There are dozens of factors that go into a prospect’s decision to do business with you. It’s not just about the quality of your products and services, they’ll also need to ensure you’re following business management best practices, such as making good information security and financial decisions. One of the ways your prospects, partners, or customers do their due diligence on your business practices is by requesting a SOC (or System and Organization Controls) report. 

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There are currently three types of SOC reports that offer different views into the way your business operates: SOC 1, SOC 2, or SOC 3. This article will break down the differences between SOC 1 vs. SOC 2 vs. SOC 3 and help you understand which report is best for your business needs.

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What is a SOC report?

A SOC report is a document that verifies your business is following a specific framework of best practices for a particular operation. Depending on the industries you do business with and what products and services you provide, prospects may request to see your organization's SOC report(s). 

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To get a SOC report you’ll need to hire a third-party auditor who will investigate your internal controls. Internal controls are practices you follow and tools you use that maintain the integrity of your operations. Some examples of internal controls include data security practices, staff background checks, and financial reporting procedures. The controls your auditor looks for will depend on which SOC report you’re pursuing.

After completing your audit, your auditor will prepare a SOC report that summarizes your controls and verifies your SOC compliance. You’ll share this report with any prospects, customers, and partners who ask for it.

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The purpose of a SOC report‍

While SOC 1, SOC 2, and SOC 3 reports all provide a different view into your business practices, their primary purpose is the same: to attest to your organization’s ability to protect your clients’ resources and needs. 

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Customers or partners that request a SOC report are using this to assess and mitigate the risks of bringing on a new vendor. In many cases, a prospect or partner may walk away from a nearly-closed deal if your business is unable to provide a satisfactory SOC report. 

SOC 1 vs. SOC 2 vs. SOC 3: What’s the difference?

While SOC 1, SOC 2, and SOC 3 all demonstrate trust, each one looks at minimizing different kinds of risks and caters to a different audience. SOC 1 focuses on financial reporting, while SOC 2 and SOC 3 both assess an organization’s data security. 

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Here’s a deeper look at each type of SOC report: 

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• A SOC 1 report is all about finances. This is for organizations that provide services that may impact their customers’ financial reporting. If you don’t conduct your financial operations responsibly, you put your customers' financial statements, reporting, and integrity at risk. A SOC 1 is a detailed report that examines the controls your organization has in place for its financial reporting and operations to ensure you’re mitigating customer risk. 

• A SOC 2 report covers information security. It’s relevant to organizations who manage their customer’s data. A SOC 2 audit reviews your information security practices to ensure that your customer’s data will be safe under your care. Your SOC 2 report will detail your security posture and the controls you have in place to protect your organizational and customer data.

• A SOC 3 report also covers information security, but is less complex. This is for organizations that want to demonstrate their security controls and best practices to a broader audience. It looks at the same controls as a SOC 2 report, but in far less detail. You might produce a SOC 3 report to showcase the effectiveness of your security practices to public audiences, such as in marketing efforts.

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Benefits of the different types of SOC reports

Each type of SOC audit has its own set of advantages. The type of SOC audit you choose will depend on the types of products and services you provide.

Benefits of a SOC 1 report

The stakes are high for organizations asking to see your SOC 1. If you offer services that could impact your customers’ financial reporting and they report inaccurate numbers due to your miscalculations, they could face fraud charges and lawsuits. It could also impact the way they manage funds. These factors make demonstrating trust with a SOC 1 report especially important. 

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Investing in a SOC 1 report can bring the following benefits:

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• Unlocking deals with clients who only do business with vendors that have a SOC 1.
• Proving you’re doing your due diligence to provide accurate financial data.
• Lowering the risk of skewing your own financial data or making it unreliable.
• Reducing the likelihood of providing untrustworthy financial data to your clients and reducing your risk of being sued.

A SOC 1 report is likely a critical investment for organizations that offer services like financial data analytics, accounting, employee benefits management, or financial advising, 

Benefits of a SOC 2 report 

For organizations that provide products and services that affect or store customer data, like SaaS companies, a SOC 2 report is a way to show your customers that you’re taking the proper steps to protect their data. 

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Benefits of a SOC 2 report include:

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• Establishing a strong data security posture.
• Unlocking deals with clients who will only work with vendors that have a SOC 2.
• Lowering your risk of a data breach and avoiding the costly consequences that come with a breach. 
• Building and maintaining customer trust.

There are two types of SOC 2 reports:

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• SOC 2 Type 1 describes your data security controls at a specific point in time. 
• SOC 2 Type 2 observes your security controls over a period of time to ensure you’re following information security best practices continuously.

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Both kinds of SOC 2 serve to strengthen your data security, demonstrate your security posture to prospects, and lower your risk of a data breach. A SOC 2 Type 2 is more thorough than a SOC 2 Type 1 and offers the advantages listed above to a larger extent.

Benefits of SOC 3 reports

‍SOC 3 audits are beneficial when you want to demonstrate your security practices to a wider and more public audience. SOC 3 is broader and less detailed than a SOC 2, though it covers the same controls. 

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While it can be requested by customers or partners, it’s generally used for marketing purposes to improve consumer trust and boost profitability. A SOC 3 can help assure the general public that you follow adequate security protocols so more customers feel safe engaging with your business.‍

SOC audit challenges

While SOC 1, SOC 2, and SOC 3 all have different benefits they provide, they also come with some challenges, including the time and financial investment it takes to complete each report.

SOC 1 challenges

One challenge to consider when seeking SOC 1 compliance is scoping. The SOC 1 standard covers a wide range of internal controls, some of which are required while others only need to be included if they apply to your business. It’s important to include all of the controls that are relevant to you to successfully get a SOC 1. This scoping process can be difficult and time-consuming, especially for organizations that are new to SOC 1. 

SOC 2 Challenges

A key challenge during a SOC 2 audit is the cross-functional collaboration that’s required. SOC 2 compliance involves technical security practices carried out by your IT or information security team, physical security practices maintained by your facilities management team, onboarding practices and staff policies that involve your HR department, and more. Getting cooperation and buy-in from all these teams can be difficult to manage.

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Additionally, the entire process of getting a SOC 2, from implementation to getting the final report in hand, can take several months to a year. While a SOC 2 requires significant time and resources to complete, however this can be reduced with compliance automation. 

SOC 3 challenges 

Much like SOC 2, it can be hard to determine what to include in the scope of your SOC 3 report because it’s intended for public viewing. The report needs to be broad enough for the general public to understand while still providing enough context to demonstrate your security posture. 

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You’ll also face many of the same challenges you’d see with SOC 2 when you’re getting SOC 3 because the controls and auditing needs are the same.

Which SOC report do you need?

While a SOC 1, SOC 2, and SOC 3 report have their similarities, they’re not interchangeable. Let’s explore the different situations you’d need each SOC type for.

Who needs a SOC 1 report?

SOC 1 reports are about financial reporting and auditing your processes to ensure you’re managing your financial data reliably. 

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They’re commonly expected from the following kinds of organizations:

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• Publicly traded companies
• Payroll processors
• Investment advisors
• Loan servicers
• Medical claims processors
• Data centers
• Business intelligence analysts

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A SOC 1 may be needed if your organization’s services could affect your clients’ ability to accurately report their financial data.

Who needs a SOC 2 report?

Data security is important for most modern organizations to some degree, but if your security practices could impact your customer’s data, you may need a SOC 2 report. 

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Organizations that often need a SOC 2 include:

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• SaaS companies
• Data centers and cloud storage providers
• Organizations offering data hosting and processing
• Managed IT service providers

If you handle customer data and present any level of risk to them in the case of a data breach, you may need a SOC 2 report.

Who needs a SOC 3 report?

Many organizations who get a SOC 3 report also have a SOC 2. This is because these reports are similar and can often be prepared in the same audit. However, not every organization who needs SOC 2 will benefit from a SOC 3 report. 

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SOC 3 reports are common among:

• Publicly traded companies that need to maintain data integrity and security
• SaaS companies and cloud service providers
• Organizations that intake sensitive data from the public
• IT systems management organizations

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Organizations that benefit most from SOC 3 are those needing to demonstrate their data security practices more broadly to shareholders or customers.

When should I get a SOC report?

If the above criteria apply to your organization, eventually you’ll need to demonstrate trust to customers and partners with a SOC report. You’ll know it's time to start the SOC audit process, when your customers or partners start asking to see your report. They’ll specify which type of SOC report(s) they need depending on your business offerings. This will likely either be a SOC 1 or SOC 2 report, because SOC 3 is used for more general purposes.

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However, if you wait until a prospect asks to see your report, you could risk stalling a deal. It takes significant time and resources to complete a SOC audit. Any type of SOC report will require you to prepare your controls and hire a third-party auditor to investigate them, a process that can take several weeks or months. This can derail a deal and slow down sales opportunities.

Preparing for your SOC 2 report ‍

The first step for any SOC report is to take an in-depth look at your controls, implement industry best practices, and optimize your processes and controls. 

If you need to get a SOC 2 report, Vanta’s trust management platform is a great place to start. Our platform has compliance automation capabilities that will guide you through scoping your SOC 2, conducting a readiness assessment, and providing you with helpful guidance so you can prepare more efficiently. We can even help you find an auditor and speed up your SOC 2 timeline. 

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