What is a SOC Report?
When you work with outside (such as CPAs, payroll processors, data centers, or financial technology services), If the providers’ controls are weak, your organization could face significant risks. And with cyberattacks on businesses increasing at an alarming rate, taking a provider’s word is no longer enough—you need reliable assurance.
To address this need, the American Institute of CPAs® (AICPA) developed a series of services designed to provide independent validation. System and Organization Control (SOC) engagements evaluate a service organization’s internal controls. The result is a detailed, evidence-based report that offers clear insight to guide your risk management decisions.
What is a SOC Report? Why Do I need It?
A SOC report (System and Organization Controls report) is an independent examination conducted by a licensed CPA to evaluate a service organization’s internal controls. It is not a certification but rather more of an audit where the auditor tests and issues an opinion on whether the service organization’s controls are suitably designed and operating effectively.
These reports are particularly important when organizations outsource critical services (such as payroll, IT, or data processing) and need assurance that the service provider has controls in place to safeguard systems and data.
There are three main types of SOC reports: SOC 1, SOC 2, and SOC 3, each serving different purposes and audiences.
Who Creates and Governs SOC Reports?
While the American Institute of CPAs® (AICPA) developed the SOC framework, the reports themselves can only be issued by independent licensed CPAs or CPA firms. This ensures that each engagement is performed with professional rigor and objectivity.
SOC examinations are conducted under the AICPA’s attestation standards (AT-C sections), which provide the criteria auditors must follow when evaluating a service organization’s controls. By requiring adherence to these standards, the AICPA maintains consistency and comparability across industries and service providers.
This governance structure adds credibility and reliability to SOC reports, making them a trusted tool for organizations that need assurance over outsourced systems and services.
What Does “System and Organization Controls” Mean?
The term System and Organization Controls (SOC) refers to the policies, processes, and procedures that a service organization puts in place to achieve its objectives. These objectives may relate to the accuracy of financial reporting, the protection of data, the availability of systems, or the privacy of sensitive information.
SOC reports are named for this focus on controls. Rather than simply reviewing outcomes or relying on promises, the auditor evaluates whether the service organization’s internal controls are suitably designed and (for Type 2 reports) operating effectively.
This focus on controls is what makes SOC reports distinct from a generic “audit report” or certification.
The SOC Reports at a Glance
| Report | Primary focus | Typical audience | Typical use | Detail level & distribution | Governing standards |
|---|---|---|---|---|---|
| SOC 1 | Controls relevant to ICFR (internal control over financial reporting) | Customer finance teams, user auditors | Reliance for financial audits | Detailed, restricted-use | AICPA SSAE (AT-C 320) |
| SOC 2 | Trust Services Criteria (TSC): Security (required) + Availability, Processing Integrity, Confidentiality, Privacy | Security, compliance, procurement | Vendor risk & security due diligence | Detailed, restricted-use | AICPA SSAE (AT-C 105/205) |
| SOC 3 | Same criteria as SOC 2, but summarized | Public, marketing stakeholders | Public proof of controls | High-level, general-use | AICPA SSAE (AT-C 105/205) |
SOC 1
A SOC 1 report focuses on a service organization’s controls that affect its clients’ financial reporting (ICFR). It allows user auditors to assess risks and gather evidence on whether those controls are operating effectively. The report is only intended for the service organization’s management, its clients, and their auditors. Typical organizations that need a SOC 1® include payroll processors, medical claims processors, loan servicers, and data centers, since their services directly impact clients’ internal control over financial reporting.
SOC 2
A SOC 2 report shows how a service organization manages controls around security, availability, processing integrity, confidentiality, and privacy. It is used in vendor risk management to give customers and auditors confidence that systems and data are protected. Access is limited to parties who understand the organization’s systems and services. Companies that often need SOC 2® include IT outsourcing firms, SaaS providers, managed security services, fintech companies, health care claims processors, customer support providers, and ESG data services.
SOC 3
A SOC 3 report also covers controls for security, availability, processing integrity, confidentiality, and privacy, but it provides less detail than a SOC 2®. Because of this, it is considered a general-use report that can be publicly shared and is often used by organizations to demonstrate trust without disclosing sensitive control information. Since the report only includes management’s assertion and the auditor’s opinion, it may not satisfy all users’ needs, and in some cases management and the auditor may decide to limit its distribution to specific audiences.
Which Service Organizations Need Each Report?
| Report Type | Purpose | Who Uses It | Examples of Service Organizations |
|---|---|---|---|
| SOC 1 | Addresses controls at the service organization relevant to user entities’ internal control over financial reporting (ICFR). Helps user auditors assess risks and obtain audit evidence. | Restricted use: management of the service organization, user entities, and user auditors. |
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| SOC 2 | Addresses controls relevant to Security, Availability, Processing Integrity, Confidentiality, and Privacy (Trust Services Criteria). Provides detail for vendor risk management and due diligence. | Restricted use: specified parties with knowledge of the system and services (e.g., customers, regulators, business partners). |
|
Structure of a SOC Report
| Component | Description | Applicable to SOC 1 | Applicable to SOC 2 | Applicable to SOC 3 | Type 1 | Type 2 |
|---|---|---|---|---|---|---|
| Independent Auditor’s Opinion | The CPA’s formal conclusion on whether the system was fairly described, controls were suitably designed, and (for Type 2) operated effectively. | ✓ | ✓ | ✓ | ✓ | ✓ |
| Management’s Assertion | Management’s signed statement that the system description is accurate and controls were designed (and, for Type 2, operated) effectively. | ✓ | ✓ | ✓ | ✓ | ✓ |
| System Description | A narrative of services, system boundaries, processes, and control environment that sets the context for auditor testing. | ✓ | ✓ | ✓ | ✓ | ✓ |
| Control Objectives / Trust Services Criteria | SOC 1: Control objectives related to ICFR. SOC 2 & SOC 3: Trust Services Criteria—Security (required) plus Availability, Processing Integrity, Confidentiality, and Privacy. |
✓ | ✓ | ✓ | ✓ | ✓ |
| Tests of Controls & Results | Details of auditor procedures performed and outcomes. Type 2 includes operating effectiveness over a period; Type 1 does not. | ✓ | ✓ | — | — | ✓ |
| Complementary User Entity Controls (CUECs) | Controls clients (user entities) must implement to achieve the intended assurance (e.g., proper authorization of payroll changes). | ✓ | ✓ | — | ✓ | ✓ |
SOC Type 1 or SOC Type 2?
When organizations undergo a SOC examination, one of the first choices is whether they need a Type 1 or Type 2 report. Both assess a service organization’s system and controls, but they differ in scope and timeframe.
- Type 1: A point-in-time “snapshot.” It evaluates whether management’s description of the system is fairly presented and whether the controls were suitably designed as of a specified date.
- Type 2: A period-of-time “movie.” It covers the same description and design suitability, and also evaluates whether the controls operated effectively throughout a defined period.
Below are two quick-reference tables that summarize the required components for Type 1 and Type 2 across SOC 1 and SOC 2.
Components of a Type 1 Report (SOC 1 & SOC 2)
| Report | Scope & Focus | Timeframe | Criteria Basis | Management Assertion | Service Auditor’s Report |
|---|---|---|---|---|---|
| SOC 1 – Type 1 | Fair presentation of management’s description and suitability of the design of controls to achieve stated control objectives. | As of a specified date | Control objectives relevant to internal control over financial reporting (ICFR). |
|
Opinion on the description and suitability of design. |
| SOC 2 – Type 1 | Whether the description presents the system and whether controls were suitably designed to provide reasonable assurance of achieving service commitments and system requirements if controls operated effectively. | As of a specified date | Applicable Trust Services Criteria (Security + others as applicable). |
|
Opinion on the description and suitability of design. |
Components of a Type 2 Report (SOC 1 & SOC 2)
| Report | Scope & Focus | Timeframe | Criteria Basis | Management Assertion | Service Auditor’s Report |
|---|---|---|---|---|---|
| SOC 1 – Type 2 | Fair presentation of management’s description; suitability of the design of controls; and whether controls operated effectively to achieve stated objectives. | Throughout a specified period | Control objectives relevant to internal control over financial reporting (ICFR). |
|
Opinion on description, suitability of design, and operating effectiveness over the period. |
| SOC 2 – Type 2 | Same as Type 1 plus whether controls operated effectively to provide reasonable assurance of achieving service commitments and requirements. | Throughout a specified period | Applicable Trust Services Criteria (Security + others as applicable). |
|
Opinion on description, suitability of design, and operating effectiveness over the period. |
Working with a Managed IT Service Provider
Achieving and maintaining SOC compliance can be complex. From documenting policies to implementing security controls and ensuring ongoing monitoring, most organizations find it difficult to manage the process alone. This is where a Managed IT Service Provider (MSP) can add real value.
An MSP can support your SOC audit journey in three key ways:
- Audit Readiness: A trusted provider helps you assess your current environment, identify gaps against SOC requirements, and implement the necessary policies, procedures, and security tools before the auditors arrive.
- Certification Support: While only licensed CPAs can issue SOC reports, an MSP ensures your systems and controls are designed and operating effectively so the audit process is smooth, efficient, and successful.
- Ongoing Compliance: Passing one audit is not enough. An MSP provides continuous monitoring, patching, incident response, and control maintenance so your organization is always prepared for future SOC examinations and client due diligence requests.
An MSP that provides Compliance as a Service to guide organizations through every stage of the SOC journey is ideal. BCA, for example, is SOC 2 Type 2 compliant, so we know firsthand what it takes to prepare, succeed in the audit, and stay compliant year after year. That experience allows us to help our clients move confidently through their own certification process while strengthening overall security and trust.
Frequently Asked Questions
Is a SOC report the same as a certification?
No. A SOC report is not a certification — it is an attestation report conducted by a CPA. The auditor issues an opinion on whether controls are suitably designed (Type 1) and, for Type 2, whether they operate effectively over a period of time. It does not certify or guarantee future performance.
How long does a SOC audit take?
Timing depends on the type of report (SOC 1, 2, or 3), whether it’s Type 1 or Type 2, and how mature your controls and documentation are. Type 1 reports usually take less time because they only test design. Type 2 reports can take 6–12 months or more, especially if new controls or remediation are needed.
What is the minimum period a Type 2 SOC report must cover?
There is no universal minimum period required by the AICPA. In practice, Type 2 reports often cover 6 or 12 months. The reporting period must be long enough to demonstrate operating effectiveness, and auditors use professional judgment to determine adequacy.
Which type of SOC report should my organization pursue?
It depends on your services and stakeholder needs. If your services affect clients’ financial reporting, a SOC 1 report is relevant. If customers care about security, availability, or privacy, SOC 2 is more appropriate. SOC 3 is useful for public trust or marketing since it summarizes results without detailed controls. Some organizations may need more than one type.
What happens if the auditor finds exceptions or control failures?
Exceptions are documented in the report with details about what failed, when, and how serious. Organizations typically remediate these issues, may issue a bridge letter or management response, and must demonstrate fixes in future audits to show controls are operating properly.
Who can see a SOC 1 or SOC 2 report?
SOC 1 and SOC 2 reports are restricted to parties with a legitimate need, such as clients, auditors, and regulators. They are not made public. In contrast, SOC 3 reports are designed for broad public distribution.
Is SOC compliance required by law?
Generally, no. SOC reports are not mandated by law, but they are often required contractually by clients or in regulated industries where service providers must demonstrate strong internal controls or security practices.
Can small companies get a SOC report?
Yes. Small and midsize organizations can pursue SOC reports. Size does not prevent having effective controls. Many smaller firms start with a Type 1 report or narrower scope. Costs and effort scale with complexity, and outside consultants or MSPs can help.
How often should a SOC report be renewed?
SOC reports reflect a past point in time (Type 1) or period (Type 2). Most organizations undergo annual audits for ongoing assurance. Continuous monitoring and regular reviews keep controls ready for the next cycle.
