Understanding the different types of SOC reports is essential for organizations that need to prove the integrity of their control environments to stakeholders. This guide takes an in-depth look at SOC 1, SOC 2, SOC 3, SOC for Cybersecurity, and SOC for Supply Chain. Our goal is to help you discern their unique objectives, compliance requirements, and scopes, thereby enabling you to choose the most appropriate certification for your organization’s specific needs.

By delving into the nuances of each, businesses can make informed decisions on the appropriate type of compliance needed for their industry and customer requirements, ultimately enhancing trust, attracting more customers, and distinguishing themselves in the market.

Overview of SOC Certification Reports

Obtaining SOC certification reports is a vital step for service organizations aiming to establish their credibility and reliability in the eyes of clients and stakeholders. Knowing the distinct roles, applications, and requirements of SOC 1, SOC 2, and SOC 3 reports is imperative for organizations looking to satisfy their clients’ particular needs.

A SOC 1 report is geared towards controls that influence a client’s financial reporting. This is particularly useful for companies that are on the path to becoming publicly-traded and need to meet Sarbanes-Oxley (SOX) guidelines. These reports offer evidence of a company’s commitment to robust controls over financial reporting, especially relevant for organizations that handle financial transactions or data.

In contrast, a SOC 2 report evaluates controls in relation to specific Trust Services Criteria (TSCs) such as security, confidentiality, availability, processing integrity, and privacy. This type of report is ideal for organizations that manage non-financial data and wish to demonstrate their proficiency and security measures to clients. SOC 2 reports offer a detailed examination of how an organization meets these criteria, showcasing its dedication to safeguarding sensitive data and providing reliable service.

SOC 3 reports contain similar information as SOC 2 reports but are designed for a broader audience. These reports can be distributed more freely and are often employed for marketing objectives, enabling organizations to display their commitment to maintaining a secure and trustworthy operational environment to the general public.

Adding to these are specialized SOC reports tailored for specific needs. SOC for Cybersecurity assesses an organization’s cybersecurity risk management program, offering a detailed overview of its effectiveness in protecting against cybersecurity threats. This report serves as an assurance to stakeholders that the organization has robust cybersecurity controls in place.

Similarly, SOC for Supply Chain reviews an organization’s supply chain risks, evaluating the system controls related to security, availability, processing integrity, confidentiality, and privacy. Organizations in manufacturing, distribution, or any sector with complex supply chains can particularly benefit from this type of report.

When choosing which SOC report is the most appropriate, organizations should weigh factors such as their specific sector, client demands, and the nature of the data they manage. While obtaining a SOC report is generally not a mandatory requirement for emerging businesses, securing one can provide a competitive advantage and attract a broader client base.

Scope and Objectives

Understanding the objectives and scope of SOC 1, SOC 2, SOC 3, SOC for Cybersecurity, and SOC for Supply Chain is crucial for distinguishing between these options and selecting the appropriate certification for your organization.  Following are the details related to each certification report.

SOC 1

The scope of a SOC 1 audit primarily includes the internal controls over financial reporting (ICFR). These controls are not just limited to the IT environment but extend to any processes and procedures that could affect financial data. For example, this might include data handling procedures, transaction processing, and even personnel management if it impacts financial reporting. If an organization is processing transactions that could directly affect the financial statements of their clients, a SOC 1 audit is generally recommended.

The main objective of a SOC 1 report is to provide assurance to clients and their auditors about the reliability of the controls that affect financial reporting. This makes it particularly relevant for organizations that are required to comply with regulatory standards like Sarbanes-Oxley (SOX). Another key objective is to provide a framework for the efficient exchange of information between an organization and its clients, facilitating transparency and trust.

Key Components of SOC 1

Component	Description	Interrelationship
Internal Controls Over Financial Reporting (ICFR)	Covers aspects such as data handling, transaction processing, and personnel management.	These controls form the basis of the SOC 1 audit objectives.
Audit Objectives	Objectives include assurance about the reliability and effectiveness of controls affecting financial reporting.	The audit objectives guide the scope and type of audit conducted.
Audit Scope	Specifies what will be covered during the audit, like data security and operational processes affecting financial reporting.	The scope is influenced by the audit objectives and dictates which type of SOC 1 report will be generated.
Audit Types (Type I and Type II)	Type I is a point-in-time assessment; Type II evaluates controls over a period of time.	The type of audit aligns with stakeholder needs and regulatory requirements.
Stakeholders	Primary stakeholders include clients, external auditors, and regulatory agencies.	Stakeholders rely on SOC 1 reports for assurance related to financial reporting controls.
Impact on Financial Reporting	Affects the quality and reliability of financial reporting for user entities.	Directly correlates with the effectiveness of ICFR and success in meeting audit objectives.
Regulatory Compliance	Regulations like Sarbanes-Oxley (SOX) are relevant, and SOC 1 helps in achieving compliance.	Compliance impacts the choice of audit type and is often a critical requirement for stakeholders.

By obtaining a SOC 1 report, organizations can not only demonstrate their commitment to high-quality internal controls but can also significantly ease the auditing process for their clients.

SOC 2

The scope of a SOC 2 audit can be tailored to fit the specific needs of the service organization. The audit will assess policies, communications, procedures, and monitoring over the system’s controls related to the Trust Services Criteria (TSCs). The scope may involve:

1. Data Centers: These are centralized locations where computing and networking equipment is concentrated for the purpose of collecting, storing, processing, distributing, or allowing access to large amounts of data. The focus of SOC 2 audits for data centers often revolves around physical security, environmental controls, and data access controls.
2. Cloud Services: Cloud service providers offer network services, infrastructure, or business applications in the cloud. A SOC 2 audit can help these providers demonstrate that they have robust security controls in place to protect data integrity, confidentiality, and availability.
3. Software Applications: These can range from consumer-facing apps to enterprise-grade software solutions. A SOC 2 report indicates that the software application has appropriate security measures, safeguards user data, and operates with integrity.
4. Internal IT Departments: These are the in-house teams responsible for managing technology within an organization. While these departments don’t usually provide services to external clients, a SOC 2 certification can be beneficial in demonstrating to stakeholders that internal controls and data security measures meet industry standards.
5. Managed Service Providers (MSPs): Organizations that offer outsourced IT services to other businesses often seek SOC 2 certification to demonstrate their commitment to secure and confidential data handling.
6. Financial Technology (Fintech) Companies: These entities may handle sensitive financial information and thus may need to show robust security controls through SOC 2 certification.
7. Telecommunications Companies: These firms manage extensive data traffic and may store or process customer data, making SOC 2 relevant for demonstrating security and availability controls.
8. Healthcare Service Providers: While HIPAA is the primary regulatory concern, organizations handling healthcare data can also benefit from SOC 2 certification, specifically to address Trust Services Criteria like security and confidentiality.
9. Internet of Things (IoT) Companies: With the proliferation of smart devices, companies in this space often handle vast amounts of data and can benefit from a SOC 2 audit to ensure data security and integrity.
10. E-commerce Platforms: These businesses handle not just customer data but often financial transactions, making security and availability key concerns.
11. Professional Services Firms: Law firms, consulting firms, and other service-based organizations that handle confidential client data can also be good candidates for SOC 2 certification.
12. Educational Institutions and Services: These organizations often manage sensitive student data, and a SOC 2 report can provide assurance around data security and privacy.
13. Marketing and Analytics Services: Companies that manage and analyze customer data for marketing purposes often seek SOC 2 certification to assure clients that their data is being managed securely and confidentially.

The main objectives of a SOC 2 audit are:

1. Security: The objective is not just to check for the presence of firewalls and antivirus software, but to comprehensively assess the measures that safeguard against unauthorized access to systems. This encompasses both digital and physical security measures, such as two-factor authentication, encrypted data transmission, and secure access to facilities.
2. Availability: This focuses on ensuring that the services or systems are available for operation and use as stipulated in service-level agreements and other commitments. Downtime, whether due to maintenance or unexpected outages, is minimized, and robust disaster recovery and business continuity plans are in place.
3. Processing Integrity: The objective here is multi-fold. First, to make sure that system processing is complete and accurate, ensuring that data isn’t lost or corrupted during processing. Second, to confirm that data processing occurs in a timely manner, meaning that it meets all agreed-upon deadlines and timeframes. Lastly, that all processing activities are authorized, helping to eliminate the risk of malicious interference.
4. Confidentiality: This objective involves evaluating the controls that restrict access to confidential information. These controls can range from encryption algorithms and secure socket layers (SSLs) for data in transit, to role-based access controls and audit trails for data at rest. The goal is to ensure that only authorized personnel can access confidential data.
5. Privacy: The focus here is to ensure that personal information is handled with the utmost care, adhering to privacy policies as well as regulatory standards such as GDPR or HIPAA. This includes not just how data is collected and stored, but also how it is used, who it is shared with, and how long it is retained. Processes for obtaining consent and for the secure destruction of data are also scrutinized.

SOC 2 Examination Types (Type I and Type II):

1. Type I: Point-in-Time Evaluation – A SOC 2 Type I report focuses on the controls in place at a specific moment in time. It’s akin to taking a snapshot of an organization’s security measures, data handling processes, and control environment. This type of report aims to assess whether the controls are suitably designed to meet the specified Trust Services Criteria (TSCs) such as security, availability, processing integrity, confidentiality, and privacy. While it offers valuable insight, it doesn’t provide assurance that the controls operate effectively over time, making it a less comprehensive form of assurance compared to Type 2.
2. Type II: Extended Period Evaluation – Contrastingly, a SOC 2 Type II report extends the scope of evaluation over a more extended period, generally ranging from six months to a year. It not only verifies the design of the controls but also their operational effectiveness. This type of examination involves ongoing monitoring and periodic testing of controls, providing a more reliable assurance that the organization’s controls are not only well-designed but are also operating effectively over the assessment period. This makes it the more robust option for organizations seeking to demonstrate a consistent and reliable control environment to their stakeholders.

While SOC 2 is not a compliance certification in the traditional sense, successfully passing a SOC 2 examination may be considered a form of compliance as the controls assessed during a SOC 2 audit can align with or support compliance with various regulations depending on the industry and nature of data being handled. Some of these include:

• Health Insurance Portability and Accountability Act (HIPAA): For healthcare organizations, SOC 2 reports can serve as a useful tool for demonstrating the security and confidentiality controls around personal health information.
• General Data Protection Regulation (GDPR): SOC 2 can provide assurance that an organization has adequate security controls to protect personal data, thereby helping to meet some of GDPR’s requirements related to data security and privacy.
• California Consumer Privacy Act (CCPA): For organizations that collect data from California residents, the security and privacy controls vetted in a SOC 2 audit can contribute to demonstrating CCPA compliance.
• Federal Information Security Management Act (FISMA): For companies that contract with the U.S. federal government, the SOC 2 audit can support compliance with some of FISMA’s security requirements.
• Payment Card Industry Data Security Standard (PCI DSS): While not a direct mapping, the security controls evaluated in a SOC 2 audit may overlap with PCI DSS requirements for safeguarding payment information.

SOC 3

SOC 3 reports offer a high-level review of the same Trust Services Criteria (TSCs) evaluated in SOC 2 examinations. However, unlike SOC 2 reports, SOC 3 reports are intended for a general audience and can be freely distributed. Often, companies use these reports for marketing purposes, offering assurance to potential clients, investors, or other stakeholders who may require a less technical understanding of the organization’s controls.

SOC 3 reports are especially valuable for organizations looking to assure stakeholders of their compliance without divulging the in-depth details that are available in SOC 2 reports. These reports often accompany other forms of compliance reports or certifications and can be an excellent tool for demonstrating commitment to security and compliance to a broader audience.

Given their publicly shareable nature, SOC 3 compliance or more accurately – certification reports, often feature prominently in marketing materials and on company websites, serving as a badge of trust and a differentiator in competitive markets.

SOC for Cybersecurity

SOC for Cybersecurity is a reporting framework that extends beyond traditional SOC reports to specifically address an organization’s cybersecurity risk management program. Unlike SOC 1, SOC 2, and SOC 3, which focus on specific sets of controls, SOC for Cybersecurity evaluates an organization’s cybersecurity management system as a whole. These reports are intended for a wide range of stakeholders, including executives, board members, and even potential business partners who have a vested interest in understanding the organization’s cybersecurity posture.

Here are the central objectives that SOC for Cybersecurity aims to cover:

• Cybersecurity Risk Management Program: Evaluation of how well an organization identifies and manages cybersecurity risks in the context of their broader business objectives.
• Effectiveness of Cybersecurity Controls: Assessment of the effectiveness of cybersecurity controls, focusing on their capability to detect, prevent, and respond to cybersecurity incidents.
• Incident Response: Examination of an organization’s incident response plan, including how it identifies, responds to, and learns from cybersecurity incidents.
• User Entity Controls: Reviews how effectively an organization educates and trains its employees, and what controls it has in place to monitor internal cybersecurity awareness and compliance.
• Cybersecurity Governance: Inspection of the governance structure for managing cybersecurity, including roles, responsibilities, and reporting lines for cybersecurity-related activities.

SOC for Cybersecurity reports are instrumental for organizations that want to provide assurance to stakeholders regarding the robustness of their cybersecurity program. It can be particularly useful for organizations involved in sensitive industries, such as finance, healthcare, and government contracting. These reports are often complementary to other cybersecurity certifications or assessments and can offer a comprehensive view of an organization’s readiness and resilience against cybersecurity threats.

SOC for Supply Chain

SOC for Supply Chain is a specialized framework designed to assess and report on the controls and processes that a manufacturer, distributor, or other supply chain entity has in place to secure and manage the supply chain. The framework focuses on key areas such as risk management, production processes, data integrity, and contractual obligations. SOC for Supply Chain reports are particularly valuable for organizations that rely on complex, interconnected supply chains where vulnerabilities could have broad-reaching consequences.

The primary objectives of SOC for Supply Chain reporting are as follows:

• Supply Chain Risk Management: To assess how well an organization identifies, evaluates, and manages risks throughout the supply chain.
• Data Integrity and Protection: To ensure that data exchanged or held within the supply chain remains accurate and secure against unauthorized access or modifications.
• Contractual Adherence and Compliance: Evaluation of the processes for entering into, managing, and auditing contracts with supply chain partners. This includes how well an organization adheres to contractual obligations, regulations, and industry standards.
• Quality Assurance: To examine the controls related to the quality of products or services at each stage of the supply chain, including production, distribution, and post-market surveillance.
• Transparency and Traceability: To scrutinize the procedures for tracing the source and movement of products and services throughout the supply chain, which is particularly important for meeting regulatory requirements and maintaining consumer trust.

A SOC for Supply Chain report serves as a vital tool for organizations in demonstrating their commitment to maintaining a secure, resilient, and transparent supply chain. It adds an extra layer of credibility and trust, which can be a competitive advantage. The report can also be instrumental in strengthening partnerships and satisfying due diligence requirements for mergers, acquisitions, or contractual agreements.

Choosing the Right SOC Report

When evaluating SOC options, it’s crucial for organizations to consider a range of factors including their specific industry, the type of data they handle, and customer requirements. The decision isn’t only between SOC 1, SOC 2, or SOC 3; specialized SOC reports for Cybersecurity and Supply Chain also offer unique advantages based on an organization’s needs.

The table below summarizes these SOC reports, their key distinctions, their relevant use cases, and what they assess.

SOC Report Type	Key Distinctions	Use Cases	Assessment Criteria
SOC 1	Focuses on controls affecting financial reporting	Companies seeking Sarbanes-Oxley (SOX) compliance	Financial reporting controls
SOC 2	Addresses compliance and operations, especially in cloud computing and data security	B2B tech companies handling non-financial data	AICPA’s Trust Services Criteria (TSCs): security, availability, processing integrity, confidentiality, and privacy
SOC 3	Provides the same information as SOC 2 but at a higher level, intended for the general public	Companies wanting to demonstrate capabilities to a wide audience	AICPA’s Trust Services Criteria (TSCs): security, availability, processing integrity, confidentiality, and privacy
SOC for Cybersecurity	Evaluates the effectiveness of cybersecurity risk management	Any organization focusing on cybersecurity risk management	AICPA’s Cybersecurity Risk Management Examination Criteria
SOC for Supply Chain	Focuses on securing and managing the supply chain	Manufacturers, distributors, and organizations with complex supply chains	Controls related to supply chain risk management, data integrity and protection, contractual adherence, quality assurance, and transparency

By comprehensively evaluating these SOC report types, organizations can better align their needs with the appropriate assurance report, thereby providing stakeholders with valuable insights into operational efficiency and risk management.

Frequently Asked Questions (FAQ)

What is a SOC report?

A SOC report is a certification prepared by an independent auditor, examining an organization’s internal controls and procedures. SOC 1 focuses on controls that affect financial reporting, making it vital for financial services or any organization that needs to comply with laws like Sarbanes-Oxley. In contrast, SOC 2 assesses controls around data security, confidentiality, and availability, often crucial for tech companies and service providers handling sensitive customer data.

Understanding SOC compliance helps you select the right report for your business needs. While SOC 1 and SOC 2 are the most common, SOC 3 offers a more public-facing report that covers similar ground to SOC 2 but without the detailed information. Compliance comes after successfully passing the audit, and the report generated serves as proof of your organization’s commitment to governance and data protection.

Is SOC a compliance framework?

No, SOC 1, SOC 2, and SOC 3 reports are not compliance frameworks; they are assurance reports designed to provide an independent evaluation of an organization’s control environment as it relates to financial reporting (SOC 1) or security, availability, processing integrity, confidentiality, and privacy of a system (SOC 2). SOC 3 focuses on the same attributes as SOC 2 but is intended for a general audience.

These reports can certainly help an organization demonstrate compliance with various regulatory requirements, but they themselves are not compliance frameworks. Rather, they offer assurance to stakeholders that the organization meets specific criteria laid out by the American Institute of Certified Public Accountants (AICPA).

Why do I need a SOC report?

A SOC report serves as a critical benchmark for organizational accountability, particularly when it comes to data security and compliance. Undergoing a SOC audit and acquiring either a Type I or Type II report can greatly enhance your company’s credibility by showcasing your commitment to maintaining a high standard of internal control over financial reporting. It not only fulfills regulatory and client requirements but also builds trust among stakeholders and vendors.

The need for a SOC report often stems from industry-specific regulatory obligations that mandate periodic compliance audits. Whether you need a SOC 1, SOC 2, or SOC 3 report depends on your business operations and the nature of the data you handle. Regardless, possessing a SOC report prepared in accordance with the Statement on Standards for Attestation Engagements (SSAE) can significantly impact your organization’s risk management strategy and long-term business relationships.

What is the SOC 2 audit process?

The SOC 2 audit process is designed to assess an organization’s controls related to security, availability, processing integrity, confidentiality, or privacy of data. To initiate the process, organizations first need to decide what type of SOC report they require: a Type 1 report is a point-in-time assessment, while a Type 2 report evaluates controls over a defined period. Deciding between SOC 1 and SOC 2 depends on the kind of internal control over financial reporting that your organization needs to demonstrate. While SOC 1 is appropriate for service organizations that affect their client’s internal control over financial reporting, SOC 2 focuses on a broader set of criteria related to data security and privacy.

After selecting the report type, organizations usually engage a third-party auditor for the SOC 2 examination. The audit involves rigorous assessment and testing of controls and processes within the organization’s technology and data infrastructure. Upon completion, the auditor will provide a SOC 2 report, which serves as a compliance certification and can be essential for organizations looking to achieve SOC 2 certification.

In some cases, organizations need both a SOC 1 and SOC 2 report, especially if they handle both financial transactions and sensitive customer data. It’s worth noting that while SOC 3 reports are less detailed public summaries, they can also serve as compliance reports for certain business needs. Achieving SOC compliance is a continuous effort and organizations often undergo regular SOC audits to maintain their certification status.

Is SOC 2 a cybersecurity framework?

SOC 2 is generally tailored for service organizations to demonstrate their cybersecurity and data protection controls to other businesses. It aligns with the AICPA’s Trust Services Criteria, encompassing security, availability, processing integrity, confidentiality, and privacy. SOC 2 reports are commonly used in B2B relationships to assure potential clients that the service organization has adequate controls.

On the other hand, SOC for Cybersecurity is a reporting framework that provides an organization-wide overview of cybersecurity risk management programs. This type of report is not limited to service organizations and can be used by any entity to demonstrate the effectiveness of its cybersecurity risk management efforts to a broad range of stakeholders, including boards of directors, senior management, and even investors.

The primary difference is in the breadth of the audit. SOC 2 focuses on specific systems and controls that are directly related to services provided to customers. In contrast, SOC for Cybersecurity evaluates the effectiveness of an organization’s cybersecurity risk management program as a whole.

Both reports can be integral to an organization’s overall cybersecurity strategy, but they serve different purposes and audiences. Understanding these key distinctions is crucial for organizations to determine which form of SOC reporting is most suitable for their specific business needs and stakeholder expectations.

Final Thoughts

In the labyrinth of service organization control options, understanding the differences between SOC 1, SOC 2, and SOC 3, as well as specialized reports like SOC for Cybersecurity and SOC for Supply Chain, is paramount. Each certification serves a unique purpose and is tailored for specific operational setups and objectives. For instance, companies focused on financial reporting often pursue SOC 1, while those emphasizing on Trust Services Criteria might find SOC 2 more aligned with their needs.

The quest to get a SOC certification can be a robust indicator of a company’s compliance and commitment to security, data protection, and operational excellence. Whether you need a SOC audit for regulatory requirements or to differentiate your services in the marketplace, the right SOC type serves as a cornerstone in building trust and ensuring transparency. Evaluating what’s the difference between the available options and identifying the most suitable report—be it SOC 1, SOC 2, or SOC 3—can set your organization on the path to not just compliance but also to business excellence.