SOC 1 vs SOC 2 vs SOC 3: Understanding Compliance Reports

What Are the Differences Between SOC 1, SOC 2, and SOC 3 Reports?

All SOC reports evaluate a company’s controls, but their focus differs: SOC 1 looks at controls that can impact your user entity’s financial reporting, SOC 2 focuses on data security, availability, processing integrity, confidentiality, and privacy, and SOC 3 provides an opinion regarding management’s assertion that controls within the system were effective and is designed for a general audience.

These SOC reports are typically required by service providers, especially those that handle a vast amount of sensitive data.

Overview of the Differences Between SOC 1, SOC 2, and SOC 3

SOC reports were developed by the American Institute of Certified Public Accountants (AICPA) to address the need for standardized and reliable reporting hired or outsourced data processing service organizations.

The three main types of SOC reports have the following aspects in common: 

• All three reports aim to ensure a service organization’s internal controls. 
• They are all conducted by independent auditors following AICPA standards. 
• Both SOC 1 and SOC 2 provide two types of reports: Type I and Type II. Type I validates the design of the controls at a specific point in time. Type II, conversely, assesses their effectiveness over a period, typically 6 – 12 months.
• SOC 3 reports can only be issued for a service organization that undergoes a SOC 2 Type II engagement. SOC 3 reports are not issued for a Type I engagement.
• The reports help service organizations build trust with their prospective clients and stakeholders by demonstrating a commitment to maintaining effective internal controls. 

Take a look at the table to get a glimpse of the difference between SOC 1, SOC 2, and SOC 3:

Attribute	SOC 1	SOC 2	SOC 3
Purpose	This report focuses on a service organization’s controls that are likely to be relevant to user entities’ internal control over financial reporting. (ICFR). It is primarily intended for the organization’s management, user entities, and their auditors.	Focuses on controls related to one or more of the Trust Services Criteria (TSC). It’s intended for a broader range of stakeholders, including management, user entities, regulators, and partners.	Also focuses on the Trust Services Criteria, but provides a less detailed, high-level summary report suitable for general public distribution, such as posting on a service organization’s website.
Audience	Geared towards clients and auditors relying on financial statements.	Designed for clients who need detailed assurance about how their data is managed.	Meant for anyone—ideal for public sharing and marketing.
Detail Level	In-depth report, mainly about financial control processes.	Detailed insights into controls related to security, availability, and more.	High-level overview without getting into technical details.
Access	Restricted to key stakeholders, like auditors or financial teams.	Shared with clients or partners needing specific control details.	Open to the public for trust-building purposes.
Testing Insights	Includes thorough testing results of financial control systems.	Contains detailed evaluations of all trust criteria controls.	Doesn’t include specific testing information.

SOC 1 vs SOC 2 vs SOC 3: Comparing Compliance Reports

Let’s take a closer look at SOC 1 vs SOC 2 or the difference between SOC 2 and SOC 3 and what they have in common.

SOC 1

According to the AICPA, the SOC 1 audit involves the user auditor reviewing the user entity’s financial statements to evaluate the effectiveness of the controls at the service organization. 

Scope

A SOC 1 report is all about evaluating the controls a service organization has in place that might impact a user entity’s financial reporting. It focuses specifically on the effectiveness of internal controls tied to financial data processing, rather than the broader security aspects covered in a SOC 2 report.

The scope of a SOC 1 report includes all the relevant control objectives outlined within it. For example, a typical control objective might state:

“Controls provide reasonable assurance that data processing activities are complete, accurate, and authorized to support user entities’ internal control over financial reporting.”

Types

Under SOC 1, a CPA may perform two types of audits: SOC 1 Type I and SOC 1 Type II.

• SOC 1 Type II. This type of report focuses on a particular date, also known as a point-in-time report. A Type I report also describes and tests the service organization’s system to determine whether the controls are designed appropriately.
• SOC 1 Type II. Type II reports cover a period that is most frequently set at 12 months. This type of report tests the operating effectiveness and design of key internal controls over that period.

Audience

Companies recommended for SOC 1 compliance are typically those involved with financial reporting controls. This includes trust departments, registered investment advisors, employee benefit or retirement plan operators, Payroll processing firms, and loan service providers.

Detail Level

The SOC 1 report provides a detailed look at a service organization’s system, focusing on how well the system’s controls meet specific objectives. 

It also includes a snapshot of the system’s description at a particular point in time. These reports are usually shared with a limited audience, like user entities, auditors, and managers within the organization.

Access to Public

A SOC 1 report is a private document intended only for a service organization’s clients (user entities) and their auditors. Since it focuses on controls related to financial reporting that could affect a client’s financial statements, it isn’t designed for public distribution.

Process of Compliance

Here’s what the SOC 1 process of compliance includes:

• Choose a Trusted Auditor. Start by selecting a reliable auditor, like I.S. Partners, who specializes in SOC 1 assessments and can guide you through the process.
• Identify Key Financial Reporting Controls. Work with your team and the auditor to define critical objectives and controls that impact financial reporting.
• Implement Controls. Integrate these controls into your systems and processes to address potential risks effectively.
• Document Control Activities. Keep thorough records of all control activities, ensuring they align with SOC 1 requirements.
• Undergo the Audit. Your auditor will assess the design and effectiveness of your controls through rigorous testing.
• Maintain Ongoing Compliance. Regularly monitor and update your controls to adapt to changes and maintain compliance over time.

SOC 2

Scope

A SOC 2 report focuses on the systems and services your clients rely on. The scope is shaped by what your clients expect and depend on your organization to deliver. 

Typically, this includes their software systems and where their data is processed and stored. It’s all about covering the parts of your operations that matter most to your clients.

Meaning

The SOC 2 report focuses on the controls at a service organization relating to security, availability, and processing integrity for the systems the service organization uses to manage and process users’ data. 

According to the AICPA, the report ensures the confidentiality and privacy of the information in these systems’ process.

Types

Similar to SOC 1, SOC 2 features two types of reports:

• SOC 2 Type I. This type of SOC 2 report analyzes whether the service organization’s controls were designed correctly. It offers an overview of the controls as a point-in-time report to ensure the service organization accomplishes its end goal.
• SOC 2 Type II. The Type II test is far more in-depth and provides valuable insights. Here, the auditor tests the operating effectiveness of the controls. They will examine the controls and review samples to see how they function.

Audience

Businesses advised to get SOC 2 compliance usually handle non-financial controls in areas such as security, data, and access control. These involve:

• Datacenter co-locations
• Software as a Service (SaaS) providers
• Cloud service providers
• Managed IT service providers

SOC 2 compliance isn’t exclusive to these businesses and may extend to other types as their digital footprint and data processing increases.

Detail Level

A SOC 2 audit examines a service organization’s security controls, focusing on five critical areas known as the “Trust Services Criteria”: security, availability, processing integrity, confidentiality, and privacy. 

It goes beyond just reviewing policies and procedures. The audit evaluates how well the controls are implemented and whether they work effectively to meet the entity’s service commitments and system requirements. This includes assessing system access management, data encryption, incident response plans, and more.

Access to Public

A SOC 2 report isn’t meant for public distribution. It’s a private document typically shared only with clients and potential clients under a non-disclosure agreement (NDA). 

This is because it contains detailed and sensitive information about the organization’s security controls and systems, which could pose risks if made widely accessible.

Process of Compliance

• Choose the Right Report. Based on your client’s needs, decide between SOC 2 Type I (control design at a specific time) or Type II ( Type I + operational effectiveness over time).
• Define the Scope. Identify the systems, processes, and controls to audit, aligning them with your goals and regulatory requirements.
• Assess Risks. Evaluate internal risks, identify relevant Trust Service Criteria, and set priorities with your audit partner.
• Build Your Team. Gather key roles, such as an Executive Sponsor, IT staff, and external consultants, to manage the process effectively.
• Gather Documentation. Collect necessary documents, such as policies, security controls, and HR procedures, and address gaps early.
• Conduct Readiness Checks. Perform readiness assessments to identify control deficiencies and narrow the audit focus.
• Fix Gaps. Address issues like missing policies or incomplete processes through a detailed gap analysis.
• Organize Documentation. Centralize all required documents for auditors, ensuring easy access and resolving discrepancies promptly.
• Choose an Auditor. At I.S. Partners, we simplify the SOC 2 audit process, helping you easily achieve attestation. Our licensed CPA experts ensure your systems meet any industry standards.

SOC 3

Scope

A SOC 3 report covers the same trust service categories as a SOC 2 report, including security, availability, processing integrity, confidentiality, and privacy. However, unlike SOC 2, it’s intended for a broader audience and doesn’t include detailed descriptions of controls or test results.

The scope focuses on providing a high-level assurance that the service organization’s systems meet the relevant trust service criteria without diving into technical specifics.

Meaning

SOC 3 is a marketing tool designed to meet the user’s need for assurance regarding the controls at an organization related to security, availability, processing integrity, confidentiality, or privacy. 

Types

SOC 3 does not have Type I and Type II reports like SOC 1 and SOC 2. It is just a general, publicly accessible report that summarizes the key findings of a SOC 2 Type II audit but doesn’t include detailed control testing or operational effectiveness data.

Audience

SOC 3 reports are designed for a broader audience, providing reassurance about an organization’s security, availability, confidentiality, processing integrity, and privacy. This report is meant to be used as a marketing tool, highlighting the key findings of a SOC 2 audit.

Detail Level

SOC 3 reports provide a high-level overview without diving into the technical specifics of controls and testing procedures. 

Unlike SOC 2, they don’t include any sensitive or proprietary information, making them suitable for broader audiences. 

Access to Public

Because of their simplified nature, SOC 3 reports can be freely shared and even posted on a company’s website for public access.

How to Determine Which SOC Report You Need

If your company handles clients’ financial transactions or data processing, SOC 1 is your best choice. This report shows that you are serious about ensuring the safety of client financial data.

Now, let’s say your business handles a broader range of client data, especially in the cloud. In this case, SOC 2 could be your perfect match. 

SOC 2 makes sure everyone knows that you not only handle and protect data securely but are also reliable with things like system access.

Then, there’s SOC 3. It provides a high-level, public-facing summary of the information found in a SOC 2 report.

Note: Please note that obtaining a SOC 3 report requires completing a SOC 2 Type II, as SOC 3 is essentially a summary of the SOC 2 findings.

Here’s a simple checklist that can help you choose the right SOC report:

Parameter	Suitable SOC Report
Are you focused on financial reporting and internal controls?	SOC 1
Do you need to demonstrate your organization’s security posture and data protection practices?	SOC 2
Do you want to showcase a high-level overview of your security and privacy practices to a broader audience?	SOC 3
Does your organization manage financial data that affects client financial statements?	SOC 1
Does your organization handle sensitive data like personal information or client data that requires strong security and privacy practices?	SOC 2
Is your goal to publicly display your commitment to data security, but you don’t need to dive into specific controls?	SOC 3
Are your clients, auditors, and stakeholders mainly interested in specific controls over financial reporting?	SOC 1
Do your clients and partners need detailed information about your security, confidentiality, availability, and privacy practices?	SOC 2
Are you looking for a simplified report that can be publicly shared, perhaps for marketing purposes or general trust purposes?	SOC 3
Do you need to audit your internal controls over financial reporting?	SOC 1
Do you want a general controls overview with no technical details or sensitive data?	SOC 3
Do you need to focus on broader security and compliance criteria, such as the Trust Services Criteria (security, availability, confidentiality, processing integrity, and privacy)?	SOC 2
Do you need a detailed assessment of how your system controls are designed and implemented?	SOC 2
Are you looking for a generalized, high-level report to present to a wider audience without sharing sensitive details?	SOC 3
Do you need the report to be confidential and shared only with specific users or auditors?	SOC 1 and SOC 2
Do you need a public report that can be posted on your website or shared with potential clients?	SOC 3
Is the report for internal teams, auditors, and clients who require a deeper understanding of your financial reporting controls?	SOC 1
Is your audience the general public, clients, or potential clients looking for reassurance about your security practices?	SOC 3
Will the report be reviewed by clients, stakeholders, or regulators interested in security and privacy?	SOC 2

Addressing the Most Common SOC Audit Challenges

Remember, the goal of any SOC audit isn’t to spotlight shortcomings but rather to identify areas for improvement. This process addresses risk by achieving the highest level of security and compliance in your operational controls.

1. Lack of Understanding. Many organizations don’t understand the SOC 2 scope or requirements of the SOC audit. Therefore, it’s essential to educate everyone involved about SOC and its controls.
2. Insufficient Documentation. SOC audits require substantial paperwork, which many organizations need more. Keep accurate records and SOC documentation of all the necessary procedures and controls in place.
3. Poor Coordination. SOC audits often require input from multiple departments. Coordinate with all relevant departments to ensure everybody is ready and understands their roles in the audit.
4. Inadequate Planning. Responding to a SOC audit request can be stressful, especially if not adequately prepared. Prepare in advance, understand the requirements, and have all the necessary documentation in place.
5. Non-compliance with Controls. Many organizations don’t adhere to the necessary control protocols. Regular review and monitoring of the controls can help ensure compliance with the SOC requirements.

Choose I.S. Partners for SOC Audits and Compliance Support

Understanding which SOC report best fits your organization’s needs can be challenging. SOC 1, SOC 2, and SOC 3 reports vary in focus, level of detail, and intended audience, which can make the selection and preparation process overwhelming. Without expert guidance, businesses risk inefficiencies, missed compliance targets, or an incomplete understanding of their internal controls.

I.S. Partners provides the expertise and resources needed to navigate SOC audits effectively. With a blended model that combines business risk knowledge, dedicated IT resources, and security expertise, we create tailored compliance solutions that address your unique requirements. Our streamlined process and interactive client platform ensure a smooth, stress-free experience, while our technology-driven approach delivers exceptional results.

Take the next step toward simplifying your compliance process. Connect with I.S. Partners today to discuss your SOC audit needs and let us help you achieve your compliance goals.

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