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Listen to: "Understand the Difference Between SOC 1 Type 1 & 2 Reports"

Sometimes it may seem like your role as your company’s CIO or IT manager — in its multiple and varied facets — never ends. The influx and increasing improvement of technology associated with compliance and auditing may toggle somewhere between “a gift and a curse” in your estimation, and that is as true in your work with SOC (Service Organization Controls) audits as in any other task or procedure that you oversee. However, when it comes to accurate financial reporting for your customers, SOC is an essential tool to keep everyone accountable and protected.

What are the Key Benefits of the SOC 1 Report?

Following are a few of the key focal points of the SOC 1 report:

  • It helps to ensure that you are doing your part to make sure your service organization maintains complete and consistent compliance when it comes to standards, regulations and acts like the Sarbanes-Oxley Act of 2002.
  • Each auditing firm provides its own specific “seal of excellence” to SOC 1, Type I and Type II report recipients with unqualified audit opinions. Such professional reinforcements and transparencies can help boost your stakeholders’ and customers’ confidence in your organization, forging better communication that leads to stronger and longer lasting professional relationships.

SOC 1 Type 1

Technically known as a “Report on Management’s Description of a Service Organization’s System and the Suitability of the Design of Controls,” the Type I report gives you, working as the user auditor, the opportunity to perform critical risk assessment procedures to learn whether you can achieve the related control objectives on a specific date. The report also provides a description of your organization’s system and how it functions to achieve goals you set to serve your customers. With the Type I report, you also receive an opinion on the fairness of your system and the design of the controls.

SOC 1 Type 2

Officially known as a “Report on Management’s Description of a Service Organization’s System and the Suitability of the Design and Operating Effectiveness of Controls,” the Type II report contains all the same information as the Type I report, but it adds in a different element. The Type II report addresses the design and testing of the controls over a period of time, which is most often six months, as opposed to the specific date used in a Type I report. It also describes the testing performed and the results. This type of report is far more rigorous and intensive than Type I, as it covers a greater span of time and requires that your auditors perform a more thorough investigation of your system’s design and processes.

How Are SOC 1 Type 1 and Type 2 Audit Reports Similar?

The first commonality is that both types of SOC 1 reports cover critical risks in your organization’s system related to control objectives. They provide important information to your organization and the entities its serves about control design and progress toward security goals.

Second, unless otherwise authorized, any SOC 1 auditing and results remain strictly between your service organization, user entities, and user auditors.

Related article: How to Read & Understand a SOC 1 and SOC 2 Report.

What Is the Difference Between SOC 1 Type 1 and SOC 1 Type 2 Reports?

As useful as SOC 1 reports are, the different types of these specific reports (Type 1 and Type 2) tend to cause confusion for many IT professionals. If you struggle to distinguish the subtle definition between the two, you are not alone, so take some time to learn the details of each type of report before getting started.

What Information Does a SOC 1 Type 1 Report Provide?

The information that you gain from a SOC 1 Type 1 report allows you, as the user auditor, to perform critical risk assessment procedures and lets you know whether you can achieve the related control objectives on a specified date. The report describes your organization’s system and how it works to achieve goals set to serve your customers. It also delivers an opinion on the fairness of your system and the design of the controls.

What Information Does a SOC 1 Type 2 Report Provide?

Similar to a Type 1 SOC report, a Type 2 report contains all the same information. Plus, it includes the design and testing of the controls over a period of time, typically six months, rather than a specified date as is used on a Type 1 SOC report. It describes the testing performed and the results. SOC 1 Type 2 reports cover a longer period of time and include a more detailed investigation of the design and processes. In general, type 2 is a significantly more rigorous audit. The benefit of such hard work is the detailed report that you can provide to your customer.

Finding Outside Help to Further Clarify the Difference Between SOC 1 Type 1 and Type 2 Reports

Learning the difference between these types of results, as well as the other myriad tasks you perform in the course of the day for your service organization, can take time. In your efforts to always provide your customers with the best efforts to ensure accuracy and compliance, you and your executive board might consider hiring a professional firm filled with expert Certified Public Accountants who continually study and practice the differences between the types of SOC 1 reports.

At I.S. Partners, LLC, we can ease the process for you and your conscientious IT team until you all thoroughly understand the differences and gain enough confidence to take the lead on your own. We hope you contact us. We would love to talk to you about your SOC 1 Type 1 and Type 2 services and what we can do to help. Contact us today by calling 215-631-3452 or receive a free SOC 1 Quote here.

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