What Is an SOC Report? Types and Components

A System and Organization Controls (SOC) report assures the effectiveness of controls at a service organization. These reports offer valuable insights into a service provider’s infrastructure, controls, and associated risks. An independent certified public accountant (CPA) typically performs these evaluations to verify that an organization follows established best practices for managing data and processes. SOC reports serve to build trust with clients and partners by demonstrating a commitment to security and compliance.

Different Types of SOC Reports

The American Institute of Certified Public Accountants (AICPA) governs SOC reports, which are designed to address specific needs and audiences. Understanding these distinctions is important for grasping the scope of assurance provided. These reports also vary in their reporting period.

A SOC 1 report focuses on controls relevant to a user entity’s internal control over financial reporting (ICFR). This report is particularly relevant for service organizations whose services could impact clients’ financial statements, such as payroll processors or loan servicing companies. Financial auditors and user entities often rely on SOC 1 reports to assess the risks associated with outsourced processes that affect financial data, potentially reducing the need for extensive separate audit procedures.

Conversely, a SOC 2 report concentrates on controls related to operations and compliance, specifically concerning security, availability, processing integrity, confidentiality, or privacy. Organizations that handle sensitive customer data, such as cloud service providers or data centers, frequently undergo SOC 2 audits. This report provides detailed information to users about how a service organization protects the data entrusted to it.

A SOC 3 report is a general-use report derived from a SOC 2, providing a high-level summary suitable for public consumption. While it covers the same subject matter as a SOC 2 report, it omits the detailed descriptions of the auditor’s tests, procedures, and results. This makes SOC 3 reports useful for marketing purposes, allowing organizations to publicly demonstrate their security practices without revealing sensitive internal details.

SOC reports are further categorized by the period they cover: Type 1 and Type 2. A Type 1 report describes the design effectiveness of controls at a specific point in time. It assesses whether controls are suitably designed to achieve their objectives.

A Type 2 report details both the design and operating effectiveness of controls over a specified period, typically six to twelve months. This type of report includes the auditor’s testing procedures and the results of those tests, offering comprehensive assurance. A Type 2 report provides greater assurance to stakeholders due to its examination of control operation over time.

Core Components of an SOC Report

Every SOC report provides a comprehensive overview of a service organization’s control environment. The report begins with the Independent Service Auditor’s Report, which presents the auditor’s opinion on management’s assertion and, for Type 2 reports, the operating effectiveness of controls. This opinion can be unqualified, indicating effective controls, or qualified/adverse if issues are found. An unqualified opinion signifies effective and reliable controls.

Management’s Assertion is included next, which is the service organization’s formal statement about its system and controls. This section outlines the services provided, system boundaries, and the control objectives or criteria addressed.

A detailed Description of the Service Organization’s System follows, explaining the services, the system’s boundaries, and the key controls implemented. This section clarifies the scope of the audit and the operational context, detailing infrastructure, procedures, and system incidents.

For SOC 2 and SOC 3 reports, the Applicable Control Objectives or Trust Services Criteria are referenced, guiding the evaluation of controls. For Type 2 reports, the Tests of Controls and Results section is included, detailing the auditor’s testing procedures, findings, and the effectiveness of the controls over the audit period.

Complementary User Entity Controls (CUECs) are identified within the report, outlining controls that the service organization expects its clients, or user entities, to implement for the service to function securely and effectively. These controls represent a shared responsibility model, where the user entity’s actions are necessary for the overall control environment.

Similarly, Complementary Subservice Organization Controls (CSOCs) are included when the service organization relies on other subservice organizations to provide its services. These are controls that the service organization assumes will be implemented by the subservice organization and are necessary for achieving the service organization’s control objectives. CSOCs ensure that outsourced functions maintain the integrity of the overall control environment.

The Trust Services Criteria

The Trust Services Criteria (TSC) are a foundational element for SOC 2 and SOC 3 reports, established by the AICPA to evaluate internal controls. These criteria are important for organizations handling sensitive data, providing a framework for managing customer data and systems. The five criteria are Security, Availability, Processing Integrity, Confidentiality, and Privacy.

Security is the baseline criterion, included in every SOC 2 report, focusing on protecting information and systems against unauthorized access, disclosure, or damage. Controls under this criterion include multi-factor authentication, encryption, firewalls, and network segmentation. It ensures that only authorized users can access systems and data.

Availability addresses whether the system is accessible for operation and use as committed or agreed upon. This includes controls related to system uptime, performance monitoring, disaster recovery plans, and backups. Organizations must demonstrate capacity management and recovery plans to ensure continuous service.

Processing Integrity ensures that system processing is complete, valid, accurate, timely, and authorized. This criterion evaluates whether data processing meets its intended purpose and operates without impairment. Examples of controls include quality assurance procedures and error detection mechanisms.

Confidentiality pertains to the protection of information designated as confidential from unauthorized disclosure. Controls in this area often involve access restrictions, data encryption for information both at rest and in transit, and proper disposal methods. This ensures that sensitive information is only accessible to authorized individuals.

Finally, Privacy focuses on the collection, use, retention, disclosure, and disposal of personal information in conformity with the entity’s privacy notice and Generally Accepted Privacy Principles (GAPP). This includes controls over user consent, limiting data collection to stated purposes, and secure handling of personally identifiable information. It ensures that personal data is managed responsibly throughout its lifecycle.

The Process for Obtaining an SOC Report

Obtaining an SOC report involves a structured process. The initial phase typically involves a readiness assessment or scoping exercise. During this stage, a service organization defines the scope of the audit, identifies the relevant controls, and assesses any gaps in its current control environment. This preparatory step helps ensure the organization is ready for the formal audit.

Following the readiness assessment, the engagement and planning phase commences. This involves formalizing the audit agreement with a CPA firm specializing in SOC audits. The auditor and the service organization work collaboratively to establish timelines, define control objectives or Trust Services Criteria, and plan detailed audit procedures. The scope of the audit is clearly outlined.

The next phase is the audit fieldwork, where the auditors gather evidence to evaluate the design and, for Type 2 reports, the operating effectiveness of controls. This involves reviewing documentation, conducting interviews with personnel, and performing tests on selected controls. This evidence collection typically spans several weeks to a few months, depending on the complexity of the organization and the scope of the audit.

The final stage is report issuance, where the independent service auditor compiles the findings and issues the official SOC report. This report includes the auditor’s opinion, management’s assertion, a description of the system, and details of tests performed and their results. The entire process can take a few months to over a year, with audit fees generally ranging from $20,000 to $100,000 or more, depending on the complexity and scope.