Last Updated on September 26, 2023 by Ossian Muscad
Because “SOX” and “SOC” seem so close in language, many people quickly assume they are similar terms. When talking about compliance, these terms frequently do so in a professional setting. However, SOX and SOC have distinct definitions, objectives, and contexts. In this article, we’ll go in-depth on SOX vs. SOC, and how to facilitate SOX and SOC compliance for your company.
What is SOC?
SOC (Systems and Organization Controls) compliance is a centralized function that uses employees, procedures, and technology to stop, identify, analyze, and respond to cybersecurity issues while continuously monitoring and improving an organization’s security measures. SOC standards come in 3 types, and these are:
- SOC 1. The internal controls relating to financial reporting are assessed using reports. These are made to aid auditors in evaluating how a service organization’s procedures affect the financial statements of their customers.
- SOC 2. Reports assess how well a service organization’s controls for availability, security, process integrity, and privacy are working.
- SOC 3. Reports are comparable to SOC 2. However, they are intended to be more general and can be made available to the public.
It is crucial for service companies since it shows their dedication to securing customer data and upholding a reliable and trustworthy service. It can also reassure customers and stakeholders that the service business follows security standards for risk management and protecting confidential data.
What is SOX?
SOX (Sarbanes-Oxley) compliance is a federal law enacted in 2002 to improve corporate governance’s openness and accountability amid high-profile financial crises. New standards for public organizations and businesses were established, which include guidelines for financial reporting and internal access controls.
Implementing SOX compliance requires taking steps to guarantee that businesses strictly adhere to the regulations outlined in the legislation. A code of conduct for internal controls can be established to prevent fraud, and regular financial reporting procedures can be implemented to guarantee accuracy and transparency. All American publicly traded corporations must comply with SOX, and failure to do so can result in significant penalties, legal action, and negative publicity.
What is the difference between SOC and SOX?
SOC vs. SOX are separate concepts relating to various business and compliance-related aspects. The following are the main variations between SOC and SOX:
Scope and Objectives
- SOC is a collection of auditing guidelines and reports created to evaluate and convey the efficiency of internal controls in relation to financial reporting, data security, and business operations. Organizations usually utilize SOC reports to reassure stakeholders, partners, and clients about the dependability of their systems and procedures.
- SOX’s key objective is to increase financial reporting’s accuracy, transparency, and accountability to protect investors and the general public against corporate fraud and financial misconduct.
Applicability
- SOC compliance is essential for various businesses, including privately held and publicly listed enterprises and service providers to other companies.
- SOX regulation is particularly mandated for publicly traded corporations in the US, including foreign firms listed on US stock exchanges. Financial reporting, internal controls, CEO/CFO certifications, and auditor independence criteria are detailed in SOX sections 302 and 404.
Authority
- SOC compliance is optional and motivated by a commitment to show customers and stakeholders how adequate a business’ internal controls are.
- SOX is required for all publicly traded businesses subject to its regulation.
Focus Areas
- SOC reports emphasize controls relating to data security, privacy, and the dependability of an organization’s systems and procedures. SOC also covers the measures that affect different parts of an organization’s operations and is not just concerned with financial controls.
- The primary areas of attention for SOX are financial controls and transparency, focusing on preventing financial fraud and assuring the accuracy of financial statements. In contrast to SOC, SOX does not cover operational or data security procedures.
Importance of SOC and SOX
Organizations must commit to creating and maintaining an extensive internal control environment that includes financial reporting and access controls to carry out SOX vs. SOC compliance. Achieving SOX and SOC compliance can be a time and resource-consuming process. Still, it can give stakeholders significant confidence that the business is sticking to best practices for risk management and guarantees the reliability of financial statements.
Facilitating SOC and SOX Compliance with DATAMYTE
SOC and SOX audit compliance planning and preparation don’t have to be a difficult, expensive, or time-consuming procedure. The integrated real-time solutions provided by DATAMYTE allow you to demonstrate compliance with your own SOC and SOX financial reports. Daily control monitoring can ensure that you consistently track your compliance, avoiding any significant issues when audit season rolls around.
The DataMyte Digital Clipboard is a low-code automation software that features the following capabilities:
- Forms and Checklist Builder. Perform regular compliance checks and audits with specific checklists. The ease of the drag-and-drop interface and a library of prebuilt templates allow a quick draft and deployment of inspection forms or audit checklists that seamlessly run on both mobile and web-based devices.
- Real-time Monitoring and Notifications. Provides real-time accessibility for collecting, validating, and reporting data to guarantee precision and effectiveness. Set up notifications for specific compliance incidents or irregularities, enabling a quick response and mitigation.
- Seamless Integration. Essential for compiling data from numerous sources, carrying out comparisons, and confirming data accuracy—all of which are essential for complying with SOX regulations.
- Audit Trails and Activity Logging. Configure audit trails and comprehensive activity logging. Monitor and record user behaviors, system modifications, and security incidents for compliance reporting and auditing.
- Reporting and Documentation. Generate comprehensive reports and proper documentation. Simplify the process of producing compliance reports necessary for both SOC and SOX, including financial disclosures and control documentation.
- Issue Response and Resolution. Develop emergency response workflows to handle problems with financial data, internal controls, or compliance violations and assure quick reporting, investigation, and resolution of issues.
- Centralized Data Management. Consolidate and manage data from various sources and applications within a unified data repository system, upholding data consistency, accuracy, and integrity, which is essential for operational and financial controls.
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Conclusion
SOC vs. SOX, they are crucial for various reasons. While SOX preserves the integrity of financial reporting, safeguards investors, and upholds investor confidence in the financial markets, SOC assists businesses in demonstrating control effectiveness, managing risks, and establishing trust with stakeholders. Both have essential contributions to make to the current commercial and compliance context.
