Companies are increasingly relying on outsourcing to increase profitability and cut back on the cost of resources. However, the trust gap has also increased because outsourcing involves sharing critical company data with third parties. Therefore many business partners, customers, and regulators expect to see details of your data protection practices before they can engage your services.

Service Organization Controls (SOC) Reporting is geared toward building trust with various stakeholders. It enables companies to feel confident that service providers they are about to engage in their businesses are operating securely.

What Is a SOC 2 Report?

A SOC 2 audit report evaluates a service organisation’s systems’ security, availability, processing integrity, confidentiality, and privacy, based on the standards and criteria established by the American Institute of Certified Public Accountants (AICPA). A SOC 2 report can help service organisations demonstrate their compliance with various regulations and frameworks, such as HIPAA, GDPR, PCI DSS, and others.

A SOC 2 report plays a vital role in overseeing a service organisation’s system, vendor management programs, internal corporate governance, risk management processes, and regulatory oversight. While the testing of security controls is mandatory, the testing of other controls can be optional.

SOC 2 builds upon the required standard criteria to address one or more of the AICPA trust services principles. This report is best used by businesses with sophisticated customer relationships and those offering digital services. It is mandatory for all technology-based service organisations that store client information in the cloud, including those providing SaaS services, cloud hosting, and payment processing.

Types of SOC 2 Reports

Similar to SOC 1, SOC 2 has Type 1 and Type 2 reports. Type 1 tests the design of all controls at one point in time, but it does not assess the operating effectiveness of the control set. Type 2 of the SOC 2 report evaluates the effectiveness of the controls and mitigates the risk of handling customer data. It involves testing over a period of time using a sampling methodology, providing an accurate assessment of the design and operating effectiveness of the controls.

The types differ in the following ways:

  • A SOC 2 Type 1 report measures policies and procedures at a point in time, while a Type 2 report checks if these policies and practices are followed by providing evidence over a period of 6 months. 
  • Type 1 provides limited assurance as it does not evaluate the effectiveness of controls in practice. On the other hand, Type 2 provides greater assurance by evaluating the controls in operation and their ability to mitigate risks.
  • Type 1 tests control that adheres to the control objective under scrutiny, while Type 2 identifies and tests control that meets these requirements.
  • Type 1 describes a service organisation’s system and the suitability of the design of controls, while Type 2 evaluates controls’ historical performance and effectiveness, providing a higher level of assurance.

What Is the SOC 2 Compliance?

The American Institute of Certified Public Accountants (AICPA) has not explicitly laid down SOC 2 requirements as a checklist to be followed. However, it has provided the AICPA points of focus and established Trust Service Criteria (TSC), which are used to evaluate an organisation’s security.

An organisation is said to have achieved SOC 2 compliance if it has undergone an audit by a third-party auditor who accessed its internal controls’ effectiveness related to the five trust categories. The categories are availability, privacy, confidentiality, security and processing integrity. The AICPA points of focus are additional guidelines on what more could be done to achieve the criteria but are not mandatory.

Components of a SOC 2 Report

SOC 2 report has five main sections that you should look at when obtaining your report.

1. Auditor’s Report

This is the information your auditor wrote highlighting their independent assessment and whether your organisation became qualified or unqualified in the assessment. A qualified opinion in this report means that the auditor found an issue or issues that did not work effectively over the reporting period.

An unqualified opinion means that an auditor did not find any issues about your controls’ effectiveness during the specified reporting period.

2. Management Assertion

This part of the report allows your organisation to ascertain that you prepared and implemented your system descriptions. Your organisation should state that its controls were designed and implemented within the specified reporting period and that these controls operated effectively throughout the specified reporting period. 

3. System Descriptions

System descriptions provide information about the people, processes, and technology that support your product or service. The organisations being evaluated write their own descriptions, which serve as an overview of the systems and controls they have in place. This information will help their auditor assess whether or not their system components are effectively protecting their customer data. 

The AICPA recommends that you include the following in your system description:

  • Services provided
  • System incidents
  • Components of the system
  • Significant changes to the system during the period
  • Principal  service commitments and system requirements
  • Trust services criteria and corresponding controls 
  • Complementary user entity and sub-service organisation controls

4. Description of Criteria

This part lists all the security controls that were evaluated. Here, Type 1 and Type 2 reports will contain different information. Type 1 report contains a list of controls tested without the auditor’s test results. Type 2 results include all the controls tested andthe auditor’s test results.


SOC 2 reports are highly sought after by various organisations across various industries. Service providers, including software-as-a-service (SaaS) companies, cloud service providers, payment processors, and data centres, recognise the importance of obtaining SOC 2 reports to meet their customers’ rigorous security and compliance requirements. Organisations that handle sensitive customer data, such as healthcare providers subject to GDPR or businesses operating within the financial sector governed by PCI DSS, can leverage SOC 2 reports to demonstrate their adherence to specific industry regulations.

Additionally, SOC 2 reports are valuable for organisations that value transparency and risk assessment and management, as they provide assurance to stakeholders, including clients, business partners, and regulatory authorities, regarding the effectiveness of their internal controls. By proactively pursuing SOC 2 reports, organisations are able to instil trust, foster business relationships, and demonstrate their commitment to protecting the confidentiality, integrity, and availability of sensitive information.

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