Are you a new company that is in the software field? Maybe you’re a services provider? If you answered Yes to either question, you might have heard of something called “SOC Report”. But what exactly is it?
What is a SOC Report?
SOC stands for Service Organization Controls. It is a measure of your company’s quality of services, processes, and overall operations. If you are a software company or service provider in any capacity, you will need to furnish a SOC report.
The SOC report is a type of attestation report that assures regulators of your compliance to security and service quality standards.
You need to hire an external, impartial, certified public accountant (CPA) to conduct the audit. The CPA will conduct a series of tests to check how well your various processes work and how compliant they are. Then the CPA will issue a SOC Report validating the extent of your SOC compliance.
Types of SOC Reports
You may need to get a SOC report for multiple business processes when it comes to SOC compliance. The type of business processes/operations you engage in determines the type of SOC report you need from the CPA.
There are three types of reports you need to know about.
SOC 1 Report
Are you outsourcing your company’s payroll processes or payment management to an external, third-party service company? Do you plan to hire an external verification agency to vet a client or employee’s background? In these cases, you will need to comply with SOC 1.
Tax Write-Offs for Self-Employed PeopleEssentially, the SOC 1 report is needed by companies who are outsourcing their internal financial services to an external party. SOC 1 is also needed if you outsource services that may put your client’s financial information & statements at risk or affect them somehow.
SOC 2 Report
The SOC 2 report focuses on non-financial processes and operations. Specifically, the CPA checks if you have met all of the Trust Service Principles (TSPs) mandated for service providers. These TSPs include.
- Confidentiality
- Accessibility
- Security
- Processing integrity.
- Privacy
So, let’s say you plan to offer a SaaS facility, network monitoring service or data backup/repository services. Irrespective of whether you use an external technology vendor to provide these services or not, you’ll need to furnish a SOC2 report. This report ensures you have complied with all five TSPs with care.
SOC 3 Report
Both the SOC 1 and SOC2 reports are confidential. Your organization does not have to share this report with anyone other than a regulator. But, let’s say your customers want to know whether you comply with the TSPs or not. In that case, you can get the CPA to give you a SOC 3 report, in addition to the SOC 2 report.
This is because the SOC 3 is a public document, and it must be made available for anyone who wishes to peruse it. A SOC 3 example would be a report you have made because an organization you are providing cloud services to asks for your TSP compliance status.
Soc 1 vs Soc 2 vs Soc 3 – Which one should you get?
Now you know what SOC types there are. But you may have more questions.
How to Hire a Virtual AssistantWill only the SOC 1 report be sufficient?
Is SOC 2 or SOC 3 better?
Should I get all SOC 1, 2, 3 certifications?
We can help you answer these questions.
Only if you are an intermediary between a client and a payroll company, who has access to the client’s (and their client’s) financial data, will just the SOC 1 be sufficient. Most service providers and software companies will need to get both the SOC 1 and SOC 2 reports made by the CPA.
So, there is no question of SOC 1 vs SOC 2. Both are equally important.
Another major difference between SOC 1 and SOC 2 is the intention of testing. SOC 1 focuses on whether your company has put in place the right compliance measures and how well-designed they are. SOC 2, on the other hand, focuses on the quality and effectiveness of these processes over a period of many months.
Your CPA will be able to give you a SOC 1 report within a month, while you may need to wait 3-4 months for your SOC 2 report to arrive. Plus, the extensiveness of the testing will also be greater for the SOC 2 report.
Now, as for SOC 3 – this is optional and completely dependent on your company’s requirements. Not every client will ask to see your SOC compliance status. But, if the services you offer pose a high risk to your client or their clients, then you will need to get the SOC 3 made as a precautionary measure.
These SOC 3 reports aren’t very detailed, and they usually only contain a summary of the SOC 2 results. They’ll be written up without any jargon, allowing the layperson to understand your SOC compliance results.
