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SOC 1 vs SOC 2 vs SOC 3 - Decoding The Compliances Mystery

Organizations dealing with user data in any form have to adhere to certain compliances. These data compliances ensure that data handling is secure and trustworthy. Customers will be interested to find out what sorts of security measures you’re adopting to keep their data safe. 

SOC has globally recognized security compliance that SaaS or any other kind of business must earn to showcase its strong standing on the security front. SOC 1, SOC 2, and SOC 3 are three classifications of reports to obtain while a business tries to adapt to SOC. 

We present you with an in-depth comparison of these three reports so that you can devise which one is going to work best in your case.

SOC 1 vs SOC 2 vs SOC 3 - Decoding The Compliances Mystery

SOC compliance - A Quick Overview

SOC is a global standard for reports. It deals with providing an auditing report featuring a detailed overview of various operational aspects like data privacy, cybersecurity, integrity, financial controls, and secrecy/confidentiality.

A legal business or organization can gain an edge over its peers through SOC (Service Organization Control) as it’s a sign of the company’s integrity, dependability, and authenticity.

The governing body for this report generation and verification credential is the Certified Public Accountant, which further falls under the administration of AICPA (American Inst. of CPAs). 

Why does a business need a SOC audit?

SOC-adhered audit is extensive but is still considered mandatory for businesses/ventures seeking improved market presence. Obtaining SOC compliance or going through SOC audits gives the concerned organization confidence to pitch big-ticket clients as its mark of transparent operations and ethics is maintained.

If you’re a B2B business, SOC audit will gain you the confidence of customers and prospects, making them feel that they can bank upon you to procure services and facilities that they have to forward to their end-users further. 

For instance, if you are offering a tool useful for the banking industry, going through a SOC audit will help to convince the major players in the banking industry.

SOC audit also allows businesses to spot any potential flaw in its infancy stage. When regular audits are carried out, it’s easy to get a quick overview of key operations and workflows. Any abnormality detected early will prevent major failure in the future.  

SOC 1 vs. SOC 2. vs. SOC 3

Each SOC report type suffices for different purposes. It’s crucial to understand which report will work best ifor your scenario or as per your business processing. This detail will help you aim at the right kind of compliance at the right time that will certainly churn out maximum benefit.  

Let’s talk about the most used reports, i.e. SOC 1 and 2. 

The main distinction between these two is that SOC 1 deals in finance-specific reporting while SOC 2 involves operations & compliance.

SOC 2 & 3 process the same information but display it differently. It’s due to the difference in target users/readers of each. SOC 2 presents the audit finding in a complex way as it’s for stakeholders and top-management levels. On the contrary, SOC 3 is used by the general audience.

Comparison Table

Have a look at this table for better clarity on how all these three reports are diverse.

AimProviding reports on internal control one has over the finance-specific data.Focuses on organizational control reports related to business data usage control, non-public information, secrecy rules, integrity, and so on.Simplifying the data that SOC 2 gathers so that the general public can make sense out of it
Use CaseMedical claim processors and payroll servicesServices using cloud storage solutionsSame as SOC 2
Targeted Audience / ReadersAuditorsManagers and stakeholdersGeneral public

Why become SOC-compliant?

Multiple logical reasons back the practice of acquiring SOC compliance. If you are yet to opt for this procedure and you are confused if it is something beneficial upon adoption in your operations, you must go for it. SOC will add seamlessness to your customer-centric operations.

Every customer will have to perform audits of the services offered and availed. When you’re acquiring SOC reports, you trim down the audit burden of your customers as they don’t have to perform audits individually.  

If you have big enterprises in your clientele, they will not avail of your services if you’re not SOC compliant. They don’t want to waste their resources and workforce on your side of the audit. So, if you want to grab good and big-ticket deals, become SOC compliant today.

SOC compliance

Terminology review

SOC reports of all kinds will feature many technical terms and abbreviations. If you want to leverage the maximum potential of the available information, emphasize on understanding the key terms and what they mean. We present you with a quick overview of key terminologies of SOC compliances.

  • SOC means Service Organization Control.
  • AICPA – the governing body for SOC – is the American Inst. of CPAs.

A few more essential terms are an enlisted:

  • SOC report is the document that AICPA distributes to businesses for applying for SOC compliance. It declares internal controls - the ones that a business has on financial reporting, cybersecurity, and data center.
  • Control in SOC refers to the policy that defines adherence to crucial principles and ignoring redundant events.
  • User entity refers to the company that deploys a service.
  • An auditor is a verified professional that checks and verifies SOC reports for the user entity.  
  • SAS-70 stands for Statement on Auditing Standards. Before the 70th statement was released, every other statement tends to be very confusing. They exist in abundance today.
  • The service organization is the term used for a business/company offering IT services to others. Data centers, SaaS businesses, and managed services fall under this category.
  • SSAE No-16 and SSAE No-18 are what AICPA released to bring clarity on SAS 70. SSAE is the Statement on Standards for Attestation Engagements.

SOC 1 report

SOC 1 is one of the most commonly used SOC reports that aims at the financial statement and reporting for internal control. It’s prepared to present the transparency maintained in finance-related controls and reporting to impress the 3rd party service providers.

Acquiring SOC 1 compliance provides clarity on the financial reporting of an organization that pays well in the long run. With its help, it’s easy to:

  • Provide a guarantee to your client that the data shared, as a part of service delivery, is in safe hand
  • Prove the fact that you’re an organization that regularly updates the key policies and procedure that helps in brand building
  • Promise goal-oriented and high-quality service delivery as you have better control over internal processes and controls.

The key parts or sections of SOC 1 reports are:

  • Opinion letter that presents the auditor’s take on the report. Details like the purpose and scope of the report, testing period, type of auditing done, and findings are summed up in this section.
  • Management’s assertion comes next, and its focus is on explaining the system and its functionality accurately and effectively.  
  • System description describes a system in more detail because it explains what policies, methods, operations and strategies are adopted by the system.
  • Details about Tests of Control and Results of Testing are in the next section, and it deals with declaring the tested control, procedure adapted for testing, and test result.

These sections are part of every SOC 1 report. But, few reports might feature comments or other information sections wherein any added information will be revealed. This section is not mandatory, but it brings more clarity.

When to get it?

SOC 1 is ideal to acquire when the business is already established, and you want to improve your authenticity. You must get it when:

  • Clients are asking for financial audit reporting
  • The organization is going to get involved in extensive public trading
  • You need to obtain further regulations like SOX  

Types of SOC 1 Compliance

This SOC 1 report is further categorized into two types. Type 1 deals with the financial control an organization has at a given timeframe. The second type of SOC 1 report explains how effective the financial control measures were.

Who needs to be audited by SOC 1?

SOC 1 is perfect for anyone related to medical claim processing, payroll, data center organization, loan provider, and any other businesses that handle or keep a record of direct or indirect financial records or data of customers.

SOC 2 report - All About Cloud Security and Data Center Operations

The second SOC report is SOC 2. It’s basically a framework helping businesses of all sorts to showcase their hold over the cloud security & datacenter operations. Cloud adoption is on its all-time rise.

While it was essential for ensuring around-the-clock data accessibility, it also created multiple opportunities for cyber hackers to steal crucial data or modify information present in unsecured cloud space. It came into being when SAS 70 started monitoring the security controls a business will have.

It’s must-have compliance for B2B technology companies or start-ups. If you, in any sense, access/use/store data in the cloud, it’s high time that you should get SOC 2 compliance reports. Reasons are:

  • It will help you showcase yourself as a company/business is concerned and aware of data security 
  • The audit will help you spot any unseen threats that can damage the brand image or market reputation in future 
  • Preventing cyber threats or attacks saves a huge deal of operational costs. If any user data is harmed because of your inability to protect it, you might end up facing a legal battle, which isn’t good in any sense.

What makes SOC 2 compliance and when to get it?

Its core focus is on security, with its foundation being TSC. As per AICPA, Trust Services Criteria (TSC) are explained as under:

  • System’s continual availability 
  • Top-notch integrity for processing - Through timely, precise & authority-driven access
  • Used systems and collected data should be handled or used in a way that it’s safeguarded from all sorts of cyber threats and dangers.  
  • The data - falling under the confidential category - must be sufficiently protected
  • User’s personal data should be read, used, saved, kept, and even disposed of via proper channel and face no data leaks and thefts  

If you’re wondering when is the right time to get an SOC 2 report, then you must understand that it depends on the marketplace. 

If you’re targeting small-ticket customers with limited data accessibility, then you can wait for a while. However, if you aim at a larger customer pool and gather assorted information, you must get a SOC2 report right away. In fact, you will only get enterprise customers with SOC 2 report.

If captured data isn’t related to financial records, you can wait for a while or use another method to protect the user's data, its visibility, and its control.

If you’re a start-up and need immediate compliance, consider relying on SOC 2 Type I compliance as it’s quick and provides substantial proof for the fact that you control your data and operations responsibly.

Its Types

SOC 2 is also classified as Type I and Type II, just as SOC 1. The first kind deals with checking the efficacy and aptness of the design control at a given time, while the second type deal with finding out the viability of selected control over a certain time and what it takes to implement it.

SOC 2 report structure
SOC 2 report structure

Who needs to be audited by SOC 2?

You must go for SOC 2 auditing when you’re an individual or an organization offering services related to cloud storage, data hosting, SaaS product, data processing, and colocation. In addition to this, for businesses that don’t affect the Internal Control over Financial Reporting (ICFR) directly but offer services that are linked with ICFR in any sense, then it’s crucial to be SOC compliant.

SOC 3 report (The SOC 2 with a Simpler Output)

Lastly, we have an SOC 3 report to discuss. This is less frequent as compared to its two other counterparts. The report assures the control a business venture will have over availability, privacy, integrity, and confidentiality.

If assessed at a deeper level, it’s found that SOC3 is everything SOC 2 is. Same/identical data is presented in a more understandable manner so that any general audience can easily refer to it. Hence, SOC 3 is always SOC 2 Type II report.

This report is mainly done for marketing, promotion, and brand building as businesses post the findings of SOC 3 compliances on websites and social media platforms to spread awareness about the perfection and dependability it has earned.

Who needs to be audited by SOC 3?

SOC 3 is a must-have for a cloud services provider. Anyone dealing in IaaS, PaaS, and SaaS cloud services should get a SOC 3 report to make the prospective client understand that you’ve enough control over IT system management, data center colocation, and 3rd party data without any complexity.

SOC report comparison
SOC report comparison

SOC 1 v/s SOC 2 v/s SOC 3 - Which One Is Right For You?

Now that everything about this report-creation compliance is clear, you might be wondering which one is right for you. Honestly speaking, this is something that you only have to figure out. As clear from the above comparison, all these reports have different intentions. But, they all work towards great brand building and market presence. So, you need to figure out what exactly you’re expecting out of the SOC compliance.

Consider this:

  • To enable your customers to understand what impact your services have on their financial reporting, go with SOC 1.  
  • If the aim of being SOC compliant is to take customers in confidence and make them understand that your services are trusted, verified, confidential, and maintain privacy, go for SOC 2.
  • Want to have an easy understanding of SOC 2 for public use? Try SOC 3.  

Gauge your aim first, and then make a choice.



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February 26, 2024
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