Navigating the SOC audit process can be daunting. There are a few options for audits and while the standards are consistent among auditors, each auditor has their own unique style for conducting the audit.
In this article, I’m going to break down the primary distinctions between a SOC 2 Type 1 vs Type 2 audit. Organizations pick one over the other and there are typically good reasons for that choice. The best choice for your firm will ultimately depend on budget and your organizational needs.
We’re hopeful this article makes your choice a little easier.
Quick Overview of SOC 2
A SOC 2 audit is a subset of the SSAE 18 which is a framework published by the American American Institute of Certified Public Accountants (AICPA) in 2016 to address administrative simplicity in conducting AICPA audits.
The SOC 2 is an evaluation of System and Organization Controls conducted by a licensed CPA firm. It applies when an organization is a Service Organization, meaning that the organization provides services with respect to client data. Think financial institutions, healthcare firms, software as a service providers, platform as a service providers, or really any companies that use information systems to handle sensitive data.
The SOC 2 evaluates service organizations’ controls around confidentiality, integrity, and availability of client data. That evaluation is conducted by assessing an organization against five trust services criteria or trust service principles:
- Security – focused on technical infrastructure safeguards
- Availability – focused on business continuity and disaster recovery
- Processing Integrity – focused on quality assurance and data accuracy functions
- Confidentiality – technical and administrative safeguards designed to protect data from exfiltration or misuse
- Privacy – administrative safeguards with respect to data misuse
SOC 2 reports are flexible. The underlying control framework can be organizationally unique and rely on other security frameworks for the operative control sets.
What’s a SOC 2 Type 1?
In short, a SOC 2 Type 1 (also known as Type I) audit evaluates an organization’s system descriptions and the suitability of its controls. That effectively requires two things. The first is an understanding of your organization’s systems, typically via an inventory identifying what the system is and what data it holds. To support the SOC objectives, it’s important to understand how those systems support and interact with client or customer data.
The second is understanding the suitability of those controls to protect customer data security, availability, processing integrity, confidentiality, and privacy–the trust services criteria.
In a way, it’s like a SOC 1 Type 1 audit: It evaluates controls and whether or not they achieve their objectives. In that way, it’s very much a specific point-in-time audit evaluating control effectiveness on a specified date (the commencement of the audit).
What’s a SOC 2 Type 2?
A SOC 2 Type 2 (also known as Type II) audit builds iteratively on the Type 1. It takes the evaluation of system descriptions and the suitability of controls and then evaluates their efficacy to protect sensitive data housed in those systems. So instead of just taking a point-in-time snapshot, it evaluates the control environment and internal control policies over time.
SOC 2 Type II reports, then, highlight the sufficiency of controls over the period covered. Typically that’s the assessed service companies’ fiscal year or the calendar year.
Differences in Requirements
The major difference between SOC 2 Type 1 and SOC 2 Type 2 involves the timelines of the assessments in scope, which impacts how to provide evidence to highlight the sufficiency of the service organization’s relevant controls.
The SOC 2 Type 1 assessment, as highlighted above, pairs the system objectives and suitability of controls. It evaluates what processes, stores, and supports client data and the design effectiveness of information security control systems to protect those information systems. It’s a thorough examination of how a service organization protects data and supports relevant trust principles.
While evidence is required to support identified controls at a service organization for a SOC 2 Type 1 assessment, the evidence is that the internal controls exist in fact, and are fairly represented by management. The SOC 2 report will then opine on the sufficiency of the control framework.
The main difference between the Type 1 and Type 2 assessments is that the Type 2 assessment evaluates the operating effectiveness of the same controls to protect a service organization’s system or systems processing, storing, and supporting client data.
For SOC 2 type 2, the organization representing and reporting controls will need to demonstrate that the control set was effective over time (or at least wasn’t ineffective).
Consequently, the SOC 2 Type II report will opine on both the sufficiency of the information security control framework leveraged and its operating effectiveness to protect the confidentiality, integrity, and availability of client data.
How Long to Attain SOC 2 Type 2 vs Type 1?
Depending on the size of the organization, it could take months from the commencement of a SOC audit to receiving the SOC 2 report. Keeping expectations grounded is key to success.
A SOC 2 Type 2 audit will take significantly longer to conduct than a SOC 2 Type 1 audit. The trust services criteria and audit report are effectively identical between both of them (understanding that a SOC report will also include opinions about control efficacy).
As highlighted above, the key distinction between a SOC 2 Type 1 vs Type 2 audit is the evidentiary requirements. A SOC 2 Type 1 audit requires substantially less evidence than a SOC 2 Type 2 audit. The pressing concern in the former is demonstrating that a security framework exists as of the audit, while the latter is focused on establishing the operational effectiveness of that over time.
Expect a SOC 2 Type 2 audit to take roughly two to three times the time to conduct as a SOC 2 Type 1 audit.
That will depend on the quality and organization of evidence, how many other stakeholders need to be involved in the audit, and the clarity of documentation and scope of business requirements of service organization-related services to be safeguarded by the security control systems.
Preparing for each audit can be very straightforward or take a great deal of time, depending on whether or not you understand what evidence needs to be presented and the state the evidence is in. If you have well-organized evidence supporting your implementation of a control framework in light of the trust services criteria, then preparing for the assessment will be a breeze. On the other hand, if you don’t have the slightest clue where to start looking for evidence, then preparations may be significantly more arduous.
Differences in Cost
A SOC 2 Type 1 vs Type 2 audit report represents an order of magnitude difference in cost. Again, that’s primarily determined by the hourly rate for auditors, not by the SOC report generation. Both can prove to be a significant investment.
The general cost range for a SOC 2 audit is between $50,000 and $250,000. Expect the SOC 2 Type 1 audit to be in the lower range of that ($50,000 to $100,000) and the SOC 2 Type 2 audit to be in the upper range of that ($150,000 to $250,000). Obviously, the larger your organization and the more complex the systems supporting service provision, the more expensive the assessment.
A couple of ways to minimize cost, if you know you’re going to be undergoing a SOC audit is to:
- Design controls or organize evidence to cater to results in a SOC audit report. For example, design and create a packet around access controls to highlight the quality of perimeter access to data. The easier you make the process for your auditors, the less time it takes, and the more cost-effective the assessment.
- Conduct a readiness assessment. It’s an internal dry-run of a SOC audit, which lets you generate your own “SOC reports.” While not effective for external representation, they are effective for highlighting where you excel and still need to improve data security measures and can result in a detailed description of key audit procedural gaps. It’s a good starting point for all service organizations to drive improvement and minimize costs.
Differences in Benefits
There are many benefits to having a SOC assessment done. It’s tough to quantify the differences in benefits of a SOC 2 Type 1 vs Type 2 assessment. The glaring difference is the point-in-time vs ongoing effectiveness measures. Potential customers and third-party organizations that may work with you will want a reasonable assurance that your organization has some security in place to protect its data. From that perspective, a SOC 2 Type 1 report is necessary.
Some prospective customers may expect their third-party vendors to have an effective control set over time. They want more than the basics and demand some assurance that your control set will protect their data over time. Alternatively, you may want to assure customers, present and future, that you’re doing what you can mitigate threats. That necessitates a SOC 2 Type 2 report.
Long-time CISO and Network Assured contributor Nathaniel Cole says that, in his experience across industries, it is much more common for a client to request a SOC 2 type 2 than a type 1.
This presents a risk with going for Type 1 certification. Even if the first request you get from a prospective client is for a SOC 1, the second request might be for a Type 2. Going for a Type 2 at the earliest feasible point lowers the risk of missing out on new business.
To decide what’s best for you, think about the degree to which you want to highlight your organization’s control quality. Additionally, evaluate third-party vendor expectations in your industry–if your industry peers all have a Type 1 or a Type 2 report, then you’ll know what’s expected of your organization.
Who is SOC 2 Type 1 Right For?
A SOC 2 Type 1 report is right for companies that don’t need the rigor of a Type 2 assessment or which have just completed the development of their security program.
In the former situation, having evidence of a security program may be sufficient to address user entities’ concerns. This might be appropriate in industries where data security is a concern, but there’s no sensitive or otherwise regulated data being exchanged.
A SOC 2 Type 2 assessment would be a waste of money in the latter situation. If a program is new, there’s no evidence the program is effective. Evidence would only support the contention that the program is sufficient to address the risks it seeks to address.
Who is SOC 2 Type 2 Right For?
A SOC 2 Type 2 assessment would be right for institutions that have established security programs and which are providing services leveraging sensitive or regulated data. In the former case, there is ample support for a SOC 2 Type 2 assessment. In the latter, organizations may need to demonstrate that their security control program is effective at maintaining the confidentiality, integrity, and availability of client data.
Organizations that have financial reporting obligations will also benefit from a SOC 2 Type 2. Proposed regulations in New York require financial institutions doing business there to make representations about the sufficiency and efficacy of their information security program. While those haven’t passed as of the time of writing this article, when they do, organizations will need a way to demonstrate compliance.