SOC 1 vs SOC 2 vs SOC 3 Comparison — Overview & Comparison

If you run a SaaS business and want to target mid-market or enterprise customers, you are going to be asked about the security posture of your company at one point or another.

You may try to pass through them by answering security questionnaires but when your sales deal is stuck and cannot move forward because your customer demanded a SOC 2 certificate, that is when you will realize how important it is to get compliant.

In our previous company “Recruiterbox,” when we had to undergo the SOC compliance process, we were confused and clueless about what was needed. We did not know where to even begin and which type of certification we were supposed to apply for  — SOC 1 or SOC 2 or SOC 3.

It was nothing less than a nightmare. We somehow pulled it through and got ourselves certified after investing nine months of effort and more than $50K.

This exercise literally brought Recruiterbox to a standstill and we fretted at every possible instance of why in the world did we even take this up. Because of the shift in focus, our product development came to a grinding halt and impacted our other planned projects.

If you are in a similar boat, we get it! Implementing a compliance program is surely an uncertain, manual, and error-prone process. If you are confused, or frustrated because you have to undergo the compliance process, relax. Let’s dive in.

Types of SOC reports 

SOC is a verifiable auditing report performed by a Certified Public Accountant (CPA) designed by the American Institute of Certified Public Accountants (AICPA) concerning the systematic controls in place at a service provider, including:

• Data privacy
• Cybersecurity
• Confidentiality
• Processing integrity
• Controls related to financial reporting

SOC reports help establish more credibility for you — a competitive advantage worth both monetary and time investments. There are three types of SOC reports — SOC 1, SOC 2, SOC 3 — wherein SOC 1 and SOC 2 are the most used.

The main difference between SOC 1 and SOC 2 is that the former focuses on financial reporting and the latter on operations and compliance. Whereas SOC 3 is less common and is a variation of SOC 2, designed for the company’s clientele.

Difference between SOC 1 vs SOC 2 vs SOC 3

Each SOC  report—SOC 1, SOC 2, SOC 3—fulfills distinct roles within compliance assessments. SOC 1 primarily focuses on an organization’s internal financial controls, while SOC 2 and SOC 3 assess controls related to the Trust Services Criteria. Also, SOC 3 serves as a public-facing demonstration of an entity’s control effectiveness, in contrast to SOC 2’s more confidential nature among SOC report types.

Here is a quick difference between SOC 1 vs SOC 2 vs SOC 3:

So, now that you know the overview of SOC 1 vs SOC 2 vs SOC 3, let’s dive further into each report.

Everything You Must Know About SOC 1

Developed mainly for third-party service providers by the AICPA, a SOC 1 report gives your company’s clients assurance that their financial information is being handled safely and securely.

Types of SOC 1 reports

SOC 1 offers two types of reports: Type I and Type II. While Type I showcases that your company’s internal financial controls are properly described and designed at a point in time, a Type II report tests the effectiveness of your controls over a period (for example, six months).

Benefits of SOC 1 compliance

SOC reports help your clients acquire an objective evaluation of the effectiveness of controls that address the operations, compliance, and financial reporting processes of your organization. It:

• Assures your clients that their sensitive data is protected
• Evaluates policies and procedures that are key to your company’s operability
• Verifies that you have proper internal controls and processes in place to deliver high-quality services to your clients

When to get SOC 1 compliance

If you are a newly-started business, SOC 1 is not likely to be on your radar. However, the timing of your compliance is essential as you do not want to be scrambling to get certified when a deal is in jeopardy. Here are three SOC 1 report examples:

• Your client asks for a “right to audit”
• Your company is going to be publicly traded
• You need to apply with another regulation (e.g., SOX)

Who should go for SOC 1 auditing

If you are a service provider such as a payroll or medical claims processor, loan servicer, data center company, and SaaS provider that stores and processes your clients’ financial or sensitive data, you must become SOC 1 compliant.

Everything You Must Know About SOC 2

In comparison to SOC 1, SOC 2 is a framework that helps businesses demonstrate their data center and cloud security controls. After SAS 70 started being used to measure the effectiveness of an organization’s security controls, SOC 2 was developed with an emphasis on security.

SOC 2 is rooted in the criteria called the Trust Services Criteria, which the AICPA defines as:

• Availability: Systems must be available for use.
• Confidentiality: Information marked as “confidential” should be adequately safeguarded.
• Privacy: Any personal information collected must be used, retained, disclosed, and discarded properly.
• Processing integrity: Systems processing must be accurate, timely, and authorized.
• Security: Systems and data should be protected against all cyber threats that compromise confidentiality, availability, integrity, and privacy.

Types of reports under SOC 2

Similar to SOC 1, SOC 2 also has Type I and Type II reports. SOC 2 Type I compliance audit covers design controls’ suitability and effectiveness and provides a point-in-time snapshot of the organization’s controls.

On the other hand, SOC 2 Type II compliance audit looks at the effectiveness of the same controls over a period, say, six months or a year, and takes longer for service providers to prepare for it.

Benefits of SOC 2 compliance

A SOC 2 audit plays a crucial role in