​​Introduction
SOC 2 is a Security Framework that helps demonstrate security processes & controls to ensure data security. Developed by the American Institute of CPAs [AICPA] SOC 2 Reports are important for Organisations that handle sensitive data & want to provide assurance to their customers & stakeholders about the effectiveness of their controls. SOC 2 Report is an independent Audit Report that evaluates an organisation’s information security controls.
There are two types of SOC 2 Reports: Type 1 Report & Type 2 Reports. In this Journal, we will discuss the differences between SOC 2 Type 1 Report vs SOC 2 Type 2 Reports & which Report is best suited for your Organisation’s needs. SOC 2 Type 1 & SOC 2 Type 2 differ in the assessment & monitoring period of the internal controls. SOC 2 Type 1 evaluates the design of the security controls at a point in time, whereas SOC 2 Type 2 reviews the design & operating effectiveness of the controls over a period of 3-12 months.
SOC 2 Reports are based on Trust Service Criteria [TSC], which are a set of five Principles that address Security, Availability, Processing Integrity, Confidentiality & Privacy.
- Security: It has nine (9) Common Criteria [CC], out of which five (5) are compulsory. These are control environment, risk assessment, communication & information, monitoring of control & design & implementation of controls.
- Availability: Possible control to meet this requirement may include Incident Response Planning [IRP] & Distributed Denial of Service [DDoS] protection.
- Confidentiality: You should have internal controls like data encryption, access control & network firewall to meet this criteria.
- Processing integrity: Controls related to Policies & Procedures to maintain operational efficiency & data accuracy. Endpoint security & server safety are important if you work with a Cloud Service Provider [CSP].
- Privacy: Comprises eight (8) controls related to data management, security, use & disposal & more. Possible internal controls to meet this requirement include encryption, two-factor authentication & access control.
SOC 2 Reports are important for Service Organisations that handle sensitive information on behalf of their Clients. These Reports provide assurance to Clients & Stakeholders that their data is being handled in a secure & compliant manner.
SOC 2 Type 1 Report
SOC 2 Type 1 Report is an attestation of controls at a Service Organisation at a specific point in time. It assesses the design of Security Processes & Controls rather than their effectiveness. It provides a snapshot of the controls in place at specific point in time & is typically used to address concerns about Security & Compliance.
The process of obtaining SOC 2 Type 1 Report is that a Service Organisation must engage an independent auditor to perform an examination of their controls. The Auditor will evaluate the design of the controls & provide an opinion on their effectiveness at a specific point in time.
There are also some limitations for SOC 2 Type 1 Reports such that it only assesses the design of the controls & does not evaluate their effectiveness over time. As such, a Service Organisation may need to obtain a SOC Type 2 Report to provide more comprehensive assurance.
Below are the 5 reasons to get Soc 2 Type 1 for your organisation.
- Competitive Edge for Startups
- Shorter Sales Cycle
- Immediate Requirement
- Cost Effective
- Kickstarts Compliance
SOC 2 Type 2 Report
SOC 2 Type 2 Report is an attestation of controls at Service Organisations over a period of time, typically 3-12 months. It assesses the design & effectiveness of security processes & controls. It provides a more comprehensive assessment of the controls in place & is typically used to address concerns about ongoing compliances.
To Obtain SOC 2 Type 2 Report, an organisation must first undergo an Audit by a Certified Public Accountant [CPA]. The CPA will assess the Organisation’s Controls & issue a Report on their operating effectiveness.
SOC 2 Type 2 Reports are more comprehensive than SOC 2 Type 1 Report. They provide assurance on the effectiveness of the controls & are therefore more valuable to customers.
Below are the 5 reasons to get Soc 2 Type 2 for your organisation.
- Competitive Edge for Startups
- Customer Demand
- Regulatory Journey
- Cost Effective
- Securing Your Business
Key Differences between SOC 2 Type 1 VS SOC 2 Type 2 Reports
Coverage Period: The Primary difference between SOC 2 Type 1 vs SOC 2 Type 2 is the coverage period. A SOC 2 Type 1 Report is issued for controls implemented at a specific point in time, whereas a SOC 2 Type 2 Report covers a period of time typically 3-12 months. This means that the Type 2 Report provides a more comprehensive view of the effectiveness of the controls over time, while the Type 1 Report only provides a snapshot of the controls at a specific point in time.
Testing Duration: The Testing Duration is another key difference between SOC 2 Type 1 vs SOC 2 Type 2 Reports. A Type 1 Report only requires one test of the controls, whereas a Type 2 Report requires Multiple Tests over the coverage period. This means that Type 2 Report provides more thorough Testing & Assurance of the effectiveness of the controls.
Testing Frequency: The Frequency of Testing is also different between SOC 2 Type 1 vs SOC 2 Type 2 Reports. Type 1 Report only requires testing of the controls once, whereas Type 2 Report requires testing of the controls on an ongoing basis. This means that the Type 2 Report provides more assurance about the ongoing effectiveness of the controls.
Nature of Testing: The Nature of Testing is also different between SOC 2 Type 1 VS SOC 2 Type 2 Reports. A Type 1 Report only assesses the design of the controls, whereas Type 2 Report assesses both the design & effectiveness of the controls. This means that Type 2 Report provides more comprehensive assurance about the controls in place
Which Report is Right for Your Organization?
The decision between a Type 1 & Type 2 Report depends on various factors including the Level of Assurance required by the customers & stakeholders, Timeframe & any regulatory requirements.
- Timeframe: Consider whether you need to demonstrate the design & implementation of controls at a specific point in time (Type 1) or their effectiveness of Controls over a period of time (Type 2). If you require a longer period of evaluation, a Type 2 Report may be more suitable.
- Assurance Requirements: Evaluate the level of assurance your customers, stakeholders & business partners expect. If they require a more comprehensive assessment of controls, a Type 2 Report may be necessary to provide that assurance.
- Regulatory or Industry Requirements: Some industries such as healthcare or financial services, have specific Compliance Regulations that may mandate the use of certain types of SOC 2 Reports. Ensure you understand any industry-specific requirements before making a decision.
- Customer Demands: Assess the expectations & requests from customers. If they require a Type 2 Report as part of their Due Diligence or Vendor Management Processes it may be necessary to obtain one to meet their requirements.
The Decision between SOC 2 Type 1 vs SOC 2 Type 2 Report can be influenced by industry specific practices & requirements.Here are some examples of both Reports:
Type 1 Report: This Report may be suitable for organisations that:
- Have recently implemented controls & want to demonstrate their design & implementation.
- Want to provide customers with an overview of their control environment.
- Are in early stages of establishing a comprehensive control framework.
Type 2 Report: This Report may be more relevant for organisations operating in industries such as:
- Healthcare: Organisations handling Protected Health Information [PHI] are often required to provide Type 2 Report to demonstrate the effectiveness of their security controls & compliance with HIPAA regulations.
- Financial Services: Companies that handle financial data & transactions may need Type 2 report to showcase the operational effectiveness of their controls in meeting industry-specific standards like Payment Card Industry Data Security Standard [PCI DSS].
- Technology Services: Cloud Service providers, Data centres or Software-as-a-Service [SaaS] providers often obtain Type 2 Reports to assure customers of their Security, Availability & Privacy Controls.
Conclusion
SOC Type 1 Reports evaluate the design of controls related to Security, Availability, processing Integrity, Confidentiality & Privacy at specific point in time. In contrast, SOC 2 Type 2 Report assesses both the design & effectiveness of controls over the period of time, typically 3-12 months.
Choosing the appropriate report depends on several factors including Regulatory Requirements & need for comprehensive assurance about the effectiveness of controls. Organisations should carefully review SOC 2 Report Examples to ensure they align with specific needs & requirements & work with an experienced Auditor to ensure Compliance with the appropriate Standards.
FAQs:
What is the difference between SOC 1 Type 2 & SOC 2 Type 2?
The primary difference between SOC 1 Type 2 & SOC 2 Type 2 Reports is the focus of the Audit. SOC 1 Type 2 Reports focus on the effectiveness of the controls related to financial reporting, whereas SOC 2 Type 2 Reports focus on the effectiveness of controls related to Security, Availability, processing Integrity, Confidentiality & Privacy.
What is the difference between SOC I Type 1 & Type 2?
The difference between SOC 1 Type 1 & Type 2 reports is their coverage period. A SOC 1 Type 1 Report covers a specific point in time, while Type 2 Reports covers a period of time typically 3-12 months.
What does SOC 2 Type 1 mean?
A SOC 2 Type 1 Report assesses the design of the controls related to Security, Availability, processing Integrity, Confidentiality & Privacy at specific point in time.
What to look for in a SOC 2 Report Example?
When reviewing a SOC 2 Report Example, it is important to look for the period covered by the Report, Scope of the Audit, Controls Tested & Auditor’s Opinion on the effectiveness of the controls. It is also important to make sure that the Report aligns with your Organisation’s specific needs & requirements.
