Businesses across industries today are trying to navigate through a world full of so many security risks, with special attention to the digital sphere. So, it’s not a surprise that companies and institutions that hire other companies for sensitive aspects of their business, such as those that can put their finances or their important data at any kind of risk, need to be sure that they are protected.
If your company handles other organizations’ data, you may need the appropriate SOC report, to reassure your clients or prospects that they are putting their trust in the right place. While they are not required by law, System and Organization Control auditing reports provide proof that your company is trustworthy and that your clients can rely on your outsourcing services.
There are two main types of System and Organization Control (SOC) reports SOC 1 and SOC 2. To get one, you need to undergo a SOC audit, which is provided by a CPA (Certified Public Accountant) according to the guidelines provided by the AICPA (The American Institute of Certified Public Accountants).
Within each of these reports, there can also be a Type I or a Type II report. Depending on what kind of data you host for your clients, whether it’s financial or sensitive information, you may need one or the other, or in case you host both, you may need both reports.
SOC 1 Report
If your organization hosts financial data and provides services that may impact how your customers will report their finances, proof of SOC 1 compliance, in the form of an auditing report, will demonstrate a reasonable assurance that your company’s internal control objectives are met. Controls are the policies of mitigating risks, or in other words the activities that companies perform to achieve their control objectives.
When a third-party entity is considering whether to hire your services or not, their internal auditors may require proof of SOC 1 compliance, and your ability to provide it may affect their decision as to whether they should work with you or not. Simply put, your client’s concern is whether they will be able to comply with the financial laws and regulations.
Being able to provide a SOC 1 report to your customers or potential customers, can be a selling point for them. It may also give you an advantage over your competitors, help you improve, help you close a deal, and ultimately even increase your profits, which is why it’s recommendable that you have one before you may need it.
SOC 2 Report
With all the incredible advancements in technology and the endless ways in which they can be used and misused, data security and privacy are among the biggest concerns for companies in today’s world. This is why, when it comes to personal or other types of sensitive information, whether it concerns their business, their employees, or their customers, businesses are willing to spend a lot of resources and time in their efforts to protect it.
So, if your company hosts third-party entities’ sensitive data in the cloud or provides any type of cloud computing services, such as Software as a Service (SaaS), Platforms as a Service (PaaS), or Infrastructure as a Service (IaaS), you should be able to provide your clients and potential clients with a SOC 2 report. Unlike SOC 1 reports, which focus on financial reporting, SOC 2 reports focus on internal controls related to data security.
Even though SOC 2 reports aren’t required by law, you should consider investing in them since it will be proof for your clients that you are a trustworthy service provider. It’s a proactive measure that can help you avoid losing potential clients over data security issues.
Note: SOC 3 report is another option to prove SOC 2 compliance if your goal is to present it to a larger audience.
Type I vs. Type II SOC Reports
Both SOC 1 and SOC 2 reports can be Type I or Type II. In Type I report, the auditor will examine the description and design of controls at a single point of time, while in Type II report, aside from testing the design of controls over a period of time, usually covering a minimum of six months, also examining the effectiveness of the controls over that period. Most clients that require SOC compliance, will prefer a Type II report.
Getting a SOC audit, relevant to the services you provide, is a great investment for companies that host third-party data. Simply put, SOC 1 reports focus on financial data security, and SOC 2 reports on critical data security. It can help them prove that you are trustworthy and that they do everything necessary to protect their clients’ data.