System and Organization Controls (SOC) reports enable companies to feel confident that service providers, or potential service providers, are operating in an ethical and compliant manner. No one likes to hear the word audit, but SOC reports establish credibility and trustworthiness for a service provider — a competitive advantage that’s worth both the time and monetary investment.
SOC reports utilize independent, third-party auditors to examine various aspects of a company, such as:
- Processing Integrity
- Controls related to financial reporting
- Controls related to Cybersecurity
What are the different types of SOC reports?
SOC reports are governed by the American Institute of Certified Public Accountants (AICPA) and focus on offering assurance that the controls service organizations put in place to protect their clients’ assets (data in most cases) are effective. There are four main types: SOC 1, SOC 2, SOC 3, and SOC for Cybersecurity, with subsets of each.
The biggest difference between a SOC 1 vs. SOC 2 report is the focus of examination. A SOC 1 report focuses on outsourced services performed by service organizations which are relevant to a company’s (user entity) financial reporting.
A SOC 2 report is also an attestation report issued by an independent Certified Public Accounting (CPA) firm. Its focus addresses operational risks of outsourcing to third-parties outside financial reporting. These reports are based on the Trust Services Criteria which include up to five categories: security, availability, processing integrity, confidentiality, and/or privacy.
A SOC 3 report — formerly known as a SysTrust or WebTrust —covers similar reporting areas as the SOC 2, but isn’t as comprehensive. It excludes certain details of the description and all of the detailed controls/results of testing. Whereas a SOC 2 report restricts users, the benefit of a SOC 3 is that it is a general-use report making it a great tool for marketing purposes.
SOC for Cybersecurity
The American Institute of Certified Public Accountants (AICPA) has responded to the increase in cybersecurity attacks by publishing the Cybersecurity Risk Management Reporting Framework, also known as the System and Organization Controls (SOC) for Cybersecurity. In a SOC for Cybersecurity report, a CPA reports on an organization’s enterprise-wide cybersecurity risk management program.
SOC for Cybersecurity is ideal for businesses, non-profits, and virtually any other type of organization that wants to take a proactive approach to risk management.
The type of assessment a business chooses will depend on its services and business model.
What is the benefit of obtaining a SOC report?
A number of service organizations are required to undergo a SOC examination, including payroll or medical claims processors, data center companies, loan servicers, and Software as a Service (SaaS) providers that may touch, store, process or impact financials or sensitive data of their user entities, or clients.
However, any company with a business model based on providing a service to another company can benefit from a successful SOC examination. First and foremost, a SOC report is an independent, third-party validation of a service organization’s commitment to evidencing the design and effective operation of their controls. It not only lets potential clients know that your company is legitimate, but going through the assessment process can point out weaknesses and flaws before a client does.
What can I expect during the SOC examination?
The first step in the SOC assessment process is determining which type of SOC report will best benefit your organization. Then, the official process begins with a SOC Readiness Assessment. This overview is designed to help the service organization prepare for the examination by identifying deficiencies, gaps, and other potential red flags, along with coaching so management can understand their options to repair them.
Working with an auditing firm that specializes in SOC reporting can go a long way in making the process less painful for everyone.
Trust us to deliver the assurance your clients need.
In this increasingly global and digital business landscape, companies enter partnerships with service providers who can implement and manage areas such as IT or accounting. Before a company hands over the keys to its infrastructure or accounts, it must gain comfort that its partner is trustworthy, secure, and operating according to industry requirements. A SOC report is the “trusted handshake” between service providers and their clients.
Our experienced team can guide you step-by-step through the entire process, from the SOC Readiness Assessment to delivery of the final report. Contact us today to schedule a consultation.