What is a SOC report?
SOC reports utilize independent, third-party auditors to examine various aspects of a company, such as security, availability, process integrity, confidentiality, privacy, controls related to financial reporting, and/or controls related to Cybersecurity.
Why should my company have one?
SOC reports are not mandatory however they serve to establish credibility and trustworthiness for a service provider. Companies can use this report to feel confident that service providers are operating in an ethical and compliant manner. They also act as prevention, by identifying potential risks ahead of time you can reduce them and prevent unnecessary problems related to users’ integrity. Along the same line, it can help improve processes in your controls.
Types of Reports
SOC reports are governed by the American Institute of Certified Public Accountants (AICPA). There are SOC 1 Reports, SOC 2 Reports, and SOC 3 Reports. The two more popular report categories are SOC 1 and SOC 2.
What is the difference between SOC 1 and SOC 2?
A SOC 1 report as defined by the AICPA is a “report on Controls at a Service Organization Relevant to User Entities’ Internal Control Over Financial Reporting.” This report focuses on financial controls.
SOC 1 audits help validate your controls and communicate to users that you have secure processes. This will help them feel more secure and comfortable about their internal controls. They can use this report when they are going through a financial audit themselves.
If your company’s service impacts the financial operations of your users then you need to be SOC 1 compliant. Some examples of companies that need to be SOC 1 compliant are payroll management systems, billing management platforms, trust companies, and financial reporting software. This SOC 1 report provides independent assurance that your internal controls affecting your customers’ financial reporting are appropriately designed and implemented.
The SOC 2 report focuses on non-financial controls. SOC 2 reports are based on the five AICPA Trust Services Categories; every SOC 2 report covers Security, and you can choose to include Availability, Processing Integrity, Confidentiality, and/or Privacy based on your organization’s needs.
The SOC 2 report can be helpful for internal improvement and evaluation of the non-financial controls that it’s focused on. Having a SOC 2 report available for your customers shows that you are proactive about security and controls.
If your company deals with sensitive information non-related to financial reporting then you may need SOC 2 Compliance. Examples of these companies are cloud service providers, SaaS providers, HR Management Services, Recruitment Platforms, and Host Data centers
There Are Two Types of SOC Reports
There is the Type 1 certificate which is an audit that explores the functionality of a service-based organization’s controls at a single point in time.
The Type 2 audit is an audit in the point of time plus a six-month operational review. This means we will ask the client to provide evidence that they have operated under these policies and procedures for six months and show evidence.
Does your organization need a SOC report? Send us an email at hello@vanreincompliance.com
