Understanding Your SOC 1 Report: Audit Risk, Control Risk and Detection Risk

We know that your clients rely upon our opinion; we don’t take that lightly. We will do everything possible to gain reasonable assurance that controls are in place and operating effectively. This is why audit risk, control disk, and detection risk are so important to us. These elements of risk overlap and work together, but they also drive our audits so that we can give you reasonable assurance.
In an audit of financial statements, like SOC 1 audits, audit risk is defined by the PCAOB as, “The risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated.” What are the chances of an audit firm’s opinion being incorrect? What are the chances something gets overlooked? This all factors into the concept of audit risk.
What are the chances that your controls are not operating effectively? What are the chances that the failure of a control lead to material misstatement in financial statements? This is control risk. If you rely upon a person to monitor something, there are inherent limitations. Why? Because people make mistakes. The more that people are involved, the higher the control risk. But, there’s control risk related to automated processes too, because systems fail. There’s always some level of control risk, but an auditor will design tests to help us have reasonable assurance that controls are in place and operating effectively.
Will an auditor not detect something that is in existence? This is detection risk. In relation to SOC 1 audits, the PCAOB defines detection risk as, “The risk that the procedures performed by the auditor will not detect a misstatement that exists and that could be material, individually or in combination with other misstatements. Detection risk is affected by the effectiveness of the substantive procedures and their application by the auditor.” An auditor can reduce the level of detection risk by designing tests of policies and procedures and applying sampling to help give reasonable assurance that a control is in place and operating effectively.
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KirkpatrickPrice is a licensed CPA firm, PCI QSA, and a HITRUST CSF Assessor, registered with the PCAOB, providing assurance services to over 600 clients in more than 48 states, Canada, Asia, and Europe. The firm has over 12 years of experience in information security and compliance assurance by performing assessments, audits, and tests that strengthen information security and internal controls. KirkpatrickPrice most commonly provides advice on SOC 1, SOC 2, HIPAA, HITRUST CSF, PCI DSS, ISO 27001, FISMA, and CFPB frameworks.