What is system and organization control (SOC)?
SOC - System and Organization Controls -is a voluntary compliance standard for service organizations, developed by the American Institute of Certified Public Accountants (AICPA), which specifies how organizations should manage customer data. SOC is an auditing procedure that ensures service providers securely manage customers’ data to protect the interests of the organization and the privacy of its clients.
They are divided into three main types of SOC reports, each with a different purpose and target audience.
For security-conscious businesses, SOC compliance is a minimal requirement when considering an organization providing services e.g. SaaS provider.
SOC reports
SOC 1® Report
SOC 1 Reports are designed for
organizations
that provide services for their clients which ha
ve
relevance to the users’ financial controls. A common example of this type of reporting includes payroll processors and medical claims processors. This report can save an
organization
time and money by addressing various common control-related questions that arise from multiple user auditors.
SOC 2® Report
SOC 2 report is intended to use and reference the Management of the Service Organization, User Entities, User Entity’s Auditor and Regulators. SOC 2 reports are designed for organizations that provide information to user entities about non-financial controls. The report outlines effectiveness of an organization’s internal and security controls implemented to safeguard customer data.
The controls are reviewed against the AICPA’s 5 Trust Service Principles including Security, Availability, Confidentiality, Processing Integrity, and Privacy. Few examples of this type of report include third party service providers - Human Resource Management Service Providers, Document Management Service Providers, and Cloud Computing Service Providers). This report gives your organization a competitive edge over others who cannot prove their SOC2 Compliance. Further, these reports provide valuable insights about an organization’s internal controls and safeguards.
SOC 3® Report
Designed for organizations that provide information to user entities about non-financial controls, addressing the same controls as SOC 2 reports. However, the details in this report contain significantly less information with no description of tests of controls. This report is available for the use of the public and for wider distribution for the purpose of marketing.
They are made available to the public at the discretion of the management of the organization. After successful completion of the assessment, the auditor (Certified Public Accountant i.e. CPA) provides a formal, structured assurance report which can be shared with organization’s clients and other interested parties.
How to get SOC (Type 1/ Type 2) reports?
Choosing the kind of SOC report is one step, whereas choosing the reporting type is the next crucial step. This step is extremely crucial and important as there is a big difference between the two report types. The key distinction between the two reports is that while one addresses controls of a specific date (Type 1), the other addresses controls over a specified time period (Type 2).
For Type 1 assessments the assessor will only check the adequacy of controls to be implemented by the customer. The effectiveness of the implementation is to be checked during a Type 2 assessment. If any deviation is found, the assessed company must react on the findings by closing them or providing management acceptance.
It is also important to note that the Type 1 and Type 2 reports are terminology for SOC 1 and SOC 2 reports. TÜV SÜD is currently providing SOC 2 and SOC 3 report attestation services.
Frequently asked questions (FAQs)
What is a SOC attestation report?
A SOC attestation report is a report issued by a third-party auditor that assesses and verifies the internal controls of a service organization. These controls could be related to security, data privacy, or operational processes. The most common SOC reports are SOC 1, SOC 2, and SOC 3.
What are the different types of SOC reports?
- SOC 1: Focuses on controls relevant to financial reporting. Typically relevant for service organizations that handle client financial information.
- SOC 2: Assesses controls related to security, availability, processing integrity, confidentiality, and privacy. This is typically used by technology, SaaS, and cloud companies.
- SOC 3: Similar to SOC 2 but less detailed. It's a publicly available summary report and is often used for marketing purposes.
What is the difference between SOC 1, SOC 2, and SOC 3?
- SOC 1 is specific to financial reporting controls.
- SOC 2 addresses more general security, availability, and privacy concerns, focusing on technology systems.
- SOC 3 provides a high-level summary of SOC 2 controls and is meant for public distribution.
What is the purpose of a SOC attestation report?
To provide assurance to customers and stakeholders that a service organization has adequate controls in place to protect data and maintain service standards. It helps to reduce risk, build trust, and demonstrate compliance with industry regulations.
Who needs a SOC report?
- Service Organizations: Companies offering services that manage or process data on behalf of clients, such as cloud service providers, SaaS providers, data centers, etc.
- Customers: Organizations that rely on third-party service providers to ensure that their data is secure, processed correctly, and managed according to best practices.
- Regulatory Bodies: Certain industries may require SOC reports for regulatory compliance.
How are SOC reports conducted?
A third-party auditing firm performs the attestation. They evaluate the design and operational effectiveness of the service organization’s internal controls against the applicable criteria (e.g., Trust Services Criteria for SOC 2). This audit includes interviews, document reviews, and testing of the controls over a specific period.
What is the difference between Type I and Type II reports?
- Type I: Evaluates the design of controls at a specific point in time.
- Type II: Evaluates the design and operational effectiveness of controls over a defined period (usually 6 or 12 months). Type II reports are typically more valuable because they demonstrate that the controls have been consistently operating effectively over time.
How long is a SOC report valid?
SOC reports are typically valid for one year, although some organizations might update their reports more frequently, especially if there are significant changes in their systems or controls.
Why should a company obtain a SOC report?
- To build trust with customers, partners, and stakeholders.
- To ensure regulatory compliance with industry standards (such as HIPAA, GDPR, etc.).
- To demonstrate a commitment to data protection and risk management.
- To improve internal controls based on findings from the audit.
Is a SOC report mandatory?
SOC reports are typically not mandatory by law, but certain industries or clients may require them to meet compliance standards or as a contractual obligation.
How can a SOC report be used in marketing?
Organizations can leverage SOC 2 and SOC 3 reports in their marketing materials to show clients that they have passed an independent audit and meet industry standards for security, confidentiality, and other relevant criteria.
Are SOC reports publicly available?
- SOC 1 and SOC 2 reports are typically not publicly available but are shared with customers and stakeholders under non-disclosure agreements.
- SOC 3 reports, however, are designed for public distribution and can be freely shared on a website or other public platform.
