How Often Should You Get a SOC Report

System and Organization Controls (SOC) reports are essential for ensuring the protection of sensitive information and compliance with regulatory requirements. These reports provide valuable insights into an organization’s security controls and processes, fostering trust and confidence among clients and stakeholders. But how often should a company obtain a SOC report to maintain optimal security and compliance? In this Peak Post, we explore the recommended frequency for obtaining SOC reports, the different types of reports available, and the factors that influence the decision-making process.

There are three primary types of SOC reports, each serving a specific purpose:

• SOC 1: Focuses on controls relevant to user entities’ internal control over financial reporting (ICFR). It’s typically requested by auditors when conducting financial audits.
• SOC 2: Evaluates a service organization’s controls related to one or more of the Trust Services Categories (TSCs): security, availability, processing integrity, confidentiality, and privacy. This report is widely used by technology, healthcare, and finance organizations.
• SOC 3: A simplified version of SOC 2, primarily intended for public consumption. It provides a high-level overview without revealing specific testing details.

The Securities and Exchange Commission (SEC) mandates that all publicly held entities file annual audited reports. SOC 1 reporting assists organizations in complying with Sarbanes–Oxley Act’s section 404 by demonstrating successful internal controls for financial auditing and reporting. Service organizations, including privately held companies, may need to obtain a SOC 1 if their services impact clients’ internal controls over financial reporting (ICFR). Although a service organization obtaining a Type 2 report cannot align the period covered with every user entity’s fiscal or reporting period, the period must overlap substantially with the user entity’s audited financial statements. Due to these annual reporting requirements, a service organization typically obtains a SOC 1 Type 2 report every 12 months. This approach maximizes the report’s usefulness to stakeholders, user entities, and their auditors, providing continuous coverage year over year.

“Regardless of the specific needs or reporting cadence the aim is to provide SOC reports with sufficient frequency and covering sufficient periods to provide continuous coverage and assurance to meet the needs of internal and external stakeholders.”

A SOC 2 isn’t required by law and, as such, there are no mandated requirements to obtain a SOC 2 within a predefined period. Also, SOC 2 reports do not expire; however, reports older than a year are often considered “stale,” providing little to no value to user entities and their auditors. Generally, service organizations will obtain a SOC 2 Type 2 report annually. Similar to a SOC 1 Type 2 report, this reporting cadence provides assurance over the operating effectiveness of controls over a longer period of time and maximizes the usefulness of the report to both the service organization and user entities and their auditors.

While service organizations typically obtain SOC 1 or SOC 2 reports annually, they may elect to obtain SOC 1 Type 2 or SOC 2 Type 2 reports more frequently (e.g., every six months) based on their needs, client preferences, ongoing concerns, or significant changes impacting their control environment. A service organization may even elect to obtain a report covering a shorter period (three months) based on specific needs; however, periods that are too short provide less assurance over the operating effectiveness of controls at the service organization. Regardless of the specific needs or reporting cadence, the aim is to provide SOC reports with sufficient frequency and covering sufficient periods to provide continuous coverage and assurance to meet the needs of internal and external stakeholders.

There are situations that necessitate more frequent SOC reporting. These could include:

• Regulatory Requirements: Certain industries have specific regulatory requirements that emphasize the importance of maintaining strong security controls and conducting regular risk assessments. For example, while HIPAA for healthcare organizations does not mandate specific SOC reporting frequencies, it requires organizations to ensure the security and privacy of protected health information (PHI), which can be demonstrated through regular SOC reporting.
• Contractual Obligations: Some client contracts may require updated SOC reports at predetermined intervals, more frequent than the annual recommendation.
• Significant Changes: Significant changes, including mergers, acquisitions, new technology implementations, or modifications to the control environment, may necessitate more frequent SOC reports to reflect changes and ensure continued compliance.

Organizations should consider several factors when determining SOC report frequency:

• Industry Standards: Understand the industry-specific regulations and standards that apply to your organization. They may influence the SOC reporting frequency.
• Client Expectations: Consider client and stakeholder expectations requiring specific assurance levels provided through regular SOC reporting.
• Risk Management: Evaluate risk tolerance and the potential impact of security breaches or non-compliance. This can help guide the decision-making process when determining how often to obtain a SOC report.
• Internal Control Environment: Regularly assess internal control effectiveness to identify areas needing improvement and determine if more frequent SOC reporting is necessary.

Ultimately, the frequency of obtaining a SOC report depends on an organization’s specific needs and circumstances. Generally, an annual SOC report demonstrates a commitment to robust security and compliance measures. However, industry-specific regulations, client expectations, and significant organizational changes may necessitate more frequent SOC reporting. By carefully considering these factors, organizations can ensure they provide the necessary assurance to clients and stakeholders while effectively managing risk and maintaining compliance.