Key Takeaways
- SOC 3 Reports Offer Public Assurance: Unlike SOC 1 and SOC 2, a SOC 3 report is designed for a general audience, offering assurance about a service organization’s controls without revealing sensitive details.
- Built on SOC 2, but Simplified: SOC 3 reports use the same trust services criteria as SOC 2 (security, availability, confidentiality, processing integrity, and privacy) but present the findings in a high-level, publicly shareable format.
- Strategic and Competitive Value: Publishing a SOC 3 report demonstrates transparency and a commitment to security — enhancing credibility, marketing appeal, and competitive advantage.
System and Organization Controls (SOC) reports are a common method for service organizations to demonstrate their commitment to the security of their service offerings. There are several variations of SOC reports that service organizations can use to demonstrate the security of their systems. SOC 1 reports are focused on controls related to internal control over financial reporting. SOC 2 reports evaluate controls related to the applicable trust services criteria (security, availability, confidentiality, processing integrity, and privacy). Both of these reports are intended to be used by the service organization’s user entities. In this article we’ll delve into the nature of a SOC 3 report, how it compares with SOC 1 and SOC 2 reports, and explain why a service organization might consider pursuing a SOC 3 report.
SOC 3 Basics
The SOC 3 report is a general use report intended to offer the public assurance about the service organization’s control environment. Like a SOC 2, it provides assurance about the controls at a service organization relevant to security, availability, confidentiality, processing integrity, or privacy. It is a great way to publicly demonstrate commitment to compliance with good security practices.
Comparing SOC 1, SOC 2, and SOC 3 Reports
To better understand the value of a SOC 3 report, we need to compare it to the SOC 1 and SOC 2 reports, which serve different purposes.
SOC 1 Reports: Financial Reporting Focus
SOC 1 reports focus on controls relevant to financial reporting. They provide assurance to user entities and their auditors on the effectiveness of controls that impact financial statements. For example, a payroll processing service organization might obtain a SOC 1 report to assure its clients that controls over payroll processing and reporting are reliable and secure.
The primary audience for SOC 1 reports includes the service organization’s clients, their financial auditors, and other stakeholders with an interest in financial reporting.
There are two types of SOC 1 reports. Type I reports assess the design of controls at a specific point in time. Type II reports assess the design and operating effectiveness of controls over a period of time, usually six to 12 months.
SOC 2 Reports: Trust Services Criteria Focus
SOC 2 reports assess a service organization’s controls based on the AICPA’s trust services criteria, which can include security, availability, confidentiality, processing integrity, and privacy. These reports are ideal for organizations that handle or store customer data or provide services to other businesses, such as cloud-based service organizations, hosting companies or Software as a Service (SaaS) organizations.
The SOC 2 report contains the auditor’s opinion on the description and the suitability of design, and operating effectiveness (Type II) of controls. It also contains management’s assertion that the controls were effective throughout the period (Type II). A detailed description of the system is included as well as a listing of the controls and results of testing.
The primary audience for SOC 2 reports includes the service organization’s clients, business partners, and other stakeholders.
Like the SOC 1 reports, the two types of SOC 2 reports include Type I, covering the design of controls at a particular point in time, and Type II covering the design and operating effectiveness over a period of time.
What’s Included in a SOC 3 Report
Like the SOC 2 report, the SOC 3 report is based on the same trust services criteria of security, availability, confidentiality, processing integrity and privacy. The SOC 3 report is an abbreviated report and must be performed as a Type II report covering the design and operating effectiveness over a period of time. The SOC 3 report contains the following:
- Auditor’s opinion – This section of the report gives the auditor’s opinion on the effectiveness of the organization’s controls.
- Management Assertion – Here the service organization’s management asserts that the controls within the system were effective to provide reasonable assurance that the service commitments and system requirements were achieved based on the applicable trust services criteria.
- Description of the system boundaries – This section includes an overview of the boundaries of the system.
- Principal service commitments and system requirements – This section includes the principal service commitments and system requirements that are key to the performance of the service and relate to the applicable trust services criteria.
Why obtain a SOC 3 report?
One of the main reasons to obtain a SOC 3 report is so the public (not just user entities) can be informed of the service organization’s secure control environment without disclosing sensitive operational details. A service organization might also wish to use the SOC 3 report for marketing purposes, as it demonstrates commitment to security to potential clients and partners.
Another reason to obtain a SOC 3 report is for competitive advantage. In today’s marketplace, a service organization can set themselves apart by publishing a SOC 3 report. This could be a deciding factor for clients when choosing between service providers. The ability to demonstrate SOC 3 compliance in marketing materials can enhance brand credibility and influence purchasing decisions.
A SOC 3 report can also be an indication of regulatory compliance. Although the SOC 3 report does not contain the detail of a SOC 1 or SOC 2 report, it is based on the testing performed in the SOC 2 report.
A SOC 3 report also demonstrates transparency by providing a summary of the auditor’s opinion on the effectiveness of controls. This can help build trust with stakeholders, customers, and investors.
Key Considerations and Limitations of SOC 3 Reports
- The limited detail in the SOC 3 report might not satisfy some stakeholders, which might require a SOC 2 report also.
- A SOC 3 report does require a SOC 2 audit and is many times provided as an addition to a SOC 2 report.
- The trust services criteria included in the SOC 3 report must align with the organization’s services and customer expectations.
- This is a public facing document, so the description of the system boundaries should only include information you are comfortable with being public knowledge.
Strengthen Trust and Stand Out with a SOC 3 Report
SOC 3 reports can be a great tool for organizations to communicate their commitment to the security of their systems to a broad audience. By obtaining a SOC 3 report, a service organization can gain trust and competitive advantage and enhance the communication of compliance. This could be a strategic investment that will set the organization apart from competitors.
If you are considering obtaining a SOC 3 report, it is essential to work with an experienced auditor who can guide you through the process. LBMC helps companies of all sizes and in all industries with their compliance efforts for SOC1, SOC 2, SOC 3, HITRUST, PCI, HIPAA risk assessments, ISO, penetration testing, and cybersecurity consulting.
Content provided by Richard Beard, Sr. Manager, LBMC Cybersecurity. He can be reached at Richard.beard@lbmc.com.