SOC vs SOX: Important Differences

SOC vs SOX: What are the Differences?

At first glance, SOC (System and Organization Controls) and SOX (Sarbanes-Oxley Act) might seem related but serve distinct purposes. 

SOC (specifically SOC 2) is a compliance framework developed by the American Institute of Certified Public Accountants (AICPA) to assess how well service organizations like SaaS providers manage and protect data. SOC reports focus on data security, processing integrity, and cybersecurity, assuring clients and stakeholders about the effectiveness of controls.

SOX is a U.S. federal law passed in 2002 in response to high-profile corporate scandals involving companies like Enron. 

SOX introduced stringent regulations for public companies, requiring robust internal controls, accurate financial reporting, and transparent disclosures to protect investors from fraudulent activities.

SOX is mandatory for publicly traded companies and centers on financial reporting and compliance. On the other hand, SOC applies to service providers and ensures operational controls over sensitive data.

Despite significant differences, the two frameworks can synergistically function. In fact, pursuing both can be done with proper mapping. IS Partners’ Senior Director of Attest Services shares,

Overview of SOX vs SOC Compliance

SOC  vs SOX: Key Differences and Contrasts

SOC and SOX are two compliance acronyms often mixed up or used interchangeably. But are they the same? Not at all. They serve different purposes, yet both play critical roles in ensuring trust, transparency, and security.

Below, we further dissect the difference between the two programs based on different parameters. 

1. Scope
2. Application of Standard
3. Process of Compliance
4. Impact on Service Organizations
5. Reporting Requirements
6. Number of Controls

Scope

SOC 2

At SOC 2’s core, it defines the boundaries of what an organization actively protects with its security measures based on the service offering. The framework includes systems, processes, people, and information assets. But let’s take a closer look at the key aspects that shape the scope:

• Infrastructure. The IT infrastructure that shapes that boundaries of the Company’s offering. This includes physically hosted infrastructure, all forms of cloud infrastructure, network infrastructure and end-user devices and endpoints. 
  
• Software. The software utilities that are used to support the service offering as well any SaaS offerings that are provided by management as a service.
  
• People. The personnel that shape the service offering, including full time personnel and contractors.
  
• Policies and Procedures. Written policies and procedures that define the boundaries and guidelines of the Company.
• Data. Includes both data inputs provided to the Company as well as the data exports provided as part of the service offering

SOX

SOX is a regulatory requirement, meaning public companies in the U.S. have a legal obligation to comply with SOX 404.

SOX compliance covers both financial and IT controls. On the financial side, the focus is on ensuring the accuracy of financial data. This includes processes and checks that keep the information reliable and trustworthy, such as controls related to revenue reporting, cash reporting, payroll and disbursements

The key focus of SOX controls is financial reporting, which aims to ensure accuracy and compliance for publicly traded companies’ financial statements under government regulations. SOX IT controls divides its focus into two areas:

• IT General Controls. These set the foundation for a secure IT environment. For example, this includes logical access controls, change management controls, and backup and resilience controls. 
• Application Controls. Here, the lens narrows down to individual software applications. These controls are used to validate the specific data processing (data integrity controls) performed by financial applications which help ensure the end-results within the financial statements are in alignment with generally accepted accounting principles (“GAAP”).

Application of Standard

SOC 2

SOC 2 compliance is not limited to one specific industry, it’s relevant to any organization that stores, processes, or transmits customer data, particularly in the cloud. But who exactly needs to care about it? Some of the companies are:

• Cloud and Tech Providers
• Healthcare Organizations
• Financial Institutions
• Legal and Consulting Firms
• E-commerce Platforms
• Data Centers and Hosting Providers
• Other Industries

Even industries you might not immediately think of, like education institutions, telecommunications, or logistics. This can benefit from SOC 2 compliance. 

SOX

SOX compliance primarily applies to all publicly traded companies operating in the U.S. and their wholly owned subsidiaries. It also covers securities analysts and the accounting firms responsible for auditing these companies.

• Publicly Traded U.S. Companies. Any company listed on U.S. stock exchanges is firmly within the scope of SOX. The focus here is on maintaining transparency and accountability in financial reporting.
• International Companies Registered with the SEC. If an international company has stocks or securities registered with the Securities and Exchange Commission (SEC), it must comply with SOX requirements.
• Private Companies in Specific Scenarios. While private companies are typically exempt, there are exceptions. For example, if their financial reporting intersects with public company operations or regulatory requirements, certain SOX provisions may apply.
• Accounting Firms Auditing SOX Companies. The responsibility also extends to accounting firms. Those auditing public companies must adhere to SOX standards to ensure the integrity of their audit processes.

Process of Compliance

SOC 2

SOC 2 compliance is built on five critical Trust Services Criteria: security, availability, processing integrity, confidentiality, and privacy. But what does achieving compliance really involve? Let’s break it down with a quick look at each process phase.

• Step 1: Choosing the Right SOC Report. The first decision is between SOC 2 Type 1 and Type 2 reports. Type 1 examines whether controls are well-designed at a specific moment, while Type 2 looks deeper, assessing whether these controls operate effectively over time. 
• Step 2: Defining What’s Audited. Identifying the systems, processes, and controls to be audited ensures you’re targeting what matters most to your business and regulatory requirements.
• Step 3: Assessing Internal Risks. Internal risk assessment helps identify vulnerabilities, quantify potential losses, and determine which Trust Services Criteria are most relevant to your operations. 
• Step 4: Building the Right Team. Compliance isn’t a solo effort. A strong team often includes an executive sponsor, project manager, IT and security personnel, legal experts, and consultants.
• Step 5: Gathering Documentation. Comprehensive documentation, from asset inventories to HR procedures and security controls, is the backbone of SOC 2 compliance. Missing or incomplete records can derail progress.
• Step 6: Readiness Checks. Before jumping into the audit, a readiness assessment can highlight weak spots. This step can save time and effort by narrowing the audit focus.
• Step 7: Finding and Fixing Gaps. A gap analysis will reveal areas needing improvement. Common issues include outdated or missing policies and inconsistent employee background checks.
• Step 8: Implementing Changes. The remediation phase can take months and requires process adjustments, updated security protocols, and thorough documentation.
• Step 9: Centralizing Documentation.  Organizing all necessary records in one place ensures auditors can access everything easily, reducing the risk of delays or misunderstandings.

SOX

A SOX audit ensures your internal controls and financial reporting processes are up to standard. If your organization uses a control framework like COBIT, auditors typically structure their approach around that framework. Here’s how the process unfolds, step by step:

• Step 1: Conduct a Risk Assessment. The journey begins with identifying risks to your company’s financial reporting. What could potentially compromise the accuracy or integrity of your statements? This step sets the foundation for targeted compliance efforts.
• Step 2: Perform a Materiality Analysis. Next, determine what’s truly significant to your financial statements. Materiality refers to items that could influence financial decisions. Auditors usually calculate a percentage of financial statement accounts to identify these key areas.
• Step 3: Define SOX Controls. During the materiality analysis, auditors pinpoint the controls that prevent or detect errors in transaction recording. This step involves ensuring processes are in place to calculate account balances correctly.
• Step 4: Assess Fraud Risk. Fraud risk assessment identifies and evaluates activities that could lead to fraudulent financial reporting. Accountants must carefully analyze the likelihood and potential impact of these risks.
• Step 5: Document Processes and Controls. Detailed documentation is essential. Outline your organization’s procedures to ensure accurate financial reporting, list the individuals responsible for each step, and include supporting records.
• Step 6: Test Key Controls. This is where the rubber meets the road. Testing ensures the controls are functioning as intended and effectively mitigating risks. Regular testing helps catch issues before they escalate.
• Step 7: Grant Auditors Access to Defense Systems. Your auditors need access (with appropriate limitations) to critical systems and protocols. This allows them to diagnose issues, troubleshoot effectively, and identify opportunities for improvement.
• Step 8:Disclose Security Incidents. Implement systems that detect and document security breaches in real time. Promptly notify your auditors about incidents so that swift action is taken to address threats and prevent future risks.
• Step 9: Be Ready for the Audit. Preparation is key. Your SOX auditor will review four core internal controls during the annual audit. Partnering with experts like  IS Partners can streamline this process, ensuring you’re ready to demonstrate compliance and address any findings effectively.

Impact on Service Organizations

SOC 2

SOC reports give service organizations a way to showcase their security and operational controls. This helps in 

• Building trust with potential clients
• Demonstrates your ability to handle sensitive data
• Provides a competitive edge

SOX

SOX compliance pushes organizations to implement strong internal controls over financial reporting. This results in better corporate governance, executive accountability, and risk management while reinforcing data security related to financial processes.

Reporting Requirements

SOC 2

SOC reports are produced by independent auditors like IS Partners. These reports assess an organization’s controls and processes based on the AICPA’s Trust Services Criteria. 

These reports aim to give customers, partners, and other stakeholders confidence that a company has strong controls to protect sensitive data. They are more about demonstrating security practices and protecting privacy than focusing on financial reporting.

SOX

SOX requires companies to file annual reports with the SEC. These reports must include an evaluation of the effectiveness of their internal controls related to financial reporting. 

Essentially, SOX forces companies to show their financial integrity and how well they protect their financial data.

Number of Controls

SOC 2

SOC compliance revolves around a structured framework of 64 individual requirements, each referred to as a “criterial.” These controls serve as benchmarks for organizations to safeguard sensitive data and ensure operational integrity. But how are these controls organized?

They are grouped under five Trust Service Criteria:

• Security (Mandatory). The foundation of SOC 2 addresses unauthorized access and protection mechanisms.
• Availability. Ensuring systems are operational and accessible as promised.
• Processing Integrity. Verifying that systems process data accurately and reliably.
• Confidentiality. Protecting sensitive information from unauthorized access.
• Privacy. Ensuring proper handling of personal data according to client expectations.

SOX

SOX compliance doesn’t dictate a specific number of controls but focuses on key risk areas tailored to each organization. Here’s a look at its control components:

• Access Control. Restricts physical and digital access to sensitive financial data. Auditors check measures like server room locks, video surveillance, authentication systems, and IAM tools.
• IT Security. This department ensures data protection with tools like SIEM systems, monitors access, detects threats, and responds swiftly to incidents.
• Data Backup. Evaluates backup strategies to prevent data loss or disruptions. Both primary and backup systems must be SOX-compliant.
• Change Management. Assesses how IT changes, like new staff, infrastructure, or software updates, are documented, monitored, and secured to avoid risks.

SOX vs SOC: Which Is Right for Your Organization?

After comparing SOC and SOX, you might be wondering: Which one applies to my organization? The answer depends on your specific needs and objectives, as each framework serves a different purpose. Let’s break it down:

SOX compliance is mandatory for all publicly traded U.S. companies. The primary focus is on ensuring the accuracy and reliability of financial reporting. If your company is publicly traded, adhering to SOX is a must. 

Even if you’re a privately held company, following SOX guidelines can still be beneficial. It can strengthen your internal financial controls and boost investor confidence.

On the other hand, SOC 2 audits are optional, but they are highly recommended for companies that handle sensitive data or provide services to others. 

SOC focuses on safeguarding data, maintaining privacy, and ensuring secure data management practices. SOC reports show that your company takes data security seriously, which can give you a competitive edge and build trust with customers and partners.

If your organization is publicly traded, SOX is non-negotiable. However, SOC could be the way to go if you handle customer data or offer services. However, some businesses may need both, as SOC addresses data security while SOX focuses on financial controls.

To make the best decision, it’s always wise to consult with compliance experts who can explain the requirements.

Our team at IS Partners is equipped to help you comply with SOC and SOX compliance. We offer ongoing monitoring and support to align your systems with these standards, ensuring you stay compliant and effectively safeguard your data and financial practices.

Do You Need SOC 1 if You Are SOX Compliant?

Yes, if you’re aiming for SOX compliance, obtaining a SOC 1 Type 2 report is a smart move.

A SOC 1 report evaluates a service provider’s internal controls related to financial reporting (“ICFR”). There are two different types of SOC 1 reports to consider:

• Type 1 focuses on whether the right controls are in place and properly designed. It evaluates the effectiveness of these controls at a specific point in time.
• Type 2 includes everything Type 1 covers but goes further. It tests how well the controls operate over a period, ensuring they work as intended during that time frame.

For SOX compliance, a SOC 1 Type 2 report is often preferred because it demonstrates the reliability of controls over a sustained period, not just at a single moment. This level of coverage gives auditors confidence in your processes and strengthens your compliance efforts.

Map Your Way to SOC and SOX Compliance With the Help of IS Partners

SOC and SOX compliance are essential for ensuring operational integrity and trust. SOC focuses on protecting customer data and operational security, while SOX ensures financial reporting accuracy and accountability. Together, they safeguard sensitive information, build stakeholder confidence, and meet regulatory demands. However, preparing for these frameworks can be complex and time-consuming without the right guidance.

This is where IS Partners comes in. With over 20 years of expertise, we simplify the complexities of SOC and SOX compliance. Our team provides practical strategies to streamline audits, address challenges, and align controls with your goals. By partnering with us, you can reduce the burden of compliance and focus on driving your business forward.

Don’t let compliance challenges slow you down. Contact IS Partners today to learn how we can help you achieve and maintain SOC and SOX compliance, building trust and security for your organization.

Let us guide you through the process so you can focus on what matters most—confidently running your business.

About The Author

Robert Godard

Robert is a Principal with IS Partners, LLC’s Business Process/Advisory Services practice in Horsham, PA. Robert has conducted a variety of Financial Statement Audits for a range of industries such as banking, healthcare, payroll, employee benefit plans (Pension, Health and Welfare), Unions and Construction.

Robert’s specialty is in audits of IT Controls and Infrastructure, Financial Statements, SOC 1 and SOC 2 audits, HITRUST CSF Assessments, Model Audit Rule (MAR), including evaluating business process as well as IT General Controls surrounding the reporting of financial information. He also has experience with analyzing Health Insurance information from AmeriHealth, Blue Cross Blue Shield, Express Scripts and Delta Dental. Additionally, Robert has performed audits for Construction and Special Tax related credits (Historical Tax Credits). He has prior work experience using ISSI, Great Plains and Peach Tree.

Prior to joining IS Partners, LLC, Robert was employed with Novak Francella in the Financial Statement Audit division, where he worked as an associate on external audit engagements in accordance with GAAP and DOL requirements.

Robert has a Bachelor of Science degree in Finance and Accounting from LaSalle University, Philadelphia, PA.