Trust and transparency are more important than ever in today’s digital and highly connected business world. Companies are expected to prove they have strong internal controls, especially when managing sensitive data or financial information for clients. That’s where System and Organization Controls (SOC) Reports come in. These reports provide independent assurance that a company’s controls are designed and/or operating effectively.
This article explains what SOC Reports are, why they matter, the different types available, how the process works, common challenges, and how they can support business growth.
What Are SOC Reports?
SOC refers to a suite of reports issued by independent CPAs following the standards of the American Institute of Certified Public Accountants (AICPA). These reports assess how well a service organization’s internal controls function in relation to the services it provides.
Unlike internal reviews, SOC Reports are conducted by independent CPA firms, which adds credibility and objectivity to the process. SOC Reports are commonly used by service providers like cloud platforms, IT-managed services providers, payroll processors, claims payment providers, and financial institutions providing trust, mortgage, and/or asset management services to show their commitment to security, compliance, and operational excellence. These reports are relevant to any organization that provides services impacting clients’ financial reporting or that hosts or processes sensitive client information.
Why SOC Reports Matter
SOC Reports go beyond checking a compliance box; they are valuable tools for building trust and managing risk. These reports are critical for several reasons, as they:
- Help manage third-party risk
- Assist in strengthening operations and promoting accountability
- Help reduce procedures for financial audits
- Support business expansion
- Aid in due diligence requirements for mergers and acquisitions (M&A)
- Strengthen credibility with clients and partners
- Help meet regulatory requirements
Types of SOC Reports
There are three main types of SOC Reports, each serving a different purpose;
- SOC 1 Report – Internal Controls Over Financial Reporting
- Focuses on processes and controls impacting clients’ financial reporting
- Used by auditors, finance teams, and controllers
- Best for all organizations that support clients’ financial, internal, operational, and/or SOX compliance audits
- SOC 2 Report – Trust Services Criteria
- Evaluates controls related to security, availability, processing integrity, confidentiality, and/or privacy
- Used by vendor risk managers, regulators, procurement teams, and auditors
- Best for all organizations hosting or processing sensitive client data
- SOC 3 Report – General Use
- A simplified version of a SOC 2 Report, designed for public distribution
- Used by prospective clients and the general public
- Best for marketing and demonstrating a commitment to trust and security
SOC Type 1 vs. Type 2 Report Formats
SOC Reports come in two formats:
- Type 1 – Evaluates the design of controls at a specific point in time
- Type 2 – Assesses both the design and how well the controls operate over a defined period
It is worth noting that SOC 3 Reports can only be issued if a SOC 2 Type 2 Examination has been performed.
How the SOC Process Works
The SOC Reporting process typically includes:
- Defining the scope and planning the engagement
- Collecting evidence and testing the design and/or operating effectiveness of controls
- Drafting and finalizing the report
- Maintaining readiness for future SOC Examinations
Common Challenges in SOC Reporting
Service organizations often run into issues such as:
- Unclear ownership of controls
- Lack of understanding of internal and vendor control responsibilities
- Inconsistent control execution
- Lack of segregation of duties
- Insufficient documentation to demonstrate the control’s design and/or operation
- Rushing into a SOC Examination report without undergoing a Readiness Assessment
The Strategic Value of SOC Reports
Beyond compliance, SOC reports can help:
- Speed up sales cycles
- Show operational maturity
- Improve internal processes
- Build long-term trust with internal and external stakeholders
Getting Started With SOC
If your organization is considering SOC Reporting, here are a few steps to consider:
- Understand your internal and contractual requirements on compliance
- Understand and select the right type of SOC Report
- Conduct a Readiness Assessment, preferably with a professional services firm
- Assign internal ownership of the process and controls
- Track and remediate identified processes, controls, and/or evidence gaps
- Stay prepared for ongoing Examinations
Final Thoughts
SOC Reporting goes far beyond checking a compliance box. It is a strategic move that helps strengthen your organization’s credibility, build client trust, and support long-term growth. Whether you are pursuing a SOC 1 for financial reporting or a SOC 2 for information security, these reports help demonstrate a commitment to operational excellence and transparency.
Ready to take the next step? From preparing for a first SOC Report or HITRUST Assessment to having concerns about your existing information security program, our firm offers several SOC & HITRUST services to help guide you through the process with clarity and confidence. For more information, please reach out to a professional at Forvis Mazars.