How Does a SOC Audit Work?
SOC stands for “Service Organization Control.”
By breaking down those three words, you can understand everything about this often-misunderstood method of building trust.
A service organization is any third party that a company might go to for services they can’t perform internally. It’s the business equivalent of calling in a plumber because you’re no good with a wrench.
Of course, you shouldn’t hire a plumber without first reviewing testimonials about their service. A service organization is no different — except instead of customer reviews, they build trust with audits.
A SOC audit is one of the best ways to build trust in your service organization. This article will tell you precisely what a SOC audit is and how you can get one.
What is a SOC audit?
A SOC audit is a way to build trust in the services you provide as a third-party entity.
Specifically, it tells potential customers that your company follows best practices for securing and managing the information entrusted to your care.
Of course, the ideal way to build trust is to have a fruitful provider-client relationship over many years, but that’s not something you can lay down as table stakes. A report from a SOC audit can be an excellent reference from a known key player in the industry. It’s a shortcut to trust.
However, calling it a “shortcut” shouldn’t imply that passing a SOC audit is quick or easy. It takes a lot of work to achieve compliance — if it didn’t, a positive SOC report wouldn’t be worth the paper it was printed on.
The process revolves around a visit from an unbiased third-party auditor, who will take stock of your documented information security controls and evaluate how close your documentation comes to each SOC control objective.
How does a SOC audit work?
Let’s explore the SOC audit process in more detail by walking through an example.
Imagine a company called Cloudtopia that lets businesses store their customer mailing lists in the cloud. The Cloudtopia team is about to hook a huge enterprise client, but the client, skittish about recent data breaches in the news, has asked for a SOC 2 audit.
First, Cloudtopia’s team has to decide which type of SOC 2 audit they want, Type I or Type II. They settle on Type I because it takes less time, and they need to land this client.
The next step is to figure out which Trust Services Criteria apply to Cloudtopia. They don’t know which ones the auditor will choose to focus on, but they can make an educated guess, sort of like studying for an exam. They decide to focus on Security, Availability, and Processing Integrity.
They leave out Privacy and Confidentiality since none of the info they work with is especially sensitive (see “What are SOC Controls?” below for more details).
Now they’ve got to gather all the documentation about every control that fits into one of their three chosen areas. Cloudtopia’s team conducts a gap analysis with the documentation in place, checking to see whether any of their controls fall short of full SOC compliance.
After they take steps to close all gaps, it’s finally time to meet with the auditor.
Cloudtopia’s team picks out a CPA they’d like to work with, meets with them, and schedules a time for the SOC audit. Because they did their due diligence before inviting the auditor, they receive an “unqualified opinion” — a pass with flying colors.
What is the difference between SOC 1, SOC 2, and SOC 3?
There are three kinds of SOC reports to choose from. Depending on the nature of a service organization, they might seek one SOC audit, two of them, or all three.
SOC 1 is a set of controls designed for service organizations that provide financial reporting services. Financial information is especially sensitive, as any irregularities can have massive consequences. Inaccurate accounting can lead to tax liability, investor revolts, and even legal action for the user entity.
Examples of companies that might seek a SOC 1 audit include accounting firms, payroll managers, and anybody who stores financial information on the Cloud.
SOC 2 is a more general set of controls and is available to all service organizations. SOC 2 audits are based on the five Trust Services Criteria: Security, Privacy, Confidentiality, Availability, and Processing Integrity. If a company is large enough to provide financial reporting services alongside other services, it might seek both a SOC 1 report and a SOC 2 report.
SOC 3 is very similar to SOC 2. Both are evaluations of a company’s information security policies based on Trust Services Criteria. The difference lies in their intended audiences. SOC 2 is a long, detailed audit report designed mainly for reading by other businesses. By contrast, SOC 3 is a shorter, more readable audit report intended for public consumption.
If a service organization provides services to both businesses and individual customers, they might seek both a SOC 2 and SOC 3 report. If they also provide financial reporting services, they might seek a SOC 1 audit too.
In addition to the three overarching categories, there are also two types of SOC reports. They are Type I and Type II. These types can be applied to both SOC 1 and SOC 2.
SOC Type I is a shorter, less detailed report that evaluates for a point in time. It focuses on the documented design of the audited company’s information management systems, evaluating how close it adheres to the Trust Services Criteria. A SOC 2 Type I report can take as little as three weeks from start to finish.
SOC Type II is a more involved report evaluated over a period of time. In addition to reviewing the design of a company’s security systems, Type II also uses experimental processes (such as penetration testing) to understand how the system works in practice. Because of the extensive tests needed, SOC 2 Type II audits can take up to a year.
Who performs a SOC audit?
Audits can only be conducted by a qualified CPA or an agency accredited by the American Institute of Certified Public Accountants (AICPA). Non-accountants might be enlisted to help, but everyone is held to the same set of rigorous standards.
Choosing an auditor is one of the most crucial steps in the SOC audit process, yet companies often overlook it. An auditor should have clear experience conducting SOC audits and should be able to point to examples of reports they’ve generated in the past. Ideally, they should have experience working with your specific type of service organization.
Additionally, a SOC auditor should be somebody you can work with. They’ll be your partner for anywhere from a few weeks to a year, so make sure your personalities and cultures are compatible.
Most service organizations conduct interviews with several auditors before deciding on one, which makes sense. Essentially, you’re hiring an employee, so you should treat this process as a talent search.
What are SOC controls?
We’ve mentioned the AICPA Trust Services Criteria (TSC) several times so far. By now, you understand that these criteria are several overarching principles that guide SOC 2 auditors in determining what they should evaluate.
The TSC gives SOC 2 its unique structure. Instead of focusing on a pre-written list of controls like many ISO audits, they focus on guiding the auditor toward generating a report that focuses on the unique traits of each service organization.
This makes it harder to prepare for a SOC 2 audit since there’s no checklist to run down. It also makes the process a lot more flexible and relevant to each audited company.
The five Trust Services Criteria are:
- Security: Measures how well the service organization protects its systems against unauthorized intrusion. The controls in Security are the only ones that are mandatory for every SOC 2 audit. If you don’t pay attention to these, you can’t be in SOC 2 compliance.
- Availability: Measures how accessible the service organization’s information systems are. Systems should be easy to use, monitor, and maintain, but access should also be carefully controlled.
- Confidentiality: Measures how well the service organization secures confidential information, i.e., information that is shared but restricted to certain parties.
- Processing Integrity: Measures whether the systems maintained by the service organization are able to do their jobs effectively.
- Privacy: Measures how well the service organization complies with regulations for the use and disposal of private personal data.
To help you comprehend the TSC, here are some examples of how each one applies to a real company:
- Security: A cloud storage company requires two-factor authentication to access any account, preventing hackers from viewing sensitive material using credentials dumped onto the dark web.
- Availability: A cloud-based content management system is open to both businesses and customers. The company’s internal control prevents individual customers from accidentally viewing proprietary content owned by others.
- Confidentiality: A firm that manages healthcare records regularly sends them between hospitals and specialists. To comply with HIPAA, they encrypt the records for as long as they’re in transit.
- Processing Integrity: A company that manages the supply chains of businesses ensures 99.99% uptime so products can be produced and delivered to meet customer expectations.
- Privacy: A company regularly monitors for appearances of its users’ account information on illicit channels.
Choosing which TSCs apply to your company is as much an art as a science. It’s always better to document too many than too few. This leads to a more effective gap analysis and better prepares you for the moment of truth when the auditor arrives.
Why is a SOC audit important?
A lot of companies, from startups to enterprises, are frightened of the word “audit.” It conjures images of IRS agents combing through years of records, looking for any irregularities they can prosecute.
That’s not an accurate picture of a SOC audit. SOC is a totally voluntary process, and it’s proactive, not punitive.
The reality is that the digital environment is more fraught with danger than ever before. Hackers are getting bolder, and not a month goes by without news of a massive ransomware attack or a record-breaking data breach.
If your service organization doesn’t do something to build trust, you’ll lose business to competitors who have undergone voluntary audits. As complex as a SOC audit can be, it’s better to start now than wish you’d started months ago.
Fortunately, there are tools — like Secureframe — that take the pain out of the process.
A SOC audit is a voluntary process that takes some work but provides huge benefits. If you can present a SOC 2 certificate, business clients will feel more comfortable working with you, individual customers will be more likely to entrust you with their information, and growth will follow.
Secureframe is designed to save you work, time, and resources on the front end of an audit. Our automations vastly increase your chances of getting a favorable report by helping you monitor your systems, close security gaps, integrate your security stack, and more.
If you’ve decided to get your own SOC report — and you should — contact Secureframe today.