SOC 1 and SOC 2 are designed to provide valuable insights into how an organization manages its internal controls and protects data. While they both evaluate internal controls, they have different focuses. In this article, we'll discuss what sets SOC 1 and SOC 2 apart.
Organizations often use SOC 1 and SOC 2 reports to showcase the effectiveness of their internal controls. Although they both serve the same purpose, they focus on different aspects of control evaluation. What are these aspects? Which one is better?
To provide answers, we've differentiated both security standards (i.e., SOC 1 vs SOC 2) in detail, shedding light on their respective roles in assessing internal controls within organizations. This comparison will help you determine which one to choose for your organization.
So, let's start by understanding what SOC 1 and SOC 2 are.
What Is SOC 1?
SOC 1 stands for system and organization controls 1. Previously known as SSAE 18 and SAS 70, it is an auditing report introduced by the American Institute of Certified Public Accountants (AICPA). It's specifically designed to evaluate an organization's internal security controls to ensure the accuracy of financial reporting.
Besides that, SOC 1 also makes sure that sensitive financial data collected from users (can be employees, clients, or external stakeholders) by service providers is kept secure.
Benefits Of SOC 1
Below are 3 key benefits of having SOC 1 reports:
It helps demonstrate your commitment to delivering precise financial information.
Mitigates the risk of inaccuracies in your financial data, thereby enhancing its reliability.
Minimizes the chances of providing independent auditors with unreliable financial data, thereby reducing the risk of facing legal consequences.
What Is SOC 2?
SOC 2 (system and organization control 2), previously known as SOC 2 attestation report.
It is another report designed by the AICPA to evaluate the security, processing integrity, availability, privacy, and confidentiality of data handled by organizations.
It basically involves a thorough evaluation of the internal controls and processes implemented by organizations to ensure the protection and integrity of users' data.
To provide you with better clarity, here's a breakdown of the five Trust Services Criteria (TSC) that SOC 2 evaluates:
Security: This is the primary focus, ensuring that the data collected from users is securely handled. Measures like access controls, network firewalls, and data encryption are examined to uphold this principle.
Availability: This assesses the reliability and accessibility of the service provider's product. The goal is to minimize any downtime, which could be costly for organizations relying on the service.
Processing Integrity: This principle ensures that the systems processing data operate smoothly and accurately without delays, vulnerabilities, errors, or bugs.
Confidentiality: It ensures that sensitive data remains protected. This is typically achieved through encryption and strict access controls.
Privacy: This focuses on how you handle personally identifiable information (such as names, addresses, or social security numbers) throughout its lifecycle—from when it's first collected until it's properly disposed of.
Also, service providers need to adhere to data usage and privacy policies and the Generally Accepted Privacy Principles (GAPP) while handling such data.
Benefits Of SOC 2
Below are 3 key benefits of having SOC 2 reports:
Strengthens your data security control posture.
Reduces the likelihood of a data breach and prevents the expensive fallout from such incidents (like expenses involved in recovering lost data.).
Establishes and maintains the trust of users by securing their personal information.
After reading the definition and benefits, you may have a brief idea of the difference between SOC 1 and SOC 2. However, to provide you with more clarity, we've compared both reports based on different parameters.
SOC 1 vs SOC 2: Comparison Based On Different Parameters
Below, we have conducted an in-depth comparison of SOC 1 vs SOC 2 based on distinct criteria. This comparison will help you clearly understand what sets them apart.
1: Focus & Scope
SOC 1 is limited to evaluating how an organization implements controls to manage financial reports and ensure the accuracy and security of financial information.
On the other hand, SOC 2 has a broader scope and lays emphasis on assessing how a company enforces controls to manage the security, processing integrity, availability, privacy, and confidentiality of the data gathered from its users.
2: Types Of Reports
Both SOC 1 and SOC 2 have different types of audit reports :
SOC 1 has these two types of reports:
SOC 1 Type 1: This report confirms whether your financial controls are appropriately designed to meet the specific objectives on a particular date.
SOC 1 Type 2: This report contains the same details as Type 1 but also focuses on examining the financial controls' effectiveness over time to ensure they continue to work effectively.
SOC 2 also has 2 types of reports. Although the reports serve a similar purpose to SOC 1 but, they evaluate different aspects of controls:
SOC 2 Type 1: This report examines whether the design of controls related to Trust Service Criteria (TSC) is working properly during a specified period of time.
SOC 2 Type 2: This report evaluates the design and operating effectiveness of controls associated with the TSC.
3: Requester
The SOC 1 report is requested by clients and business partners.
These are the requesters whose financial reports could potentially be affected by the accuracy of the reporting procedures implemented by the organization.
They are interested in understanding how the internal controls impact the financial data that they rely on for decision-making and compliance purposes.
Meanwhile, the SOC 2 report is commonly requested by customers, prospects, and business partners who entrust their sensitive data to the reporting organization.
These stakeholders are concerned about the security, availability, and privacy of their data while it is under the control of the reporting organization.
They want assurance that the reporting organization has implemented controls and safeguards to protect their data against unauthorized access, breaches, or misuse.
4: When To Get It
When you start preparing for auditing, getting a SOC 1 report might slip out of your mind because you will be occupied with deciding which compliance to meet. But timing matters. You don't want to be rushing to get certified when you're about to sign an important contract. So, pay attention to market signals; ideally, aim to have reports in place just before you need them.
Apart from timing, these are the two main reasons that will make the SOC 1 report necessary:
Users Request for Audits: If your users ask for the right to check your processes and controls, you'll need SOC 1 compliance to meet their demands.
Publicly Traded Status: If your business plans to go public, you'll need to comply with various comp regulations, such as the Sarbanes-Oxley (SOX) Act. And SOC 1 compliance will be a big part of meeting these requirements.
In both cases, SOC 1 compliance becomes a top priority to fulfill contractual obligations and comply with regulations.
Meanwhile, the urgency of needing SOC 2 compliance depends on what the market demands. However, if your business deals with or stores non-financial data, you should consider getting a SOC 2 report at some point.
Although frameworks like HIPAA and PCI-DSS don't require SOC 2, many businesses, especially larger ones, might still want to see SOC 2 reports before making a purchase. Why? Because data breaches happen frequently, and they want to ensure you're serious about protecting their data.
Note: Both SOC 2 Type 1 and Type 2 reports matter in these situations.
5: Assessment Duration
The time taken to complete assessments for SOC 1 and SOC 2 certifications can differ.
Which assessment takes less time to complete?
SOC 1 reports are faster to complete, especially if the necessary controls are readily available.
However, SOC 2 assessments typically involve a more thorough examination of policies and processes, which often takes over a minimum period of six months.
Time required to complete the assessment
For SOC 1, the examination normally lasts one to three months for Type 1 reports and nearly six to twelve months for Type 2 reports if controls are in place. If no controls are in place, the audit might take even longer.
On the other hand, for most businesses, completing a SOC 2 Report usually takes six months to a year. SOC 2 Type 1 Reports could take up to six months, while SOC 2 Type 2 Reports often need at least six months and sometimes a year or more.
SOC 1 vs SOC 2: Comparison Table
Here’s an overview SOC 2 vs SOC 1 in tabular format:
Parameters | SOC 1 | SOC 2 |
Goal | To review the internal control practices and systems that impact financial reporting within an organization. | To examine the information security measures of an organization that safeguards its users' data. |
Audit | A third-party auditor will examine the controls affecting how an organization presents its financial data, potentially affecting the financial reporting of external stakeholders. | A third-party auditor will review the controls safeguarding and managing users’ data. |
Requester | SOC 1 reports are requested by clients and business partners. | SOC 2 report is commonly requested by customers, prospects, and business partners whose data is handled by the reporting organization |
Evaluation Time Period | The assessment process lasts 1 to 3 months for Type I reports and six to twelve months for Type II reports if controls are in place. | The assessment process usually takes 6 months to a year. SOC 2 Type 1 reports could take up to 6 months, while SOC 2 Type 2 reports need at least 6 months and at times a year or more. |
After going through the comparison, you may have a question about which report to get for your organization. To help you find the answer, here’s what you need to consider before making your decision.
Which One To Choose?
Every organization operates differently and has its own set of practices. So, when it comes to choosing between SOC 2 vs SOC 1 reports, it's important to pick the right one that shows the organization's compliance commitments.
To help you understand which organizations need SOC 1 and SOC 2 reports, we've listed below a few of the firm's types:
Who needs SOC 1 reports?
SOC 1 reports focus on financial reporting and auditing processes to ensure the reliable management of financial records. They are expected from the following types of organizations:
Publicly traded corporations
Business intelligence consulting firms
Payroll processing firms
Loan servicing companies
Financial advisors
Medical claims processing firms
Data centers
In short, a SOC 1 report is necessary if your organization's services could impact the financial data of your business partners or other stakeholders.
Who needs SOC 2 reports?
Ensuring data security is crucial for most organizations. However, if your security measures could affect your users' data, obtaining a SOC 2 report becomes necessary.
Organizations that require a SOC 2 report include:
SaaS companies
Data centers and providers of cloud storage services
Organizations engaged in data hosting and processing
Managed IT service providers
So, in short, if you handle users' data and pose any potential risk to them in the event of a data breach, getting a SOC 2 report is essential.
If your organization fits into any of these categories, you can select the appropriate report to showcase the effectiveness of your internal controls.
SOC 1 & SOC 2: Mandatory Reports To Display Internal Control Effectiveness
In conclusion, obtaining SOC 1 and SOC 2 reports is not just a regulatory necessity but signifies a dedication to effectively managing internal controls within organizations. Whether it's ensuring the accuracy of financial information or safeguarding user data security, these reports are essential to verify that internal controls are operating effectively to protect them.
However, having an access review platform is a must to ensure there are no errors and deficiencies during the review process. One such innovative solution that can be very helpful is Zluri. How does it help? Here's how.
Automates Access Review Process
Zluri offers an access review solution that automates the access review process. How does it do that? It enables your IT teams to create workflows that allow them to evaluate access rights (who has access to what) with just a few clicks. This automation helps reduce the likelihood of inaccuracies while reviewing user rights and saves time.
Safeguards Crucial data
While reviewing employees' access rights, Zluri's access review ensures no one holds unnecessary access to sensitive data. If anyone does, it triggers actions and runs the deprovisioning playbook and access modification playbook. This helps ensure that only the right users gain access to apps and data, thereby protecting sensitive data from security breaches and unauthorized access.
Strengthens Controls
To strengthen the organization's access controls and security posture, it enables teams to implement access policies such as Segregation of Duties (SoD) to ensure data integrity, which also acts as a strategic step to meet regulatory requirements.
Helps Meet Compliance
By conducting assessments, organizations can also meet other mandatory regulations requirements like HIPAA, SOC 1 and 2, SOX, and ISO 27001.
That's not all. To provide external auditors and stakeholders with proof of the effectiveness of internal controls and compliance adherence, Zluri documents the entire audit process and generates curated UAR reports.
These reports prove that the implemented access controls are effective enough to safeguard sensitive data and that all the requirements stated by compliance regulations are fulfilled without fail. Basically, these reports provide transparency in the reviewing journey.
To learn more about Zluri's access review, book a demo now.
