SOC1, SOC2, SOC3 – Understand What You Need

Why does your business need compliance to grow?

SOC compliance is crucial for those in service organizations. There are various compliance standards and accreditations that your business can work towards and ascertain, such as ISO 27001, NIST 800-53, and FEDRAMP, just to name a few. But arguably the most widely recognized and respected is SOC, short for Systems and Organization Controls.

When is a SOC audit necessary for my company?

Businesses that offer services to other organizations are the target audience for SOC compliance and audits. For instance, a business that handles payments for another company that provides cloud hosting services could require SOC compliance. Manage Service Providers (MSP) and Software as a Service (SaaS) are also typically asked to provide a SOC report to their clients.

SOC compliance is intended to demonstrate to customers of a service provider that a business can perform the services for which it has been hired. A company’s customers typically have limited insight into their settings, making it challenging to have faith in their ability to protect critical information, etc.

In a SOC audit, a third-party auditor verifies the service provider’s systems and controls to ensure it can deliver the required services. SOC compliance is often not required to operate in a particular industry, in contrast to PCI DSS compliance, which is required to process payment card data. However, although SOC compliance is not legally required, companies and customers regularly ask for it as part of their vendor risk management (VRM) framework.

SOC 1, SOC 2, SOC 3 – understand what you need

There are three different types of SOC reports – SOC 1, SOC 2, and SOC 3. When deciding which report is best for your organization, you’ll need to first have a solid understanding of what your clients expect from you. Because SOC 1 and SOC 2 are the most commonly used SOC reports, understanding their differences is critical.

A key takeaway when it comes to these different types of SOC reports is that each one is intended for different uses. So, offering a SOC 3, for example, doesn’t mean it’s better or worse than a SOC 1. They serve different purposes. Which SOC report you’ll need is something your organization will need to think carefully about before going through the SOC audit process.

SOC 1 and SOC 2 are different in that SOC 1 places more of an emphasis on financial reporting while SOC 2 is more focused on compliance and operations.

SOC 3 reports, on the other hand, aren’t as prevalent. This type is more of an extension of SOC 2 – it has the same data, but it’s not as detailed. It doesn’t dive as deep into things like procedures, test results, and system controls as SOC 2 reports do.

Some SOC background

The American Institute of CPAs (AICPA) developed the System and Organization Controls. These are the procedures created to ensure compliance with policies related to business operations, laws and regulations, and financial reporting in the context of SOC reports.

When an internal controls audit is conducted, this licensed auditor will write a SOC report on which service users can depend on to accurately assess the auditee’s controls.

The kind of information you process for your clients will determine which SOC report is best for your business. For instance, a SOC 1 will probably be required if you offer payroll processing services. A SOC 2 report is necessary if you host or process customer data.

SOC audit process

You’ll need to work with an independent auditor to comply and obtain a SOC report. An independent third party evaluates your internal control processes’ scope, design, and/or operational effectiveness. The scope of the SOC report will be determined jointly by you and your auditor.

There is software to help you manage compliance, but there’s no magic key. The final say is with the AICPA.

A CPA or CPA firm will audit your company. They’ll identify any gaps in your controls and, once filled, will certify you as SOC (1 or 2)-compliant. You can then provide this SOC report to your customers, who will trust it because it’s standardized and can only be performed by certified professionals.

There are several reasons why you should become SOC-compliant. First, many of your customers will conduct annual audits of all their services. As your business expands, the number of audits will increase. If you become SOC-compliant, you’ll be able to provide a SOC report rather than dealing with individual audits.

Your customers, rest assured, don’t want to be subjected to individual audits. Many businesses, particularly the larger ones, will refuse. It’s SOC or nothing for them. And typically, these are the clients you want to secure and retain.

SOC 1 Report

Based on the SSAE 18 standard, SOC 1 engagements report on the effectiveness of internal controls at a service organization that may be relevant to their client’s internal control over financial reporting (ICFR).

SOC 2 Report

A SOC 2 audit examines internal controls, policies, and procedures that are directly related to the security of a service organization’s system. The SOC 2 report was created to determine whether service organizations comply with the Trust Services Criteria, which include security, availability, processing integrity, confidentiality, and privacy. These principles apply to internal controls that are unrelated to the ICFR.

CYREBRO holds a SOC 2 certificate showing CYREBRO’s commitment to ensuring its client data is secure, protected and available at all times. In addition, CYREBRO’s SOC 2 report verifies that standard industry processes and procedures are effective.

SOC 3 Report

A SOC 3 report, like a SOC 2, is based on the Trust Services Criteria, but there are a few differences. As mentioned earlier, they’re more for general use and aren’t nearly as detailed as SOC 2 reports. Another big difference is the level of privacy. SOC 3 reports, since they’re more general use – can be distributed openly and freely, unlike SOC 2 reports which are private.

Different types of challenges and timelines

Most businesses don’t require SOC compliance when they first begin. However, SOC compliance is generally required to stand out in the market and land larger deals. Customers should strive for SOC compliance before requesting the right to audit their systems.

It’s crucial to plan for a Type 2 audit ahead because it requires evaluating a company’s environment over time. Auditors won’t issue a compliance report until the six-month or year-long audit period is completed, so begin the process before you need to. This six to twelve-month period ensures organizations have implemented the processes and procedures for which they have documentation, and these safeguards are effective.

SOC2 compliance and the benefits for MSPs

When an MSP goes through a SOC 2 audit, it shows that they’re committed to offering secure services and ensuring that their clients’ information security assets are secured. As a result, SOC 2 compliance can help MSPs who depend on the quality and security of their systems for their reputation, business continuity, competitive advantage, and branding.

MSPs rely on trust as a vendor. Why would customers want to utilize your services if they can’t trust them? If your company experiences a data breach, the damage to your reputation will spread like a virus. Once your company has been effectively attacked, and your clients’ information systems have been compromised, you have put your company on a path fraught with difficulties and insecurity.

In short, your reputation will be altered in the long run. Suits and fines will start to appear, clients will cease believing in you, and prospects will stop asking about your services. Securing your systems and demonstrating that you are, in fact, a secure MSP is essential for your company’s survival.

If you pursue SOC 2 compliance and receive attestation, you’ll have a new tool that will help you position yourself as a dependable, secure organization. Lastly, as you leverage services from third parties, it’s important that you ask about their processes and procedures; a SOC report attests to their commitment to security.


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