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SOC (Security Operations Center) certifications have gained prominence among businesses, especially from the IT and financial services sectors in India. In an age where the digital world is constantly evolving and cyber threats are becoming more advanced, differentiating between SOC 1 and SOC 2 certifications is key for companies that wish to secure their data and gain clients’ trust. In this blog, we will explore the differences between SOC 1 vs SOC 2 and the types and relevance of SOC in the Indian business context.
Not to be confused with the administrative SOC reports, which have a different yet complementary focus, SOC (Security Operations Center) reports are crucial when it comes to assessing and reporting on the controls as implemented at a service organization. These guidelines are especially critical for Indian corporations providing services to overseas customers or dealing with sensitive data.
SOC 1 Certification focuses on the controls of a service organization, which can affect the clients’ financial reporting. This is a mandatory certification for Indian businesses that are providing services that will have an impact on the financial statements of their clients (like payroll processing companies, financial software companies, and service organizations)
There are two types of SOC 1 reports.
SOC 1 Type I: This report assesses the design and implementation of controls at a specific point in time.
SOC 1 Type II: A more extensive report that assesses controls’ operational effectiveness over multiple months, usually a 6–12 month period.
For Indian companies that process or report financial data, SOC 1 certification provides assurance of resolution and hidden financial controls that protect both entities regarding international clients.
SOC 2 certification, on the other hand, is more limited to a company’s non-financial reporting controls for the systems that process users’ data with regard to the security, availability, processing integrity, confidentiality, and privacy of those systems. It is relevant and increasingly adopted by Indian IT service providers, cloud computing vendors, and data centers.
SOC 2 Type I evaluates the design of security processes at a particular moment in time.
SOC 2 Type II: This assesses the effectiveness of such processes in operation over time.
SOC 2 certification is thus a minimum requirement for Indian businesses that manage sensitive data of their clients or provide cloud-based services as part of a contract with international clients, particularly for businesses within regulated industries.
Although both aim to promote trust and transparency, they are used for quite different things:
SOC 1 focuses on financial reporting controls.
SOC 2 focuses on information security, availability, processing integrity, confidentiality, and privacy.
SOC 1 for client auditors and management only.
SOC 2 reports are targeted to a wider audience than just current customers (think regulators, business partners, and new customers).
Service organizations design controls based on the broad basis (principles of internal control) that impact financial reporting (SOC 1)
SOC 2 is based on defined criteria as set forth by the AICPA’s Trust Services Criteria.
SOC 1 is popular amongst Indian BPOs and financial service providers.
SOC 2 is mainly for Indian IT service providers, SaaS companies, and data centers.
SOC can be done in several different formats, depending on the requirements as well as resources in place for Indian businesses:
In-house SOC: This strategy, which gives large Indian firms total control over their security activities, is frequently chosen.
Managed SOC: A significant number of Indian small and medium-sized enterprises (SMEs) opt for this model, wherein they outsource their security operations to service providers who specialize in this field.
Hybrid SOC: This is becoming a preferred model for mid-sized Indian companies, where in-house and point of sale are combined.
Virtual SOC: With remote work becoming the norm, some organizations in India are embracing this structure, utilizing cloud-based tools and remote teams.
Indian companies are increasingly looking for SOC certifications in the global marketplace to:
Build Trust: SOC certifications are proof of ongoing commitment to high levels of security and control.
Attain Competitive Edge: Certified organizations tend to have an upper hand in securing international contracts.
Meet Regulatory Requirements: Several international regulations indirectly necessitate SOC certifications for service providers.
Streamline internal processes: The process of certification itself helps in enhancing internal controls and security practices.
SOC 1 vs. SOC 2: The choice between SOC 1 and SOC 2 primarily depends on the type of services being provided.
Where the services provided have a direct bearing on their clients’ financial statements, SOC 1 is best for financial service providers, payroll processors, or companies.
As for IT service providers, cloud computing vendors, data centers, or any type of company handling sensitive client data, SOC 2 is typically more applicable.
Most Indian companies, including those addressing varied & wider client requirements, choose for both certifications to have better coverage.
SOC compliance is critical as Indian businesses grow globally. SOC stands for System and Organization Controls, which is an important certification for organizations offering cloud services, which covers data security and privacy (SOC2) and financial reporting controls (SOC 1), etc. Indian companies can boost their credibility and enable business opportunities with the right SOC certification by meticulously evaluating their services and requirements of their clients.
