Data security is of the utmost importance today, which is why frameworks like SOC 2 were developed. Learn everything you need to know about SOC 2.

Your Complete Guide to SOC 2 | Secureframe

Your business' cybersecurity is paramount, especially in the wake of several high-profile data breaches and exposures that have occurred within the last few years. To avoid costly data breaches and remain competitive in the marketplace, businesses must make sure they have systems and processes in place that protect against cyber threats.

And, once you build those systems, your prospective clients need to know that their data is safe.

There are various standards and certifications that organizations like yours can pursue to prove their commitment to security. One of the most well-known is the SOC report — and in terms of handling customer data, SOC 2.

Below, you’ll learn about the three types of SOC reports, how to comply with SOC 2 standards and guidelines, and why you should consider getting a SOC 2 report.

Systems and Organization Controls is both a type of auditing procedure and a suite of reports that those audits can produce. 

The American Institute of Certified Public Accountants developed these to measure and report on the security of a company’s systems and evaluate the internal controls around them. 

Internal controls are simply policies, procedures, rules, and mechanisms to ensure compliance with laws, foster reliable financial reporting, and mitigate risks. An example would be requiring one individual to approve an invoice before another pays it.

Creating systems, controls, and documentation that comply with SOC guidelines requires you to invest time and resources. Then, SOC requires those systems and that documentation process to be audited by a SOC auditor — it can be complex.

However, there are plenty of benefits to be had, as we’ll discuss next.

There are several kinds of SOCs reports — SOC 1, SOC 2, and SOC 3. 

Let’s briefly cover SOC 1 and SOC 3 so you have some context before we go more in-depth on SOC 2.

SOC 1 is the first type of SOC auditing procedure and report, focusing on the finance and accounting side of a business.

In particular, SOC 1 deals with internal controls pertaining to an organization’s financial statements. An outside auditor — usually a CPA firm — can do these audits.

You can get one of two report types from a SOC 1 audit. 

Type I: This reports on an organization’s design and suitability of controls and systems as of a specific date.

Type II: This reports on an organization’s design and suitability of controls and systems over a period of time, generally three 12 months.

The business’s customers and external auditors are the primary users of the SOC 1 report. Customers want to know that your financial processes are secure, while auditors must know a firm’s internal controls so they can understand how they impact financial statements.

SOC 1 and SOC 2 compliance reports are restricted-use reports, meaning only the company and its current/prospective customers can look at them. These contain a level of detail on a firm’s internal controls that shouldn’t be public-facing.

If they were, competitors could, for instance, steal ideas for internal controls and possibly other secret information about the company.

SOC 3 helps with this. The SOC 3 report is not a distinct auditing procedure, nor is it a separate report. Instead, it’s a general-purpose, less formal version of the SOC 2 report that we’ll cover later.

The SOC 3 report contains a shorter, high-level version of the information found in a SOC 2 report. It mainly provides background about the company, a brief auditor opinion on the firm’s systems and controls, and management’s assertions about those aspects.

SOC 3 reports are often helpful for marketing purposes. For example, you can make a SOC 3 report available on your website so customers can see that you take security seriously — but without having to contact you to request a SOC 2 report.

SOC 2 is a set of compliance criteria concerning how companies handle customer data and information.

It covers every process that might deal with that data and scrutinizes the security associated with it. 

It’s also the auditing procedure used to determine if you comply with those criteria. 

When you undergo a SOC 2 audit successfully, the auditor will issue you a SOC 2 report. There’s no official SOC 2 certification — instead, this report serves as proof that an independent auditor believes you adhere to SOC 2’s rigorous standards.

Like SOC 1, there are two kinds of SOC 2 audit reports you can receive.

These evaluate the design and suitability of a firm’s internal controls pertaining to customer information handling and security. It also examines how they stack up against the relevant trust criteria at a specific point in time. 

Type I audits and reports can be completed in a matter of weeks. 

These evaluate the same factors as the Type I audits, but they also analyze operational effectiveness over a timeframe — generally, three to 12 months.

Audits must be performed annually to maintain SOC 2 compliance. Thus, auditors monitor systems for a period of time instead of performing a single audit.

Now, both types are nearly the same, with the differences mainly being the time involved.

Type II audits take a require a more significant investment in both time and resources. However, certain types of clients — usually those that regularly deal with sensitive customer data — will often only work with firms that have a SOC 2 Type II report.

For example, clients in the banking and insurance industries may only work with you if you successfully underwent a Type II audit since they handle customer money and financial data.

As mentioned, your SOC 2 report can serve as proof of your adherence since there’s no official certification.

This report will contain several sections.

Assertion tells the reader if your systems are represented fairly in the report and if they meet the trust principles you specified and sought to meet.

This contains the auditor’s professional opinion about how well your controls follow the trust standards you specified.

This contains a description of your service organization, including details about your firm’s industry and location. It includes a summary of your data security controls and why you need them.

The infrastructure section provides a detailed list of data, people, policies, processes, software, and technology your organization deals with. It also includes info about third-party providers if you outsource to any.

Relevant aspects of the control environment: 

This part explains the most important aspects of your internal control environment: 

This section details how you’re implementing your internal controls to bolster your firm’s security.

Trust service principles, criteria related controls, and tests of controls

In this part, the report discusses your system of controls and how effective they are at achieving each of the trust principles you sought to come into compliance with.

Several potential parties may need to read or use the SOC 2 report, including: 

Current and prospective customers: Customers are interested in how you handle their data and if it’s secure for obvious reasons.

Business partners: Business partners want to know what kinds of internal controls are in place to keep data safe and prevent costly breaches.

External auditors: External auditors may examine internal controls surrounding customer data security.

Regulators: Regulators check to ensure a firm’s controls and systems comply with all applicable laws and regulations.

Becoming SOC 2 compliant can require a significant investment of your time and financial resources. However, the payoff is immense.

Here are some of the many benefits you’ll enjoy by achieving and maintaining SOC 2 compliance in your organization.

Sets you apart and attracts more customers

Every company that does anything online claims that they’re secure and handle your data with care. 

However, these claims are empty without evidence — and a formal SOC 2 audit provides that evidence.

Reaching and maintaining SOC 2 compliance demonstrates that you actually do have top-notch security and that you’re committed to keeping your customers’ data safe and sound. This can stick in peoples’ minds and even capture prospects that are on the fence.

Therefore, it’s a good idea to let it be known that you are compliant with SOC 2 in relevant areas throughout your brand’s assets. This includes your website homepage, privacy policy, and so on. 

Then, you can market your compliance as your adherence to the most rigorous security standards could sway prospective customers.

2020 saw a massive 1,001 data breaches. That’s close to double the 662 data breaches we saw in 2010. 

Each one of those data breaches could affect a substantial number of customers, exposing their data to cybercriminals. 

Accidental data exposures were frequent, too. These often result from weak internal cybersecurity controls and processes — an example being leaving a massive database unprotected and accessible online.

Some 156 million people had data exposed through human error and oversight in 2020. 

The lesson here is that you can have the greatest brand in the world, but if your security is lacking and you experience a data breach, your brand’s reputation will crash.

SOC 2 processes and controls in your organization minimize the chance of these events occurring, protecting your brand in a world of unauthorized data access.

Accelerates progress toward other security certifications

Naturally, pursuing policies, procedures, and controls that bring you into compliance with a rigorous security standard will shorten your journey toward other certifications.

For example, SOC 2 compliance shares a lot of its requirements with ISO 27001 guidelines. Once you’ve achieved SOC 2 compliance across all of the trust principles, getting ISO 27001-certified is easier and may require fewer resources.

This can be especially helpful if you do business domestically and internationally, as clients outside the U.S. prefer ISO 27001.

There are five core trust principles involved in complying with SOC 2 standards. 

You don’t have to become compliant in all five of these at once. Ideally, you should become compliant in all five at some point, especially if you regularly process a lot of customer data.

However, firms with limited resources should pick the principles that will be the easiest to achieve, then go for the others later. 

Auditors will provide you with a report detailing how you’ve done in every area that you’d like to be evaluated for.

With that said, here are the five principles.

Security deals with protecting information and system resources against unauthorized access. 

Two main types of controls are involved in security.

These help ensure users are who they say they are, and only users who are explicitly granted access to systems can use them. In doing so, you can prevent software misuse, stealing and removing data, and so on.

IT security tools help stop potential breaches, especially from the outside. Some tools include two-factor authentication and web application firewalls.

Secureframe Raises $18m from Kleiner Perkins to Automate Security Compliance. Read on TechCrunch →

https://techcrunch.com/2021/03/18/secureframe-series-a-cybersecurity-compliance/

In this article, we’ll discuss the main differences between SOC 1 and SOC 2 reports, as well as the specific requirements and specifications of each.

SOC 1 vs. SOC 2: a simple yet complete guide for 2021

The terms “SOC 1” and “SOC 2” may seem confusing or intimidating at first glance, especially if you aren’t familiar with security controls and financial audits.

But the truth is that once you understand a few key (and simple) concepts, SOC reports are pretty straightforward.

We’ll discuss the main differences between SOC 1 and SOC 2 reports, as well as the specific requirements and specifications of each. 

But first, let’s add a bit of context to make sure we’re all in sync.

The main difference between organizations lies in the impact their products and services have on user operations. 

For example, a payroll software provider serving large manufacturing companies will have more data responsibility than a marketing agency. 

The payroll company is dealing with sensitive information about their users’ employees. Without solid controls in place, that information could be compromised. 

That’s why service providers that manage users’ sensitive information must provide structured documentation detailing what they’re doing to protect users’ information. 

Here’s where SOC examinations come into play.

SOC stands for Service Organization Control, and it’s a type of examination geared toward entities that provide services directly related to a user’s control systems. 

The main objective of SOC reports is to provide comfort to the user’s organization as it relates to security. This report can help users know that their processes and controls are in good hands. 

By having an independent, third-party auditor examining your controls, your current users (or prospective users) can see that you’re operating in an ethical, safe way. This makes them more likely to trust your company with sensitive data.

Why do service organizations need SOC reports?

Back in the 1990s, if a given organization wanted to inform users about internal controls, they could perform a Statement on Auditing Standards (SAS) No. 70. 

A certified public accountant (CPA) would audit the organization's controls and release an opinion on their performance based on specific industry standards.

But as organizations evolved, so did their complexity. 

Things like SaaS, infrastructure management, and information security came in. With them came the need for a better way to understand and audit an organization’s controls. 

To deal with these changes, the American Institute of Certified Public Accountants (AICPA) released the Statement on Standards for Attestation Engagements (SSAE) No. 16, aiming to help technology-based service organizations report to users more efficiently and completely. 

In June 2010, the AICPA got rid of the SAS 70 examination and introduced the idea of SOC reports, mirroring the International Standard on Assurance Engagements (ISAE) No. 3042.

According to the Sarbanes–Oxley Act, public companies must ensure their controls over financial reporting are secure and reliable. 

If a prospect or client suspects that your organization might harm their compliance status, they may not do business with you at all. 

That’s why SOC reports are so important. 

Tangibly proving to users that you’re doing everything right to protect their information and help them stay compliant is a true competitive advantage. 

And that’s just one of the many reasons you should consider becoming SOC compliant. 

Improved prevention: Reduce risk and prevent unnecessary problems related to users’ integrity.

Better positioning: Position yourself as an organization that’s ethical, reliable, and compliant. 

More control: Get more control over your processes and operations. 

Improve your processes: Find potential leaks in your controls and plug them before they start snowballing.

Higher client retention and satisfaction: Build trust with your clients and make them feel comfortable working with you. 

As you may already know, SOC reports can be split into three main categories:

SOC 1: Focuses on service organizations' controls over financial reporting

SOC 2: Examines a service organization's controls based on AICPA’s trust principles (security, availability, processing integrity, confidentiality, and privacy)

SOC 3: Explores the same criteria of a SOC 2 report, documented for a more general audience (i.e., stakeholders)

For the sake of brevity, though, we’ll focus on the two more popular SOC report categories: SOC 1 and SOC 2. 

A SOC 1 report is an organizational controls audit that aims to analyze a business’s controls relevant to its users’ financial operations. 

SOC 1 can be considered “attestation” reports, which means an external auditor (typically a CPA) must provide an opinion on the performance of your controls. 

First, the organization’s management should define the controls that are directly related to user financial operations. Then, a CPA will analyze those controls and release a ruling on whether they’re effective. 

Scope: What is the scope of the engagement?

Responsibilities: What are the responsibilities of the organization?

Design: What is the design of the controls?

Description: What is the description management provided regarding the controls?

Type: What is the type of report being used?

Opinion: What was the auditor’s opinion after conducting all the testing and examination?

Once you have this document in place, you can send it to your clients and stakeholders so they can use it whenever they’re going through a financial audit themselves.

SOC 1 audits help you validate your controls and communicate to users that you have secure processes. This will help them feel more secure and comfortable about their internal controls. 

These reports aren’t mandatory, but clients might request them at some point, so you should be prepared.

If a company relies on a third-party service provider to perform crucial financial reporting processes (e.g., an outsourced payroll management system or a revenue reporting platform), they’ll probably ask those service providers for a SOC 1 report. 

So, how do you know if your business needs a SOC 1 examination?

It all comes down to how you answer the following question:

Does your service impact the financial operations of your users?

If the answer is a clear “yes,” then you need a SOC 1 audit. 

These are all just a few examples of businesses that need to be SOC 1 compliant. Bottom line, if you impact the financial statements of users in some way, you need this. 

But what if you provide a service that doesn’t impact your users’ financial information? 

Unlike SOC 1, which focuses on controls over financial reporting, SOC 2 examinations focus on the operations and compliance side. It’s all based on the “Trust principles” established by the AICPA. 

Security (also known as “common criteria”): Is your service organization protected against unauthorized access?

Availability: Are your services available at all times? Are services restricted?

Processing integrity: Are your processing systems working reliably? Are they providing timely, accurate data to users?

Confidentiality: How are you managing confidential data? Is it classified and protected? Who can access such information?

Privacy: Are you dealing with users’ sensitive information? If so, what are you doing to keep that data protected?

Even though all principles are important, when you’re trying to protect users’ sensitive information, the only principle required for SOC 2 compliance is “Security.” That’s why it’s called “common criteria.”

Like SOC 1, an SOC 2 is an attestation report where an external auditor needs to come in, analyze your controls, and issue an opinion report. 

The AICPA provides no specific guidelines to prepare for a SOC 2 audit. It really depends on specific industry regulations and the type of service your organization provides. 

The best way to prepare is by analyzing how your services impact your users’ organizations and identifying which risks and potential issues are involved. 

For example, if you’re a payment processing company for e-commerce businesses, you might want to consider the processing integrity principle in your controls.

On the other hand, if your business provides HR management services, you may want to consider other principles, like confidentiality and privacy. 

The AICPA doesn’t list specific controls you should have in place to comply with SOC 2, which can make the process more confusing. 

At this stage, a readiness assessment can be helpful for figuring out the current status of your controls, spotting potential gaps in your systems, and better preparing for the actual audit. 

Most accounting firms that have experience with SOC reports can perform readiness assessments to help you mitigate potential issues with your current controls prior to your SOC 2 examination. 

If your organization deals with sensitive information non-related to financial reporting, then you may need SOC 2 compliance.

SOC 1 vs. SOC 2: A Simple Yet Complete Guide

The SOC 2 audit is all that stands between you and SOC 2 compliance. Learn more about SOC 2 audits and how to prepare to undergo one successfully.

The SOC 2 audit: Types, costs involved, and how to prepare

SOC 2 — part of the American Institute of Certified Public Accountants’ System and Organization Controls set of security controls standards — is one of the most respected information security frameworks you can pursue compliance for. 

It demonstrates your business' commitment to top-notch security in handling customer data, which protects your brand and clients while also distinguishing you from the competition.

In order to claim SOC 2 compliance, you need to undergo a SOC 2 audit.

Below is a complete guide to SOC 2 audits. We’ll cover what they are, along with the two types and five trust principles, before concluding with a checklist to help you prepare for your audit.

A SOC 2 audit is the procedure you must undergo to be able to claim your compliant with SOC 2 guidelines. 

Since the American Institute of Certified Public Accountants created the SOC 2 framework, CPA firms can perform these audits — preferably those specializing in information security and systems. 

There are five compliance requirements (known as Trust Service Principles) for SOC 2:

You can have a SOC 2 audit for just security (the only required principle) or as many principles as you’d like. 

When you successfully complete your SOC 2 audit, your auditor will issue you a SOC 2 report. The report offers the auditor’s opinion regarding your controls’ design and operating effectiveness according to each SOC 2 trust services principle you specified.

For starters, it provides assurance that you’re unlikely to experience a data breach, and you’re able to counteract threats. Data breach and exposure occurrences have decreased in recent years but have been trending upward in general since 2005. Complying with SOC 2 can minimize the chance that you become part of that statistic.

SOC 2 compliance also appeals to customers and vendors concerned with security. In fact, some of your clients or customers may only work with SOC 2 compliant companies. For others that don’t require it, this still offers an extra layer of assurance.

Following SOC 2 also helps build a security culture within your company. Team members become more vigilant about following information security best practices and reporting any potential threats or suspicious activity as soon as possible.

All that being said, you can’t be 100% sure that you’re compliant — nor can you say you’re compliant — without passing the audit.

There are two main types of SOC 2 audits: Type I and Type II.

Type I audits evaluate the design effectiveness of your firm’s internal controls at achieving the trust principles you specified at the outset of the audit for a specific point in time. 

Type II audits are similar to Type I audits, but they also analyze your controls’ operational effectiveness and evaluate things over a longer period. 

The SOC Type II report will contain additional information attesting to the firm’s effectiveness over a specific timeframe. The typical range for a SOC 2 Type II audit is anywhere from three to 12 months. Many companies choose six months, with 12 being the gold standard.

Type I audits will cost less time and money to prepare for and undergo, but Type II audits provide more benefits. With a Type II report, you can demonstrate that everything works correctly over a period instead of just one day. This provides extra reassurance to customers, vendors, and other concerned parties.

That said, Type I audits are often used as a first step toward the Type II audit.

In general, you should expect to pay anywhere between $50,000 for Type I to over $100,000 Type II. This investment is often well worth it, given that a single data breach can cost you millions.

However, it’s hard to say exactly what a SOC 2 audit costs, given the many variables involved. The only thing that’s for sure is that a Type II audit costs more than Type I.

You have to consider preparation costs, the fee you’ll pay for the actual audit, and other associated expenses.

The most obvious preparation cost is bringing your controls up to speed. 

This varies based on the trust principles you choose and how close you are to achieving compliance with them prior to any changes. You may have to purchase additional software or tools to get up to compliance as well.

The readiness assessment is an optional but incredibly useful part of the prep process.

During a readiness assessment, a CPA firm will analyze each internal control as if they were performing an audit, then tell you how close you are to being ready for the audit. The CPA will also provide recommendations for addressing any weaknesses in your processes or controls.

These assessments on their own are substantial investments.

If you hire a security consultant to help with the prep work, you can save time, but you’ll also have to spend more.

Lastly, you’ll incur some legal fees when reviewing all agreements with customers, vendors, contractors, and employees. The data protection policies in these agreements can impact audit readiness.

One of the primary factors impacting the cost of the audit is the number of trust principles you’re working toward. Each additional trust principle expands the scope of the audit and requires more auditing procedures.

Your firm’s size will also impact the audit fee. The bigger your company, the more you’re likely to pay.

Of course, the CPA firm you hire will influence the price as well. SOC auditors with more experience will likely charge more, but their SOC 2 reports may carry more weight.

There are other more subtle costs to consider in going through with a SOC 2 audit. 

For one, you’ll incur productivity costs as your employees shift their attention toward achieving compliance. 

Another cost to consider is training your staff. Whether in-house or through a third-party firm, you’ll want to bring regular security awareness training to your employees. 

You’ll also need to invest time in ensuring that employees understand the new controls and systems.

The SOC 2 audits process is pretty thorough and takes a lot of time. Therefore, you want to prepare for the audit adequately.

Preparing for the audit could take weeks or months, but the payoff of becoming SOC 2 compliant is worth it.

Choose your reporting period and trust principles

First of all, choose the time period that your SOC 2 audit will measure.

For Type I audits, this would be a specific day.

The AICPA recommends at least six months for Type II audits. Anything less is not as useful.

However, you can still do less than that, depending on your situation. Just know the report’s information won’t be as helpful.

After that, select each trust services category you’d like to audit for.

You can start with just security, go for all five principles at once, or perform as many as you can afford.

Specific industries may also want to opt for certain principles.

Secureframe Blog

Your Complete Guide to SOC 2

SOC 1 vs. SOC 2: A Simple Yet Complete Guide

The SOC 2 audit: Types, Costs Involved, and How to Prepare

SOC 2 vs. ISO 27001: Similarities, Differences, and Benefits of Each

SOC 2 Compliance Checklist: 51 Questions to Prepare for a SOC 2 Audit

Real-World SOC 2 Report Example: A Simple Walkthrough

What is an ISO 27001 Certification?

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