Do you need both SOC 1 and SOC 2?

In today's digital age, with the increasing reliance on technology and data, organizations are seeking ways to assure their clients and stakeholders about the security and privacy of their systems and processes. One popular approach is to obtain Service Organization Control (SOC) reports. There are different types of SOC reports, including SOC 1 and SOC 2. In this article, we will explore the differences between SOC 1 and SOC 2, and discuss why organizations might need both.

SOC 1: Focus on Financial Reporting Controls

SOC 1 reports, also known as Service Organization Control Reports for Internal Control over Financial Reporting, are specifically designed to address controls related to financial reporting. These reports are governed by the Statement on Standards for Attestation Engagements (SSAE) No. 18, issued by the American Institute of Certified Public Accountants (AICPA).

Organizations that provide services impacting their clients' financial statements, such as payroll processing or loan servicing, often need to comply with specific regulations and standards. SOC 1 reports help demonstrate the effectiveness of controls in place to protect the integrity and confidentiality of financial information. They provide assurance to clients, auditors, and regulators that the organization has implemented appropriate controls.

SOC 2: Emphasize Trust Services Criteria

On the other hand, SOC 2 reports focus on a broader set of criteria called Trust Services Criteria. These criteria encompass five principles: Security, Availability, Processing Integrity, Confidentiality, and Privacy. SOC 2 reports are more applicable for organizations that provide services involving the processing, storage, and transmission of data, beyond financial reporting.

Organizations that collect sensitive customer information, such as healthcare providers or cloud service providers, often need to demonstrate their commitment to protecting privacy and maintaining secure systems. SOC 2 reports help assess the effectiveness of controls in areas beyond financial reporting, addressing risks related to data privacy, system availability, and confidentiality.

Why Both?

While SOC 1 and SOC 2 reports focus on different aspects of controls, they are not mutually exclusive. Some organizations might find it necessary to obtain both types of reports to address the various needs of their clients and stakeholders.

For example, a company that provides payroll processing services to financial institutions would require a SOC 1 report to assure clients about the accuracy of financial information. Additionally, they might also need a SOC 2 report to demonstrate the security and privacy measures in place to protect sensitive customer data.

Obtaining both SOC 1 and SOC 2 reports can help organizations build trust with stakeholders and differentiate themselves from competitors. The combined assurance from these reports allows clients to have confidence in the organization's financial controls as well as its commitment to protecting data and maintaining a secure environment.

In conclusion, while SOC 1 and SOC 2 reports have different focuses, they serve complementary purposes in assuring the security, integrity, and privacy of systems and processes. Organizations should carefully evaluate their specific requirements and consider obtaining both reports to meet the diverse needs of their clients and stakeholders.