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SOC 1 vs. SOC 2: Which Report You Need and Why
Many people scour the internet using the search term “SOC 1 vs. SOC 2 reports” when trying to understand compliance requirements for service organizations. To clarify, what is a SOC 1 and SOC 2 report? Broadly speaking, the difference between SOC1 and SOC2 lies in their focus areas and control objectives. SOC 1 Reports are designed for financial statement audits and focus on internal controls related to financial reporting. SOC 2 Reports are designed to evaluate a service organization's controls over non-financial information, such as data security, privacy, and confidentiality.
Key Differences Between SOC 1 and SOC 2
Understanding SOC 1 versus SOC 2 is critical for technology-based service organizations, cloud service providers, and HR management services. A SOC 1 report addresses financial controls, focusing on the design and operating effectiveness of service organization’s internal controls that impact a user entity’s financial statements. In contrast, a SOC 2 report examines trust services criteria—security, availability, confidentiality, privacy, and processing integrity—to ensure appropriate organization controls over customer data and information security.
The difference between SOC1 and SOC2 also extends to their use cases. SOC 1 is typically required when a company’s systems influence clients financial reporting, such as financial reporting software or financial operations systems. SOC 2 applies to a broader range of industries where demonstrating strong security controls, risk management processes, and data protection are key to regulatory compliance.
SOC 1 vs SOC 2 Audit Scope
A SOC 1 vs SOC 2 audit is performed to provide independent assurance of a service organization’s compliance status. External auditors assess whether appropriate controls are in place and operating effectively. A SOC 1 audit evaluates key control objectives related to financial reporting, while a SOC 2 audit measures a company’s information technology processes and adherence to the AICPA’s trust services criteria. Both a SOC audit performed for financial statements and a SOC 2 audit for organization’s security controls help service providers demonstrate compliance and provide digital assurance to their customers.
SOC 2 Deep Dive
However, it’s likely that if you’re searching “SOC 1 vs. SOC 2,” you are actually looking for the difference between the two types of SOC 2 Reports (i.e., “SOC 2 Type 1 vs. SOC 2 Type 2”). Because of this likelihood, we'll focus primarily on SOC 2 reports in this article, which is the second entry in Penti Knowledge Base Series.
SOC 2 reports assess compliance with the five Trust Services Criteria, namely: security, availability, processing integrity, confidentiality, and privacy. Every organization must comply with the first criterion, security, while compliance with the remaining criteria are dependent on how a business uses and processes data (You can learn more about choosing an appropriate framework in our partner Vanta's Trust Services Criteria Guide
There are two types of SOC 2 Reports that an organization may need: a Type 1 Report and a Type 2 Report. Both types assess how an organization aligns with the security controls and policies required by SOC 2, but the differences are as follows:
- SOC 2 Type 1 Reports measure an organization’s compliance at a single point in time.
- SOC 2 Type 2 Reports demonstrate ongoing compliance with SOC 2 controls; certification can only be granted after a 6-month observation period.
Choosing the right report will likely depend on the client (or partner) who has requested a report from your organization. However, many organizations begin with a Type 1 report and then enter the observation period for a Type 2 report. Proactive organizations do not wait for potential business to hinge on the completion of a SOC 2 Report, because doing so can stall sales cycles and result in lost business.
When Should I Get SOC 2 Certified?
In 2023, the average cost of a data breach in the United States was 9.48 million dollars, nearly twice the global average. Many companies — especially SMB's — are unprepared for cybersecurity attacks and find themselves in reactive positions regarding compliance when security issues inevitably occur. This lack of preparedness is usually attributed to a lack of resources or ignorance regarding cybersecurity posture. (For example, as of 2022, only 50% of SMB's had any formal cybersecurity plan, and some small businesses erroneously believed they were "too small to be a target." But regardless of whether a company has 5 employees or 500, the absence of cybersecurity measures not only makes the company more vulnerable to attack, the would-be attackers can succeed at a much higher speed and level of efficiency .
There is no excuse for a lack of compliance, especially now that the SEC has put forth a series of rules regarding cybersecurity risk management for publicly traded as well as private organizations. Additionally, many potential customers now require SOC 2 certification from vendors because 98% of businesses have a vendor that has been compromised within the last two years. Vendors should follow their own security protocols to reduce risk and protect themselves from malicious attacks that could also harm their clients.
It is best to get SOC 2 certified before you are faced with losing business opportunities due to lack of certification, or worse, before your own systems are compromised because of unprotected vulnerabilities in your cybersecurity posture. Becoming compliant ensures that your organization has taken the necessary precautions to protect its systems and data from unauthorized access.
How Long Does It Take to Get Certified?
The time required to become SOC 2 certified depends on several factors, including:
- The quality of controls already in place
- The type of report you are seeking (Type 1 or Type 2)
- Your team's expertise, availability, and resources
Organizations that take a "do-it-yourself" approach to compliance may spend up to 12 months (or longer) preparing themselves for an audit. A readiness assessment can help identify related control objectives and gaps in service organization’s controls relevant to compliance.Penti specializes in jump-starting your compliance journey and getting you to an audit-ready state in 1-to-3 months. If you want your compliance journey simplified and expedited, be sure to book a call with us It’s important to estimate and budget for both becoming compliant and the ongoing maintenance of your certification. Here are some costs to consider:* Compliance software* Security tools and services* Penetration tests* Engineers to remediate issues* Administrative cost of drafting new policies* Background checks for new employeesMany of the above costs can be bundled by providers (like Penti and can save as much as 50% of your budget as compared to utilizing multiple vendors. But regardless of the cybersecurity strategy you choose, it is the ethical responsibility of every organization to prioritize security. It is vital to protect your data as well as your customer's data. Not doing so can result in significant losses that could damage your reputation, your customers, and your business. Achieving and maintaining SOC 2 compliance can send a clear message that security is a pillar of your organization and that you are a trustworthy company.
FAQ
What are SOC 1 and SOC 2 reports?
SOC 1 reports focus on financial focus and internal controls affecting a user entity’s financial statements, while SOC 2 reports evaluate service organization’s controls over security, privacy, and processing integrity.
What is the difference between SOC 1 and SOC 2?
The key differences include the control objectives: SOC 1 targets financial reporting and related control objectives, while SOC 2 addresses information security, availability, confidentiality, and data protection.
Do you need both SOC 1 and SOC 2?
Some companies, especially those providing financial reporting software or processing sensitive data, need both a SOC 1 and SOC 2 report to satisfy customers, meet regulatory compliance, and provide independent assurance.
What is a SOC 1 report used for?
A SOC 1 report provides an attestation report on controls impacting user entities’ financial statements, ensuring trust in financial operations and supporting external auditors’ opinions.
What are the 5 criteria for SOC 2?
The criteria include security, availability, confidentiality, privacy, and processing integrity, all of which safeguard customer data and maintain a company’s compliance status.
What is the difference between Type 1 and Type 2 reports?
A Type 1 report examines the design of controls at a specified date, while a Type 2 report verifies their operating effectiveness over a specified period.
