SOC 1 vs. SOC 2 Reports: What are the Differences?

More and more organizations are turning to a System and Organization Control Report (SOC Report) to provide a high level of assurance to clients and customers that they have the appropriate controls in place. A SOC report is a type of audit report covering the internal controls for a company’s information technology (IT) and sometimes business processes. A SOC report isn’t just one report, but a group of report types overseen by the American Institute of CPAs (AICPA).

Typically, organizations that need a SOC report provide services or software to public companies or regulated industries, such as banking or healthcare. In the SOC world, these organizations are called “service organizations.” Because service organizations handle a great deal of confidential, proprietary, and personal data, their clients want to ensure their data is protected and appropriate controls are implemented related to the types of services the service organization performs on the entity’s behalf.

A service organization may need a SOC report for three main reasons:

  • A company may ask a service organization for a SOC report as a condition of engaging their services
  • A service organization may want to obtain a SOC report proactively to demonstrate its sound security practices or its adherence to controls related to the types of services it provides
  • A service organization may grow weary of filling out endless security questionnaires from current and prospective customers and look to a SOC report as a way to streamline this tedious, resource-consuming task

The most common report types, known as SOC 1 and SOC 2 reports, assure their clients of their internal processes, policies, and security and ensure vendors comply with their regulations and standards. Let’s take a closer look at how these reports compare to one another.

SOC 1

  • Who needs one: Companies performing outsourced services that impact their customer’s internal controls over financial reporting, such as payroll providers, benefit and claims processors, loan servicers, and more.
  • What it covers: The internal controls performed by the service organization that may affect their customers’ internal controls over financial reporting. These include controls related to the IT systems used to deliver the service and may also include controls around the service organization’s business processes (e.g., processing claims, reporting, etc.).
  • SOC 1 reports, which are issued under SSAE18, can be issued as a Type I or Type II report.

SOC 2

  • Who needs one: Service organizations that store, process, or transfer data, such as cloud providers or organizations that sell software as a service (SaaS).
  • What it covers: Security is the primary concern of a SOC 2 report, and that’s why security is called the report’s “common criteria.” Covering security issues is mandatory, but the client decides which of the other four Trust Service Criteria (availability, processing integrity, confidentiality, and privacy) should be documented.
  • SOC 2 reports can be issued as a Type I or Type II report. A SOC 2 report is typically only shared with those who have signed a nondisclosure agreement (NDA).

Are you researching SOC 1, SOC 2, or SOC 3 audits? We’re here to help.

SOC AuditGrab our new e-book: SOC Reports: Your Complete Guide for all the answers you need. In this helpful and easy-to-follow e-book, we break down SOC report types and which companies might need one.

You’ll discover:

  • How to select a reporting period
  • Time commitment and costs involved in getting a SOC report
  • Common pitfalls to avoid (to save time and money!)
  • How to select an audit firm
  • And more!

Ready for a SOC audit consultation?

Holtzman’s experienced team can help you understand which SOC report best fits your organization’s needs—whether you need assurance over a specific area for a contract or are looking to ensure regulatory compliance. We issue over 125 SOC reports a year and can provide SOC readiness support ahead of your actual audit, along with SOC 1, SOC 2, and SOC 3 reports for companies across many industries and locations. Get in touch today so that we can help your organization with your auditing needs.

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