Know The Difference: SOC 1 vs. SOC 2
Keeping up with the constantly evolving compliance landscape can be demanding, especially if you’re relying entirely on in-house resources to conduct IT security assessments. That said, it’s important to view compliance not as a burden, but as a competitive advantage that can earn you more lucrative contracts, as well as retain existing ones.
While SOC 1 compliance was developed with accounting firms in mind to standardize internal controls over financial reporting (ICFR), SOC 2 revolves around trust service principles. SOC 2 has become a practical necessity for any service provider that stores or transmits customer data. Both, however, are important audits in the age of cloud computing.
What are the service organization controls?
SOC stands for service organization control. Confusing the two audits is a common mistake. Both frameworks were developed by the American Institute of Certified Public Accountants (AICPA) to verify the various technical controls and policies in use in today’s organizations, but that’s largely where the similarities end.
Both audits have a different focus. SOC 1 considers internal control over financial reporting, while SOC 2 considers how you protect customer data. Both provide critical insight into your technical and operational environment, while offering trust and transparency to stakeholders and clients.
SOC 1 vs SOC 2: What’s the difference?
The SOC 1 and SOC 2 report differences mainly lie on their focus. SOC 1 focuses on accountability in financial operations. It is an evolution of the earlier SAS 70 auditing standards. SOC 1 looks at an organization’s internal control over financial reports to ensure that controls are designed and operating optimally so they don’t negatively impact financial statements.
By contrast, SOC 2 focuses on how you secure your customer data. Introduced in response to the rapid rise in cloud computing, SOC 2 revolves around five key areas known as the Trust Services Criteria: security, availability, processing integrity, confidentiality, and privacy.
Both SOC 1 and SOC 2 audits come in two forms: type 1 focuses on the status of your policies and processes at a given moment in time, while type 2 focuses on how effective these policies are over a given time period (at least six months).
Why do you need an SOC 1 audit?
If there’s a single word that sums up why you need a SOC 1 audit, it’s trust. Customers are more careful than ever about who they do business with, and they demand transparency and accountability. Achieving SOC 1 compliance validates your efforts to maintain internal controls over financial reporting to the highest standard.
Almost any service organization can benefit from becoming SOC 1 compliant, even though it was originally introduced with accounting firms and departments in mind. However, SOC 1 is a necessity for service providers in areas like payroll processing and other finance institutions. It’s also a requirement for achieving compliance with the Sarbanes-Oxley Act (SOX).
Why do you need an SOC 2 audit?
In many ways, SOC 2 has a much greater reach than SOC 1, since it applies to any company that stores or transmits customer data. As such, it has become a practical necessity for service providers like SaaS businesses and other cloud companies. Even if your organization doesn’t process financial data, it still needs to achieve SOC 2 compliance.
Further reading: What is SOC 2 compliance, and why do you need it for your business?
SOC 2 validates your efforts to protect client data. This includes not only financial data, but all personally identifiable data. SOC 2 also requires the implementation of a long-term IT security strategy to protect your systems against new and emerging threats. In addition to security, the SOC 2 framework also covers service availability and processing integrity to ensure a smooth operation of your critical services.
What about SOC 3 reports?
Finally, you might also have heard of the SOC 3 report. This is much the same as a SOC 2 report, with the main exception that it’s designed for general use. SOC 3 reports don’t contain any confidential information about your operational or technical environment, so service firms can use them as marketing collateral to give to their prospective companies.
How an IT security assessment can help
Being proactive is the key to achieving and maintaining compliance, as well as a high standard of information security and privacy. It all starts with an IT security assessment, which will take a comprehensive view of your security processes and controls and identify potential issues. This will help you continuously improve your security posture and prepare you for passing a SOC audit.
Charles IT provides expert IT security assessments and guidance to ensure your business is ready for the next generation of cyberthreats. Get in touch today to schedule your assessment!