In the world of business, profit matters, but trust and credibility are what sustains it. SOC reports are one way in which organizations can build trust and reliability in the services and products that they offer to other businesses or prospective clients.
Service Organization Controls or SOC compliance reports are a way to ensure that an organization is following best practices in managing data security. Businesses can feel assured that the service providers they are outsourcing their business functions to are in compliance with the industry standards to protect their data and systems.
SOC report is generated by a third party, such as an independent audit firm that examines an organization's systems and controls in association with information security management and financial reporting.
In this article, we discuss SOC 1 vs SOC 2 reports and the key difference between them.
What is a SOC 1 Report?
SOC 1 report is an audit of your internal controls and practices for financial reporting. It's a way to assure your customers that their financial data is handled securely. This report is especially relevant for those firms that deal with financial services like billing, payment processing, and payroll.
It helps your customers trust the accuracy of your financial reports. SOC 1 reports are further divided into:
Type 1 report
This type of SOC 1 report is an audit of an organization's internal control at a specific time. Along with that, it also details how controls were implemented and the opinion of the auditors on whether the controls are designed in accordance with the control objectives.
Type 2 report
In SOC 1 report Type 2, the controls are monitored over a specific period of time, usually six months or a year. It monitors the suitability of the design of controls and their effectiveness.
What is a SOC 2 Report?
The SOC 2 report covers your information security practices and how well you follow the protocols and controls to protect your organization's and customer data. It evaluates your organization's control over one or more of the Trust Services Criteria, including Security, Availability, Confidentiality, Processing Integrity, and Privacy.
This report also consists of your risk management strategy in relation to data breaches. SOC 2 report is suitable for data centers, SaaS vendors, cloud-computing firms, and other IT-managed services. It is also divided into two types.
Type 1
This SOC report includes a description of the design of an organization's systems and controls. It also includes the opinion of the auditors on whether the controls are designed to meet the Trust Services Criteria.
Type 2
SOC 2 Type 2 report tests the operating effectiveness of the internal controls over a period of six months or a year. This report helps to mitigate the risk of mishandling customer data.
What’s the Difference Between SOC 1 and SOC 2 Reports?
There are many differences between a SOC 1 and SOC 2 report. The SOC 1 report is focused on financial controls and is reviewed by auditors. The SOC 2 report is associated with operational controls, including information security, and is aimed at operational personnel.
Let’s understand these differences in detail.
1. Purpose
SOC 1 compliance report reviews an organization's internal controls associated with its customers' data and financial reporting practices. On the other hand, the SOC 2 report reviews internal controls relevant to information security management and five Trust Services Criteria.
2. End Users
The end users of SOC 1 vs SOC 2 reports are different. The users of SOC 1 report are the business customers, management, and their external auditors.
On the other hand, the end users of SOC 2 reports are customer's partners, regulators, and customers who need detailed information about the organization's data security practices.
3. Control Focus
SOC 1 report focuses on internal controls associated with processing and securing customers' financial information, and the SOC 2 report consists of the controls related to information security, availability, confidentiality, processing integrity, and privacy of data collected.
4. Audit Standard
SOC reports are based on the American Institute of Certified Public Accountants (AICPA) standards, specifically Statement on Standards for Attestation Engagements No. 18 (SSAE 18). The SOC 1 report follows the AICPA SSAE 18 AT-C Section 320, while the SOC 2 report is in accordance with the AICPA SSAE AT-C Sections 105, 205, and five Trust Services Criteria.
5. Time Requirements
There is also a timescale difference between a SOC 1 and SOC 2 report. A SOC 1 report requires a timescale of a few weeks to three months, while the SOC 2 report needs more time, usually three to twelve months, for its completion.
How to Obtain a SOC 1 or SOC 2 Report?
Now that you know SOC 1 vs SOC 2 differences, how can you obtain them?
- To get the reports, you first need to analyze the existing policies, practices and internal controls by performing an internal audit of your organization.
- Implement controls to address areas of non-compliance. For that, you need to hire an independent Certified Public Accountant (CPA) firm to examine and audit your internal controls and systems.
- Once they have completed the examination, they will issue a SOC report.
Want to ensure that your SOC 1 and SOC 2 compliance reports are in accordance with industry standards?
Effivity helps you achieve accuracy in SOC reporting using the information security management system software and risk management modules. The software helps enhance the effectiveness of your controls associated with information security and any risks that arise with data breaches.
SOC 1 vs SOC 2: Which one should you choose for your business?
When it comes to complying with the industry standards for your financial reporting and information security practices, it's important to understand which report is appropriate for your organization. The choice between the two depends on your business type and customer requirements.
SOC 1 report is suitable if you have to manage or assess financial information that can affect your client's financial reporting. This can be the case if you offer payroll services, billing management, or financial reporting.
SOC 2 report is required for businesses that deal with technological and data-related services such as cloud services, hosting data centres, SaaS, or cybersecurity services.
Wrapping Up
Obtaining SOC 1 and SOC 2 reports is a necessary step in ensuring the trust and credibility of your organization. SOC 1 report offers a review of your organization's controls on financial reporting, while SOC 2 is more focused on controls and systems that ensure the integrity and security of your customer's data.
Understanding the differences between the SOC 1 and SOC 2 reports is crucial to choosing the report that best aligns with your business operations.
Having an in-depth knowledge of these reports also helps ensure that SOC 1 and SOC 2 compliance reports follow the industry standards and what steps can be taken to ensure that.
