Security is a crucial topic in the world of business. Whether you are just starting or have been around for decades, it’s always good to be up to date on security protocols and procedures. One example of this is SOC 1 and SOC 2 reports. These reports identify potential risks within your company that need to be addressed before they become significant issues. Let’s discuss what these reports entail and why they’re so important!
What Are SOC 1 and SOC 2 Reports
SOC compliance is a critical component for any business – big or small. With a growing number of large brands facing lawsuits and public controversy, the Social Responsibility movement has found a strong foothold in the corporate world. SOC compliance has proven to be an essential strategic advantage for modern business, and it’s becoming exceedingly difficult for a company to succeed without it.
SOC stands for “Service Organization Controls,” It is a report that provides an independent review of your internal controls. The SOC 1 report examines your systems, processes, and procedures to identify any vulnerabilities which could lead to fraud or theft. The primary purpose of this report is to show outside parties such as investors and financial reporting agencies that you have established a solid working system. You are not required to do this report, but it can be beneficial when trying to secure financing or persuade investors that your company is a good investment.
The SOC 2 report covers many of the same objectives as the SOC 1 since both examine controls within your organization that could lead to financial reporting errors or misstatements. However, SOC 2 is different because it verifies whether controls function according to a specific business model. The difference between the two reports stems from the fact that one looks at general controls while the other determines how well these controls fit together with your company’s systems.
The Difference Between SOC 1 and SOC 2 Reports
Both reports are required for companies handling personal information, but there is a big difference between the two. SOC 2 is more broad in scope, while SOC 1 looks at your systems and processes controls. The requirements for SOC 1 are less stringent than those of SOC 2. Type 1 is a report outlining the safeguards for meeting data security objectives as of a specified date. In contrast, type 2 provides an overview of how those objectives are met over time, usually twelve months. That is why many companies choose to get the SOC 1 report done first and then follow up with a second review by getting a SOC 2 report.
The main difference between the two types of SOC reports is that one focuses on processes and systems while the other focuses on overall management. With that being said, both reports will help you identify vulnerabilities in your company, as well as areas for improvement.
SOC 1 vs. SOC 2: Which is Right For You?
The decisions you make regarding SOC reports can have a significant impact on the success of your business. While they both identify weaknesses within your company, each report has its purpose.
SOC 2 is often used by those planning major transformations or conversions to ensure that internal controls meet external standards. It helps to ensure that changes aren’t made that will compromise the controls in place. SOC 1 is more commonly used by small and medium businesses, especially those handling personal information. These companies must have a report within their policies and procedures to show how they manage personal data for individuals. It can also be used as an internal control against fraud and theft since it outlines steps your company takes to protect information from unauthorized access.
If you are only starting a business, SOC 1 may be more applicable for your needs since it reviews controls within your overall operations instead of past systems and events. If you have been in business for some years, SOC 2 may be more appropriate because it reviews past events and any potential issues that might arise from them. When choosing one of these reports, it is vital to determine what information will most benefit your organization.
Fortunately, you can always choose both types of SOC reports for your company if you want. It will significantly reduce security risks and show investors that your company is concerned about protecting their information.
It is impossible to overstate the importance of security measures within a business. Both SOC 1 and SOC 2 compliance reports are excellent methods for ensuring that your organization takes the necessary steps to protect against information theft or fraud. Regardless of which report you chose, it is always helpful to engage an experienced third-party reviewer who can evaluate all aspects of a business’s security measures and make recommendations in line with current regulations.