SOC 2 Type II Compliance: Definition, Scope, and Why You Need It
In the face of evolving cyber threats, every organization endures a slew of enterprise customer requests for security assurance. Potential customers want to know whether you’ve put in place systems and security controls to safeguard their sensitive data. One of the best ways to provide this assurance is the SOC 2 Type II report.
The SOC 2 Type II report is a competitive advantage. However, like other SOC compliance reports, this isn't a simple connect-the-dot proposition. Rather, it’s an intricate and expensive process that requires evaluating a set of additional principles.
In this article, we’ll discuss the nitty-gritty details of the SOC 2 Type II report. We’ll reveal how it differs from other SOC reports and how often you should schedule a SOC 2 Type II audit. Read on to also discover why this report is more important now than ever before for SaaS and IT vendors.
SOC compliance: SOC 1 vs. SOC 2 vs. SOC 3
In today’s cyberthreat-infested landscape, customers demand honesty and transparency in how you handle their sensitive data. They’ll knock on your door with audit requests, questionnaires, and ad hoc inquiries seeking to unravel how secure, vigilant, and resilient your organization is.
The System and Organizations Control (SOC) offers the best way to demonstrate effective information technology controls.
The SOC report assures user entities that:
- You have the required security controls in place to protect customer data against known and emerging threats
- You've set up alerts to detect anomalies and violations across the entire ecosystem easily
- Besides preventing risk situations, you can quickly repair damage and restore normalcy in case a rare data breach or system failure occurs
There are three types of SOC reports. They are SOC 1, SOC 2, and SOC 3.
SOC 1 compliance focuses entirely on controls that directly impact the user entity’s internal controls over financial reporting (ICFR).
SOC 2 compliance offers reporting options beyond financial objectives. It covers controls relevant to the trust services principles (TSP): security, availability, processing integrity, confidentiality, and privacy.
Lastly, SOC 3 has a similar look and feel to SOC 2. However, the SOC 3 report is truncated and has unrestricted distribution. It’s more of a general use report.
SOC 2 Type I vs. SOC 2 Type II
A SOC 2 report is broken down into two different types. There’s SOC 2 Type I and SOC 2 Type II.
The SOC 2 Type I report covers the suitability of design controls and the operating effectiveness of your systems at a specific point in time. Typically this is a single day. It affirms that your security systems and controls are working as you’ve set them to at a particular point.
Because of the shorter coverage period, the SOC 2 Type I audit requires minimal data and documentation to prove compliance. The report is also quick, easy to generate, and less expensive than the SOC 2 Type II report.
The SOC 2 Type II report is very similar to the Type I report but with a few significant differences. First off, to prove SOC 2 Type II compliance, your organization undergoes rigorous auditing over a longer period, usually up to 12 months.
The auditor will examine the design of internal controls and the operating effectiveness of your systems over the specified period. Because of the longer coverage period, it follows that SOC 2 Type II audits require a significant investment of both time and resources.
SOC 2 Type II: The ultimate SOC compliance
The extra time and capital you invest in a SOC 2 Type II audit can deliver more value to your organization. It helps you appeal to potential customers from bigger firms that would otherwise shun you with the SOC 2 Type I report.
If you’re gunning for the SOC 2 Type II report, here are a few things you should know.
What is the scope of the SOC 2 Type II report?
A SOC 2 Type II report focuses on the American Institute of Certified Public Accountant’s (AICPA) trust service principles. It examines a service provider’s internal controls and systems related to security, availability, processing integrity, confidentiality, and privacy of data.
Moreover, SOC 2 Type II delves into the nitty-gritty details of your infrastructure service system throughout the specified period.
It focuses on the following areas:
- Infrastructure: The physical and hardware components (networks, facilities, and equipment) that support your IT environment and help you deliver services.
- Software: The operating software and programs (utilities, applications, and systems) you use to facilitate data and system processing.
- People: The personnel (managers, developers, users, and operators) involved in the management, security, governance, and operations to deliver services to customers.
- Data: The information (files, databases, transaction stream, and tables) you use or process within the service organization.
- Procedures: The manual or automated procedures that bind processes and keep service delivery ticking along.
What type of businesses does SOC 2 Type II apply to?
SOC 2 Type II applies to any business handling sensitive customer information. It’s useful for cloud computing vendors, managed IT services providers, software-as-a-service (SaaS) providers, and data centers.
Why do service organizations choose SOC 2 Type II over SOC 2 Type I?
Generally, both reports help build customer trust.
A SOC 2 Type I report demonstrates your commitment to protecting their sensitive data. However, since it represents a point-in-time snapshot, it does enough to woo only small and medium-sized user entities.
The SOC 2 Type II report breaks the glass ceiling. It gives your business the impetus it needs to scale to the next level and bag contracts with large enterprises. These large enterprises know their databases are prime targets for cybercriminals and want to avoid costly hacking incidents.
As a result, large organizations want assurance that you’ve woven security controls into your entire system. They also want to see that you monitor them on an ongoing basis to make sure they are working optimally all the time.
The SOC 2 Type II is particularly important in the SaaS Contract Lifecycle Management (CLM) space. It’s easy to understand why — contracts house confidential information that can have huge financial ramifications when leaked.
Clients won't trust CLM providers if they don’t have the necessary security control, risk management, access control, and change management.
What is a SOC 2 Type II audit?
The SOC 2 Type II audit follows the standard SOC 2 examination process and entails the following stages:
- Scoping procedures: Determine applicable trust principles with the help of a certified CPA.
- Gap analysis or readiness assessment: The auditor will pinpoint gaps in your security practices and controls. Moreover, the CPA firm will create a remedial plan and help you actualize it.
- Attestation engagement: The auditor will set the list of deliverables as per the AICPA attestation standards (described below). They will then perform the examination to determine the suitability of design controls and operating effectiveness of systems relevant to the applicable trust service principles over the specified period.
- Report writing and delivery: The auditor will deliver the report covering all the areas described above.
As per AICPA requirements, only licensed CPA firms can facilitate the SOC examination.
The SOC 2 Type II report includes four main sections, which we will go into below.
The auditor measures your description of infrastructure service systems throughout the specified period against trust services principles.
In this part of the report, the auditor confirms whether:
- The description fairly represents the type of services and components of the systems throughout the specified period
- The controls were suitably designed throughout the specified period
- The controls worked effectively throughout this period
Independent auditor's report
The auditor performs examinations per AICPA’s attestation standards.
In this section, the auditor will deliver an honest opinion on whether:
- Your assertion is fairly presented as per the description criteria
- The internal controls were suitably designed and worked to meet applicable TSPs throughout the specified period.
Infrastructure services systems
This section offers a detailed overview of the services you provide and components of systems you use to deliver those services. The components include people, procedures, data, software, and infrastructure.
It also describes relevant aspects of the internal control environment, monitoring, information and communication, and risk assessment processes.
Applicable Trust Services Principles
The Auditor provides information, including the results of the test, for the applicable trust services principles.
How long is a SOC 2 Type II report valid?
The SOC 2 (Type I or Type II) report is valid for one year following the date the report was issued. Any report that’s older than one year becomes “stale” and is of limited value to potential customers.
As a result, the golden rule is to schedule a SOC audit every 12 months.
However, the annual audit rule isn’t written in stone. You can undertake the audit as often as you make significant changes that impact the control environment. For example, if your service organization is facing ongoing concerns about cybersecurity controls, you can take SOC 2 Type II audits bi-annually.
Keep in mind your customers are watching how frequently you schedule SOC 2 reports. Any irregular scheduling could signal a lack of commitment to SOC 2 compliance.
How much does a SOC 2 Type II audit cost?
SOC 2 Type II auditing sets you back between $10,000 and $50,000, on average. The cost will vary depending on factors such as:
- The applicable trust service principles
- The size of your control environment
- The number of applications in your scope
- The level of support needed
The SOC 2 Type II auditing is more expensive than SOC 2 Type I auditing. However, even though it costs you tens of thousands of dollars, it’s a well-spent investment.
When you become SOC 2 Type II compliant, you gain an edge over competitors. Remember, the cost of SOC 2 Type II auditing is small compared to the cost of a data breach, which was estimated at $3.86 million in 2020.
At Secureframe, we make your SOC 2 Type II auditing cheaper and easier. We handle the process from start to finish, saving you the hassle. Most importantly, we connect you with a partner CPA and negotiate preferential pricing for you.
Why is SOC 2 Type II more important now than ever before?
Businesses have been moving operations from on-premise software to the cloud. A cloud-based infrastructure boosts processing efficiency while cutting overhead expenses. However, moving to the cloud means losing tight control over the security of data and system resources.
People outside your organization will host, handle, and maintain data on your behalf. The sub-processor will have access to your sensitive information, which leaves you vulnerable to data breaches. Statistics show that 72% of large businesses and 28% of small businesses are victims of data breaches. A data breach puts your business reputation on the line.
As Christopher Graham, former Information Commissioner of the United Kingdom, said, “The knock-on effect of a data breach can be devastating for a company. When customers start taking their business — and their money — elsewhere, that can be a real body blow.”
A SOC 2 report assures your customers that your security program is properly designed and operates effectively to safeguard data.
It shows that you’re responsible with:
- Process monitoring
- Encryption control
- Intrusion detection
- User access authentication
- Disaster recovery
Let’s get you started with SOC 2 Type II compliance
Getting a SOC 2 Type II audit report can be expensive, time-consuming, and overwhelming. Beyond the capital investments, the auditing process can take precious time away from your employees, impacting overall productivity.
Save yourself the hassle, and let us do the heavy lifting for you. We handle the SOC 2 auditing process to help you achieve compliance in record time. Get in touch with our experts today to schedule a demo and learn how we speed up the auditing for you.