Compliance stands in the way of your company’s expansion. In this article, we will learn the differences between SOC 1, SOC 2, and SOC 3––and how to best comply if you want to sign enterprise partnerships. One of the best pre-employment background check companies can help you with that.
We’ll go over the concepts of SOC 1, SOC 2, and SOC 3, as well as the distinctions between them. In conclusion, you’ll know what’s most important and what’s not, as well as how to get started on the road to compliance and why is it necessary to reach out to an employment screening company.
Compliance stands in the way of your progress
SOC compliance was probably not on your list of job responsibilities or in your career plan—but you work at a startup. Compliance is one of the most critical hats you have to wear, even if it’s ill-fitting.
SOC stands for Service Organization Control, and the gist of it is this: You’re a service organization (in accountant speak), and you need to show that you have specific controls in place for said accountants to consider you SOC-compliant.
The importance of SOC compliance cannot be overstated. You won’t be able to obtain enterprise transactions that will keep your startup afloat without SOC compliance.
The main distinctions between Soc 1 and Soc 2. vs. SOC 3
The first two sorts of SOC reports are the most common, while the second is the most concerning to technology organizations.
Understanding the differences between SOC 1 and SOC 2 is critical because they are the most prevalent SOC reports. SOC 1 and SOC 2 differ in that SOC 1 is concerned with financial reporting, whereas SOC 2 is concerned with compliance and operations.
Reports from SOC 3 are less common. SOC 3 is a variant of SOC 2 that has the same information as SOC 2, but it is presented to a public audience rather than an informed audience. If a SOC 2 report is intended for internal auditors and stakeholders.
Let’s get into the details now that it’s out of the way.
What does a SOC 1 report entail?
Financial reporting is the emphasis of SOC 1. The goal is to have and demonstrate internal controls for how you handle financial information from your consumers. Your customers must report this information to their auditors, thus it’s crucial to them. For further help, we might reach out to one of the best pre-employment background check companies near the local area.
What is the purpose of SOC 1 compliance?
Your business delivers services to other businesses. As a result, your services may have an impact on how your customers record their finances (which is important to their auditors). SOC 1 compliance is all about demonstrating that you have the controls in place to ensure that your service’s design, as well as its actual operations, are efficient and predictable.
When Should SOC 1 Compliance Be Obtained?
SOC 1 compliance is probably not on your mind when you’re first starting out. However, the timing of your compliance is critical, as you don’t want to be hurrying to become certified when a contract is on the line. The market will tell you when you really need compliance, but you should try to anticipate it and provide compliance just before you need it.
What does a SOC 2 report entail?
SOC 2 is concerned with operations and compliance, particularly with cloud computing and data security. The purpose is to have and show internal controls that meet the five criteria set forth by the AICPA.
What is the purpose of SOC 2 compliance?
Companies all around the world have been able to outsource functions to service businesses thanks to cloud computing and its rapid expansion. This made ensuring compliance for these organizations’ customers more difficult. Compliance with one company entails compliance with all of the companies with which it collaborated. SOC 2 was created to meet this demand.
SOC 2 and comparable standards will almost certainly become more essential in the future. Outsourcing may have started with IT services, but cloud computing now allows any function or feature to be performed by another company. You can even outsource with as little as a few lines of code with API-first firms.
When Should SOC 2 Compliance Be Obtained?
The market will tell you how urgent your requirement for SOC 2 compliance is. The larger the customer you’re after, the more likely they’ll need a SOC 2 report.
If you process or host non-financial data, you should pursue SOC 2 certification. It’s also worth noting that major compliance frameworks like HIPAA and PCI-DSS don’t require SOC 2. However, given the frequency with which this occurs, many businesses, particularly corporations, will demand to demonstrate SOC 2 compliance before signing a contract.
What does a SOC 3 report entail?
SOC 3 is the odd man out of the group. SOC 3 contains the same material as SOC 2, but it is meant for a more general readership. As a result, we won’t go into great detail, for more information about it you might want to check out and contact an employment screening company.
SOC 3 compliance is frequently posted on a company’s website, along with a seal indicating compliance.
SOC 3 is for public use, and it gives a data center the greatest level of certification and assurance of operational excellence.
Wrap-up
Although determining which of the most frequent SOC reports is appropriate for a service provider might be difficult, they all serve a different purpose.
If your controls have an influence on a client’s internal control over financial reporting, you should choose SOC 1 or SOC 2.
If you’re SOC 2-compliant but aren’t sure if a SOC 3 audit report is right for you, keep in mind that a SOC 2 audit report is a restricted-use report that outlines the systems and controls in place to protect data.
SOC 3 is a simple general report that serves as a fantastic marketing tool for the general audience. What are your options if you know you need to become SOC 2-compliant?
