Businesses like yours that handle financial data, manage transaction processing, or store sensitive customer data face growing pressure to prove their safeguards are strong. Some clients may require proof that you have robust controls to protect their financial statements. Others might examine your broader data protection measures and your company’s general information security posture.
System and Organization Controls (SOC) reports provide a standardized method for companies to demonstrate they are serious about data security, privacy, and meeting compliance standards. However, SOC reports are not one-size-fits-all and can vary in scope and focus depending on the type of report. This guide will help you choose the appropriate SOC report, so you can respond confidently to due diligence requests and strengthen your internal systems.
What are SOC reports?
A SOC report is an independent assessment performed by certified public accountants to evaluate a service organization’s controls. Its objective is to provide stakeholders with confidence that designated organizational controls are not only well conceived but also functioning effectively.
A service organization may include payroll processors, accounting firms, cloud service providers, and managed IT services providers that handle customer data or process its clients’ financial statements. A SOC audit evaluates how well a company has structured its internal controls, how those controls support compliance, and how well they function consistently over time. The final report includes an auditor’s opinion, outlining whether the controls operated effectively.
SOC 1: Focused on financial reporting
SOC 1 is an audit that reviews the controls a service organization uses to support its clients’ financial reporting. It focuses on things such as making sure transactions are accurate, systems are calculating correctly, and reports are reliable. This guarantees that the financial information provided to clients is trustworthy and error-free.
The primary purpose of SOC 1 is to assess financial reporting controls, related control objectives, and supporting data processing activities.
SOC 1 reports come in two formats:
- Type I: Reviews the design of controls at a specific point in time
- Type II: Evaluates both design and operating effectiveness of controls over a defined period, usually 6–12 months
Who SOC 1 is designed for
When a service organization handles payroll processing, payment processing, benefits administration, or other financial processes, its systems can influence a user entity’s financial statements. In those cases, clients and their auditors request a SOC 1 report to review the provider’s financial reporting controls and confirm that relevant internal controls support financial reporting accuracy.
In short, SOC 1 is for companies and auditors concerned with how a vendor’s systems may impact financial reporting, rather than broader data security or privacy concerns.
Controls typically used to achieve compliance
Common SOC 1 controls include transaction approvals, reconciliations, system validation checks, segregation of duties, and review procedures tied to financial reporting processes. These service organizations’ internal controls maintain financial reporting accuracy and reduce the risk of material misstatements.
Documentation
SOC 1 requires clear documentation of workflows, policies, and internal processes tied to transaction processing. Each control must connect to defined control objectives, showing how the organization protects the integrity of financial data.
Auditing
A licensed CPA firm conducts the SOC audit, examining whether effective internal controls exist and whether they align with risks that could impact financial reporting.
Testing insights
In a Type II engagement, auditors test samples of transactions to verify whether the company’s controls are functional during the review period. The findings highlight strengths, gaps, and areas where additional safeguards may be needed.
Access to the public
SOC 1 reports are restricted-use documents. They are shared only with relevant parties, often under a non-disclosure agreement due to the sensitive nature of clients’ financial statements.
SOC 2: Centered on data security and trust
A SOC 2 report measures how well an organization manages data security, processing integrity, and broader data protection practices. Businesses that store or transmit sensitive customer data, especially cloud providers, need SOC 2 reports to reassure business partners and prospective customers that their information is protected.
Like SOC 1, SOC 2 engagements also come in two forms:
- Type I: Reviews the design of an organization’s security controls at a point in time
- Type II: Assesses both the design and operational effectiveness of a company’s security controls over several months to determine the consistency of their implementation
Who SOC 2 is intended for
SOC 2 reports are intended for organizations and stakeholders concerned with how a company protects and manages client data. The primary audience includes customers, prospective customers, business partners, and vendor risk teams that want assurance around data security, data privacy, and system performance.
Technology companies, Software-as-a-Service providers, cloud service providers, and other IT service providers often pursue SOC 2 because they store or process sensitive customer data. Clients reviewing these vendors are less focused on financial reporting and more concerned with how the organization safeguards information under the trust services criteria, including security, availability, and processing integrity.
Identifying risks
SOC 2 requires organizations to document risk management processes tied to information security, data privacy, and system access. Consider a cloud-based payroll provider storing employee banking details. Without strong access controls and monitoring tools, unauthorized entry could compromise thousands of records. SOC 2 pushes companies to identify those risks and implement controls that actively protect data.
Focus on the trust services criteria
The core of SOC 2 revolves around the trust services criteria. These criteria examine availability, processing integrity, and confidentiality, emphasizing system reliability, secure infrastructure, and safeguards around data processing.
Organizations typically strengthen each trust service criterion in the following ways:
- Security: Protect systems through advanced threat protection, data loss prevention, strong access controls, continuous monitoring, and documented risk management processes tied to overall information security.
- Availability: Support consistent uptime by maintaining redundant infrastructure, tested disaster recovery plans, performance monitoring, and clear service level commitments that reinforce system reliability.
- Processing integrity: Promote accurate and complete transaction processing by validating inputs and outputs, automating error detection, and reviewing workflows that support reliable data processing results.
- Confidentiality: Restrict exposure of sensitive information through end-to-end encryption, role-based permissions, secure transfer protocols, and ongoing oversight of how client data is accessed and shared.
- Privacy: Establish strong data protection practices by defining policies for collecting, storing, and disposing of sensitive customer data, aligning procedures with regulatory requirements, and maintaining transparency in data privacy management.
Conducting readiness checks and documentation
Before undergoing a formal review, many companies perform readiness assessments led by internal compliance teams or a certified information systems auditor. This step aligns policies, strengthens data security controls, and improves documentation across business processes and vendor management programs.
Access to the public
Unlike SOC 1, SOC 2 reports can be shared with potential customers under controlled conditions. Many organizations provide summary versions during sales discussions to demonstrate their SOC compliance and strong data protection standards.
SOC vs. SOC 2: Key differences
The primary key differences between SOC 1 and SOC 2 come down to scope and requirements:
| SOC 1 Centers on controls relevant to financial reporting and clients’ financial statementsSupports audit reliance for financial statementsRequires documented financial reporting controls, segregation of duties, reconciliations, approval workflows, and oversight procedures that support accurate transaction processing and overall financial reporting accuracy | SOC 2 Focuses on an organization’s security, data security controls, and overall operational controls tied to protecting informationSupports trust and confidence in data protection practicesRequires formal access controls, encryption standards, monitoring systems, incident response plans, and structured risk management processes aligned with the trust services criteria, including processing integrity, confidentiality, and availability |
Why SOC reports matter to your business
Customers want proof that your service organization’s controls work. Strong SOC compliance strengthens your reputation, reduces supply chain risks, and supports better vendor management. Also, many contracts now require an appropriate SOC report before signing agreements.
Organizations that proactively complete a SOC engagement show commitment to effective internal controls, strong organizational security controls, and reliable financial reporting processes. That commitment builds long-term trust.
Implement the appropriate SOC controls today
Understanding the differences between SOC 1 and SOC 2 is just the first step. Implementing effective controls is what makes that knowledge meaningful.If your organization needs help preparing for a SOC audit, identifying gaps in security controls, or improving data protection practices, contact Integrated Computer Services today. Our team will guide you through the compliance process, strengthen your systems, and position your business for growth with confidence.