Intro
SOC 2 is an auditing standard developed by the American Institute of Certified Public Accountants (AICPA) to ensure the privacy and security of customer information. SOC 2 compliance is critical for service organizations that process, store, or transmit this data on behalf of other businesses.
SOC 2 attestation is not required by law, but not having it can be a red flag that tells potential customers and other stakeholders that your organization and vendors cannot securely manage data or protect customer privacy. Compliance with the SOC 2 framework facilitates the implementation of internal controls and data security objectives.
So, whether your company is a security-conscious service provider or looking to work with one, you should consider SOC 2 compliance to garner the trust of customers and regulators.
SOC 2 is based on five well-known trust service criteria. That said, SOC 2 is intended to be flexible, and a SOC 2 report can be tailored to your organization’s unique needs.
This guide will take you through SOC 2 and your organization toward certification success.
What Is SOC 2?
System and Organization Controls for Service Organizations 2, more commonly known as SOC 2, is a reporting framework to determine whether a service organization’s controls and practices effectively safeguard the privacy, confidentiality, and security of customer data, particularly if this data is stored in the cloud.
Evolution From SAS 70
The SOC 2 framework evolved from SAS 70, which assured users that data centers were secure and proper controls governed their use.
SAS 70, however, had many weaknesses. It defined no specific benchmarks to hold data center operators accountable or a minimum bar they must achieve. Instead, it simply verified through an audit that the data center followed its controls and processes. As a result, a certification for SAS 70 did not exist.
The SOC standards go beyond SAS 70 to address those weaknesses. Unlike SAS 70, SOC 2 provides more rigorous audit requirements and a more robust set of controls specifically for data centers within service organizations.
Who Needs a SOC 2 Report?
Companies that leverage cloud computing to store customer data must achieve SOC 2 compliance. These include companies operating in all the below sectors:
- Cloud service providers
- Customer or sales support
- Human resources departments
- IT security management
- Customer relationship management (CRM)
- Medical claims processing
- Data analysis companies
- Accounting and auditing firms
- Software-as-a-service (SaaS) vendors
- Workflow management
- Document and records management
- Insurance claims processors
- Technology consulting
- Pharmaceutical
- Financial processors
- Legal Firms
In short, any service organization that handles customer data should be compliant with the requirements laid out in the SOC 2 framework.
What Is SOC 2 Compliance?
SOC 2 is much more than a technical audit by an outside party for service organizations managing customer data. These companies must establish and follow stringent information security policies and procedures based on the five trust services criteria explained below.
If you are a service provider operating in any of the above areas and handling customer data, you should undergo a SOC 2 audit. In addition, if you outsource work to other service providers, your subcontractors should also be SOC 2-compliant.
SOC 1 and SOC 2 are based on Statement on Standards for Attestation Engagements No. 16. Each can generate two types of reports: Type I and Type II. However, despite these similarities, SOC 1 and SOC 2 are different.
SOC 1 deals with financial reporting and addresses control that affect the organization’s financial statements. A SOC 2 audit focuses on internal controls to protect data based on five trust services criteria.
SOC 2 has more in common with SOC 3. However, they mainly differ in terms of their intended audience:
- SOC 2 audit reports are for an informed audience who has a vested interest in the audit findings. The report itself is generally not made public or widely shared.
- SOC 3 reports are geared towards a more general audience; for example, a company might post the report on its website for all to see. They are also shorter and less detailed than SOC 2 reports.
SOC 2 Trust Services Criteria
SOC 2 audits are based on benchmarks called the trust services criteria or trust service principles. Each represents a category of controls for information systems and data that might be audited as part of your SOC 2 process.
- Security. These controls are the policies, procedures, and tools that protect systems and data from unauthorized access. Processes are also defined for corrective actions and responses in the event of a security or data breach.
- Availability. Controls ensure the ongoing availability of information and systems to avoid interruption to day-to-day operations.
- Confidentiality. The entity must be able to protect confidential information such as company data, client information, intellectual property, and any other information that must be protected by law from unauthorized access.
- Processing integrity. Information in the system must be complete, valid, accurate, error-free, timely, and safe from accidental or malicious manipulation.
- Privacy. Policies must exist to govern how the organization collects, uses, discloses, and safely disposes of personally identifiable information (PII) to protect the PII from unauthorized access.
These principles focus on preventing unauthorized access and use of assets and data. For this, organizations are required to implement strong controls and preventative measures.
These standards are pre-defined to ensure the quality and consistency of data center security, availability, and process integrity. This is especially critical for co-location, managed servers, cloud hosting, and SaaS providers.
SOC 2 Reports
The SOC 2 framework provides two types of reports:
| SOC Report | Description |
|---|---|
| SOC 2 Type I |
|
| SOC 2 Type II |
|
Organizations typically complete a Type I report for their first SOC 2 audit to establish a security baseline and then complete Type II for subsequent audits. Regardless, these reports can play an essential role in the following:
- Overseeing organizations and their data center controls;
- Assessing vendors and their data center controls;
- Improving vendor management programs;
- Supporting, guiding, and improving internal processes related to corporate governance and risk management;
- Improving regulatory oversight and achieving compliance.
A SOC 2 report can take nine months to one year to complete, especially if you’re using spreadsheets to track your progress. The Reciprocity® ROAR platform can help you achieve SOC 2 compliance in a fraction of that time. Contact our experts to find out how.
SOC 2 Compliance Requirements
Your organization’s security controls undergird the SOC 2 audit. These controls include:
- Logical (technology) access controls;
- Physical access controls;
- Change management;
- System operations;
- Risk mitigation.
If these controls aren’t in place, your organization may fail the audit and not achieve SOC 2 compliance.
SOC 2 criteria are fairly broad and open to interpretation. For instance, you may implement two-factor authentication to prevent unauthorized access to your enterprise network, while your competitor may implement firewalls or physically restrict access to data centers. This flexibility enables you to achieve compliance in ways that best suit your organization.
When to Become SOC 2 Compliant
If given a choice, you want to achieve SOC 2 compliance sooner rather than later. If your competitors gain SOC 2 compliance before you, they are better positioned to earn the trust of customers, the market, and regulators.
Also, your risk of cyberattacks and data breaches may increase daily. Therefore, it would help if you had strong security practices and controls to protect your organization and its data. SOC 2 compliance guides you in effectively implementing these controls to resist attacks and breaches.
SOC 2 Compliance Costs
A SOC 2 Type I audit could cost $10,000 to $20,000, while a SOC 2 Type II audit might cost $30,000 to $60,000.
You will also incur other costs for:
- Readiness assessment
- Gap assessment
- Compliance preparation
- Remediation
- Legal fees
- Annual SOC 2 reports
These costs may vary depending on numerous factors, including:
- Type of audit and report (Type I is generally cheaper than Type II)
- Number of trust services criteria included in your audit scope
- Your organization’s size and complexity
- Amount of automation and preventive internal control systems
- Additional security tools you may need to implement
- Employee training programs you may need to design
Broadly speaking, SOC 2 audits and achieving SOC 2 compliance can cost your organization $60,000 to $220,000.
If you think this is too expensive, consider the alternative: In 2021, the average cost of a data breach hit $4.24 million, up from $3.86 million in 2020. You can avoid these huge costs by implementing robust data protection controls and achieving SOC 2 compliance that proves the efficiency of these controls.
SOC 2 Audits
Who Can Perform a SOC 2 Audit?
Only independent Certified Public Accountants (CPAs) can perform SOC 2 audits. Moreover, these audit professionals must follow the planning, execution, and oversight guidelines set by the AICPA to guide their work. Therefore, you must perform a peer review on all AICPA audits.
CPA firms may hire non-CPA professionals with relevant skills to prepare for SOC audits. Only a CPA, however, can provide and disclose the final SOC 2 report.
What Happens During a SOC 2 Audit?
A SOC 2 audit works much like any other audit. Before and during the audit, the CPA or accounting firm will help you determine your audit scope. Here you will identify which SOC report you need and which of the five trust services criteria apply to your organization.
The CPA will collect evidence and examine your controls for each trust services criterion included in the scope. If the auditor finds problems or gaps, you will have to respond with corrective actions for remediation.
How to Prepare for a SOC 2 Audit
The key to SOC 2 readiness is preparation. Before the auditor arrives, make sure that you:
- Establish your audit goals and scope;
- Organize your materials and required documentation proving the effectiveness of your controls;
- Conduct a self-audit to find and remediate any compliance issues early.
Benefits of SOC 2 Compliance
SOC 2 compliance documents that your organization:
- Has the processes and infrastructure in place to protect customer data from unauthorized user access;
- Can recognize threats to this data and any inherent vulnerabilities;
- Can quickly investigate relevant information on security incidents to remediate systems, prevent a recurrence, and restore the integrity of processes and data.
A SOC 2-compliant company maintains a high level of information security and ensures that all sensitive data is handled responsibly by authorized personnel.
SOC 2 compliance also shows your organization’s commitment to protecting the privacy and security of this information. This is especially relevant and necessary for today’s cloud requirements in the connected digital era.
In addition, here are six crucial reasons to achieve SOC 2 compliance:
- Customer demand. Customers expect that their data will be protected from breaches and theft, so you could lose business without a SOC 2 attestation.
- Lower data breach costs. A data breach can affect your organization financially. SOC 2 compliance means that you have put controls in place to prevent such breaches to avoid their associated costs.
- Competitive advantage. A SOC 2 attestation will give you an edge over competitors that cannot exhibit compliance.
- Earn customer trust. SOC 2 compliance enhances your organization’s reputation as trustworthy with both customers and regulators.
- Peace of mind. Passing a SOC 2 audit provides assurance to you as an organizational leader that your systems and networks are secure.
- Achieve compliance with other regulations. SOC 2’s requirements dovetail with other frameworks such as HIPAA and PCI DSS, so obtaining SOC 2 certification can speed up and streamline your overall compliance efforts.
In addition, a SOC 2 report can provide valuable insights into your organization’s risk posture, vendor management, internal governance, regulatory oversight, and the like. Leverage these insights to strengthen your cybersecurity profile and vendor relationships and comply with applicable laws.
How to Choose SOC 2 Compliance Software
The right SOC 2 compliance software can help streamline and speed up the audit and compliance process, but choosing this software takes work.
How can you know which software will work best for your organization’s compliance management program? For best results, choose a tool that offers these capabilities:
- Quick, easy deployment with preloaded templates;
- User-friendly design;
- Easy internal audit capabilities;
- Vendor management tools;
- Continuous controls monitoring;
- Integration with your technology stack;
- Visual dashboards and insightful reporting.
Compliance Management with Reciprocity ROAR Platform
By bringing your business operations front and center, the Reciprocity ROAR Platform provides you the ability to be more strategic with Information Technology (IT) risk management. ROAR offers a cutting-edge method for managing risk posture, enabling you to comprehend and address your IT and cyber hazards on a single platform.
You can analyze, manage, and communicate risks and their potential small business effect thanks to an extraordinarily straightforward user experience and in-application professional coaching. In addition, artificial intelligence (AI) enables the creation of links between assets, controls, and hazards, alerting you to changes in your risk posture and making it easier to expand and manage your risk programs.
The ROAR platform makes connecting with essential stakeholders and making knowledgeable business decisions simpler thanks to dashboards and reports that offer contextual information. Talk to a specialist to learn more about how the Reciprocity Product Suite will empower your company to manage risks and compliance effectively and become more strategic with your IT risk management.
Schedule a demo for more info!