SOC 1 vs. SOC 2

Attribute	SOC 1	SOC 2
Focus	Financial Reporting	Security, Availability, Processing Integrity, Confidentiality, Privacy
Applicability	Service Organizations that impact their clients' financial statements	Service Organizations that handle sensitive data or provide services related to security, availability, processing integrity, confidentiality, or privacy
Objective	Report on controls relevant to financial reporting	Report on controls relevant to security, availability, processing integrity, confidentiality, and privacy
Control Criteria	Control Objectives for Information and Related Technologies (COBIT)	AICPA Trust Services Criteria (TSC)
Report Types	SOC 1 Type I, SOC 1 Type II	SOC 2 Type I, SOC 2 Type II
Report Focus	Internal Controls over Financial Reporting (ICFR)	Security, Availability, Processing Integrity, Confidentiality, Privacy controls
Report Usage	Used by user auditors and user entities' management	Used by user auditors, user entities' management, and other stakeholders
Industry Examples	Financial institutions, data centers, payroll processors	Cloud service providers, SaaS companies, data centers, IT service providers

Introduction

When it comes to assessing the controls and security measures implemented by service organizations, two widely recognized standards are SOC 1 and SOC 2. These standards, developed by the American Institute of Certified Public Accountants (AICPA), provide valuable insights into the internal controls and data protection practices of service organizations. While both SOC 1 and SOC 2 focus on controls, they differ in their scope, purpose, and intended audience. In this article, we will explore the attributes of SOC 1 and SOC 2, highlighting their similarities and differences.

SOC 1: Overview

SOC 1, also known as the Statement on Standards for Attestation Engagements No. 18 (SSAE 18), is designed to address the internal controls over financial reporting. It is primarily used by service organizations that impact their clients' financial statements. SOC 1 reports are often requested by user entities' auditors to gain assurance about the effectiveness of controls related to financial reporting.

SOC 1 reports are divided into two types: SOC 1 Type I and SOC 1 Type II. A SOC 1 Type I report provides a snapshot of the service organization's controls at a specific point in time, while a SOC 1 Type II report covers a longer period, typically six to twelve months, and includes an assessment of the controls' operating effectiveness.

The SOC 1 examination is conducted by an independent auditor who evaluates the design and implementation of controls relevant to financial reporting. The auditor assesses the service organization's control environment, risk assessment processes, control activities, information and communication systems, and monitoring activities. The resulting SOC 1 report provides valuable information to user entities and their auditors, helping them understand the controls in place and their impact on financial reporting.

SOC 2: Overview

SOC 2, on the other hand, focuses on the controls related to security, availability, processing integrity, confidentiality, and privacy. It is intended for service organizations that handle sensitive customer data or provide services that impact the security and privacy of client information. SOC 2 reports are often requested by user entities to assess the effectiveness of controls implemented by service organizations in safeguarding their data.

Similar to SOC 1, SOC 2 reports are available in two types: SOC 2 Type I and SOC 2 Type II. A SOC 2 Type I report provides an assessment of the design of controls at a specific point in time, while a SOC 2 Type II report evaluates the operating effectiveness of controls over a period of time, typically six to twelve months.

During a SOC 2 examination, an independent auditor evaluates the service organization's controls related to security, availability, processing integrity, confidentiality, and privacy. This assessment includes an examination of the organization's policies, procedures, and practices to ensure they align with the Trust Services Criteria (TSC) established by the AICPA. The resulting SOC 2 report provides valuable insights into the effectiveness of the service organization's controls and its commitment to protecting client data.

Key Similarities

While SOC 1 and SOC 2 have distinct focuses, they share some common attributes:

• Both SOC 1 and SOC 2 reports are prepared by independent auditors who assess the controls implemented by service organizations.
• Both SOC 1 and SOC 2 reports can be used by user entities and their auditors to gain assurance about the effectiveness of controls.
• Both SOC 1 and SOC 2 reports can be either Type I or Type II, providing different levels of assurance.
• Both SOC 1 and SOC 2 reports are based on the AICPA's attestation standards and require adherence to the relevant Trust Services Criteria.
• Both SOC 1 and SOC 2 reports are valuable tools for service organizations to demonstrate their commitment to internal controls and data protection.

Key Differences

While SOC 1 and SOC 2 share similarities, they also have notable differences:

• SOC 1 focuses on controls related to financial reporting, while SOC 2 focuses on controls related to security, availability, processing integrity, confidentiality, and privacy.
• SOC 1 reports are primarily requested by user entities' auditors to gain assurance about the controls impacting financial reporting, while SOC 2 reports are often requested by user entities to assess the effectiveness of controls in safeguarding their data.
• SOC 1 reports are more relevant for organizations that impact their clients' financial statements, while SOC 2 reports are more relevant for organizations that handle sensitive customer data or provide services impacting data security and privacy.
• SOC 1 reports assess controls at a specific point in time (Type I) or over a period of time (Type II), while SOC 2 reports follow the same assessment approach.
• SOC 1 reports focus on the control environment, risk assessment processes, control activities, information and communication systems, and monitoring activities related to financial reporting, while SOC 2 reports focus on controls related to security, availability, processing integrity, confidentiality, and privacy.

Conclusion

In summary, SOC 1 and SOC 2 are two important standards that provide valuable insights into the controls and security measures implemented by service organizations. While SOC 1 focuses on controls impacting financial reporting, SOC 2 focuses on controls related to security, availability, processing integrity, confidentiality, and privacy. Both SOC 1 and SOC 2 reports are prepared by independent auditors and can be either Type I or Type II, providing different levels of assurance. Understanding the attributes and differences between SOC 1 and SOC 2 is crucial for service organizations and user entities seeking to assess and ensure the effectiveness of controls and data protection practices.