Service Organizations: SOC 1 vs SOC 2
A SOC (System and Organization Controls) engagement is an examination and reporting of controls at a service organization conducted by an independent auditor. There are two primary types of SOC engagements: SOC 1 and SOC 2, each designed for different purposes and with different focus areas.
- SOC 1: A SOC 1 engagement focuses on the service organization’s internal controls over financial reporting (ICFR). This type of engagement is performed in accordance with the Statement on Standards for Attestation Engagements (SSAE) No. 18, or the International Standard on Assurance Engagements (ISAE) 3402 if it is an international engagement. The primary users of a SOC 1 report are the user entities’ (service organization’s customers) management, auditors, and other stakeholders who need to understand the service organization’s controls related to financial reporting.
There are two types of SOC 1 reports:
- Type 1: Reports on the design and implementation of controls at a specific point in time.
- Type 2: Reports on the design, implementation, and operating effectiveness of controls over a specified period, usually 6 or 12 months.
- SOC 2: A SOC 2 engagement focuses on a service organization’s controls related to the Trust Services Criteria (TSC), which cover security, availability, processing integrity, confidentiality, and privacy. This type of engagement is not limited to financial reporting but is more concerned with the service organization’s overall control environment related to IT systems, data, and services provided to user entities. The primary users of a SOC 2 report are the user entities’ management, auditors, regulators, and other stakeholders who need assurance on the service organization’s controls related to the TSC.
Similar to SOC 1, there are two types of SOC 2 reports:
- Type 1: Reports on the design and implementation of controls at a specific point in time.
- Type 2: Reports on the design, implementation, and operating effectiveness of controls over a specified period, usually 6 or 12 months.
In summary, the main differences between SOC 1 and SOC 2 engagements are:
- Focus: SOC 1 focuses on controls relevant to financial reporting, while SOC 2 focuses on controls related to the Trust Services Criteria (security, availability, processing integrity, confidentiality, and privacy).
- Purpose: SOC 1 is designed to provide assurance on the service organization’s ICFR, while SOC 2 is designed to provide assurance on the service organization’s overall control environment related to IT systems, data, and services.
- Primary users: SOC 1 reports are mainly intended for user entities’ management, auditors, and stakeholders concerned with financial reporting, while SOC 2 reports are intended for a broader audience, including management, auditors, regulators, and other stakeholders who need assurance on the service organization’s controls related to the TSC.
