System & Organization Controls (SOC): Report Types, Audits & SaaS Impact

A recent report by Gartner showed that 60% of companies now evaluate cybersecurity risk before signing with a vendor. 

For SaaS startups, that changes everything. Especially when nearly 70% of VCs prefer to back companies with SOC 2 already in place. This means security and compliance are no longer checkbox items. They are qualifiers.

SOC compliance, especially SOC 2, has quietly become the benchmark for trust when closing deals, raising capital, or selling into the enterprise.

We will now get into the details of what the Systems and Organization Controls (SOC) is, why it was formed, implementation challenges, benefits of the framework, and more.

TL;DR SOC compliance, especially SOC 2, is now critical for SaaS companies to close deals, build trust, and raise funding.SOC 1 covers financial systems like payroll. SOC 2 secures customer data across five criteria. SOC 3 is a shareable summary of SOC 2. Type I checks controls at a single point. Type II reviews them over time. SOC 2 improves sales cycles but requires clear ownership and structured processes.

What is the System and Organization Controls (SOC) framework?

SOC stands for System and Organization Controls and defines a framework for assessing the way businesses manage and secure their data, especially when handling information for other businesses.

For service-based businesses, such as SaaS platforms, payment processors, or cloud tools, SOC provides a means to demonstrate that processes are structured, systematically implemented, and secure.

AICPA and the origin of SOC

SOC frameworks were created by the American Institute of Certified Public Accountants (AICPA). This body is responsible for defining attestation standards used by auditors to independently evaluate how companies manage controls, risk, and trustworthiness.

But businesses moved critical infrastructure and operations to third-party providers. Everything, from cloud storage to customer data and payroll. This created the need for independent, verifiable assurance.

SOC reports came out of this work as a formal way to evaluate and prove that the internal systems are operating securely and reliably.

Auditors follow a rigorous, standardized process through SOC 2 to assess how systems are built, how risks are managed, and whether the controls in place are adequate. This way, customers, partners, and regulators get a reliable way to verify how a company manages access, monitors risk, responds to incidents, and maintains system integrity.

Overview of SOC 1, SOC 2, SOC 3

There are three types of SOC reports. Each serves a different purpose, depending on the type of data a business handles and the individuals who need to view the report.

SOC 1: Financial reporting 

SOC 1 matters when your service directly impacts a client’s financial reporting. This is common for payroll providers, billing systems, or fund administrators.

What it covers: Internal controls related to financial statements
Who it’s for: Finance teams, external auditors

SOC 2: Data security and privacy controls

SOC 2 is the gold standard for SaaS companies. It focuses on how you manage customer data across five Trust Services Criteria: security, availability, processing integrity, confidentiality, and privacy.

What it covers: Controls around data security, privacy, and availability
Who it’s for: Customers, partners, and security teams

SOC 3: Public summary of SOC 2

SOC 3 is a sanitized, shareable version of SOC 2 that companies publish to demonstrate compliance without disclosing sensitive control details.

What it covers: A high-level summary of SOC 2 findings
Who it’s for: General audience, prospective clients

Each of these reports comes in two types:

SOC Type I

This version evaluates whether the necessary controls are in place and properly designed as of a specific date. It looks at how the controls are designed at a single point in time.

The auditor reviews documentation, access policies, onboarding checklists, and other artifacts to confirm that systems are structured and policies exist.

It confirms design, not operation

Use case: Startups or early-stage teams use Type I reports to show intent. It gives prospects and partners a formal view of how the company is thinking about security, even if those controls haven’t yet been tested over time.

SOC Type II

This version explores how effectively those controls operate over a defined period, usually 3 to 12 months. The auditor checks if the same policies held firm over time, if the alerts fired when expected, and if employees followed the offboarding checklist every time.

A Type II report proves that controls existed beyond the paper-based policies and they worked, repeatedly.

Use case: Most enterprise buyers request SOC 2 Type II. It signals operational maturity, proof that the teams are enforcing policies reliably, and that those controls can be trusted in day-to-day business.

Note: SOC 3 is only issued as a Type II. There’s no Type I version for SOC 3.

Why does SOC 2 compliance matter for SaaS businesses so much?

SOC 2 compliance is a relevant framework for SaaS companies. It evaluates how well your product, infrastructure, and internal processes protect customer data. 

Below, we’ll show how SOC 2 shows up most clearly in a SaaS context:

1. Measurable Customer Trust

Enterprise buyers need more than verbal assurances. Being compliant with SOC 2 demonstrates that the systems meet accepted standards for data protection.

2. Faster Procurement Cycles

Without an SOC 2 report, many deals stall at the security review stage. With it, procurement and IT due diligence move quicker because there’s less guesswork.

3. Auditable Data Handling

The SOC audit includes a complete review of how data access grants work and what methods are in place to monitor logs. It pushes teams to operate with consistency and documentation.

What are the Trust Services Criteria?

The Trust Services Criteria (TSC) define the five core pillars auditors use to evaluate whether your systems are designed and operated to safeguard customer data. Each criterion maps to a specific aspect of operational integrity, security, and privacy, and is central to the SOC frameworks.

Here’s a breakdown of each:

1. Security (Mandatory)

Security is the foundation of TSC. This pillar evaluates how well your systems prevent unauthorized access, both digital and physical.

Auditors look for:

• Firewalls and intrusion detection
• Role-based access controls (RBAC)
• MFA and authentication policies
• Vulnerability scans and penetration tests
• Security incident logging and alerting
  

2. Availability

The availability criterion assesses whether your systems can sustain operations under pressure.

Auditors look for:

• Documented SLAs and uptime reports
• Redundancy and failover mechanisms
• Disaster recovery and incident response plans
• System health monitoring and alerting
  

3. Processing Integrity

Processing integrity focusses on accuracy, completeness, and timeliness of data. It’s about ensuring that data is processed the way it’s intended.

Auditors look for:

• Input validation and error handling
• Data reconciliation and rollback mechanisms
• Audit trails and process integrity checks
• Alerts for anomalies or data corruption
  

4. Confidentiality

Confidentiality addresses how sensitive business and customer information is secured across its lifecycle from storage to transfer.

Auditors look for:

• Data classification policies
• Encryption in transit and at rest
• Access restrictions for confidential data
• Secure data disposal procedures
  

5. Privacy

Consent, transparency, and control are critical when handling personal data. The privacy criterion covers how you manage user privacy rights.

Auditors look for:

• Consent collection and preference management
• Data minimization and retention policies
• DSAR (Data Subject Access Request) handling workflows
• Traceability of personal data across systems

Who needs SOC compliance?

SOC compliance is built for businesses that operate behind the scenes to handle infrastructure, data, or services on behalf of other companies.

Here’s more on who falls into that category and why:

1. SaaS companies

SaaS businesses store or process customer data (like files, user accounts, transaction records, or personal details). SOC 2 will be expected when selling into the mid-market or enterprise.

2. Cloud service/infrastructure providers

If customers build, deploy, or run their applications on your platform, then your service becomes part of their delivery pipeline. Here, SOC 2 shows that your systems are protected, monitored, and resilient.

3. Payroll and HR tech vendors

Payroll and HR vendors involve employee financials, salaries, and tax data. And so, clients demand SOC 1 as a way to know that your controls support accurate financial reporting.

4. FinTech platforms

Businesses that work closely with payment processors, lending platforms, and digital wallets handle large amounts of sensitive personal and financial data. SOC 2 is necessary to build trust and pass security reviews.

How are SOC audits conducted?

SOC audits are standard attestations supported by extensive evidence. Auditors review internal controls that operate across a business’s technology infrastructure, applications, teams, and processes.

Key action items are inspecting logs, testing access paths, checking remediation records, and validating operational discipline across departments.

The goal is to verify they’re running, traceable, and repeatable.

That’s why, the process of SOC audit occurs in phases where each stage probes a different aspect of how the infrastructure, documentation, and people uphold the Trust Services Criteria.

There’s no guesswork here. Audits follow a well-defined process. Here’s what it looks like:

Step 1: Scoping

Scope of audit is locked before the testing begins by defining boundaries around what’s “in-scope” for control testing. That includes infrastructure, sub-processors, business units, products, and even specific environments (production vs staging).

Typically, auditors will focus on the following areas:

• The system description (per AICPA standards)
• The way data flows between services
• Which controls are applicable and where (plus, which ones don’t)
• What all frameworks does the scope overlaps with (e.g., ISO 27001, PCI-DSS)

Step 2: Readiness Assessment

Next, the auditor (or compliance partner) walks through the current control environment and flag everything that’s not audit-ready.

It starts with a sweep for missing policies. But it’s goes beyond to spot the disconnect between what’s written and what’s actually in place. That’s where red flags show up — like controls that exist only on paper, or ones with unclear ownership and zero accountability.

Step 3: Control Design & Documentation

Once the gaps are identified, the organization will have respective teams stepping up to build or rework the missing controls. The efforts are directed at creating mechanisms that govern how an organization runs because auditors at this step expect to see:

• Access controls that specify who gets into what system, how approvals are granted, and when access gets revoked
• Implementation of password and MFA policies that match what’s enforced across tools
• Onboarding and offboarding procedures tied to real workflows in HRIS and IT systems
• Disaster recovery plans (DRPs) with documented RTOs, roles, and tested response logs
• Encryption policies with clarity on what’s encrypted at rest, in transit, and where keys are managed
• Vendor risk workflows showing how third parties are evaluated, scored, and re-reviewed.

Step 4: Evidence Collection

This step involves verifying the measures taken to implement each control defined in the scope, including access reviews, backup policies, incident response, data encryption, and other relevant controls.

This means reviewing the collected evidence, such as audit logs, screenshots, system access trails, change tickets, signed policies, proof of training, alerts, etc.

Each control demands specific evidence. Unless this is automated, teams get overwhelmed with screenshots and back-and-forths.That’s where tools like Sprinto come in handy. It can continuously map the business’s digital environment to controls and automatically pull evidence from source systems without manual effort.

For example, when auditors check for Encryption, they look at screenshots or export logs from the database or storage solution which shows data is encrypted at rest and in transit. Similarly, the Access Reviews need to be proven by presenting approval trails, change logs, and audit reports from IAM or HR system.

Step 5: Audit Fieldwork

Auditors test whether each control does what it claims and they check it in a verifiable terms.
They sample logs, tickets, approvals, and system reports to verify that the policies are enforced unfailingly. If a control mandates quarterly access reviews, auditors expect timestamped logs, reviewer names, and resulting actions

They also cross-check documentation against actual system behavior, interview relevant stakeholders for clarity, and flag any mismatches or missing records.

Step 6: Report Drafting and Delivery

Once testing is complete, the auditor begins drafting the SOC compliance report which a lays out whether the business met the required criteria across the agreed scope, over the audit period.

The report includes:

• Management’s description of the system
• The trust criteria covered (e.g., security, availability, etc.)
• Control design and implementation (for Type I)
• Control performance over time (for Type II)
• Auditor’s opinion on whether controls were operating effectively
• Any exceptions, gaps, or findings noted during testing

This finalized report can be SOC 1, SOC 2 Type I, or SOC 2 Type II depending on the audit goals. Most companies share the final report underan  NDA.

Some include it in data rooms or security reviews during procurement, which act as a verified proof that the controls are tested.

Importance of being SOC compliant

SOC reports help create external evidence that the business takes data protection seriously.

It’s a kind of signal that customers follow when choosing between similar vendors or deciding who to trust with sensitive data.

Here’s why customers and partners care about SOC reports:

1. A better operational baseline

SOC creates habits for maintaining compliance hygiene. So, if a business pursues multiple certifications, SOC often runs in parallel with ISO 27001. For businesses in manufacturing, healthcare, or regulated industries, ISO 9001 also comes into play. This comparison breaks down where each ISO framework fits and how they relate to broader compliance goals.

2. Cuts down security review workload

SOC reports give customers a head start during due diligence. Instead of chasing dozens of answers, they get a single document with evidence-backed details on how the systems are managed and secured.

3. Speeds up procurement cycles

For many companies, SOC 2 is a hard requirement. Having it ready removes a common blocker that can delay or even kill enterprise deals.

4. Builds early trust among customers

Before signing off, buyers loop in legal, IT, and security teams. A SOC 2 Type II report answers their questions upfront. Also, it shows that the controls are defined, enforced, and audited so as to have less back-and-forth, speeding up reviews, and closing the lead quickly.

5. Reducing risks

SOC enforces the need to document, test, and monitor the behavior of information systems. It means, apart from just responding to incidents, there’s also the need to set up controls can reduce the chance of functions going wrong in the first place.

Challenges of SOC Compliance

SOC compliance brings long-term value. However, teams often face bottlenecks, not because of technical failures, but due to operational friction and a lack of precise ownership of the process.

These are the common challenges:

1. Lack of clearly defined ownership

Multiple departments are responsible to make sure the business adhere to SOC compliance. For example, security handles access controls, IT maintains logs, HR manages onboarding and terminations, Legal owns policy reviews, and Product ensures secure development. 

If the responsibilities are not explicitly assigned, like who’s responsible for each control, critical actions, etc., then key functions may get skipped or delayed. That’s where audits break down. Precision starts by assigning control-level owners and tracking execution.

2. Shift in requirements mid-audit

Compliance requirements can shift based on audit scope, changes in infrastructure, or new customer requests. For example, moving from SOC 2 Type I to Type II introduces a 3–12 month observation window.

Many teams start preparing only to find the original scope no longer covers new risks or deployments. This leads to rework and delays unless the scope and roadmap are aligned from the beginning.

3. Burnout from over-prepping

When teams prepare for SOC audits without clear boundaries, the workload increases. Members remain occupied with tasks such as rewriting every policy, reviewing old tools, and second-guessing basic access flows. 

When the scope is not defined, team members may remain stuck in preparation mode. So, a scoped plan and realistic audit timeline keep effort focused and teams sane.

The smarter way forward

Succeeding with SOC is about operational clarity, knowing which controls matter, who owns them, and having proof they’re running exactly as designed. That’s where most teams slip. Manual prep drags. Scattered ownership causes gaps. 

Sprinto is the modern compliance engine that removes the manual mess from SOC prep and replaces it with structured automation, live visibility, and system-enforced accountability.

• Map 30+ frameworks (SOC 2, ISO 27001, GDPR, PCI-DSS) from a single control layer
• Automate evidence collection from 200+ systems — no more chasing screenshots
• Assign control owners, track audit readiness, and get real-time alerts on drift
• Share auditor-ready dashboards that eliminate back-and-forth
• Go from zero to SOC 2 Type II with precision, not panic

Whether you’re aiming to win enterprise deals or reduce security review fatigue, Sprinto lets your team move fast without breaking your processes with marginally less effort and cost.

Frequently Asked Questions

#1. What are the four types of SOC compliance?

There are three main SOC compliance reports—SOC 1, SOC 2, and SOC 3. SOC 1 and SOC 2 each have two types: Type I (the design of controls at a point in time) and Type II (operational effectiveness over a period). SOC 3 is a public-facing summary of a company’s SOC 2 report.

#2. What are the SOC’s purposes and duties?

SOC frameworks help service organizations showcase how they protect data, support financial reporting, and meet defined criteria around security and reliability. The report assesses the effectiveness of internal controls in their design and implementation.

#3. Who is responsible for SOC reporting?

Your organization owns the process. And so, you’re responsible for defining the scope, preparing controls, collecting evidence, and working with an external auditor to complete the report.

#4. Why is a SOC audit required?

You can show the SOC audit reports to everyone outside of businesses if SOC reports are ever requested as part of the due diligence process. The audit validates that your systems operate securely and predictably.

#5. Is SOC the same as ISO 27001? Is it mandatory?

SOC and ISO 27001 serve similar goals: building trust through verified controls. However, SOC is based on AICPA criteria and is widely used in the US. ISO 27001 is a global standard. Neither is legally required, but both are widely expected in enterprise sales and vendor reviews.