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Standards and Certifications for Financial Compliance

The Extraordinary Power of Getting Certified for Operational Compliance

In today’s world of security and compliance, your organization’s future might rest on how you tackle financial compliance. Trust in industry-accepted certifications has grown exponentially. You might even hear clients asking “Are you certified?” at the start of each new engagement.

Certified? I thought that was for publicly traded companies. 

Why is everyone asking for these certifications?

What’s the difference between SOX compliance and SOC compliance?

Moreover, which certification is right for my organization?

For small- to medium-sized businesses and startups, researching financial compliance can command an overwhelming amount of time, money, and other resources. This guide offers the information you need to make efficient and sound decisions about various industry-accepted certifications.

This article tackles the main certifications—SOX, SOC 1, SOC 2, and SOC 3—from a bird’s-eye view. In future articles, we will take a deep dive into each type of certification.

Building trust and transparency for a service organization

There are two main types of certification:

  • The first is SOX compliance. SOX stands for the Sarbanes-Oxley Act of 2002. SOX is a US law meant to protect investors from fraudulent accounting activities by corporations. If you are not a publicly traded company (and you are not planning to go public), you can scratch this one off your list.
  • The second is SOC compliance. SOC stands for “systems and organization controls.” A SOC report is an audit of internal controls. It ensures data security, minimal waste, and shareholder confidence. If your company is a service organization storing or processing consumer data, it likely needs to comply with SOC 1, SOC 2, or SOC 3


In other words, if your company is a service organization that stores, processes, or transmits any kind of information about clients, you will likely need one of the three SOC certifications types to remain competitive in your respective market.


You may also need a SOC if you are part of a strategic partnership. Strategic partnerships allow organizations to continue growth while saving money and gaining efficiencies. These partnerships also require a great deal of trust: the partnerships need to be able to protect your organization, your employees, and your clients. These Partners should not only be sensitive to costs and delivering demonstrable value, but should be willing to collaborate with you to support and develop strategies that support and enhance your solutions and actively protect your networks, systems and data. 


SOC reporting can help drive trust and transparency. Getting certified proactively allows you to address risks across an organization or partnership while helping you tackle market concerns and contractual obligations. 


Choosing the SOC that meets your needs


There are several distinguishing features within SOC certification levels that can help you decide which type of SOC certification is right for your organization. Knowing which type you need will also tell you when, based on your timeline, you need to start the certification process. 


SOC1: Addresses financial reporting


A SOC 1 audit addresses internal controls over financial reporting (ICFR). The control objectives relate to business processes and information technology. There are two categories within SOC 1. 

  • A type 1 report is conducted on a single point in time. It only examines the design effectiveness of the internal controls. 
  • A type 2 report covers a set period of time—typically 12 months. It tests the design as well as the operating effectiveness of the internal controls.  


SOC 1 is also known as an SSAE18, or Statement of Standards for Attestation of Engagements 18.


SOC 2: Addresses operational controls


A SOC 2 audit has nothing to do with financial reporting and instead focuses on operational controls. It looks at the five main “trust services criteria” laid out by the American Institute of CPAs: 

  1. Security
  2. Availability 
  3. Processing integrity
  4. Confidentiality
  5. Privacy


A SOC 2 report is generally for service organizations that hold, store, or process client information when that information is not significant to financial reporting. For instance, a SOC 2 report is useful when client information does not affect the organization’s income statement or balance sheet. 


Like a SOC 1 report, a SOC 2 report can be issued as type 1 or type 2, depending on the needs of the organization. 


SOC 3: Addresses public trust


A SOC 3 report is much less common because it is intended to be shared with the public and therefore contains significantly less information. A SOC 3 report offers the same basic information provided in a SOC 2 report, but it has redacted details. It is used primarily as a marketing tool for service organizations. 


How compliance reports can give your business a boost

Getting certified with a compliance report has the potential to help your organization in multiple ways. Getting certified can:

1. Boost customer demand. Your clients likely think that protecting customer data from unauthorized access and theft is a priority. Without a SOC report clearly showing your dedication to security, you could lose business.

2. Eliminate costly data breaches. In 2021, a single data breach cost, on average, $7.24 million—and that figure rises every year. A SOC 2/SOC 3 audit can help you avoid those costly security breaches, more than making up for the cost of the audit.

3. Offer a competitive advantage. Having a SOC report in hand gives your organization an edge over any competitors who cannot show compliance.

4. Provide peace of mind. Passing a SOC 2 audit can assure you that your systems and networks are secure.

5. Aid in regulatory compliance. Because SOC 2’s requirements dovetail with other regulatory frameworks, including HIPAA and ISO 27001, attaining certification can speed your organization’s overall compliance efforts. Getting started with a SOC audit is especially helpful if you use GRC software or software-as-a-service (SaaS) that provides you with that big-picture view.

6. Build value. A SOC report can provide valuable insights into your organization’s risk and security posture, vendor management, internal controls governance, regulatory oversight, and more.


Getting certified for financial compliance can require analysis and consideration. It takes work to determine if the timing and ROI are right for your organization. However, it may well be a powerful investment in the future of your company. If you need more information about whether getting certified is right for your company, Kunai Consulting is here to help. Get in touch—we’d be happy to talk things through.

Sources: 

AICPA Center for Audit Quality

ISACO Resources