SOC 1 vs. SOC 2: Which SOC Report Do Data Centers Need?

The American Institute of Certified Public Accountants (AICPA) has designed three distinguished SOC reports to accommodate the varying needs of service organizations, each with their own purpose and intended use. As such, when service organizations begin researching System and Organization Controls (SOC) reports, their first consideration often centers around determining which SOC report(s) is best for their needs.  

This is especially true for data centers considering their complex suite of services, which often involve handling highly sensitive data, paired with customer expectations. To ensure data centers and other service organizations choose the most suitable report for their operational, security, and compliance needs, it’s essential for them to evaluate and fully understand the types of SOC report options available.  

Types of SOC Reports 

Service organizations may undergo one or more of the following examinations by engaging with a licensed CPA, often referred to as a service auditor: 

SOC 1 Reports  

SOC 1 reports are governed by Statement on Standards for Attestation Engagements (SSAE) 18 (specifically AT-C Section 320) and are designed to provide user entities and their financial statement auditors, also referred to as user auditors, information on how the service organization’s controls impact the internal controls over financial reporting (ICFR) of their user entity customers. SOC 1 reports are often used by the user auditors as part of compliance with the Sarbanes-Oxley Act of 2002 (SOX). 

SOC 2 Reports 

SOC 2 reports are governed by SSAE 21 (specifically AT-C Section 105 and 205) and are intended to provide the service organization’s management, user entities, and other specified parties, with information about controls that may affect the security, availability, processing integrity, confidentiality, or privacy of the service organization’s systems and services. 

SOC 3 Reports 

SOC 3 reports are governed by the same standard and attestation code as SOC 2 reports and have a similar purpose; however, SOC 3 reports are general use reports that can be freely distributed to anyone, and do not contain the same level of detail in the description of the service organization’s systems or the test results of controls. 

Due to the differences in the SOC 1 report compared to the other two, it is not possible for organizations to substitute a SOC 1 report for a SOC 2 or SOC 3 report. Because of this, service organizations should consider obtaining multiple SOC reports to accommodate the needs of their customers.

However, data center providers fall into a unique category of services that require additional consideration when determining which reports best align with their business needs and customer requirements. Furthermore, understanding the importance and value of these reports is essential for making an informed decision, especially given the many benefits they provide.  

Which SOC Report Do Data Centers Need? 

While data centers are not legally required to obtain a SOC report, they are frequently requested—or even expected—by customers. These reports provide independent verification of security, operational controls, and compliance, offering significant benefits beyond just meeting customer demands. Additionally, SOC reports help data centers identify, address, and correct security gaps, strengthening their overall security posture and reducing the risk of incidents. 

While securing a SOC report is highly valuable and the benefits are well worth the effort, the process can be complex and demanding. To ensure data centers have a successful SOC experience and gain the most value out of their reports, the first critical step is being confident in which report(s) they choose to pursue, which can be a challenge in itself.  

In order to identify whether a SOC 1 or SOC 2 / SOC 3 report is most appropriate, data center decision-makers should consider the services their organization provides, such as hosting or data storage. They should also evaluate client requirements, ensuring the report they choose properly meets their expectations for security and privacy, as well as the needs of their user auditors. As part of this process, data center providers should identify whether the services they provide protect the financial systems of their customers or otherwise have an impact on their customers’ internal controls over financial reporting. 

Ultimately, pursuing a SOC report enhances a data center’s credibility, security posture, and market competitiveness, but the decision to undergo SOC 1, SOC 2, or both depends on customer expectations and industry requirements. 

SOC 2 Report for Data Centers 

Data centers play a crucial role in securing, ensuring the availability of, and protecting the confidentiality of critical data and systems for their customers. Meanwhile, a SOC 2 report allows data centers to demonstrate that they have effective and robust measures in place, including physical security, network security, access controls, and environmental safeguards to protect that sensitive client data. This plays a pivotal role in building customer trust, confidence, and credibility by reassuring clients, vendors, and stakeholders that the data center’s systems are secure and reliable.  

Availability is another key component of SOC 2, assuring clients that the data center has systems to minimize downtime, ensuring continuous access to their data and services. Additionally, SOC 2 ensures confidentiality, confirming that the data center has controls in place to prevent unauthorized access to sensitive information, maintaining client trust. By obtaining a SOC 2 report, data centers demonstrate their commitment to a secure, reliable, and confidential infrastructure, which ultimately helps reduce risk and build stronger customer relationships. 

SOC 2 reports for data centers typically focus most on the security, availability, and confidentiality categories, as these are most relevant to their services. Processing integrity may be less relevant unless the data center is involved in active data processing, and privacy is mainly applicable when handling personal data directly. However, data centers are able to tailor their SOC 2 reports to highlight the categories most aligned with their infrastructure and service offerings. 

SOC 1 Report for Data Centers 

A SOC 1 report is particularly valuable for customers who rely on the data center’s services for financial transactions or reporting, as it provides assurance over the controls that could impact financial statements. A data center may pursue a SOC 1 report if its services directly impact clients' financial reporting or if it hosts and manages systems that process financial transactions. This is particularly relevant for colocation providers, managed service providers, or cloud platforms that support financial institutions, payroll processors, or enterprise resource planning (ERP) systems.  

A SOC 1 report (depending on the control objectives specified by the client) can ensure that the data center has effective controls over financial data integrity, transaction processing, and system availability, giving clients confidence that their financial operations remain accurate and reliable. 

As mentioned previously, a user auditor would utilize a SOC 1 report from a data center provider to assess the effectiveness of the provider’s ICFR and determine whether these controls impact the user entity’s financial statements. The auditor would review the report’s control descriptions, testing results, and any identified exceptions to evaluate whether reliance on the data center's services introduces risks that need further testing or mitigation. 

SOC 2 and SOC 1 Reports for Data Centers 

Undergoing both SOC 2 and SOC 1 reports benefits a data center provider by demonstrating strong security, availability, and confidentiality controls (SOC 2) while also assuring customers that financial and operational controls impacting their financial reporting are in place (SOC 1). SOC 2 builds trust by validating the provider’s ability to protect data and maintain up-time, while SOC 1 is essential for customers relying on the data center’s services for financial transactions or reporting. These reports enhance credibility, streamline vendor risk assessments, and help meet compliance requirements.  

By obtaining both SOC 2 and SOC 1 reports, data centers can differentiate themselves from competitors who lack third-party validation, demonstrating their commitment to high security and compliance standards. These reports also integrate with other security frameworks (such as HIPAA, ISO, PCI, etc.), ensuring a comprehensive approach to risk management.

Key Considerations for Beginning Your SOC Compliance Journey 

Ultimately, it is not required for data centers to obtain any of the SOC reports, short of an expressed need from the organization's stakeholders. However, in a world with increasing priority being placed on data security, obtaining SOC reports has become standard practice, so much so that it is the norm for many companies to expect data centers to have at least one report. Being able to provide customers with the assurance granted by the SOC 1 and SOC 2 reports is likely to be the difference between retaining happy customers while steadily gaining more business, or regularly losing clients and prospects completely. 

Obtaining both a SOC 1 and SOC 2 report does not come without its challenges. The more detailed requirements of the SOC 2 report can uncover and identify issues of noncompliance with service organizations. Additionally, SOC 2 examinations often require additional resources to complete. However, choosing an experienced service auditor to perform multiple examinations concurrently can provide efficiencies that will reduce the amount of cost and effort to complete.  

If you’re ready to begin your SOC compliance journey, or you have further questions about the types of SOC reports or the audit process, contact a Schellman specialist today and we’ll get back to you shortly.  

In the meantime, discover other helpful SOC report insights and audit tips in these additional resources:  

• SOC 1 vs. SOC 2 
• How to Prepare for Your SOC 2 Readiness Assessment 
• 5 Steps to Prepare for SOC 2 Examination Success 
• How to Determine Your SOC Reporting Period & Report Validity 
• What Determines a Qualified Opinion in a SOC Report?