SOC 2 Compliance

Published on: June 04, 2024

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7 min read

All enterprises, especially those that contract with third-party vendors (such as SaaS or cloud computing providers) for essential business operations, should be concerned about information security. This is understandable given that improper handling of data, particularly by application and network security providers, can expose businesses to risks including malware installation, extortion, and data theft.

SOC 2 is an auditing procedure that confirms your service providers securely manage your data to protect your business's interests and its clients' privacy. SOC 2 compliance is a prerequisite that security-conscious companies should look for in a SaaS provider.

In this article, you will get detailed information on the following topics related to SOC2 compliance:

• What does SOC 2 compliance mean?
• What is a SOC 2 audit?
• Who needs SOC2 compliance?
• What are the benefits of achieving SOC 2 compliance?
• What are the types of SOC 2 reports?
• What are the 5 principles of SOC 2?
• What are the SOC 2 Compliance Requirements?
• What is the SOC 2 compliance checklist?
• How can an organization prepare for SOC2 audit?
• How to select SOC2 consultant
• What is the difference between SOC 1 vs SOC 2 vs SOC 3
• What is the difference between ISO 27001 and SOC 2?
• What is the difference between SOX and SOC 2?
• How long does it take to get a SOC 2?
• History of SOC 2

What does SOC 2 compliance mean?

SOC 2 is a voluntary compliance standard for service organizations that outlines how businesses should handle client data. SOC 2 is created by the American Institute of CPAs (AICPA). The security, availability, processing integrity, confidentiality, and privacy, Trust Services Criteria, form the basis of the SOC 2 standard. A SOC 2 report is tailored to the unique needs of every firm. Every company, based on its own set of business processes, can design controls that follow one or more trust-related concepts. These internal reports give businesses vital information about how they handle their data for suppliers, business partners, and authorities.

What is a SOC 2 Audit?

An evaluation of an organization's or service provider's information systems and controls pertaining to security, availability, processing integrity, confidentiality, and privacy is known as a SOC 2 audit. An independent, certified public accountant conducts the audit, which is based on the Auditing Standards Board's Trust Services Criteria (TSC) of the American Institute of Certified Public Accountants (AICPA). It guarantees that service providers handle data securely to safeguard the interests and privacy of an organization.

Although optional, a SOC 2 audit is an essential procedure that every company managing consumer or sensitive data should follow to guard against ransomware, malware installation, and other threats to sensitive business and customer data. Enterprises might incur significant costs due to improper data handling, which is what SOC 2 audits and compliance are intended to avoid.

The AICPA commissions audits to be carried out by Certified Public Accountants (CPAs) or audit companies. You cannot engage an ordinary accountant to perform a SOC 2 audit since not all accountants are CPAs.

Who Needs SOC2 Compliance?

SOC 2 audits were primarily created for service providers who deal with private client data. SOC 2 audits are crucial for company governance, internal risk management procedures, and regulatory monitoring. It gives customer businesses peace of mind regarding the safety of data that is accessible to and stored outside of their buildings by their service providers.

A SOC 2 audit can be requested by any business that requires comprehensive details and reassurance on the controls at a service organization. Service providers of cloud storage, software-as-a-service (SaaS), colocation, data processing, and data hosting are the main categories of businesses that go through a SOC 2 assessment.

Organizations that could request SOC 2 audits specifically are listed below:

• Cloud services
• FinTech companies (e.g., banking and insurance)
• Healthcare organizations
• Human resources and payroll providers
• SaaS
• Data centers
• Payment processors

The AICPA's SOC criteria must be followed by these service providers in terms of data transmission, storage, processing, and disposal. SOC 2 audits can be carried out as part of a routine information security program or in the event that the user organization has reason to believe that the service organization may need to improve in one or more of the criteria for data security.

What are the Benefits of Achieving SOC 2 Compliance?

Getting a SOC 2 report is a significant undertaking. Since achieving it requires a large investment of time, money, and effort, one may naturally ask themselves whether it is all worth it. Does the presence of those three small letters really matter all that much? Why is compliance with SOC 2 important? Having the actual report in hand is only one advantage of SOC 2 compliance. A few of the many benefits of adhering to the SOC 2 framework are outlined below:

• Sets You Apart from the Competition: Any business can claim to place a high premium on the security and safety of its customers. Customers, however, are uninterested in these assertions unless there is supporting data. That's precisely what you can get from a rigorous SOC 2 audit. Attaining and upholding SOC 2 compliance is evidence of your superior security. Additionally, it demonstrates to them your dedication to protecting their data. This distinction might be the final push customers need to pick your business over a rival without a SOC 2 report. Possessing SOC 2 accreditation is a concrete approach to providing potential clients with the assurance they require to work with you.

• Protects Your Brand's Reputation: SOC 2 helps protect your brand’s reputation. It doesn’t matter how excellent your brand is or how loyal your customers are. If you get lax about security and experience a data breach or exposure, customers will leave your company in droves. A single breach can be devastating to your brand reputation. Not to mention the millions spent on recovery and cleanup, implementing new controls, and recovering customer trust. SOC 2 processes and controls can protect your company from these devastating consequences.

• Enhances Your Offerings: You may learn more from a SOC 2 audit than just where security needs to be strengthened. It demonstrates how to simplify the procedures and controls inside your company. This enables you to enhance security while boosting productivity inside your company. You'll be able to devote more time and money to improving the caliber and contentment of your goods and services. SOC 2 encourages businesses to create robust, long-lasting security procedures rather than dousing crises as they emerge. Additionally, it pushes businesses to set up security procedures that become embedded in the corporate culture. Implementing policies and documentation, turning on single sign-on or multi-factor authentication, etc. All of these get ingrained in the daily operations of your organization. Securing a new financing round, being ready for mergers and acquisitions, and landing bigger businesses are all made much easier when you have all of this baked in.

• Draws in More Clients: Getting SOC 2 compliance can help you draw in security-conscious customers and increase revenue. SOC 2 certified prospects frequently won't deal with your company unless you have a SOC 2 report for certain Trust Services Criteria. Additionally, you'll gain clients' confidence far more quickly. More enduring clients are produced by stronger trust. It lowers marketing expenses while raising client lifetime value and opening up expansion prospects.

• Over time, it saves you time and money: You'll most likely need to complete extensive security questionnaires for each business customer if you don't already have a SOC 2 report. In the event that you do not currently have procedures and paperwork in place, these surveys can be quite particular, thorough, and challenging to complete. Possessing a SOC 2 report provides you with a robust set of best practices for safeguarding sensitive data and facilitates sales to larger organizations. Furthermore, policies, processes, and controls that comply with SOC 2 will facilitate the acquisition of further security certifications. For instance, there are several criteria between ISO 27001 recommendations and SOC 2 compliance. Obtaining a SOC 2 report expedites and lowers the cost of obtaining your ISO 27001 accreditation.

What are the Types of SOC 2 Reports?

Type 1 and Type 2 are the two primary forms of SOC 2 compliance. Type 1 certifies that, at a certain moment in time, an organization was using conforming systems and procedures. On the other hand, Type 2 is an extended period (often 12 months) of compliance attestation. An organization's controls are described in a Type 1 report, which attests to the controls' correct implementation and design. Everything included in a Type 1 report is included in a Type 2 report, along with an attestation to the operational effectiveness of the controls.

What are the 5 Principles of SOC 2?

SOC 2 compliance is based on five core principles, each of which is customized to the specific operational model of a company and intended to maintain strict security controls in several domains. The 5 main principles of SOC 2 are outlined below:

• Security: Strong data and system protection against unwanted access is a fundamental need of security principles. Identity management systems and access control lists are two common access control strategies used in implementation. This approach makes it essential to strengthen firewalls, implement more stringent incoming and outgoing rules, install intrusion detection and recovery systems, and enforce multi-factor authentication.

• Confidentiality: Encryption is required for sensitive data both during transmission and at rest, such as application source codes, credit card numbers, and business plans. Respecting the least privilege principle becomes crucial, allowing people the lowest amount of access to sensitive data that they require to carry out their duties.

• Availability: According to this idea, systems must continuously fulfill strict Service Level Agreements (SLAs) about availability. It becomes essential to design fault-tolerant systems that can withstand heavy loads without failing. To guarantee system availability, investments in network monitoring technologies and the creation of strong disaster recovery strategies are necessary.

• Privacy: Tight controls over Personally Identifiable Information (PII) are in line with the AICPA's Generally Accepted Privacy Principles (GAPP) and the organization's data usage regulations. Strict controls are necessary to protect personally identifiable information (PII), which includes details like social security numbers, phone numbers, credit card numbers, and names, in order to stop illegal access or exposure.

• Processing Integrity: The processing integrity concept is emphasized by making sure systems continuously operate as intended, free from lags, vulnerabilities, mistakes, or flaws. Following this idea necessitates the use of performance monitoring tools and processes as well as quality assurance methods.

What are the SOC 2 Compliance Requirements?

Since the TSC (Trust Services Criteria) forms the foundation for all SOC 2 criteria, you must comprehend its specifics before starting a full SOC 2 audit. SOC 2 compliance requirements are summarized below:

• Information security: How can you guard against unwanted access to and use of your data?

• Logical and physical access controls: In order to avoid unauthorized usage, how does your organization manage and restrict logical and physical access?

• System operations: How are process irregularities identified and mitigated in your system operations?

• Change management: How can unapproved modifications be avoided and a regulated change management procedure be put in place?

• Risk reduction: How can the risk of vendor services and business interruptions be identified and reduced?

One organization may set up multi-factor authentication, build systems to prevent client data from being downloaded and create new employee onboarding procedures in order to satisfy the Logical and Physical Access Controls requirements.

Another business may monitor production systems, do quarterly assessments of user access and permissions, and impose physical access restrictions on data centers.

Once more, no particular set of guidelines or procedures is needed. What counts is that the controls implemented meet that specific Trust Services Criteria.

What is the SOC 2 Compliance Checklist?

A SOC 2 compliance checklist is a collection of best practices, procedures, and standards that an organization may use to get ready for a SOC 2 audit. It is sometimes referred to as a SOC 2 audit checklist or SOC 2 assessment checklist. There isn't one checklist that works for all organizations when it comes to SOC 2 compliance because the nature of these audits might differ greatly.

What should be on a SOC 2 compliance checklist depends on the type of company and what it wants to show in a SOC 2 report because the controls mapped to a SOC 2 audit are optional and some Trust Services Criteria are optional. It's critical to understand that there are two different kinds of SOC 2 reports. Type 1 confirms the efficient design of an organization's controls. Type 2 confirms that the controls are operating efficiently.

After that, the SOC 2 compliance checklist's five Trust Services Criteria will depend on the type of business a company operates in and the controls and areas of emphasis will be determined by the SOC 2 audit's purpose. Organizations may choose to undertake a SOC 2 audit in order to show that they are making a sincere attempt to comply with HIPAA regulations. Still, they may choose to do so for risk management, internal governance, and management supervision reasons.

How can an organization prepare for SOC2 audit?

We deconstruct the four primary phases that make up SOC 2 audit preparation: scoping, self-evaluation, gap closure, and final readiness assessment.

1. Scoping: Apart from the Trust Services Criteria, your in-scope systems and any supporting systems that are used to carry out scoped controls are additional factors to be taken into account while scoping. For instance, the bespoke payroll application you offer to different clients as a SaaS solution may be an example of an in-scope system. Your company may use a ticketing system (such as Jira or ClickUp) to monitor change requests, testing, and approval in order to facilitate change management. It is imperative to clarify the scope with your third-party audit firm before commencing the SOC 2 audit process, as the outputs from your ticketing system will still play a significant role.

   The management, leadership, and SOC 2 project team should now be aware of the type of SOC 2 report they are aiming for. The two types of SOC 2 reports follow a somewhat logical and sequential arrangement. In order to provide auditors with a reasonable assurance that an organization's controls are designed effectively at a particular point in time, policies, procedures, and limited samples of one would be the types of evidence collected for a compliance audit covered by a SOC 2 Type 1 report.

   The Type 2 compliance audit comes after Type 1 and is even more stringent, requiring extensive testing of control executions to ascertain if the controls are in place and functioning as intended over a given time frame. You should feel reasonably confident that your controls are operating as intended throughout this subsequent audit.

   Other security frameworks (related to your sector and regulatory needs) could be incorporated into your SOC 2 compliance program if they apply to your company. A few of these frameworks include COBIT, NIST CSF, ISO 27001, HIPAA, and HITRUST.

2. Conducting a Self-Evaluation: Typically, a SOC 2 readiness project consists of multiple-monthly readiness tasks. Instead of paying an audit company to complete the readiness evaluation, a part-time coordinator or security consultant can be adequate, especially if using an efficient connected risk platform to expedite SOC 2 compliance. Organizations can protect themselves from potentially negative findings by identifying and filling up gaps by self-evaluating against the SOC 2 criteria. By adhering to SOC 2 best practices, this will help improve the overall security and operational efficacy of your company.

3. Filling in the Gaps: In the event that your self-assessment reveals any control gaps, these must be addressed and closed before the SOC 2 audit takes place. Typically, the gap repair procedure comprises:

   • Create, approve, disseminate, and publicize any policies or procedures that are lacking.

   • Adjust processes that have gaps in order to safeguard confidential data and properly handle hazards.

   • Organize training sessions to make sure that all personnel who need to know about the updated or new controls and their responsibilities for preserving compliance.

   • Critical security controls and mechanisms, such as control automation, access controls, and change management, should be implemented, enhanced, and/or optimized.

   • Eliminate or stop unlawful access.

4. Conducting an Audit or Readiness Assessment: A final readiness assessment should be carried out after the gap repair process, during which security measures are reevaluated, put to the test, and confirmed to be operating as intended. This is a chance to find any problems with efficacy and carry out the last repair. This is the last stage before a formal, third-party compliance audit conducted by a CPA firm, so make sure you cross all the "t's" and dot all the "i's," particularly if this is your first SOC 2 audit.

How to select SOC2 consultant

When selecting a SOC 2 consultant, you should ask the following important questions.

• How many SOC 2 audits have you conducted?
• What relevant certifications and qualifications do you hold?
• Can you provide references from past clients?
• Have you worked with companies in our industry before?
• How familiar are you with the specific challenges small businesses face in achieving SOC 2 compliance?
• What is your approach to conducting a SOC 2 audit?
• How do you tailor your services to meet the needs of each client?
• What tools and technologies do you use during the audit process?
• What is the expected timeline for completing the SOC 2 audit?
• Will you be available to address any questions or concerns throughout the process?
• What is your pricing structure for SOC 2 consulting services?
• Are there any additional costs or fees that we should be aware of?
• What type of reports and documentation will be provided at the end of the audit?
• How do you communicate audit findings and recommendations to clients?
• Do you provide ongoing support for maintaining SOC 2 compliance?
• How can you help us address any deficiencies or gaps identified during the audit?
• How do you ensure the security and confidentiality of our sensitive data during the audit process?
• What measures do you have in place to protect client information?

Asking these questions will help you evaluate and select the right SOC 2 consultant for your business.

What is the difference between SOC 1 vs SOC 2 vs SOC 3?

SOC 1, SOC 2, and SOC 3 reports are issued by the American Institute of Certified Public Accountants (AICPA) and each have specific functions to play in compliance evaluations. They vary in their focus and scope. SOC 2 and SOC 3 evaluate controls pertaining to the Trust Services Criteria, while SOC 1 largely concentrates on an organization's internal financial controls.

SOC 1 primarily addresses internal controls pertaining to financial reporting. It is often used by businesses that provide services that impact their customers' financial accounts, such as auditors and accountants.

SOC 2 encompasses a wider spectrum of internal controls, including security, availability, processing integrity, confidentiality, and privacy. It is often used by technological service firms, such as cloud providers and data centers.

SOC 3 is a publicly accessible report that provides a concise overview of the controls that are applicable to a particular set of trust services criteria, based on the SOC 2 report. Organizations often use it to showcase their dedication to security and compliance to their clients and other stakeholders.

The SOC 2 and SOC 3 reports are performed in accordance with the SSAE 18 standards, which the AICPA defines. Both studies also include a certified public accountant (CPA) audit and a thorough examination of an organization's security procedures. However, there are some significant distinctions between SOC 2 and SOC 3. SOC 2 provides both Type I and Type II reports, but SOC 3 reports are only Type II reports. The SOC 3 Type 2 reports lack comprehensive information on the auditor's control tests, test methodologies, and test outcomes. The documents include the auditor's assessment, management statement, and system description. Due to the lack of comprehensive information in SOC 3 reports compared to SOC 2 reports, they are often insufficient to meet the requirements of your customers or their auditors. SOC 2 reports are confidential, meaning they are usually only disclosed to customers and potential clients who have signed a non-disclosure agreement (NDA). On the other hand, SOC 3 reports are unrestricted reports that may be freely circulated or publicly placed on an organization's website.

Aspects	SOC 1	SOC 2	SOC 3
Scope	Financial controls	Operational & security controls	High-level operational controls
Target Audience	Auditors, regulators	Customers, business partners	General audience
Focus Area	Controls impacting financial reporting of service organizations.	Trust Services Criteria(Security, Availability, Processing Integrity, confidentiality, Privacy)	Trust Services Criteria(Security, Availability, Processing Integrity, confidentiality, Privacy)
Evaluation Timeline	SOC 1 Type I financial audit happens at a point in time SOC 1 Type II financial audit happens over a period of time	SOC 1 Type I compliance audit happens at a point in time SOC 1 Type II compliance audit happens over a period of time	SOC 3 report is always a Type II - the audit takes place over a period of time
Who needs this?	Collection agencies, payroll providers, payment processing companies, etc.	SaaS companies, data hosting or processing providers, cloud storage services	Organizations that require a SOC 2 certification and want to acquire a larger market share

Table 1. Differences SOC 1, SOC 2 and, SOC3

What is the Difference Between ISO 27001 and SOC 2?

While there are a number of significant distinctions between SOC 2 and ISO 27001, scope is the primary one. Establishing a framework for data management and demonstrating that an organization has a fully functional ISMS are the two main objectives of ISO 27001. SOC 2, on the other hand, is more specifically focused on demonstrating that a company has put in place the necessary data security procedures.

Put differently, SOC 2 just assesses the security measures that are currently in place, whereas ISO 27001 concentrates on creating and maintaining an ISMS. Because of this, ISO 27001 demands more stringent compliance requirements in order to obtain certification.

A formal international security certification standard called ISO 27001 is in place, and SOC 2 is a collection of audit reports completed by an impartial CPA or accounting firm. ISO 27001, in contrast to SOC 2, is a prescriptive certification that applies industry-wide standards to all regions and industries. However, SOC 2 is more adaptable and tailored to the particular business in accordance with demands and industry norms.

What is the Difference Between SOX and SOC 2?

There are two distinct kinds of compliance frameworks: SOC (System and Organization Controls) and SOX (Sarbanes-Oxley Act). US federal legislation that governs publicly listed corporations in the US is the source of SOX compliance. The CEO and CFO must attest to the accuracy of financial statements as part of SOX compliance, which is mostly focused on financial controls and reporting. On the other side, SOC 2 compliance is concentrated on data security, availability, processing integrity, confidentiality, and privacy. SOC 2 is an optional framework that is normally only disclosed to clients or customers during the sales process and calls for an impartial auditor to assess compliance requirements.

How long does it take to get a SOC 2?

For most businesses, the process of creating a SOC 2 report takes six months to a year. SOC 2 Type 2 Reports, usually take at least six months and sometimes last a full year or longer, but SOC 2 Type 1 Reports can take as long as six months.

Numerous variables influence these times, leading to significant differences between businesses. For example, organizations with more comprehensive and varied cybersecurity and IT infrastructures would probably need more time to finish the audit procedure required for a SOC Report. The breadth of the audit's review will be impacted by the quantity, kind, and location of users that are associated with the organization (i.e., employees who work remotely or on-site). But the main thing that will dictate how long the SOC 2 procedure takes to finish is the kind of SOC 2 report that your company chooses.

History of SOC 2

In order to evaluate the efficacy of an organization's internal controls, Certified Public Accountants (CPAs) utilized the Statement on Auditing Standards (SAS) 70 audit, which is where SOC 2 originated.

The American Institute of Certified Public Accountants (AICPA) noticed that some companies were providing SAS 70 reports as evidence that they were safe to deal with, even though security was covered under internal controls. In response, the Statement on Standards for Attestation Engagements (SSAE) 16 report, later titled Systems and Organizations Controls 1 (SOC 1), was substituted by the AICPA for SAS 70.

User entities in your organization can feel somewhat confident knowing that their financial information is being handled properly and securely, thanks to a SOC 1 report. There are two types of SOC 1 reports: Type 1 and Type 2. A Type 2 report indicates that your controls function well for a specific time period (such as a full year), whereas a Type 1 report indicates that your company's internal financial controls are appropriately structured.

Then, in 2009, the AICPA published the five Trust Services Principles and unveiled SOC 2, an audit report with a strong security focus. A collection of expert attestation and consulting services based on a fundamental set of principles and criteria that address the potential and hazards of IT-enabled systems and privacy initiatives is how these principles were developed.

SOC 2 principles, put simply, are the standards by which an organization's controls over information and systems security, availability, processing integrity, confidentiality, and privacy are to be assessed and reported on.

The AICPA said that a company should only choose the Trust Service Principles that are pertinent to their particular services and that it is not required to address all of them.