Welcome to the third installment of our series uncovering pivotal changes to the CPA Exam. In our earlier pieces, we delved into fostering a "digital and data-driven mindset" and explored the escalating emphasis on technology and business processes, propelling the exam into new territories. In this blog, we unravel the intricate role of SOC (System and Organization Controls) Reports and their profound impact on the AUD (Auditing and Attestation) and BEC (Business Environment and Concepts) sections of the CPA Exam. Before dissecting these exam alterations, let's first comprehend the broader context driving the changes and how SOC Reports seamlessly integrate into this narrative.
Unveiling the CPA Exam's Transformation in 2021
The fundamental shifts in the CPA Exam echo a resounding call for adeptness in data, technology, and business processes. The AICPA (American Institute of Certified Public Accountants) underscores the imperative for newly licensed CPAs to not merely crunch numbers but to possess a holistic understanding of the intricate dance between transactions, business processes, and information systems. Given the evolving landscape, CPAs are expected to be adept technology and process advisors, necessitating proficiency not only in calculations but also in comprehending data flows and engaging in meaningful conversations about data usage with clients.
The Significance of SOC Reports in the Modern Accounting Landscape
SOC Reports, or System and Organization Controls, represent a suite of reports issued by CPAs related to auditing controls at service organizations. As businesses increasingly delegate parts of their accounting transactions to third-party service organizations, these reports play a vital role in verifying the existence of control systems and offering insights into the auditor's evaluation of these controls. The scope of SOC Reports may span an audit of controls relevant to financial reporting (SOC 1®) or focus on addressing technology and data concerns like security, availability, processing integrity, confidentiality, and privacy (SOC 2®).
SOC Report Changes in the AUD Section
The revised AUD section of the CPA Exam will encompass the following SOC Report-related topics:
1. Differences between SOC 1® and SOC 2® Reporting
Understanding the distinctions between SOC 1® and SOC 2® Reports is paramount. SOC 1® Reports zero in on controls at a service organization relevant to the internal control over financial reporting of the outsourcing company. On the other hand, SOC 2® Reports broaden their focus to controls related to operations and compliance, honing in on criteria like security, availability, processing integrity, confidentiality, and privacy. CPA candidates must exhibit an adept comprehension of various SOC Report types and discern their appropriate application.
2. Impact of Using a SOC 1® Type 2 Report in an Audit
In a data-centric era, SOC Reports are indispensable tools. Acquiring a SOC 1® Type 2 Report concerning internal controls at a service organization proves instrumental for both management and the auditor in evaluating the impact of these controls. A clean opinion on such a report can fortify customer trust and alleviate burdens on user entities and their auditors. Newly licensed CPAs should grasp the pivotal role of a SOC 1® Type 2 Report within the audit context and evaluate its potential influence on the audit plan.
3. Utilizing a SOC 1® Type 2 Report in Audit Procedures
A SOC 1® Type 2 Report's significance lies in its potential to impact the audit of the user entity. Depending on the services provided by an organization, possessing a SOC 1® Type 2 Report can influence the audit by potentially reducing the assessed level of control risk in relevant areas of the company. This, in turn, shapes the design and nature of audit procedures. Newly licensed CPAs need to be familiar with the criteria employed to assess the competence and relevance of a SOC 1® Type 2 Report.
SOC Report Changes in the BEC Section
The BEC section of the CPA Exam will feature examination topics crucial for navigating the complexities of SOC Reports:
1. Selecting the Appropriate SOC Report for User Entity Needs
A key skill for CPAs lies in the ability to discern the appropriate SOC Report type for specific scenarios. Given the increasing prevalence of outsourcing data and IT-related processes, CPAs must be adept at choosing the right SOC Report to meet user entity requirements. Proficiency in this skill is vital as SOC Reports play a pivotal role in assessing the impact of outsourcing on business processes and controls, especially in the technologically driven landscape of the 21st century.
2. Reviewing SOC Reports for Critical Information
CPAs should possess the acumen to read and analyze SOC Reports, extracting key information such as the covered period, modifications, and complementary user entity controls. In an era where companies are gravitating towards outsourcing data and IT-related processes, CPAs will encounter SOC Reports frequently. Hence, the ability to interpret and glean crucial insights from these reports is imperative.
3. Using SOC Reports for Risk Assessment in IT Outsourcing and Cloud Computing
As companies increasingly embrace cloud computing and IT outsourcing arrangements, CPAs are tasked with understanding the risks and nuances associated with these technologies. SOC Reports serve as invaluable tools for comprehending these risks and making informed decisions. Newly licensed CPAs should be well-versed in leveraging SOC Reports to evaluate risks and considerations tied to cloud computing and IT outsourcing arrangements.
Preparing for CPA Exam Changes with Vishal
As the CPA Exam undergoes transformation, Vishal stands as a steadfast ally, providing the resources and guidance needed to navigate these changes successfully. Comprehensive understanding of SOC Reports, coupled with proficiency in data, technology, and business processes, is key to excelling in the evolving accounting landscape. While Vishal remains committed to supporting aspiring CPAs, candidates are urged to delve into the AICPA’s 2021 Uniform CPA Exam Blueprints and the Practice Analysis Final Report for detailed insights into SOC Reports and all the forthcoming changes.
Embark on this journey with confidence; Vishal is here to champion your success every step of the way.