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

When it comes to SOC (Service Organization Control) 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 Principles, 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 principles of security, availability, processing integrity, confidentiality, and privacy, also known as the Trust Services Principles. 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 Principles, 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 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 Principles.

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 Principles? 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, 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 using the form below.

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.

SOC 1 Vs. SOC 2 –
Which SOC Report Do I Need?

As a service organization, you are familiar with audit requests from clients who are required to meet specific compliance and audit requirements. You have most likely been asked whether your organization is SOC 1 Compliant or SOC 2 Compliant. What are the differences between a SOC 1 and SOC 2? Which SOC report should I get? Do I need both? These are questions we, as auditors, are frequently asked. Let’s take a look at the differences between the two, and why you could be asked for either, or both, as you continue to grow your business.

SOC 1 Vs. SOC 2 with Joseph Kirkpatrick

Do I need a SOC 1?

A Service Organization Control 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. 16 (SSAE 16). A SOC 1 assessment is comprised of control objectives, which are used to accurately represent internal control 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 will likely be requested of you.

Do I need a SOC 2?

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 criteria are known as the Trust Services Principles, 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.

So which report makes the most sense for your organization? Should you pursue a SOC 1 or a SOC 2? Do you need both? 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.