Could your company benefit from a SOC Report?
December 01, 2022
As outsourcing of services becomes more prevalent among organizations, it’s important for a company to ensure that its vendors enforce the same level of controls and protections that they do. Companies are relying more and more on cloud platforms, Software as a Service (SaaS) applications, and Platform as a Service (PaaS) providers, where data is transacted and stored on third-party systems. While companies can gain significant efficiencies from using these services, they still maintain responsibility for the data regardless of where it resides.
Just as companies are concerned with proper controls and safeguards, so are the service providers. Service providers that can show validation of their internal controls and protections can gain a competitive advantage in selling outsourced services to companies. In fact, proper validation may be a deciding factor when awarding a new contract.
Companies can validate internal controls and safeguards through a SOC examination. System and Organization Controls (SOC) reports provide an in-depth examination of a service provider’s internal controls, risk management processes, and compliance procedures. Ultimately, a SOC report helps build trust, credibility, and assurance between companies and their service providers.
What is a SOC Report?
A SOC report is an independent evaluation conducted by a certified public accountant of a company’s security and internal operating procedures. The report, also known as a service organization control report, is based on the AICPA’s Trust Services Criteria, which includes five key areas: security, availability, processing integrity, confidentiality, and privacy.
SOC reports can be conducted annually or more frequently if significant changes to a company’s internal controls exist.
What are the benefits of a SOC report?
Many benefits come with having a SOC report, including:
- Customer confidence: SOC reports provide customers with peace of mind knowing that their data is being managed securely. This can lead to increased business and customer loyalty.
- Improved security: SOC reports can help identify potential security risks and vulnerabilities within a service organization. This information can then be used to make changes and enhance security protocols.
- Competitive advantage: SOC reports can give a company a competitive edge over others in its industry who do not have a report.
- Reduced liability: SOC reports can help protect a company from potential legal liability by identifying risks and implementing security procedures to protect against those risks.
Why are SOC reports necessary?
In addition to the competitive benefits of obtaining a SOC report, there are several reasons companies may need a SOC report.
For publicly traded companies, the Sarbanes-Oxley Act (SOX) requires that they have an independent assessment of their internal controls over financial reporting. A SOC report can provide assurance to shareholders and investors that the company’s control structure is appropriate.
For companies that do business with the federal government, SOC reports may be required as part of their contract. They can also help companies win government contracts by demonstrating compliance with various regulations.
Additionally, SOC reports have become increasingly necessary as businesses have become more reliant on technology and data. With the increased use of cloud-based applications and data storage, companies store more sensitive information than ever. This has made data security a top priority for businesses of all sizes. A SOC report can help a company ensure its data is properly managed and protected.
SOC I, II, and III Reports
The AICPA has created different types of SOC reports that meet the needs of different kinds of organizations. We can help determine which one is the best fit for your needs.
SOC I Reports: SOC I reports have a financial focus and identify controls in core business and IT-related functions that are outsourced to a third party. This includes everything from accounting to payroll to benefits planning and administration.
SOC II Reports: Similar to SOC I, SOC II reports cover outsourced services and focus on the effectiveness of internal controls related to availability, confidentiality, security, processing integrity, and privacy of information. Used often in digital and tech services, CPAs will use incredible detail to show how secure third-party systems are and whether clients are exposed to any risks. The reporting can also include other standardized controls if required by an organization. HIPAA controls, for example, could be analyzed for companies that work with medical data.
SOC III Reports: SOC III reports are similar to SOC II reports but provide less detail. They are used in organizations to examine third-party provider risks but apply primarily to companies that work with consumer data within e-commerce, SaaS, or other platforms.
How to choose the right SOC report for your company
Not all SOC reports are created equal. Choosing the right report for your company is essential based on your needs and objectives. Here are a few factors to consider when choosing a SOC report:
- Your business type: Choose a SOC report relevant to your type of business. For example, if you operate in the financial industry, you may need a SOC I report. You may need a SOC II report if you operate a data warehouse.
- Your customer base: Consider your customer base when choosing a SOC report. If you have customers particularly concerned about data security, you may want to consider a SOC II or SOC III report.
- Your company’s size: The size of your company will also play a role in choosing the right SOC report. Smaller companies may only need a SOC I or SOC II report, while larger companies may benefit from a SOC III report.
- Your objectives: Consider your company’s objectives when choosing a SOC report. A SOC I or SOC II report may be right for you if you want to improve your security protocols. A SOC III report may be a better option if you want to build customer confidence.
SOC reports can help improve security protocols, build customer confidence, and give service providers a competitive edge. Whether you’re a company that wants to ensure your vendors have appropriate controls or a service provider that may need to be SOC compliant, we can help. Please contact our office to discuss what type of SOC report is right for your organization and walk you through the steps involved.
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