Every cloud solution provider like you does its best to implement various measures to ensure client data security. Still, you never know when an existing or prospective client will ask you about certifications or reports that reflect the level of information security you maintain. These reports are meant to assure them of the safety and transparency of your operations. System and Organization Control, more commonly known as SOC, is one such compliance report you need to have by your side.
This blog post will cover SOC reports and their types in detail.
What is a SOC Report?
Let’s cover the working of a cloud solution provider to understand this better –
A cloud service provider offers services that impact the control environment of the clients served. These controls need to be examined by an independent auditor to determine whether the services are operating effectively and fulfill the commitments made to the clients. In this regard, SOC is a suite of audit reports representing ethical and compliant service providers’ operations. These reports also help establish credibility and trust for a service provider amongst the targeted clients and provide a competitive advantage in the industry.
SOC reports are governed by AICPA – American Institute of Certified Public Accountants. These are of two types – namely SOC 1 and SOC 2.
Let’s dive deeper into the differences between SOC 1 and SOC 2 reports.
More about SOC 1
A SOC 1 audit is meant for service providers to examine and report on their internal controls that are relevant to the financial information related to their clients. This type of SOC report falls under SSAE 18 AT-C Section 320 established by the AICPA.
When undergoing a SOC 1 audit, you, as a service provider, are responsible for determining the critical control objectives for the services you offer. These objectives relate to processing clients’ information as a part of the business processes and securing the same.
An outsourced payroll service provider is an excellent example of an organization that needs a SOC 1 report. When asked by the clients for the right to conduct an audit of their security controls, they can offer a completed SOC 1 report as a testament to maintaining strong internal controls.
More About SOC 2
A SOC 2 report, on the other hand, falls under SSAE 18 AT-C 105 and AT-C 205. Unlike a SOC 1 report, it addresses a service organization’s controls related to operations and compliance. In other words, when an organization undergoes SOC 2 audit, it can examine and report its internal controls related to security, process integrity, and confidentiality of the client’s information.
While undergoing a SOC 2 audit, a service provider must determine the Trust Services Criteria relevant to the services offered. For example, some organizations may undergo a SOC 2 audit concerning security and availability – the two Trust Services Criteria. On the other hand, other service providers would be examined over all five criteria per their regulatory requirements and operations.
A data center offering a secure storage location to its clients is an excellent example of a service provider that needs a SOC 2 audit report. However, instead of allowing the clients to make on-site inspections, the data center provider can share the SOC 2 report that validates all the controls.
Difference between SOC 1 and SOC 2 Report
|Parameter||SOC 1||SOC 2|
|Purpose||To help a service provider examine and report on internal controls that are relevant to the clients’ financial information||To help examine and report internal controls relevant to availability, security, processing integrity, confidentiality, or customer data privacy|
|Control objectives||Around processing and securing client information||Around any combinations of the five criteria mentioned above|
|Readers||External auditors and client’s management||Client’s management, business partners, prospects, and auditors|
Who Needs SOC Certification?
SOC 1 report is meant for organizations whose services impact their clients’ financial reporting. Without this report, it could be costly and time-consuming to deal with the client requests that ask for the right to audit. This might also be needed as a compliance requirement.
On the other hand, organizations that do not process financial data but host different data types must undergo SOC 2 audits.
In today’s highly sensitive business environment, clients of service providers may ask for proof of reasonable precautions being taken in use for data protection. Therefore, what matters greatly while getting SOC 1 or SOC 2 reports is how the services offered affect the client’s internal control.