What is SOC Compliance?
What is a SOC report? If you are an entity that provides services for other companies, then that’s a question to which you should know the answer. SOC is shorthand for “System and Organization Controls.” These were previously known as Service Organizational Control reports. SOC refers to a suite of reports from the AICPA, or the American Institute of Certified Public Accountants. They are reports that CPA firms can issue in connection with the system-level controls at a service organization.
Why do You Need to Know About SOC Reports?
Now, you may be asking, “why do I need to know about SOC compliance?” The reason is that it’s not uncommon for businesses to get asked for one. Whether you are SOC compliant ties directly into the question of whether your company is trustworthy and operating above board.
If you’re SOC compliant, that makes it more likely that various entities will want to do business with you. Investors will take you seriously. If you are operating in ignorance of SOC compliance, then it’s probably going to be an issue for you at some point.
Bearing that in mind, let’s take a look at the most common sorts of SOC compliance reports that it is useful for you to have on file to show if need be.
SOC 1 vs SOC 2 vs SOC 3 Reports
There are SOC reports that get the designation 1,2, and 3. Let’s start with SOC 1.
A SOC 1 report is connected to the internal controls relevant to the audit of the financial statements for a service organization’s clients. The entities that are most likely to ask to see a SOC 1 report are compliance officers, financial executives at a user organization, or financial auditors of that same organization. These reports will indicate if there are any irregularities in the way your business is being run.
A SOC 2 report, meanwhile, addresses a service organization’s controls having to do with their compliance. Those controls must adhere to rules that have been laid out by the AICPA’s Trust Services Criteria. In a SOC 2 report, you might expect to see a detailed breakdown of how your business handles such things as privacy, confidentiality, processing integrity, general security, and availability.
A SOC 3 report isn’t something that is asked for with anywhere near the frequency of the first two. It outlines information related to a service organization’s internal controls for the same things as a SOC 2 report. However, the SOC 3 is intended for a general audience. Because of that, there might be certain portions that could be redacted or sensitive information that might be held back.
When You Might Be Asked for a SOC 1 and 2 Report
Certain situations might arise where you’ll be called upon to provide both a SOC 1 and 2 report. The most likely scenario is that you are a company which offers a wide range of services having to do with multiple industries. The more diversified your business, the better the chances that someone is going to ask for either or both of these reports at some juncture.
Someone in the area of vender compliance might ask for a copy of one of these reports. You also might get someone who is conducting an internal audit who wants to see them. Your IT management or legal department might have a vested interest in looking at them. The chances are just as likely that you’ll have an internal need for one of these reports as someone from outside your organization asking for one.
The Benefits of Having SOC Reports for Your Company
As for the benefits of getting these reports done, there are many. In trying to determine whether it might be worth it to get a SOC 1 or 2 report for your company, ask yourself the following questions.
In the immediate future, are you aware of any entity that is going to want to know the details of tests for operating controls for systems that you have completed? If you don’t have a SOC 1 report yet, is there some other way that you can establish that your controls are being sufficiently and thoroughly tested?
It makes sense to get a SOC 1 and 2 report done even before an external or internal entity asks for them. That is because they’re an official way of declaring that your processes are running at maximum efficiency and you have nothing to hide.
Service organizations retain responsibility for the services that they provide. Wherever sensitive data is involved, it is incumbent upon you to protect confidentiality and have secure protocols in place.
Having these reports handy removes all doubt that you’re running your business in a haphazard fashion. You’re much more likely to attract highly-qualified employees and a diverse group of potential clients and customers if you can produce these reports when called upon to do so.