What is an SOC Report? And Does your Organization Need One?

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Data breaches are constantly evolving and growing in frequency.

Each year, around 83% of organisations experience more than one breach. 

For businesses, this means prioritizing and maintaining customer trust.

SOC reports provide a way for organizations to demonstrate that they have adequate security controls and the ability to manage potential risks effectively.

They assure customers and stakeholders that their sensitive data is protected against unauthorized access and other security threats.

In this blog post, we'll delve into what SOC reports are, the different types of SOC reports available, and the steps to obtain one.

What is an SOC report?

📚 Quick definition: A System and Organization Controls report is a third-party audit report that that provides a detailed review of a service organization's controls and processes.

SOC reports help organizations prove to their customers and stakeholders that they have effective measures in place to protect data, ensure security, and comply with regulations.

SOC reports are prepared in accordance with the standards set by the American Institute of Certified Public Accountants (AICPA).

Some prospective client may ask that your organization get an SOC report as a requirement for working with you...

And some service organizations will have SOC reports ready to attract potential customers.

This is actually fairly common among user entities - its just a means of checking that your security measures meet their own requirements.

*A user entity are organization that outsources to or partners with a service organization.

Purpose of an SOC report

Transparency and trust: An SOC report provides an independent verification of your organization’s control environment - so you can build trust with clients, stakeholders, and partners.

Client assurance: An SOC report reassures clients that their data is handled securely and that your organization protects their data.

Due diligence: For some potential clients or partners, your SOC report will serves as part of their due diligence process, used to evaluate the risks associated with outsourcing services to your organization.

Regulatory compliance: SOC reports help you demonstrate compliance with regulatory requirements and industry standards, which is essential for avoiding legal and financial penalties.

Market differentiation: Having an SOC report can differentiate your organization in the marketplace, showcasing your commitment to security and control, which can be a competitive advantage in attracting and retaining clients.

Organizations that typically need SOC reports

  • SaaS providers: Offer cloud-based software solutions.
  • IaaS and PaaS providers: Infrastructure and platform services hosted in the cloud.
  • Data centers: Provide hosting services for client data and applications.
  • Managed service providers (MSPs): Offer managed IT services and support.
  • Banks and credit unions: Handle sensitive financial information and transactions.
  • Payment processors: Facilitate credit card and other electronic payment methods.
  • Investment firms: Manage client investments and sensitive financial data.
  • Insurance companies: Process claims and manage policyholder information.
  • Healthcare providers: Hospitals, clinics, and other healthcare institutions handling patient data.
  • Pharmaceutical companies: Manage clinical trials and patient data.
  • Medical billing services: Handle the billing processes for healthcare providers.
  • E-commerce platforms: Manage online sales and customer data.
  • Payment gateways: Process payments for e-commerce transactions.
  • Retail chains: Handle large volumes of customer data and transactions.
  • Legal firms: Manage sensitive client information.
  • Consulting firms: Provide advice and services across various industries.

*Here at Hoxhunt, we help millions of employees protect themselves from cyberattacks... and as such we hold ourselves to industry-leading privacy and security standards. Our SOC Type 2 and SOC 3 are available to view here.

Types of SOC reports

SOC reports are divided into three main categories: SOC 1, SOC 2, and SOC 3.

Each type serves a unique function and targets different aspects of your organization's controls.

SOC 1

SOC 1 reports focus on the controls that are relevant to user entities' financial reporting.

These reports are primarily used by auditors and stakeholders who need assurance about the accuracy and integrity of financial statements.

SOC 1 reports come in two forms:

  • Type I: This report evaluates the design of controls at a specific point in time. It assesses whether the controls are suitably designed to achieve their objectives.
  • Type II: This report weighs up the operating effectiveness of the controls over a period of time (typically six months to a year). It provides a more comprehensive view by testing the controls' functionality and effectiveness throughout the specified period.

SOC 2

SOC 2 reports address the controls relevant to operations and compliance, specifically focusing on the five Trust Services Criteria: security, availability, processing integrity, confidentiality, and privacy.

These reports are crucial if your organization handles sensitive data and needs to demonstrate commitment to security practices.

Similar to SOC 1, SOC 2 reports are also issued in two types:

  • Type I: This report evaluates the design of controls at a specific point in time. It provides assurance that the controls are suitably designed to meet the criteria.
  • Type II: This report evaluates the operating effectiveness of the controls over a period of time, providing evidence that the controls are functioning as intended and meeting the Trust Services Criteria consistently.

SOC 3

SOC 3 reports are designed for a general audience and provide a high-level overview of the controls related to the five Trust Services Criteria.

SOC 3 reports are the only reports intended for public distribution.

They do not contain detailed descriptions or testing of internal controls, making them suitable for marketing purposes and demonstrating your commitment to security and compliance without disclosing sensitive information.

SOC 3 reports are often used to provide assurance to customers and other stakeholders that robust control practices are in place.

What does it cover? Who needs one? Use cases
SOC 1 Internal controls for financial statements and reporting Organizations providing a service that may impact a client's financial statement Financial service providers, payroll providers, third-party administrators
SOC 2 Internal controls for security, confidentiality, privacy and availability of customer data Organizations that store, process or pass on data Saas companies, data centres, managed services, cloud storage services
SOC 3 Same as SOC 2, but suitible for general audience Organizations that need an SOC 2 report and want to share compliance results for marketing purposes Tech companies, e-commerce platforms, marketing agencies

Why do SOC reports matter?

SOC reports are essential for ensuring that your organization maintains effective controls over financial reporting, data security, and privacy.

They provide third-party assurance to stakeholders - whether they be clients, auditors or regulators.

An SOC report will show that you've implemented sufficient internal controls and that these controls are operating effectively.

Trust and credibility

Real-life example: Dropbox, a leading cloud storage provider, uses SOC 2 reports to demonstrate its commitment to security, availability, and confidentiality.

By obtaining a SOC 2 report, Dropbox can assure its users that their data is stored securely and is always available when needed.

Mitigating risk and compliance

Real-life example: Paychex, a major payroll processing company, obtains SOC 1 reports to assure its clients that it handles financial data accurately and securely.

This is necessary for compliance with regulations like the Sarbanes-Oxley Act (SOX), which requires public companies to have internal controls over financial reporting.

Paychex’s SOC 1 report helps mitigate risk by providing evidence that it meets stringent financial reporting standards.

Facilitating business growth

Real-life example: AWS (Amazon Web Services) uses SOC 1, SOC 2, and SOC 3 reports to provide assurance to a wide range of clients across different industries.

These reports enable AWS to attract and retain customers by meeting their compliance needs and providing a secure environment for their operations.

AWS’s SOC 2 report, for example, covers the security, availability, and confidentiality of its services.

Competitive advantage

Real-life example: Salesforce, a leading CRM platform, leverages its SOC 2 reports to stand out in the competitive SaaS market.

By showcasing their commitment to security and data privacy through these reports, Salesforce can set itself apart from competitors who may not have the same level of transparency and assurance.

📊 A few key stats

  • According to a survey by Schellman, companies with SOC 2 reports reported a 20% increase in sales and a 15% improvement in customer retention.
  • A study by Cybsafe found that organizations with comprehensive SOC 2 compliance experienced 50% fewer data breaches than those without​.
  • A survey by Deloitte revealed that companies utilizing SOC 1 reports for SOX compliance can reduce the time spent on audits by up to 30%.

Do YOU need an SOC report?

What are your customers' requirements?

Many clients, especially in regulated industries such as finance, healthcare, and government, require their service providers to have SOC reports to ensure that their data is being handled securely and in compliance with relevant standards​.

What are your organization's regulatory and compliance needs?

If your organization is subject to regulations like the Sarbanes-Oxley Act (SOX), Health Insurance Portability and Accountability Act (HIPAA), you might need SOC reports to demonstrate that you have effective controls in place over financial reporting, data security, and privacy.

Do you provide third-party services?

If you provide outsourced services (cloud computing, data hosting, IT management etc), there's a strong possibility you'll need SOC reports to prove that you have appropriate security and operational controls.

SOC reports can be a must-have for maintaining trust with clients who rely on your services to manage sensitive information​.

Do you need to show that you organization has higher standards than competitors?

Having an SOC report can set your organization apart from competitors by demonstrating a commitment to high standards of security and operational excellence.

This can make a tangible difference when bidding for contracts or trying to attract new clients .

Do you need to assure stakeholders?

If you're looking for a way to assure investors, board members, or other stakeholders about the integrity of your internal controls and risk management practices...

You may require SOC reports - they'll offer transparency and validate that your organization follows best practices.

Are you subject to internal audits and corporate governance?

If your organization has internal audit functions or stringent corporate governance policies, you might need SOC reports to ensure that your internal processes meet industry standards and regulatory requirements.

Will the report be used by customers and their auditors to audit their financial statements? SOC 1 report
Will the report be used by customers or stakeholders to build trust in your organizations' system? SOC 2 or SOC 3 report
Does the report need to be more generally available? SOC 3 report


What is an SOC for Cybersecurity?

SOC for Cybersecurity is a reporting framework developed by the American Institute of CPAs (AICPA).

It provides a standardized approach for organizations to communicate the effectiveness of their cybersecurity risk management programs to internal and external stakeholders.

The evaluation of your organization's cybersecurity will be based on the trust services criteria (or other suitable criteria such as ISO 27001 or NIST CSF).

This framework is designed to help organizations demonstrate their commitment to cybersecurity and to reassure clients, partners, and regulators about the robustness of their security measures.

Unlike other types of SOC reports, it isn't tied to a specific type of service organization and is broadly applicable to any entity looking to demonstrate its cybersecurity posture (use cases include large enterprises, financial institutions, and healthcare organizations).

And similarly to an SOC 3 report, a SOC for Cybersecurity report can be shared with the general public.

How do you get an SOC report?

Determine the need for an SOC report

First off, identify why your organization requires an SOC report.

Knowing the specific purpose will help determine the type of SOC report needed.

Select the type of SOC report

  • SOC 1: Focuses on internal controls over financial reporting.
  • SOC 2: Concentrates on controls related to security, availability, processing integrity, confidentiality, and privacy.
  • SOC 3: Similar to SOC 2 but designed for a general audience without detailed controls.

Contact a qualified CPA firm

SOC reports must be conducted by a certified public accountant (CPA) firm that specializes in SOC audits.

Choose an experienced firm that understands your industry and specific compliance requirements.

Prepare for the audit

  • Define the scope: Identify the systems, processes, and controls that are going to be evaluated. Make sure you understand the Trust Services Criteria for SOC 2 or the relevant financial controls for SOC 1.
  • Gap analysis: Conduct a preliminary assessment to identify any gaps in your controls. This might involve a readiness assessment by the CPA firm.
  • Remediate identified gaps: Address any weaknesses found during the gap analysis updating policies, implementing new controls, improving existing processes etc.

Keep documentation

Make sure you keep detailed documentation of your systems and controls like policies, procedures, and evidence of control implementation and operation.

Conduct the audit

  • Type 1 audit: Evaluates the design of controls at a specific point in time.
  • Type 2 audit: Assesses the operating effectiveness of controls over a period (typically 6-12 months).

Your CPA firm will perform the audit - reviewing documentation, interviewing personnel, and testing controls.

Upon completion of the audit, the CPA firm will issue an SOC report.

This report will detail the effectiveness of your controls and provide an assurance opinion.

Review and distribute the report

Review the SOC report carefully.

Share it with stakeholders such as clients, regulators, or internal governance bodies as needed.

Note: SOC compliance is an ongoing process. So you'll need to regularly update and improve controls to maintain compliance and prepare for future audits.

What is an SOC report? FAQ

What is an SOC report?

An SOC (Service Organization Control) report is prepared by a third-party auditor to evaluate and report on the internal controls and processes of a service organization.

It helps provide assurance that proper controls are in place to manage and protect client data, financial transactions, and business processes.

What are the different types of SOC reports?

There are three main types of SOC reports:

SOC 1: Focuses on internal controls over financial reporting. It is primarily used by organizations like payroll processors and loan services to assure their clients and auditors that their financial reporting processes are secure and reliable.

SOC 2: Evaluates controls related to security, availability, processing integrity, confidentiality, and privacy. It's commonly used by cloud service providers, software providers, and other technology companies to demonstrate their commitment to security and data protection.

SOC 3: Similar to SOC 2 but intended for a general audience. It provides a high-level overview without detailed testing results, making it suitable for marketing and general transparency purposes.

Who prepares an SOC report?

An SOC report is prepared by an independent auditor, often from an auditing firm, who conducts the audit following AICPA Trust Services Criteria and professional standards.

The auditor evaluates the service organization's control objectives and control activities, testing their operational effectiveness.

Who needs an SOC report?

Various organizations may need an SOC report, including:

  • SOC 1: Payroll processors, financial services, and loan servicers.
  • SOC 2: Cloud service providers, SaaS companies, data centers, and technology service providers.
  • SOC 3: Any organization wanting to publicly demonstrate robust security practices, such as online service providers and web hosting companies.
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