SOC 2 or ISAE 3402: which report suits your organization?

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In a digital world in which organizations increasingly rely on external service providers, it is essential to ensure control and reliability. You can do this with an Assurance report such as SOC 2 or ISAE 3402. Both reports provide certainty about the internal control of processes, but their implementation differs considerably. We discuss the differences between SOC 2 and ISAE 3402. We help you determine which report is most suitable for your organization. 

What is SOC 2?

Let’s first take a closer look at SOC 2. SOC 2 (System and Organization Controls 2) is a standard developed by the American Institute of Certified Public Accountants (AICPA). This report focuses on the internal control of information security and privacy at service organizations. SOC 2 is particularly relevant for:

• IT and cloud service providers
• Software-as-a-Service (SaaS) companies
• Hosting and data centers
• Organizations that process customer data

Trust Service Criteria

A SOC 2 report is based on five Trust Service Criteria:

1. Security – Protection against unauthorized access;
2. Availability – Ensuring that systems are available, and that information is accessible to the user;
3. Processing integrity – Ensuring that data processing is complete, valid, accurate, timely and authorized;
4. Confidentiality – Protection of information that is defined as confidential within the system;
5. Privacy – Management of personal data in accordance with regulations such as the GDPR.

In consultation with your auditor, you select the criteria that best suit your business operations and the associated risks, so that the audit is optimally aligned to your specific situation.

Types of SOC reports

In addition to the SOC 2 report, there are two other types of reports. Below we explain the three variants:

1. SOC 1 – Financial processes and internal controls
Assessment of internal controls relevant to clients’ financial reporting. Consider organizations that provide services such as payroll processing, claims handling, or financial transactions.

SOC 1 Type I: Focuses on the design and operation of controls at a specific point in time.
SOC 1 Type II: Examines both the design and operating effectiveness of these controls over a longer period (usually between 3 and 12 months).

2. SOC 2 – Confidentiality and Information Security
Evaluation of controls based on the Trust Services Criteria: security, availability, processing integrity, confidentiality, and privacy. Intended for companies that want to demonstrate their information security and best practices to customers or partners. SOC 2 reports typically contain sensitive and detailed information and are shared with customers or prospects only under non-disclosure agreements (NDAs).

SOC 2 Type I en Type II: Similar to SOC 1, but focused on non-financial aspects of security.

3. SOC 3 – Public version of SOC 2
Provides a concise overview of security controls, based on the Trust Services Criteria. This is suitable for organizations that want to publicly demonstrate their compliance with security standards, for example, through their website or as a marketing tool.

SOC 3 reports are less detailed than SOC 2 and do not contain confidential information. This makes them suitable for broad, public distribution.

What is ISAE 3402?

Let us now take a closer look at ISAE 3402. ISAE 3402 (International Standard on Assurance Engagements 3402) is an international standard that is specifically aimed at service organizations that have an impact on the financial reporting of their customers. This report is often used by accountants and financial institutions to demonstrate that a service organization has implemented effective internal controls.

ISAE 3402 is particularly relevant for:

• Payroll and payroll administration companies
• Financial service providers
• Outsourcing partners of financial processes
• Trust offices and investment institutions

As with SOC 2, ISAE 3402 has two types of reports:

• ISAE 3402 Type I: Assessment of the design and the design of controls;
• ISAE 3402 Type II: Assessment of the operation and effectiveness of controls over a longer period.

SOC 2 or ISAE 3402: the key differences

Combining ISAE 3402 and SOC 2?

Some organizations need both an ISAE 3402 and a SOC 2 report. This is especially true for service providers that manage both IT processes and financial processes. In such cases, both reports can be combined into a single audit trail, provided that the control criteria are properly aligned.

SOC 2 versus ISAE 3402: Choose the right report for your organization

The choice between SOC 2 or ISAE 3402 depends on the nature of your service and the expectations of your customers. While SOC 2 focuses on information security and privacy, ISAE 3402 is crucial for companies that manage financial processes. Both reports provide valuable Assurance, but it is important to make the right choice based on your business model and the requirements of your stakeholders.

• Choose SOC 2 if your customers want certainty about information security and privacy measures. This is especially relevant for IT, SaaS and cloud companies;
• Choose ISAE 3402 if your services have a direct impact on the financial reporting of customers, such as in the financial sector;
• Are you considering a combination? Then an integrated audit solution can help you obtain both an ISAE 3402 and SOC 2 report.

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