Do I Need a SOC 2 Report?

 If your enterprise is a service provider that handles customer data, it should have a System and Organization Controls for Service Organizations 2 (SOC 2) report attesting to its SOC 2 compliance. If you outsource work, your sub-contractors should be SOC 2 compliant, as well.

Developed by the American Institute of Certified Public Accountants (AICPA) in response to growing concerns over data privacy and security, SOC 2 applies to all service providers that process and store customer data. Auditors use AICPA’s Statement on Standards for Attestation Engagements No. 18 (SSAE 18), which emphasizes data security, as a framework.

SOC 2 compliance demonstrates your organization’s commitment to protecting the privacy and security of customer and client information—increasingly important in our connected digital age.

However, SOC 2 is not mandated by government or industry regulators. Compliance is voluntary. 

Why SOC 2 compliance is important for service providers

SOC 2 reports demonstrate to customers that your organization takes information security seriously. These reports, issued by Certified Public Accountants (CPAs), assure service providers have adequate policies, processes, and controls to protect sensitive customer data per the Trust Services Criteria.

Specific reasons SOC 2 certification matters for service organizations:

• Reduces customer cybersecurity concerns and risk: Customers can trust you’ll keep their data safe based on your SOC 2 report. This peace of mind often removes sales objections.
• Meets customer audit requirements: Many customers (especially in healthcare, finance, etc.) require vendors to have SOC 2 certification. It may be mandatory to do business.
• Improves sales and retention: An increasing number of enterprises require SOC 2 before contracting. This certification keeps you qualified and competitive.
• Demonstrates security maturity: Passing rigorous SOC 2 audits highlights your commitment to security best practices and risk reduction.
• Maintains regulatory compliance: SOC 2 aligns with major compliance frameworks like the Health Insurance Portability and Accountability Act (HIPAA) and Payment Card Industry Data Security Standard (PCI DSS). It covers crucial security controls.
• Provides a competitive edge: SOC 2 is becoming a minimum standard in industries like SaaS and cloud services. Lacking certification can disqualify vendors.

Six Benefits for SOC 2 Compliance

1. Customer demand: Protecting customer data from breach and theft is top-of-mind for your clients so you could lose business without a SOC 2 attestation.
2. Cost-effectiveness: Do you think audit costs are high? In 2018, a data breach cost, on average, $3.86 million, according to a study by Ponemon and the IBM Institute. That figure rises every year.
3. Competitive advantage: A SOC 2 report will give you the edge over competitors who cannot comply.
4. Peace of mind: Passing a SOC 2 audit ensures your systems and networks are secure.
5. Regulatory compliance: Because SOC 2’s requirements dovetail with other frameworks, including HIPAA and PCI DSS, attaining certification can speed your organization’s overall compliance efforts.
6. Value: A SOC 2 report provides valuable insights into your organization’s risk and security posture, vendor management, internal governance, regulatory oversight, and more.

Different Types of SOC Reports

SOC 2 reports discuss five Trust Services Categories, also known as Trust Services Criteria (formerly Trust Services Principles).

•  The security, availability, and processing integrity of the systems the service organization uses to process users’ data and
• The confidentiality and privacy of the information processed by these systems.

SOC 2 and SOC 3 both use these categories. SOC 1, however, differs completely.

• SOC 1 governs financial reporting. A SOC 1 report will answer these questions: Are internal service organization controls on financial reporting well designed? Do the organization’s controls work, helping it to meet financial goals?
• A SOC 2 report discusses controls that affect the organization’s information security, availability, processing integrity, data confidentiality, and privacy.

SOC 2 and SOC 3 reports cover the same subject matter but differ in their intended audience.

• SOC 2 reports are written for an informed, knowledgeable audience whose members may be vested in the audit findings.
• SOC 3 reports address a more general audience and tend to be shorter and less detailed than SOC 2 audits. They are often used to demonstrate SOC 2/3 compliance for prospective clients and marketing.

SOC 2 reports apply to these industries, among others

• Cloud computing
• IT security management
• Software as a Service (SaaS) vendors
• Financial processing
• Accounting and auditing
• Customer support
• Sales support
• Medical claims processing
• Legal
• Pharmaceutical
• Insurance claims processing
• Human resources
• Data analysis
• Document and records management
• Workflow management
• Customer Relationship Management (CRM)
• Technology consulting

Which Type of Report Do I Need?

To complicate the question even more, SOC 2 reports come in two types, each covering a different period.

• Type I, often an organization’s first-ever SOC 2 report, looks at controls governing data security and privacy during the audit. Type 1 takes a “snapshot-in-time” approach, setting a baseline for future audits.
• Type II reports discuss the effectiveness of your organization’s information security and privacy controls since your last SOC audit, typically one year.

How often do I need a new SOC report?

The frequency of obtaining new SOC 2 reports depends on the type and your organization’s risk tolerance.

For SOC 2 Type I reports, which provide a point-in-time view of security controls, most organizations will need a new audit every 12-24 months as a baseline.

After the initial Type I, you’ll need to undergo Type II audits at least annually (every 12 months) to attest controls remain effective over time. Certified Public Accountants (CPAs) inspect policies, procedures, system configurations, and other evidence during the SOC 2 audit to evaluate operating effectiveness.

Specific high-risk industries like healthcare and financial services may require Type II reports semi-annually or quarterly to align with their risk profile and amounts of sensitive data or Personally Identifiable Information (PII).

If no significant changes occur in your systems or security controls, some organizations can go up to 18 months between Type II audits. But 12 months is standard.

Significant changes like a new IT system, increased data volume, mergers & acquisitions, security incidents, etc, may warrant an off-cycle Type II audit.

Maintain SOC compliance with ZenGRC

Maintaining compliance between audits is also crucial through control monitoring, training, and internal readiness assessments. ZenGRC can help automate audit readiness.

ZenGRC takes the worry out of this complex task with color-coded dashboards, unlimited self-audits, audit trail documentation, and more. Contact us today for your free demonstration.