The full form of SOC is System and Organization Controls. There are two types namely SOC1 and SOC2 ( pronounced as “sock 1” and “sock 2” respectively).
A SOC1 report is evaluated to address the internal controls of an organization over financial reporting. Whereas a SOC2 report addresses a service organization’s controls related to operations and information security compliance. An organization might need any one or both for the effective assessment of the organization. At G-Info Technology Solutions Private Ltd., we help determine the correct report reports suitable for your organization.
SOC1 audits are necessary for organizations with access to customers’ financial data. It looks organization’s financial reporting.
SOC2 audits are necessary for governance, information security, and operational general controls that fall under one of the trust services criteria (TSC): security, confidentiality, availability, processing privacy, and integrity.
Sometimes organizations require both SOC1 and SOC2 audits (combined).
When does an organization need SOC audit?
SOC audits and compliance are necessary for organizations that provide services to other organizations. SOC compliance is a means to prove to a service provider’s customers that the company can provide the services and that it improves a customer’s trust that the company protects its sensitive data efficiently.
If an organization is SOC2 compliant means that it maintains a high level of information security. SOC1 and SOC2 compliance is voluntary compliance but the organizations which have SOC1 and SOC2 compliance are more trusted.
If an organization handles customers’ financial data it would require SOC1 compliance. If a company only handles non-financial data SOC2 compliance is required.
Organizations in this evolving online presence are under increasing pressure to prove that they are able to manage and handle cybersecurity threats efficiently and that they have effective controls and processes to detect, respond to and recover from security breaches or security threats. The SOC reports can help the company board of directors, senior management, investors, business analysts, and business partners gain a better understanding of an organization’s efforts for maintaining data security and mitigating cybersecurity risks.
Both SOC1 and SOC2 come in two forms:
These reports focus on the evaluation of the company’s procedures and policies at a specific moment in time. In other words, a Type 1 SOC1 report is a report on the procedures and controls an organization has put in place at a point in time for financial reporting. And a Type 1 SOC2 report is a report on the controls and procedures put in place by an organization at a point in time to maintain the security, integrity, and robustness of its non-financial aspects pertaining to holding, storing, or processing information of their clients.
The Type 2 reports either SOC1 or SOC2 include the design and testing of controls for the operational effectiveness of the internal controls over a period of time, typically say six months or so.
Why are SOC1 and SOC2 reports important?
As technology is ever-evolving and outsourcing is trending upward, reporting on the internal controls of an organization is becoming more and more important. If you’re a growing service organization (financial services corporation, technology provider, professional service firm, or healthcare service firm) you might be asked for SOC reports. Many of the RFPs (Request for Proposals) are now mandatorily asking for the SOC reports. So SOC reports are now a competitive necessity essential for an organization to gain client trust in the organization’s internal processes and controls.
Method Followed To Obtain SOC1 and SOC2 Reports:
When performing a SOC audit by our expert team of auditors, we work closely with the organization’s leadership to assure that
- The examination reports are tailored to the organization’s unique needs, every aspect is studied thoroughly and timely.
- Contractual obligations and marketplace concerns are met properly by the organization
- Business operations and internal controls are streamlined and robust
- All AICPA (Association of International Certified Public Accountants) reporting requirements are met.
The SOC examination and reporting process produces a detailed, though comprehensive report that helps establish the legitimacy of an organization and also uncovers potential weaknesses or cybersecurity gaps that could negatively impact its customers. If any gaps are found, they can be patched to increase the security of the customer’s data.
In an age where cyber-attacks are increasing day by day, the SOC for cybersecurity provides assurance that enterprise controls are in place to manage and mitigate such occurrences. The SOC reports allow the senior management, stakeholders, investors, business partners, and board of directors to make informed decisions.
The SOC1 or SOC2 or both reports as decided depending on the company’s need can be performed for any type of organization, regardless of size or industry. It is designed to cover an entity-wise cybersecurity risk management program.
Common scenarios that trigger requests for SOC reports are:
- Using software as a service (SaaS)
- Outsourcing credit card processing, payroll, recordkeeping, etc.
- Storing sensitive data with a cloud service provider
- When data or infrastructure are managed or hosted by an external third-party system.
Thus any company with a business model based on providing a service to another company and which handles sensitive customer data can benefit from a successful SOC examination.