reveal opportunities for improvement within a portco ahead of a SOC report. For companies with limited resources, this can make the whole process seem daunting. Yet with ample preparation and action plans at the ready, you can leverage the insights gleaned before a SOC report to be prepared and ultimately enhance your organization’s value. Choosing the right firm to support your readiness assessment is critical to increasing organization preparedness and confidence ahead of a SOC report. When looking for a firm, you should seek a collaborative team with the knowledge and experience in consulting on SOC readiness to prepare for a first-time report, and a firm that understands your unique risks.

Are you ready to take the first step toward a formal SOC examination? Talk to a member of our third-party attestation team and get started with a readiness assessment today.