The Ultimate Manual To SOC 3 vs. SOC 2
The use of SaaS and cloud-based software technology has skyrocketed over the past several years. This increase is creating a demand for service providers to provide clients with SOC (Service Organizations Controls) reports. As the need for these reports become more frequent, it’s essential to understand the differences between SOC 3 vs. SOC 2— and this guide has the answers.
What are SOC 3 and SOC 2 Anyway?
Service Organizations Controls (SOC) reports establish trust between a service provider and their clients. An independent certified public accountant conducts the reports to validate the internal controls of the organization providing a service.
Customers might request SOC 3 and SOC 2 reports from service organizations before using that company for a cloud technology or SaaS.
SOC 3 and SOC 2 are both audit and reporting standards defined by the American Institute of Certified Public Accountants (AICPA).
While SOC reports have similarities and differences, they each serve a different purpose.
In short, SOC 3 reports are more for general use purposes and don’t contain as much detail as SOC 2 reports. SOC 3 reports are commonly used as general marketing tools for service organizations, while SOC 2 reports dive deeper into system controls, procedures, test results, and more.
How SOC 3 and SOC 2 Work
Before explaining the differences between SOC 3 and SOC 2, let’s look at Service Organizations Controls at a higher level. Generally speaking, there are three main types of SOC reports:
- SOC 1 — Internal control over financial reporting (ICFR)
- SOC 2 — Trust services criteria
- SOC 3 — Trust services criteria for general use reporting
There are also specialized SOC reports for things like supply chain and cybersecurity.
SOC 1 and SOC 2 are made for a restricted audience. More specifically, these reports are designed for people who have a firm understanding of the system that’s being evaluated. SOC 3 reports are less specific and can be shown to the general public.
Financials are the primary focus of SOC 1, and the report doesn’t cover data security, data compliance, or operations. That’s why SOC 3 and SOC 2 are typically compared with each other, as the two reports have more in common.
In terms of the auditing procedure, SOC 3 and SOC 2 are nearly identical. Both audits are conducted using the same standards. Each of these reporting frameworks is based on the five Trust Service Criteria (TSC), formally known as the Trust Service Principles (TSP), defined by the AICPA:
- Security — Systems and info are protected from unauthorized access and unauthorized disclosure. The systems are protected from any damage that would compromise the integrity, confidentiality, availability, and privacy of the information and impact the entity’s ability to meet its objectives.
- Availability — Systems and information must be available to operate and used in accordance with the entity’s main objectives.
- Processing Integrity — The system processing is accurate, valid, timely, complete, and authorized to meet objectives.
- Confidentiality — All confidential information is protected to meet entity objectives.
- Privacy — All personal information is collected, used, retained, disclosed, and disposed of in accordance with entity objectives.
SOC 3 and SOC 2 typically go hand-in-hand because SOC 3 reports can’t be generated without the steps required in a SOC 2 examination.
Now that you understand the similarities between SOC 3 and SOC 2, it’s time to take a closer look at the differences.
SOC 3 vs. SOC 2: Differences Explained
While the examinations for SOC 3 and SOC 2 have much in common, the most significant difference between SOC 3 and SOC 2 is the reporting. More specifically, the intended audience for each report, the level of detail, and the intended distribution for each report are very different.
SOC 2 reports are known as restricted-use reports—meaning they’re only intended for a specific audience. User entities, service organization management, or other specifically named parties are examples of who would read a SOC 2 report.
On the other hand, SOC 3 reports are for general use. They are written in a way that’s intended for people with a general interest in the service organization without getting into the specific details. SOC 3 reports can be distributed publicly, and the audited companies can use them for marketing purposes.
SOC 2 reports are more common for service organizations to provide specific details to other entities showing how controls are in place to protect the needs of their clients.
Example 1: Vendor Management Programs
Say a particular business is interested in obtaining some type of cloud service from a SaaS provider. The company might initially use public SOC 3 reports to narrow the search to a reputable provider. But they might also want to obtain a specific SOC 2 report to examine the operational details of the provider at a higher level.
These steps can help the business with risk management for data security. By obtaining these reports from an audit conducted by an independent CPA, the business can feel comfortable knowing that the vendor in question is following best practices to protect the company’s data.
The results of a SOC 2 report will show a business entity how well a third-party vendor is assessing and protecting potential data threats.
Example 2: SaaS and Data Center Marketing
For providers, SOC 3 reports can help your company stand out from competitors in your space. Offering SOC 3 reports to the public illustrates transparency and shows everyone that you’re taking the right steps to secure your systems for clients.
Here’s an example. Amazon Web Services (AWS) is an industry leader in cloud computing services. You can find a dedicated SOC compliance page on the AWS website. The page explains how the reports were conducted by independent third parties to show how AWS achieves compliance.
Furthermore, AWS offers a publicly available whitepaper for its SOC 3 report. As a general-purpose report, anyone interested in AWS can read the whitepaper and see the findings made by the third-party CPA.
Google Cloud has a similar SOC compliance page on its website. You can also request Google Cloud’s SOC 3 report from the compliance reports manager tool.
In both of these examples, AWS and Google Cloud are showcasing SOC 3 reports for marketing purposes.
How to Get Started With SOC 3 and SOC 2
Now that you have a detailed understanding of SOC 3 vs. SOC 2, it’s time to leverage these reports for your organization. If you’ve never gone through this process before, the specific and tactical steps explained below will help set you up for success.
Step 1: Prepare For an Audit
Before you go through the audit process, you must take the time to get organized and make sure everything is in order. To ensure everything goes smoothly, you don’t want to be caught off guard by requests or actions taken by the auditor.
The first thing you need to do is determine the scope of the audit. As previously mentioned, there are three types of SOC reports—SOC 1, SOC 2, and SOC 3.
SOC 1 audits will be different from SOC 3 and SOC 2 audits.
For SOC 3 and SOC 2 audits, it’s common for auditors to give service providers a security questionnaire. The questions will relate to different policies, procedures, and infrastructure related to your technical controls.
Be prepared to provide evidence of sufficient and effective controls for data security. You’ll need to provide proof that your technology and controls meet certain standards for compliance.
This is not an overnight process. Audits can take anywhere from several weeks to several months. So be prepared to provide supplemental evidence or clarify additional questions after the initial round of testing.
If the auditor finds any compliance gaps, you should be prepared to update any security issues before the audit and SOC certification process can continue.
Generally speaking, knowing what to expect during the audit process can really help you out and set you up for success. So make sure to discuss the process with the independent auditor before you get started.
Step 2: Update Administrative Policies and SOPs
All good data security systems need to have up-to-date administrative policies and standard operating procedures. Without these in place, people across the organization can’t follow the same standardized best practices.
If you haven’t done so already, make sure your SOPs and administrative policies are formally documented and distributed to everyone in the company. The policies should be described in plain English and avoid technical jargon when it’s not required.
The idea here is to create SOPs that accommodate your daily workflows, staff, and technology. All security policies will define how controls are implemented throughout your infrastructure and applications.
How are you managing workplace data security? The policies here will answer that question.
Common components of standardized security policies and SOPs include:
- System Access — Define how your company grants access, restricts access, and revokes access to different users and groups in the organization.
- Security Roles — Describe the roles and responsibilities of the data security team in your organization.
- Security Training — Describe how you create data security awareness and train your staff effectively organization-wide.
- Incident Response — Describe how your company responds to a security incident. This includes incident reporting, investigations, and resolutions.
- Disaster Recovery — Define how you backup and recover data. Describe how these standards are managed, implemented, and tested.
- Risk Assessment and Analysis — Explain how your company assesses, manages, and resolves security vulnerabilities.
Your policies should be reviewed and updated regularly, regardless of a pending SOC audit. But keeping this information up to date will make it easier for you to promptly and adequately answer questions during an audit.
Step 3: Establish Technical Security Controls
After you’ve completed SOPs and administrative policies for security, it’s time to put technical controls in place across your entire infrastructure.
For some of you, this step might already be complete. But you still need to verify those technical controls before the audit. All of the security controls in this step should align with the SOPs and policies defined previously.
In addition to following your internal protocols for data security, all of your best practices should match the Trust Standards Criteria (TSC) defined by the AICPA.
Since that’s what auditors will use as a reference point, it makes sense to be proactive and put these trust standards in place before the audit. Again, the principles include:
- Processing Integrity
Things like access control, encryption, firewalls, networking, backups, audit logging, intrusion detection, and vulnerability scanning are all areas where you should focus your security controls.
Step 4: Gather Documentation For the Audit
To streamline the SOC 3 and SOC 2 audit process, you should prepare the documentation and evidence required by the auditor.
Examples include SLAs (service level agreements), BAAs (business associates’ agreements), and even old SOC 2 reports, assuming you’ve been through this process before.
You should also gather your administrative policies, SOPs, technical control documents, third-party contracts, vendor contacts, risk assessment documents, and more.
As mentioned previously, SOC 3 and SOC 2 audits can potentially take several months. Therefore, making things easier on the auditor and preparing all documentation ahead of time can help make the audit process go faster.
Step 5: Schedule the Audit
The first four steps are all about audit preparation and readiness. But once everything is in place, it’s time to officially schedule your SOC audit.
SOC audits can only be conducted by an independent CPA. These professionals must follow the auditing standards established by the AICPA.
Not every CPA has the technical expertise, certification, and training required to complete SOC audits. So it’s important to find a reputable firm and auditor who can handle this for you.
If you’re having trouble finding an auditor, consider browsing through publicly available SOC 3 reports in your industry. For example, refer back to the AWS SOC 3 report that we discussed earlier. You can find the auditor’s information directly on that report.