SOC 1 vs. SOC 2: What sets them apart?
SOC 1 and SOC 2 are popular data security compliance frameworks, but they are not identical. Choosing the correct compliance strategy influences your security posture, operational efficiency, and regulatory compliance status. So it’s important to know how frameworks differ before making a decision.
This article explains the differences between SOC 1 and SOC 2, making it easier to choose the ideal compliance pathway.
Key takeaways
- The SOC compliance framework is a widely-used and respected family of auditing standards. SOC reports assure data controllers and user entities that service organizations can protect their data. They enable secure long-term business relationships and ease data risk management.
- There are two main SOC report types. SOC 1 reports deal mainly with financial reporting security. They serve companies like accountants, tax advisors, or payroll management firms.
- SOC 2 reports audit general information security themes. They apply five trust criteria and provide a wide-ranging evaluation of service organization controls. Common users of SOC 2 reports include SaaS providers and IT service companies.
- SOC 1 and 2 frameworks also include Type I and Type II reports. Type I reports offer a point-in-time evaluation of security controls. Type II reports assess the performance of controls over time. They demonstrate service organizations can achieve continuous compliance with SOC standards.
Introduction: the landscape of SOC reports
SOC (Service Organization Control) reports demonstrate that service organizations maintain high data security and processing standards. SOC reports are administered by the American Institute of Certified Public Accountants (AICPA) and come in two main varieties: SOC 1 and SOC 2 reports.
SOC reporting originated in the 1970s when AICPA sought to standardize information security auditing in the accountancy sector. In the 1990s, the SAS 70 auditing standard updated AICPA's framework to include data security considerations. The SOC reports evolution continued in 2011 when SOC 1, 2, and 3 reports replaced SAS 70.
Nowadays, SOC provides an auditing framework to assess digital businesses. Independent CPAs execute audits, assessing data security, integrity, availability, privacy, and confidentiality.
SOC reports assure users of cloud or web-based partners that their data will remain secure and private. This assurance is critically important in a world where business process outsourcing is a vital part of everyday operations.
Key differences between SOC 1 and SOC 2
SOC 1 reports | SOC 2 reports |
|---|---|
Deal with financial reporting standards | Assess the quality of an organization’s information security governance |
Focus on financial reporting requirements | Apply 5 Trust Services Criteria to all data handling systems |
Appropriate for companies that process financial data for clients | Suitable for companies that collect, process, or store data for internal use or external partners |
Relatively simple and quick to complete | Complex and time-consuming. Audits require participation from stakeholders across the organization |
All SOC reports assess how organizations handle data. However, there are important differences between SOC classes.
Organizations must know core SOC 1 vs SOC 2 differences when selecting the right compliance frameworks. Poor decisions cost money, consume time, and lead to sub-standard security solutions.
- SOC 1 reports deal with financial reporting standards. They assess all tools and operations that handle or affect financial data.
- SOC 2 reports have a wider focus. They assess the information security governance of service organizations and determine whether they meet AICPA's five trust services criteria.
SOC 1 audits look at Internal Control over Financial Reporting (ICFR). Auditors only test controls that deal with financial data. SOC 2 audits have a much more comprehensive scope. Auditors assess controls and policies according to AICPA's trust services criteria. The core criteria are data security, availability, privacy, confidentiality, and data integrity.
Companies generally use SOC 1 reports to manage financial data risks related to third parties. For example, if a company uses cloud-based payroll services, it may request a SOC 1 report to verify the payroll processor takes security seriously.
SOC 2 reports manage broader financial, reputational, and regulatory risks. These reports suit companies that store data on third-party data centers. SOC 2 also assures companies that use SaaS partners for processing customer data. A typical SOC 2 application could be an eCommerce company transferring customer data for third-party vendor management.
While there are critical differences between SOC 1 and SOC 2 reports, there is one very important similarity. Both SOC report types come in Type I and Type II variants. A Type I report deals with compliance at a single point in time. Type 2 reports assess compliance over a longer period.
| SOC 1 | SOC 2 |
|---|---|---|
Purpose | Report on controls related to financial reporting | Report on controls related to data security, availability, processing integrity, confidentiality, and privacy |
Focus | Internal controls over financial reporting | Security, availability, processing integrity, confidentiality, and privacy controls related to service providers |
Scope | Narrow, focused on financial reporting | Broad, covering various aspects of security, availability, processing integrity, confidentiality, and privacy |
Audience | Management, auditors, regulators | Management, auditors, customers, stakeholders |
Control criteria | Defined by SSAE 18 (Statement on Standards for Attestation Engagements) | Defined by the Trust Services Criteria (TSC) issued by the AICPA (American Institute of Certified Public Accountants) |
Key Trust Service Principles | Not applicable | Security, availability, processing integrity, confidentiality, and privacy |
Examples of industries | Financial institutions, healthcare, insurance | Cloud service providers, data centers, SaaS platforms, technology service providers |
Criteria and controls: distinguishing features
When comparing SOC 1 vs SOC 2 reports, it is also important to understand how their control frameworks differ.
Control frameworks are lists of recommended technical and administrative measures needed to achieve SOC compliance. Auditors cross-reference controls with SOC frameworks. They note the presence of required controls and test controls for effectiveness.
SOC 1 controls
The main SOC 1 purpose is to protect the integrity of financial reporting. Controls protect financial data against external attackers. They prevent unauthorized tampering by internal employees. And they safeguard core processes like generating financial reports or processing transactions.
Relevant controls include encryption for transaction data at rest and in transit. If companies use applications to process financial data, they should regulate access and apply secure development practices. Data backups maintain the availability of financial information. Physical security controls deny access to financial data servers and protect employee devices.
SOC 2 controls
SOC 2 controls meet general security and data privacy standards. Compliant companies must implement controls to meet trust services criteria related to their business operations.
Controls cover financial data but may also protect personally identifiable health information (PII), customer profiles, or the intellectual property of user entities. The exact range of controls varies between organizations.
Relevant controls include access management systems. Companies must ensure data availability for authorized individuals while blocking access for everyone else. Access systems should also meet user demands for privacy and confidentiality.
Cybersecurity is also a core component of SOC 2 projects. Controls include threat detection systems, firewalls, and incident response plans to handle data breaches.
Availability criteria require measures to minimize downtime and optimize access for users. Data integrity systems should monitor data and prevent unauthorized editing or deletion. And privacy controls could include consent forms and encryption of sensitive data.
Key takeaway: SOC 1 controls only relate to financial reporting data. SOC 2 controls are far more in-depth. SOC 2 audits assess how companies process and secure data and whether they allow legitimate access to user entities. As a result, achieving SOC 2 compliance is much more complex.
Choosing the right report: factors to consider
Choosing between SOC 1 vs SOC 2 reports is a strategic decision. Poor decisions result in excessive compliance outlay or inadequate data protection. Organizations can avoid both outcomes by choosing a SOC report that suits their unique needs.
The main factor in choosing SOC reports is how the service organization handles data. SOC 1 is suitable for service organizations that only process financial data. SOC 2 is preferable for cloud-based technology firms or service providers with diverse data processing operations.
Keep user requirements in mind when comparing SOC 1 vs SOC 2. Companies that deal with financial stakeholders such as accountants or advisors often use SOC 1 reports. Cloud service providers for eCommerce or public bodies usually need more comprehensive SOC 2 assessments.
| Type I Reports | Type II Reports |
|---|---|---|
Scope | Single point in time | Over a period (3-12 months) |
Purpose | Attestation of controls' existence | Assessment of controls' effectiveness over time |
Detail | Less detailed | More detailed |
Evaluation | Controls' presence | Controls' functionality and effectiveness |
Duration | One-time assessment | Continuous evaluation over months |
Auditors' visits | Single visit | Repeated visits for testing systems and processes |
The role of Type I and Type II reports in decision-making
The other critical strategic choice is between Type I and Type II SOC reports.
- Type I reports audit service organization controls at a single point in time. Reports deliver an auditor's attestation that required controls are present. The operational effectiveness assessment reports that controls are functional on the assessment day.
- Type II reports assess service organization controls over time - producing more detailed outputs. Type II reports evaluate the effectiveness of controls over 3-12 months. Auditors make repeated visits to test systems and processes.
This distinction applies to both SOC 1 and SOC 2 reporting frameworks. Type I reports are sufficient when user entities want a simple evaluation of service organization controls. For instance, companies may process limited amounts of confidential data. Or they may need assurance for a single data operation - not a continuous partnership.
Type II reports ensure secure long-term data partnerships. Type II reports show that a service organization can protect data continuously. This suits risk management strategies involving sustained processing of sensitive data.
Type II reports are increasingly common in the digital economy. SOC 1 Type II reports are less detailed than SOC 2 Type II reports. SOC 1 reports are less demanding. SOC audit preparation should be less expensive. However, many organizations opt for SOC 2 Type II assessments because they provide more assurance for stakeholders.
Conclusion: navigating the SOC landscape
Deciding between SOC 1 vs SOC 2 compliance is critical for data-driven companies. Both standards apply industry-leading AICPA auditing standards. However, there are crucial differences between the two frameworks.
SOC 1 is ideal for companies handling financial data and relatively little private user information. SOC 2 suits cloud providers and other businesses that process personal data on behalf of others. Both standards are vital in a digital landscape where data security is critical. Assess your needs and choose a compliance strategy to build client trust and maintain business credibility.
Frequently Asked Questions (FAQs)
Can a company switch from SOC 1 to SOC 2 or vice versa, and what's involved in such a transition?
Nothing prevents companies from transitioning between SOC 1 and SOC 2 compliance. SaaS providers often graduate from SOC 1 audits to full-scale SOC 2 information security assessments.
Follow SOC compliance best practices to make switching between different SOC frameworks easier. Use gap analysis to identify new compliance needs. Moving to SOC 2 also requires companies to consider the five TSCs. Companies must assess data processing risks about availability, integrity, security, privacy, and confidentiality.
Audit policy documentation and update policies to meet SOC 2 standards. Refresh staff training to add elements like confidentiality and privacy that SOC 1 audits address weakly. And implement new security or policy controls, using an internal audit to verify their effectiveness.
Although the process is less common, similar rules apply to moving from SOC 2 to SOC 1. In this case, check financial controls to ensure they meet SOC 1 criteria. Remove any unnecessary controls, checking each removal to ensure it meets SOC 1 standards.
Do you need both SOC 1 and SOC 2?
Companies do not usually need both SOC 1 and SOC 2 certification. However, passing both SOC audits may help in some situations. For example, service organization types with diverse operations may offer some services that only deal with financial data. SOC 1 audits can cover these divisions, while SOC 2 auditing applies elsewhere.
Client needs can also be influential. Sometimes, user organizations demand watertight assurance. Achieving both certifications makes sense if service organizations regularly encounter dual demands for SOC 1 and SOC 2 compliance. But in general, this is not necessary.
Disclaimer: This article is for informational purposes only and not legal advice. Use it at your own risk and consider consulting a licensed professional for legal matters. Content may not be up-to-date or applicable to your jurisdiction and is subject to change without notice.