Listen to: "When Should You Consider a SOC 3 Audit?"
The Functions and Importance of Relying On Service Organizations Like Yours
As you explore the different types of service organization control (SOC) reports available to you, it may seem daunting to come across three different versions. Determining just when you need to perform one SOC report over the other two can feel overwhelming. However, as your company’s dedicated CIO or IT manager, it is your mission and responsibility to sort them all out and employ them appropriately, and you will find helpful tools along the way.
Created by the American Institute of CPAs (AICPA) to meet the accelerated growth in the business outsourcing of various functions to service organizations, which sometimes include cloud computing service providers, SOC audits and reports help you make sure you organization is staying on point. A few of the tasks that your service organization might provide include:
- Payroll processing
- Medical claims processing
- Tax processing
- Data entry projects
- Human resources tasks
- Document management
These and varied outsourcing projects rose to prominence, in part, due to the late 2000s recession as a way to reduce operating costs while maintaining productivity. The introduction and increasing reliance on cloud computing technology is the other primary reason that many organizations are relying on these external outsourcing capabilities as part of their service organization control plan. No matter what the reason or what type of service your organization provides, customers rely on your company for your protection of their privileged data as much as they appreciate the core services you provide.
Reviewing Each Type of SOC Report
Since the foundation of using the services of an outsourcing firm relies on clients submitting key points of data to your firm, it is important that you set and maintain certain protective measures that help to safeguard your clients’, as well as your own company’s confidential data. By building a strong set of protocols among your team, you can instantly start to build mutual trust and a commitment to properly shepherd any information your clients send your way.
SOC audits help you keep track of how well you and your outsourcing organization are protecting important company and client information. The question that IT managers need to sort out is which type of SOC they require. If you often need to refer to a set of guidelines to figure this out, the following breakdown of the basics on SOC 1 and SOC 2 reports might help you and your team save time and choose the right type of audit:
The SOC 1 Report.
Also known as the Statement on Standards for Attestations Engagements 16 (SSAE 18) , the SOC 1 report is critically important for your customers, or user organizations, who routinely perform financial statement audits. These reports help user entities and their auditors make sure that their work with your service organization complies with laws and regulations such as the Sarbanes-Oxley Act to ensure their continued compliance, per to the AICPA.
Adding some nuance and complexity to the SOC 1 report involves its having two different types of reports you might perform. A Type 1 SOC 1 Report offers insights into “the fairness of the presentation of management’s description of the service organization’s system and the suitability of the design of the controls to achieve the related control objectives included in the description as of a specified date” while a Type 2 SOC 1 Report uses the same information as Type 1, but it focuses on a specified period of time, as opposed to a specified date, so you can look at results over a chosen period of time to monitor trends and changes over time.
The SOC 2 Report.
This SOC report focuses on security, availability, processing integrity, and confidentiality or privacy concerns. Covering a broad range of users, the SOC 2 Report is useful for your organization, your stakeholders and your customers who rely on you to maintain the highest possible safety measures to protect their data. Similar to a SOC 1 Report, this report also features two types of reports. SOC 2 Type 1 focuses on the suitability of design controls while SOC 2 Type 1 examines the suitability of the design and operating effectiveness of controls.
Once you have ruled out these two SOC reports, you can explore SOC 3 to determine how it can help your organization.
Learn more about the differences between SOC 1 and SOC 2 now.
In addition to the above, there is also a new player in the game. Learn more about SOC for vendor supply chains here.
What Is a SOC 3 Report?
Many times your customers want firm assurances that their data has the pinnacle of protection from your service organization. Your user entities often want or need to show their own auditors that your organization has adhered to the “5 Trust Services Principals of Security, Availability, Processing Integrity, Confidentiality, and Privacy for all shared data and information.” A user organization can request a SOC 3 Report to address any or all of the 5 Trust Services Principals.
A SOC 3 Report covers the same basic materials and concerns of a SOC 2 Report, but it only distributes the auditor’s report without including description of the tests and their results or any opinions on the processes and results. More of a general-use type of report, a SOC 3 allows you to place a SOC 3 seal on your website to show your good standing.
When Should You Consider a SOC 3 Audit?
Any time that you want to add another dimension to your organization’s marketing, you can perform SOC 3 audit to confirm your commitment to excellent service and adherence to the 5 Trust Service Principals. When you look at a SOC 3 audit report as a way to reinforce your SOC 2 Report’s results — particularly when they are glowing — it is a wise move to call for this type of report to keep your current customers satisfied and confident. It also gives your marketing team another tool to attract new customers who instantly recognize the a seal of approval from a verified and trusted third-party auditor.
At I.S. Partners, LLC, we can help you instill ever-greater confidence from your customers when we work with you on any, or all, of your SOC reports. Learn more about our SOC 3 Seal of Excellence and what it can do to help your organization continue to flourish by calling 215-675-1400 or request a free consultation here!
Editor’s Note: This post was originally published in September 2016 and has been updated for accuracy and comprehensiveness.