SCALE-UP CONFIDENTLY WITH SOC REPORTING
The early 1990s and 2000s saw software growth as a service (SaaS) and the explosion of Cloud Technology. The expansion of new technologies paved the way for better controls in SOC-1, SOC-2, and finally SOC-3 reporting.
A service organization controls (SOC) report verifies whether an organization follows some specific best practices before outsourcing a business function to that firm. These best practices are related to finances, security, processing integrity, privacy, and availability. The reports, created and validated by third-party auditors, are built to provide independent assurance and guide potential customers/partners to understand any potential risks involved in working with the organization that was evaluated.
The early 1990s and 2000s saw software growth as a service (SaaS) and the explosion of Cloud Technology. The expansion of new technologies paved the way for better controls in SOC-1, SOC-2, and finally SOC-3 reporting.
SOC-1 Reporting:
SOC-1 reports are for controls relating to financial reporting. SOC-1 reports focus on controls related to financial reporting. The most important thing that you can remember about a SOC-1 is that you, as the service provider, are letting the auditor know what is in and out of scope? So you are defining the walls, the barriers of the system that’s in range.
The next important thing is to remember that you have to get together with your auditor and develop the scope of that report. Within SOC-1, you then have two types of reports a type one report and a type two report. Eventually, your customers and prospects will probably want you to get a type two report. It gives more assurance to those customers because a type two report audits your controls over time. A type one report a lot of time is the starting place. The type two report takes it to the next step, where the control environment is audited. The audit might take six to 12 months and checks whether the controls are designed and implemented and operating effectively. It is a lot more invasive and comprehensive. And that’s the report that 99% of clients and prospects are looking to get a SOC to report.
Difference between SOC-1 and SOC-2:
One of the essential designations when discussing the difference between a SOC-1 and Part two is that specificity to customer data. And focusing, SOC-2 focuses on third-party vendors who either store or process customer data.
Any organization going through a SOC-2 will start with the Common and security criteria. The availability criteria are focused on the accessibility of the system. And the focus is really on the protection of data. The areas of focus include access management, change management, network security, and disclosure requirements or communication with your customers based on any incidents within your system during the period and scope. There is also a set of organizational controls focused on how you as an organization manage the team and organization.
So, you’re looking more at performance monitoring, ensuring sufficient backup controls over data, and disaster recovery. Think of it as quality assurance measures. Processing integrity focuses on data delivery, ensuring that you as an organization are processing is complete and accurate for your clients. Confidentiality, the fourth criteria, focuses on how you as an organization restrict data to a specific person, persons organizationally and focuses on more specific access controls, firewall configurations, encryption standards, and policies and procedures requirements around confidentiality. The last is privacy. As you might expect, privacy is focused on how as an organization, you collect, use, distribute, disclose, and then, in theory, retention parameters around personal information, and then to conformity with the AICPA generally accepted privacy principles. So it’s a particular set of criteria defined by the AICPA around privacy controls.
One of the keys to SOC-2 is that the AICPA has defined the requirements that you as an organization must follow. You may not follow every criterion, or every control area might not apply to the organization, but all measurements must be addressed. In contrast, the SOC-1 is based on the one-year defining the scope and objectives based on your services.
Difference between SOC-1, SOC-2 & SOC-3:
SOC-3 is very similar in scope to a SOC-2 report, whereas the property of the biggest differentiator is the end product you’re receiving. A SOC-2 report identical to a SOC-1 has specific restricted use to apply.
A SOC-3 report is a public report; you can put it on your website, distribute it freely, and have no restrictions defined by the AICPA. The report itself is condensed because of that. You don’t have a lot of the details around your control environment and the testing results for each specific requirement as you do within the SOC-2 report. It’s an opinion and assertion and a very high-level description of services.
The clients are looking at operating effectiveness overtime for security or additional criteria within the SOC-2 parameters. Still, the report you then issue is an actual certification, which differentiates from SOC-1 and SOC-2 — which differentiates are audit reports.
The SOC-3 is a formal certification that you can publish on your website and have that seal there for people to see.
Taking a look at your controls and mapping those controls, whether a sock one or a sock two, lets you know what best practices are in the industry. It helps you align your report with your organizational goals with industry regulations and the internal control environments that are best for your practice and organization. If you choose the right partner, you will ensure that you have the best practices for your internal controls in place. And if you do choose the right service provider, they’ll work with you, especially if you have the sock one report to hone the objectives that are going to be going into that report.
It would be best if you got all the education you need going into the sock environment, and essential that you choose a partner that you feel comfortable with. And that can walk you through the process and help you deliver a report, which puts the best face forward for your organization to your clients and prospects. Because at the end of the day, that’s what they’re going to be looking at. That’s what they’re going to be judging.
Go out and make sure that you do your homework, do your research, and choose the best provider for you. And get that report that is the correct one for your organization.
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