Information security is a critical concern for small and large organizations, including newly-founded companies and grown-up enterprises. No matter if you are in the first stage of your development or you own a large company with more than 500 employees. Since you have sensitive data and information stored on your systems and databases, data protection and safety become crucial. SOC 2 Compliance is one of the main requirements for small and large organizations that defines criteria for managing customer data and information.
There are several requirements to reliably deploy System and Organizations Controls in an organization. We will explain all those details in this article, so feel free to read the following sections to find out more about these questions:
- What does SOC 2 really mean?
- What are the different requirements of the SOC 2 framework?
- What are the differences between SOC 1, SOC 2, and SOC 3?
- What is the SOC 2 report?
- Is it mandatory to consider SOC 2 compliance in my organization?
- Is there a step-by-step process for SOC 2 compliance deployment?
- What are the benefits of SOC 2?
System and Organizations Controls Overview
SOC 2 compliance specifies how an organization, including small and large organizations, should take the necessary steps to protect its customer data from unauthorized access and security incidents. The American Institute of Certified Public Accountants (AICPA) has created and developed SOC 2 based on the 5 main criteria as below:
- Processing integrity
Companies are facing a growing data security threat, especially if they have a large amount of sensitive information stored on their digital systems. This will make data security and protection a top priority since a minor data exposure and breach can put an organization at high risk, damage brand image, and lead to financial losses.
With the proliferation of data breaches and cyber hacks that occur for all types of organizations today, it’s no wonder regulatory bodies force organizations to take urgent actions. SOC 2 is one of the valuable rules in this case. If implemented completely, it demonstrates that your company has adequate controls in place and you have reliable action plans if there is any data security issue in the future.
SOC 1, SOC 2, and SOC 3
SOC (System and Organizations Controls) refers to the independent assessment of the risks associated with security, privacy, and compliance. SOC focuses on the latest industry standards and works as a security audit to prevent data security risks.
There are 3 levels of SOC audit for small and large organizations:
1. SOC 1 Audits
SOC 1 audits are associated with organizations’ ICFR (Internal Control over Financial Reporting), and it focuses on handling users’ financial information safely and securely. SOC 1 report was previously called the SAS 70, and it has 2 different types, demonstrating there are proper financial controls and effective operations for handling the related sensitive data.
SOC 1 audits and reports aim at transaction and security processing controls, and this is an essential requirement for revenue software tools.
- Type 1: Shows your organization has properly designed internal financial controls.
- Type 2: Shows the controls operate effectively without any issues.
2. SOC 2 Audits
SOC 2 audits focus on assessing service organizations’ cybersecurity posture by considering 5 primary factors, including security, availability, processing integrity, confidentiality, and privacy controls. This is a trustworthy framework to help service organizations demonstrate their cloud and data center security controls, and it has 2 different types similar to SOC 1.
- Type 1: An overall determination of your organization’s controls.
- Type 2: Checks the effectiveness of security controls and requirements over a defined period.
3. SOC 3 Audits
SOC 3 audits are like SOC 2, but SOC 3 provides more concise reports. SOC 3 reports are designed to meet the needs of users who seek assurance about the data security controls deployed on service organizations.
In general, it’s obvious that version 3 doesn’t contain as much detail on the systems and services, and you only have overall information that is provided for general use.
Remember that SOC 3 is a beneficial tool for marketing prospective users and customers, and auditor testing of controls is not included in the SOC 3 report.
This is always a type 2 report, and service organizations are required to post their SOC 3 on their website.
Decide on Which SOC Report is Good For You
In summary, it can be difficult and confusing for service organizations to determine which category they need to follow. As stated before, these reports all serve different purposes, and they contain different types of information.
When deciding between SOC 1, SOC 2, and SOC 3 reports, the key factor is to consider where your report is going to be used and what information you need to include in that report.
SOC 2 reports are restricted-use reports that contain important information about systems, the control environment, and the results of the tests performed on your systems. SOC 3 reports are general-purpose documents that don’t contain detailed information about tests and controls.
SOC 1 and 2 reports are used when customers want their service organizations to provide detailed testing results and explain the deployed controls.
Find Out More About System and Organizations Controls
SOC 2 compliance consists of industry-level standards, and it is not a mandatory law. However, these standards are often required by customers for liability, and you can prove the quality and reliability of your services by complying with the SOC 2 standards.
- Remember that SOC is a very advantageous rule for organizations working in the services industry. Especially those organizations that evaluate SaaS or cloud services need to follow its requirements, and SOC 2 is beneficial in ensuring your organization follows the best data security practices.
To meet these standards, your organization needs to consider specific procedures and service controls related to data safety and protection. You can work with a certified cybersecurity team to start creating and developing the plan and deploying these standards on your IT infrastructure. In order to guarantee these standards and controls are practical and helpful in your organization, you can request independent third parties to conduct the SOC 2 compliance audit and provide you with the final report.
- Small and large organizations that successfully pass SOC audits can greatly benefit from its advantages and tell their customers and users they care about data security and privacy.
The History of SOC 2 Report
SOC originated from the Statement on Auditing Standards (SAS) 70, which has been considered an old audit. The first standards were put into practice in the early 1970s when the American Institute of Certified Public Accountants released the Statement on Auditing Standards (SAS 1), which then created System and Organizations Controls 2.
At that time, the SAS 1 document outlined the roles and responsibilities of official independent auditors. Throughout the years after releasing SAS 1, SAS 70 was developed and created and became practical in 1992.
Over the next 20 years, companies had a proven roadmap to check their security controls and upgrade their systems according to the defined standards. Due to some confusing aspects and to update the previous standards, AICPA announced a new auditing framework in April 2010 called the Statement on Standards for Attestation Engagement (SSAE 16).
This auditing standard offered 3 new reports, including SOC 1, SOC 2, and SOC 3.
To make it better and simplify the standards and procedures, AICPA replaced SSAE 16 with SSAE 18 in May 2017, which is now used in small and large organizations and includes 3 SOC 1, SOC 2, and SOC 3 reports.
The Importance of a SOC 2 Report
SOC 2 compliance is not a mandatory requirement for service organizations, but its role in securing your data and sensitive information cannot be ignored. Achieving SOC 2 compliance is not a small endeavor, and it can take a significant amount of planning, time, and effort. But it pays off since you will access a great range of benefits more than having the actual report in hand.
The final report will be a helpful cybersecurity report that can help your organization expand to new markets, improve customer trust, and increase revenue. These standards will help you protect your brand’s reputation and offer distinguished online and cloud services to your clients and users.
- A single data breach can impact your brand reputation in an adverse way, and it will be more costly than you think if there is a cyber attack stealing a part of your sensitive data or all of it.
- The SOC 2 standards put users’ data security first and focus attention on preventing your company from these devastating consequences.
Steps to Achieving Compliance
There are some requirements for deploying and implementing the SOC 2 compliance checklist in an organization, and security teams try to develop the compliance plan according to 5 main steps as below:
- Processing integrity
Note that all these steps are a necessary part of the entire framework, which will guarantee data security and protection factors are integrated into the service organization as defined. These 5 principles require organizations to have transparent and responsible plans if they want to access a trustworthy and error-free SOC 2 report.
What is a SOC 2 Report?
SOC 2 report is a detailed and well-defined cybersecurity report which will be provided by an external auditor to explain internal controls. These reports include useful information that outlines how well an organization safeguards customer data and which security measures they are implementing in their IT infrastructure.
SOC 2 reports are very critical documents, specifically for cloud service providers. Providing these reports by third-party cybersecurity teams shows a small or large organization has safety and security protocols in place, and there is no significant data protection issue at the moment.
SOC 2 Report Structures
The audits and the following reports need to include some defined control criteria outlined by the AICPA. The control criteria are called Trusted Services Criteria (TSC), which will be evaluated by a third-party cybersecurity auditor.
There are five main categories for TSC explained in the previous sections:
- Security: Protection against unauthorized access and disclosure.
- Availability: Information and systems are available to use.
- Processing integrity: Complete, valid, accurate, and authorized processing in the systems.
- Confidentiality: Appropriate protection over data.
- Privacy: Collection, storage, and use of personal information meet privacy regulations.
What Does a SOC 2 Report Cover?
A SOC 2 report covers detailed information and data security assurance about a service organization’s security, availability, processing integrity, confidentiality, and privacy measures.
Based on an organization’s compliance with the AICPA’s TSC, the final report contains the following information:
- Description of the service organization’s system
- Description of systems for the chosen period and controls implemented to achieve TSC
- Detailed auditor reporting containing opinions
- Description of the auditor’s tests and the final results
Note that there are 2 types of SOC 2 reports, and each points out specific factors and considerations.
SOC 2 Report: Type 1
Type 1 report is a point-in-time report that just provides an explanation of procedures and controls that an organization has implemented. The type 1 report is provided for service organizations to describe the current systems and controls. It also includes reviews around these controls and validates designs, technically and logically.
SOC 2 Report: Type 2
The type 2 report is very similar to type 1, but they have some differences. The type 2 report has an audit period, and it provides evidence of how a company has implemented and operated its controls in a specific period. The type 2 report requires a full 6-month or 12-month audit period performed by a third-party cybersecurity service provider.
A Real-World SOC 2 Report Example
SOC 2 reports are globally-accepted documents, and they demonstrate trust and can unlock new growth and development opportunities. As a business owner or manager, you need to understand what features and information these reports bring for you and what they contain.
- A SOC2 report is prepared after performing all the required steps, and it is based on a thorough cybersecurity analysis of your systems and network. It is a detailed document, and an independent certified auditor works on it to provide the final document.
If you’re looking for a real-world report example, it will help you consider the following sections, which are included in every SOC report:
1. Management Assertion
As the name suggests, the management assertion section allows the company to make claims about the audited systems, networks, and controls. Most companies use this section to tell more about their systems and controls, and there will be some more information about the audit and the scope of the report.
The management assertion section is a necessary part of the document as it’s considered a preparation for the next sections to create a legal basis between the company and the auditor.
2. System Description
The system description section goes into more detail to outline all parts of the audited system, covering everything that should be described, tested, and reported.
The most critical parts of a system description include the following:
- System scope and requirements
- System components
- Control frameworks
- System incidents
Note that management assertion was a brief description, but you will find the system description part a more detailed section which also includes details of human resources, roles, and responsibilities to provide a trustworthy report.
3. Independent Service Auditor’s Report
The auditor will give you its insight in this section, and it includes the auditor’s rating on your systems and implemented controls. The independent service auditor’s report shows if you have passed the audit successfully or not.
In this section, auditors give you their opinions, which can be one of the following types:
- Unqualified: You passed!
- An unqualified opinion shows the auditor didn’t find any issues during the audit, and every control tested is working properly and operating effectively.
- Qualified: You are close, but you need some attention!
- The auditor leaves some tips for you, and there are some areas that require attention.
- Adverse: You failed!
- This opinion shows the organization basically failed one or more standards, and it needs a modification or change in controls.
- Disclaimer of opinion: No comments!
- When you get “Disclaimer of opinion,” it means there is not enough information for the auditor to form an opinion and provide the report. When they don’t have enough information about the implemented controls and systems, they can’t make a fair conclusion.
4. Controls, Tests, and the Results of the Tests
There will be a lot of tests, and the auditor includes the related information in this part of the report. This section provides details about the tests and their results performed during a SOC 2 audit. It’s one of the most important sections for you to understand your company’s security posture.
The following points are included in this part of the report:
- Control criteria (ATS)
- Control number
- Control description provided by the company
- Test description provided by the auditor
- Test results
Remember that this section is typically the longest part of a SOC 2 compliance report, and it includes a complete collection of the necessary tests and analyses performed by a third-party auditor. Easily your clients or business partners can read this section and understand all about the controls and their tests.
5. Other Useful Information Provided by the Independent Auditor
There might be other useful information provided by your third-party auditor, which will be included in the last section of a SOC 2 report. Highlight the fact that this section is optional, but it can provide helpful information on the organization’s management plans and tell more about its future plans.
To find out more, you can take a look at the following information that comes in this section if needed:
- Incidents and systems changes
- The future plans or new systems, devices, or controls
- Additional aspects of the controls not covered in the previous sections
- A detailed explanation of the company’s responses to the auditor’s opinion
How Can SOC2 Compliance Help Your Company?
SOC 2 reports are very helpful in business growth and development, and they can offer you a competitive advantage compared to your competitors. A SOC 2 report is also an essential asset for any organization that wants to work with third-party service providers. Businesses that need to collect or process customer data can provide a SOC 2 report and create a wide range of opportunities in front of them.
- A SOC 2 report is a structured plan that explains what controls and data security procedures have been integrated into an organization’s IT infrastructure.
- A SOC 2 report is provided after performing a complete risk analysis and assessment to make sure there is no defect related to the SOC 2 rules.
- A SOC 2 report will help your business in many cases, and it contributes to enhancing your brand reputation and proving you are a reliable company.
- A SOC 2 report provides you with good insight into your data security posture, and it is considered a universal report that includes valuable information about internal controls and vendor management rules in your organization.
“SOC 2 vs ISO 27001.” This is a frequently searched topic throughout the internet. However, note that each of these rules mutually supports the other one, and they don’t disagree with each other. You can read more about their differences and benefits on our website.
The SOC 2 Report Validity
A SOC-2 report is valid for a 12-month period. During this validity period, your business partners, clients, and service users can read the current report as a trustworthy document that proves you have implemented all the requirements and rules in your organization.
In some cases, a type II report may cover a shorter period that depends on several factors. However, SOC-2 type I and type II reports are prepared to cover a minimum period of 6 months, as AICPA recommends.
It’s obvious that your business partners and clients would like to have fresh and updated information about your cybersecurity controls and find them practical and helpful in securing their sensitive data. As a result, it’s recommended that service organizations renew their audit reports every year.
What is a SOC 2 Bridge Letter?
A SOC-2 bridge letter is a rarely needed document but is considered an important resource for any organization that works in the services industry. It helps bridge the gap between the end of your last SOC-2 audit report and the current date.
Suppose your organization completed a SOC 2 report on September 1, 2020, and it has covered until October 30, 2021. But your organization’s fiscal year-end was in December 2021. This issue can be solved by providing a bridge letter (gap letter) that states there has been no fundamental change or modification from the expiration date of an audit to the start date of the next one.
Through this bridge letter, you can provide the required information to your clients about some minor changes and explain what they are to ensure your systems and implemented controls are practical at the time.
- Note that bridge letters cannot be replaced for SOC reports, and they usually cover a period of fewer than 3 months.
What Does It Include, and Who Issues a Bridge Letter?
It’s an important fact to know that the CPA firm that has performed the audit is not involved in providing the required bridge letter. Bridge letters are issued and signed by the organization itself, and then customers and business partners can read them to get the necessary information.
In general, a bridge letter or gap letter includes useful information about the following:
- The important dates and time periods for the latest report and future audits
- An explanation of any changes conducted on the organization’s systems or controls
- Other important information about the company and future plans
Audit Process, Timeline, & Costs of a SOC 2 Report
Providing a SOC 2 report requires organizations to provide some information about their IT infrastructure, and it is when your cybersecurity team will ask you some questions to get started with the process.
They should know which type of devices and components you are using in your organization and which controls you have implemented prior to applying the SOC 2 tests. After defining the scope of work and objectives, your cybersecurity team can better manage the process, and they will develop a reliable roadmap to achieve the best results.
- The time required to perform the tests and provide a SOC 2 report depends on many factors, and it’s better to contact your third-party service provider to help you with this.
- In addition, the cost of creating the final SOC 2 report varies based on the size of your organization and the number of tests.
- A SOC 2 report must be renewed after 1 year, so be careful about this in order to avoid future issues.
How We Help: Start the Process Now to Guarantee Your Success
Do you want to get the best of both worlds? Nordic Defender will help you in all stages and guide you through this way. Getting a SOC report is a necessary requirement in most cases, but it can be complex for your organization. But don’t get confused since our team will provide you with the training and resources needed to become a certified company based on SOC requirements.
If you need to boost your business growth, Nordic Defender will provide you with reliable reports to help you with this. Talk to us today and tell us about your future objectives. As an MSSP in the cybersecurity industry, our team will provide you with full insight into your security posture and help you become certified to the required regulatory rules.
SOC stands for “System and Organization Controls,” and it aims to provide a trustworthy report showing the effectiveness of data security controls implemented in an organization. If you’re working in the services industry and want to offer your customers a competitive advantage compared to other businesses, having the SOC 2 standards in your organization is crucial. It emphasizes data security and protection, especially for those companies that benefit from cloud services. If you want any help with this essential requirement, feel free to contact our cybersecurity consultants now.
Frequently Asked Questions
Is SOC 2 a regulatory requirement?
- No. SOC 2 is not a mandatory requirement in a legal sense. However, it should be taken seriously since having a SOC 2 certification is a requirement in most vendor contracts.
What are the 5 trust principles of SOC 2 compliance?
- Developed by the American Institute of CPAs, these standards define criteria based on security, availability, processing integrity, confidentiality, and privacy.
Who must perform the audits?
- The audits are regulated by AICPA, and a certified third-party cybersecurity company must perform these audits and provide the final reports. It means an external auditor from a licensed CPA firm will complete the audits and give you the reports.
Is there any risk assessment step in SOC 2 compliance?
- Yes. The risk assessment step is a necessary part of this framework. Risk assessment for this framework is performed through 5 main principles, and it starts by defining our objectives. Identifying available digital systems and performing the risk analysis are the next steps, so cybersecurity experts can document risks and develop future plans.
Is SOC 2 better than ISO 27001?
- We can’t say which one is better for your organization. In fact, your objectives and industry type should be taken into account to develop the most effective plan and deploy one of those cybersecurity rules. One of the main differences between these standards is the auditor type that will check your compliance and report on your digital systems.
Does SOC 2 cover GDPR?
- The System and Organization Control report has specific parts, and it’s different from the GDPR compliance report in most parts. They have some similarities, but if you want to comply with GDPR, providing a SOC 2 report doesn’t serve your company completely.
Is SOC 2 used in Europe?
- Yes. SOC is universal, but it’s basically a U.S. based rule in the cybersecurity industry. All organizations around the world can benefit from its unique advantages to grow their business and develop their income.
What is the European equivalent of the SOC 2 report?
- If you are looking for an equivalent report for your organization, you can read more about ISO 27001. It’s a common compliance requirement in Europe and is internationally recognized as one of the highest standards and regulatory rules.