What’s The Difference Between SOC 1, SOC 2, and SOC 3?

When it comes to SOC (System and Organization Controls) reports, there are three different report types: SOC 1, SOC 2, and SOC 3. When considering which report fits your organization’s needs, you must first understand what your clients require of you and then consider the areas of internal control over financial reporting (ICFR), the Trust Services Criteria, and restricted use.

SOC 1 vs. SOC 2 vs. SOC 3

What Is a SOC 1 Report?

What Is a SOC 1 Report?

SOC 1 engagements are based on the SSAE 18 standard and report on the effectiveness of internal controls at a service organization that may be relevant to their client’s internal control over financial reporting (ICFR).

 

What Is a SOC 2 Report?

What Is a SOC 1 Report?

A SOC 2 audit evaluates internal controls, policies, and procedures that directly relate to the security of a system at a service organization. The SOC 2 report was designed to determine if service organizations are compliant with the following categories: security, availability, processing integrity, confidentiality, and privacy, which are also known as the Trust Services Criteria. These principles address internal controls unrelated to ICFR.

What Is a SOC 3 Report?

What Is a SOC 3 Report?

A SOC 3 report, just like a SOC 2, is based on the Trust Services Criteria, but there’s a major difference between these types of reports: restricted use. A SOC 3 report can be freely distributed, whereas a SOC 1 or SOC 2 can only be read by the user organizations that rely on your services. A SOC 3 does not give a description of the service organization’s system, but it can provide interested parties with the auditor’s report on whether an entity maintained effective controls over its systems as it relates to the Trust Services Criteria.

When trying to determine whether your service organization needs a SOC 1, SOC 2, or SOC 3, keep these requirements in mind:

  • Could your service organization affect a client’s financial reporting? A SOC 1 would apply to you.
  • Does your service organization want to be evaluated on the Trust Service Criteria? SOC 2 and SOC 3 reports would work.
  • Does restricted use affect your decision? SOC 1 and SOC 2 reports can only be read by the user organizations that rely on your services. A SOC 3 report can be freely distributed and used in many different applications.

Each of these reports must be issued by a licensed CPA firm, such as KirkpatrickPrice. We offer SOC 1, SOC 2, and SOC 3 engagements. To learn more about KirkpatrickPrice’s SOC services, contact us today.

Video Transcription

What is the difference between SOC 1, SOC 2, and SOC 3 reports? SOC reports are Service Organization Control reports.

SOC 1 reports work off of the SSAE 16 (now SSAE 18), which is about internal control over financial reporting. As a service organization, you may affect your user organization’s financial reporting. If so, a SOC 1 is the one for you.
Trust Services Principles have to do with criteria dealing with security, availability, processing integrity, confidentiality, and privacy. Those Principles work with SOC 2 and SOC 3 reports.

These reports are restricted in use when your issue a SOC 1 or a SOC 2 report. They are only to be read by the user organizations who rely upon your services, where a SOC 3 can be used in many different applications.

Finally, these 3 types of reports need to be issues by a licensed CPA firm that specializes in this particular industry and the industry that you work in. KirkpatrickPrice is a licensed CPA firm that can help you with all three types of reports – the SOC 1, SOC 2, and SOC 3.

What is the Difference Between SOC 1 Type I and SOC 1 Type II?

You know you need a SOC 1 audit report, but do you need a SOC 1 Type I or a SOC 1 Type II?

What’s the difference? Which one makes the most sense for your organization?

Read more to understand the importance of a SOC 1 audit report and the differences between a Type I and a Type II audit report.

What is a SOC 1 Audit?

A SOC 1 audit, or System and Organization Control 1 engagement, is an audit of internal controls at a service organization that may affect their clients’ internal control over financial reporting (ICFR). A SOC 1 audit report provides user entities with reasonable assurance and the peace of mind that the controls at a service organization are operating effectively and appropriately protecting client data.

There are two types of SOC 1 audit reports: SOC 1 Type I and a SOC 1 Type II.

SOC 1 Type I vs. SOC 1 Type II: What’s the Difference?

There are both similarities and differences between a SOC 1 Type I and a SOC 1 Type II audit report. As a CPA firm, we commonly advise clients who are engaging in a SOC 1 audit for the first time to begin with a Type I and move on to a Type II the following audit period. This gives service organizations a good starting point, allowing them to mature their environment over time.

SOC 1 Type I vs. SOC 1 Type II

A SOC 1 Type I and a SOC 1 Type II both report on the controls and processes at a service organization that may impact their user entities’ internal control over financial reporting. The main difference is that:

  • A SOC 1 Type I report is an attestation of controls at a service organization at a specific point in time…
  • Whereas a SOC 1 Type II report is an attestation of controls at a service organization over a minimum six-month period.

The SOC 1 Type I reports on the description of controls provided by management of the service organization and attests that the controls are suitably designed and implemented. The SOC 1 Type II reports on the description of controls provided by management of the service organization, attests that the controls are suitably designed and implemented, and attests to the operating effectiveness of the controls.

Many organizations are required to undergo a third-party SOC 1 audit. If you have questions about which type of SOC report you need or want help demonstrating to your clients your commitment to security and compliance, contact us today. 

More SOC 1 Resources

Understanding Your SOC 1 Report Video Series 

SOC 1 Compliance Checklist: Are You Prepared for an Audit? 

How to Read Your Vendors SOC 1 or SOC 2 Report? 

Video Transcription

The SSAE 18 (formerly SSAE 16), otherwise known as the SOC 1 report, is available in two types of reports: there’s a Type I Report, and a Type II Report. The Type I Report issues an attestation on the description of controls provided by management of the service organization, and there’s also an attestation that the controls are suitably designed and implemented. For a Type II Report, you have those two same sections in the report, plus an additional section that talks about the operating effectiveness of those controls over a period of time.

The Type II Report is concerned about that period of time, whereas a Type I Report is “as of a particular date.” So, your controls could be in place as of a particular date for a Type I Report, whereas for a Type II those controls must be in place and operating effectively over a period of time determined by you and the auditor that is involved in performing the engagement.

SOC 1 vs. SOC 2: Which SOC Report Do I Need?

SOC 1 vs. SOC 2 Reports: What’s the Difference?

As a service organization, you are familiar with audit requests from clients who are required to meet specific compliance and audit requirements, and you have most likely been asked whether your organization is SOC 1 compliant or SOC 2 compliant.

We often get asked:

  • What are the differences between a SOC 1 vs. SOC 2 audit?
  • Which SOC report should you get?
  • Do you need both audit reports?

Let’s take a look at the differences between a SOC 1 vs. SOC 2 audit, and why you could be asked for either, or both, as you continue to grow your business.

Do I Need a SOC 1 Audit?

A Systems and Organization Controls 1, or SOC 1 engagement, is an audit of the internal controls at a service organization which have been implemented to protect client data.

SOC 1 engagements are performed in accordance with the Statement on Standards for Attestation Engagements No. 18 (SSAE 18). A SOC 1 assessment is comprised of control objectives, which are used to accurately represent internal controls over financial reporting (ICFR).

In other words, if you are hosting financial information that could affect your client’s financial reporting, then a SOC 1 audit report makes the most sense for your organization to pursue, and it will likely be requested of you.

Do I Need a SOC 2 Audit?

If you are hosting or processing other types of information for your clients that does not impact their financial reporting, then you may be asked for a SOC 2 audit report.

In this instance, your clients are likely concerned whether you are handling their data in a secure way, and if it is available to them in the way you have contracted it to be. A SOC 2 report, similar to a SOC 1 report, evaluates internal controls, policies, and procedures.

However, the difference is that a SOC 2 reports on controls that directly relate to the security, availability, processing integrity, confidentiality, and privacy at a service organization. These categories are known as the Trust Services Criteria and are the foundation of any SOC 2 audit engagement.

Do I Need a SOC 1 and a SOC 2 Report?

If you have clients that fall under both categories, then there is a chance you may be asked for both.

In some circumstances, you may determine that you need a SOC 1 and a SOC 2 report in order to effectively ensure that your controls meet the demands of a variety of clients and stakeholders. Fortunately, KirkpatrickPrice utilizes a unique Online Audit Manager that allows you to combine a SOC 1 and SOC 2 into one audit process resulting in two deliverables.

How Can KirkpatrickPrice Help?

Determining what your business objectives are is a vital first step in deciding which SOC audit you should pursue. KirkpatrickPrice can provide free consulting services to help you determine which SOC report makes the most sense for your organization and assist in determining the scope of your engagement.

Think you may need multiple reports?

We can help with that too. KirkpatrickPrice’s Online Audit Manager was designed to help take the stress away from meeting multiple audit demands by streamlining them into one efficient audit process.

Contact us today using the form below to learn more about how we can help.

More SOC 1 Resources

Understanding Your SOC 1 Report Video Series 

SOC 1 Compliance Checklist: Are You Prepared for an Audit? 

How to Read Your Vendors SOC 1 or SOC 2 Report? 

More SOC 2 Resources

SOC 2 Academy 

Understanding Your SOC 2 Report 

SOC 2 Compliance Handbook: The 5 Trust Services Criteria