SOC stands for System and Organization Controls, a reporting framework that is designed to evaluate and report the effectiveness of an organization’s internal controls that are related to security, data protection, and operational processes. It was developed by the American Institute of Certified Public Accountants (AICPA), a professional body that sets ethical standards, auditing guidelines, and professional practices for accountants and auditors. SOC helps organizations to demonstrate their commitment to maintaining strong internal controls for protecting sensitive data and providing reliable services.
System and Organization Controls are especially important for companies that provide services to other businesses, such as cloud platforms, SaaS providers, IT outsourcing firms, and data processing organizations. These companies often handle sensitive client information, so customers need assurance that proper controls are in place for safeguarding the data.
The story of System and Organization Controls begins in the early 2000s when companies started outsourcing IT services and using third-party service providers to manage critical business operations such as data storage, payroll processing, and cloud-based applications. As this dependency on external vendors increased, organizations faced growing pressure on data security and operational reliability.
To address this challenge, the American Institute of Certified Public Accountants (AICPA) created a standard called “SAS 70” (Statement on Auditing Standards No. 70). It allowed service providers to show their customers that they had effective controls in place for handling data safely. But as technology evolved, SAS 70 became outdated. It didn’t cover modern cybersecurity threats or cloud environments. So, AICPA decided to introduce a new framework called System and Organization Controls that provides a broader and more relevant approach to evaluating internal controls in modern digital environments.
SOC report is an independent assurance report that is issued by a Certified Public Accountant (CPA) after evaluating an organization’s internal controls. This report assesses whether the organization’s controls are appropriately implemented to manage risks and protect information. This report helps organizations to reduce third-party risk, improve transparency, and strengthen relationships with customers, regulators, investors, and business partners.
It is based on five Trust Service Criteria (TSC) defined by the AICPA:
There are three primary types of SOC reports, each designed for different purposes.
SOC 1
SOC 1 focuses on controls that may impact a customer’s financial reporting. It is commonly used by service providers such as payroll processors, accounting firms, and financial service organizations. This report ensures that financial transactions and reporting processes are accurate, reliable, and properly controlled.
SOC 2
A SOC 2 report is an independent assessment that evaluates an organization’s controls related to the security and protection of customer data. It is based on the AICPA Trust Services Criteria, which include Security, Availability, Processing Integrity, Confidentiality, and Privacy.
SOC 3
SOC 3 covers the same criteria as SOC 2 but provides a summarized report that can be publicly shared. It is often used for marketing and customer assurance purposes.
System and Organization Controls reports are also classified based on the audit period.
Type I
Type I evaluates whether controls are properly designed at a specific point in time. It answers the question: “Are the controls designed appropriately?”
Organizations often obtain Type I reports when implementing new control systems.
Type II
Type II evaluates both the design and operating effectiveness of controls over a defined period.
It answers two questions:
Organizations that undergo a SOC examination can gain several advantages, including:
System and Organization Controls reports are primarily designed for service organizations that handle customer information or perform outsourced business functions.
Organizations that need SOC reports include:
System and Organization Controls is more than just an audit report—it is a framework that builds confidence in modern digital services. It demonstrates that an organization’s systems and processes are designed and operated effectively to protect data, manage risks, and maintain secure and reliable services. By obtaining this report, organizations can strengthen trust, improve operational processes, meet regulatory requirements, and gain a competitive advantage in the marketplace.
A SOC report provides assurance to customers, partners, and stakeholders that an organization has implemented effective controls to protect data and manage risks.
A System and Organization Controls report is issued by an independent Certified Public Accountant (CPA) firm after conducting an examination of the organization's controls.
A financial audit focuses on financial statements, while a SOC audit evaluates the effectiveness of internal controls related to services and systems.
Yes. SOC reports provide independent assurance that can increase trust between service providers and their customers.
System and Organization Controls 2 focuses on the Trust Services Criteria, including security, availability, processing integrity, confidentiality, and privacy.
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