At Scytale, we often receive questions about SOC reports, their types, and their significance. If you know us, you know SOC is our first language, so we understand that SOC audits and reports play a crucial role in building trust and demonstrating an organization’s commitment to data security and integrity. So, below I will clearly and concisely break down the different types of SOC reports and explain their importance.
What Are SOC Reports?
SOC (System and Organization Controls) reports are third-party audit reports that provide detailed information about an organization’s controls related to data security, availability, processing integrity, confidentiality, and privacy. These reports are not just for show; they offer assurance to customers and partners that an organization handles data ethically and legally, reinforcing its credibility and trustworthiness.
Why Are SOC Reports Important?
- Security and confidentiality: SOC reports help organizations ensure that they collect, store, and manage data securely and confidentially.
- Trust and credibility: They prove to stakeholders that the organization adheres to high standards of data management.
- Risk management: These reports assess potential risks and show that the organization follows best practices as outlined by the American Institute of Certified Public Accountants (AICPA).
Types of SOC Reports
SOC 1 Reports
Definition:
SOC 1 reports focus on the internal controls over financial reporting (ICFR). These reports are essential for organizations that provide services which can impact their clients’ financial statements.
Key Features:
- Based on SSAE 18 (issued by the American Institute of Certified Public Accountants) for companies operating outside the USA, and ISAE 3402 (issued by the International Auditing and Assurance Standards Board) for companies that are operating within the USA.
- Evaluates the effectiveness of internal controls over financial reporting.
- Particularly relevant for third-party service providers such as payroll processors, HR management services, and other IT services.
Why SOC 1 Reports Are Needed:
- Audit efficiency: Helps to reduce the number of individual audits by different user entity auditors, saving time and resources.
- Business opportunities: Enhances trust with clients by demonstrating robust financial control environments.
When SOC 1 Reports Are Needed:
- SOC 1 reports are needed when a service organization’s controls could impact the financial statements of its user entities. The report provides assurance to user entities and their auditors on the service organization’s controls.
SOC 2 Reports
Definition:
SOC 2 reports assess the security, availability, processing integrity, confidentiality, and privacy of the data managed by the service organization. These reports are based on the Trust Services Criteria.
Key Features:
- Mandatory security control, with optional controls for availability, processing integrity, confidentiality, and privacy.
- Provides a detailed assessment of data handling practices.
Why SOC 2 Reports Are Needed:
- Reputation and trust: Establishes a trusted reputation by demonstrating that the organization handles data responsibly.
- Revenue potential: Unlocks business opportunities with clients that require SOC 2 compliance.
- Security infrastructure: Builds a strong security framework, reducing the risk of data breaches and their associated costs.
When SOC 2 Reports Are Needed:
- When a vendor is providing outsourced or digital services that involve sensitive data.
For more detailed information and examples of SOC 2 reports, you can explore SOC 2 report examples. Additionally, if you’re interested in a quick overview of the key sections of a SOC 2 report, you can watch this cool video.
SOC 3 Reports
Definition:
SOC 3 reports are similar to SOC 2 reports but are designed for general distribution. They exclude the detailed testing and results found in SOC 2 reports, making them suitable for public sharing.
Key Features:
- Simplified version of SOC 2 reports.
- Can be freely distributed and used for marketing purposes.
Why SOC 3 Reports Are Needed:
- Public distribution: The report’s unrestricted use makes it ideal for posting on a company’s website to showcase compliance without revealing sensitive details.
When SOC 3 Reports Are Needed:
- When an organization wants to publicly demonstrate its commitment to security and data management practices.
Wrapping Things Up
SOC reports are game-changers for any organization looking to build trust, secure data, and stay compliant. By understanding the different types of SOC reports—SOC 1, SOC 2, and SOC 3—organizations can choose the right report to meet their needs and communicate their commitment to security and compliance effectively. Whether it’s to streamline audits, enhance trust with clients, or publicly demonstrate compliance, SOC reports are essential for any organization that handles sensitive data.
