There are several types of SOC reports, and this can make it difficult to tell the difference between SOC 1, SOC 2, and SOC 3. The functions and uses of these reports must be clearly understood by both service users and management of service organizations when deciding on what SOC report is required to stay compliant.
Before we dive into the differences between these reports, let us look at some Important factors to keep in mind:
All three SOC reports are applicable to Service organizations that provide services to users, and these reports assess the service organizations internal controls and how they affect user/customer’s needs.
Service and Organization Controls (SOC), is one of the most prevalent compliance standards for technology and service organizations. SOC2 is an auditing standard maintained by American Institute of Certified Public Accountants (AICPA) to test an organization’s internal controls for information security and privacy.
The SOC 1 Report
A SOC 1 report also known as SSAE18, is a report that is mainly focused on assessing controls for financial reporting. The goal of the SOC 1 report is to show that your organization has internal controls in place to handle your customers’ financial information.
The SOC 1 is aimed at businesses that provide services that may have an impact on a client’s financial statements or internal controls over financial reporting. This type of report is usually requested by financial auditors as part of their procedures.
What is the difference between Type I and Type II?
The Statement on Standards for Attestation Engagements SSAE18 specifies two levels of reports for both SOC 1 and SOC 2;
- Type I — A Type I report describes a service organization’s systems and whether the suitability and design of specified controls meet the relevant trust criteria.
- Type II — A Type II report includes the above and assesses the operating effectiveness of the specified controls.
The SOC 2 Report
A SOC 2 report is an examination report focused on assessing controls for security and compliance. This aim of this report is to prove that security and compliance controls are implemented and demonstrate that these internal controls are in line with AICPA’s five Trust Services Criteria(TSC) which are;
- Security: Are your systems protected against unauthorized access, use and modification?
- Confidentiality: Is Information properly classified? Is information designated as confidential protected? If so, how?
- Processing Integrity: Is data processed by your system complete, accurate, timely, and authorized to meet the entity’s objectives?
- Privacy: Is Personal information (PI) collected, used, retained, disclosed, and disposed to meet the entity’s objectives?
- Availability: Are your information and systems available to authorized users to meet the entity’s objectives?
From the TSCs listed above, Security is the only criteria that is mandatory. Companies can choose the remaining criteria depending on the suitability and applicability to their business.
Any company that provides a B2B service, as well as any B2C company that handles sensitive information, should consider getting a SOC 2 report prepared.
Types of SOC 2 Compliance
There are two types of SOC 2 reports, namely the Type I and Type II reports. These reports are quite similar but differ in scope and timeframe.
A SOC 2 Type I audit report is an examination of the design of your organization’s controls as of that point in time. While the SOC 2 Type II audit report examines the design, and the operating effectiveness of a service organization’s controls over a specific period of time (this could range between a minimum of three to a maximum of twelve months).
A SOC 2 Type I is usually utilized by first-timers or start-ups as it can be attained within a short period and vital to securing a big deal. Meanwhile, a SOC 2 Type II report is more for the long run, it could be shared with business partners, enterprise customers, and their auditors as it sufficiently proves that the relevant controls have been implemented over a longer period. This saves time spent on due diligence and security assessments that would usually be performed in order to work with clients.
The SOC 3 Report
A SOC 3 report is a general use report that provides only the service organization’s auditor report on whether the system achieved the trust services criteria used in SOC 2. According to the AICPA, a SOC 3 report is, “designed to meet the needs of 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.”
Unlike SOC 2 reports, SOC 3 reports provides a high-level description of the system and controls tested by the service auditor and does not include the test procedures and the results of the test procedures. However, since both reports are intended to address the AICPA Trust Service Categories (TSCs), the controls identified and tested by the service auditor are usually the same. So, it is safe to say that a SOC 3 report cannot be issued unless a SOC 2 Type II report has been completed. From this comparison, the significant difference between a SOC 2 and SOC 3 report is the extent of reporting.
A SOC 3 report is usually released and distributed to the public as a marketing material. You can find that several organizations post their SOC 3 reports on their website for the public to use as needed.
What are the key differences?
Apart from some of the similarities between SOC 1, SOC 2 and SOC 3 there are some obvious differences between these SOC reports. The major difference between SOC 1 and SOC 2 is that SOC 1 focuses on financial reporting, while SOC 2 focuses on compliance and operations.
SOC 3 reports on the other hand are less common. SOC 3 is a variation on SOC 2 and contains the same information as SOC 2 but targets the general public rather than the clients you are selling to, auditors and management. A high-level description of the key differences can be seen below.
Need further help with choosing the right SOC Report for your business?
In summary, Organizations are confronted with new problems as data security and privacy rules become more complicated and are increasingly taking steps to make sure that the risks associated with outsourcing or partnering with service organizations are being mitigated. With the growing adoption of Cloud technologies, it has become more important for companies to make these informed decisions to protect their company’s critical information.
For most Start-ups (especially SaaS), ensuring business survival depends largely on how quick corporate deals are closed and the absence of a SOC Compliance could delay these deals and weaken their competitive position.
At Insight Assurance, we can help simplify your path to security and compliance. Proactively prepare for SOC Compliance by Contacting us today, to speak about the most suitable SOC report for your business.