What is SOC 2?
SOC 2 (System and Organization Controls) reports play a vital role in demonstrating an organization's compliance with the Trust Services Criteria (TSC) established by the American Institute of Certified Public Accountants (AICPA). These reports assure clients and stakeholders that the organization has implemented adequate controls to safeguard the Security, Availability, Confidentiality, Processing Integrity, and Privacy of their systems and data.
The SOC reports are issued subsequent to independent audits conducted by Certified Public Accounting Firms (CPA) under the governance of the AICPA. They establish a reliable level of risk management when engaging with customers, prospects, and vendors. These reports evaluate system-level controls implemented by service organizations, including data centers and managed service providers, to ensure reliable and secure business partnerships.
Why Should You Get a SOC 2 Report?
Organizations should consider pursuing SOC 1 if their services directly impact their clients' financial reporting. For instance, if an organization develops software that processes billing and collections data on behalf of clients, it directly affects their financial reporting. In such instances, acquiring a SOC 1 report is appropriate. Additionally, compliance requirements may also necessitate the pursuit of SOC 1. For instance, publicly traded companies need to comply with SOC 1 as part of the Sarbanes-Oxley Act (SOX).
On the other hand, for organizations that offer services or manage client data, especially sensitive information, and if their primary need is to showcase security assurance to their clients, it is recommended to undergo a SOC 2 audit conducted by an accredited assessor. This audit serves multiple purposes, including evaluating the organization's security posture, assessing the effectiveness of its security framework, and control implementation.
Choosing between SOC 1 and SOC 2 depends on the organization's circumstances. An essential factor to consider is whether the organization's controls would impact the client's internal control over financial reporting. Engaging with an audit firm can help determine the appropriate SOC type, that aligns with the organization's needs and requirements.