The Ultimate Guide to SOC 2

Published/Updated March 28, 2022

Intro

SOC 2 is an auditing standard developed by the American Institute of Certified Public Accountants (AICPA) to ensure the privacy and security of customer information. SOC 2 compliance is critical for service organizations that process, store, or transmit this data on behalf of other businesses.

SOC 2 attestation is not required by law, but not having it can be a red flag that tells potential customers and other stakeholders that your organization and vendors cannot securely manage data or protect customer privacy. Compliance with the SOC 2 framework facilitates the implementation of internal controls and data security objectives.

So, whether your company is a security-conscious service provider or looking to work with one, you should consider SOC 2 compliance to garner the trust of customers and regulators.

SOC 2 is based on five well-known trust services criteria. That said, SOC 2 is intended to be flexible, and a SOC 2 report can be tailored to your organization’s unique needs.

This guide is designed to walk you through SOC 2 and guide your organization towards certification success.

What Is SOC 2?

System and Organization Controls for Service Organizations 2, more commonly known as SOC 2, is a reporting framework to determine whether a service organization’s controls and practices effectively safeguard the privacy, confidentiality, and security of customer data, particularly if this data is stored in the cloud.

Evolution From SAS 70

The SOC 2 framework evolved from SAS 70, which provided assurance to users that data centers were secure and proper controls governed its use.

SAS 70, however, had many weaknesses. It defined no specific benchmarks to hold data center operators accountable or a minimum bar that the operators must achieve. It simply verified through an audit that the data center followed its controls and processes. A certification for SAS 70 did not exist.

The SOC standards go beyond SAS 70 to address those weaknesses. Unlike SAS 70, SOC 2 provides more rigorous audit requirements and a more robust set of controls specifically for data centers within service organizations.

Who Needs a SOC 2 Report?

Companies that leverage cloud computing to store customer data must achieve SOC 2 compliance. These include companies operating in all the below sectors:

  • Cloud service providers
  • Customer or sales support
  • Human resources departments
  • IT security management
  • Customer relationship management (CRM)
  • Medical claims processing
  • Data analysis companies
  • Accounting and auditing firms
  • Software-as-a-service (SaaS) vendors
  • Workflow management
  • Document and records management
  • Insurance claims processors
  • Technology consulting
  • Pharmaceutical
  • Financial processors
  • Legal Firms

In short, any service organization that handles customer data should be compliant with the requirements laid out in the SOC 2 framework.

What Is SOC 2 Compliance?

The Meaning of SOC 2 Compliance

SOC 2 is much more than a technical audit by an outside party for service organizations managing customer data. It requires these companies to establish and follow stringent information security policies and procedures based on the five trust services criteria explained below.

If you are a service provider operating in any of the above areas and handling customer data, you should undergo a SOC 2 audit. If you outsource work to other service providers, your subcontractors should also be SOC 2-compliant.

SOC 1 and SOC 2 are both based on Statement on Standards for Attestation Engagements No. 16. Each can generate two types of reports, known as Type I and Type II. Despite these similarities, SOC 1 and SOC 2 are different.

SOC 1 deals with financial reporting and addresses controls that affect the organization’s financial statements. A SOC 2 audit focuses on internal controls to protect data based on five trust services criteria.

SOC 2 has more in common with SOC 3. They mainly differ in terms of their intended audience:

  • SOC 2 audit reports are for an informed audience who has a vested interest in the audit findings. The report itself is generally not made public or widely shared.
  • SOC 3 reports are geared towards a more general audience; for example, a company might post the report on its website for all to see. They are also shorter and less detailed than SOC 2 reports.

SOC 2 Trust Services Criteria

SOC 2 audits are based on benchmarks called the trust services criteria or trust service principles. Each one represents a category of controls for information systems and data that might be audited as part of your SOC 2 process.

  1. Security. These controls are the policies, procedures, and tools that protect systems and data from unauthorized access. Processes are also defined for corrective actions and responses in the event of a security or data breach.
  2. Availability. Controls ensure the ongoing availability of information and systems to avoid interruption to day-to-day operations.
  3. Confidentiality. The entity must be able to protect confidential information such as company data, client information, intellectual property, and any other information that must be protected by law from unauthorized access.
  4. Processing integrity. Information in the system must be complete, valid, accurate, error-free, timely, and safe from accidental or malicious manipulation.
  5. Privacy. Policies must exist to govern how the organization collects, uses, discloses, and safely disposes of personally identifiable information (PII) to protect the PII from unauthorized access.

These principles focus on preventing unauthorized access and use of assets and data. For this, organizations are required to implement strong controls and preventative measures.

These standards are pre-defined to provide assurance about the quality and consistency of data center security, availability, and process integrity. This is especially critical for co-location, managed servers, cloud hosting, and SaaS providers.

SOC 2 Reports

The SOC 2 framework provides two types of reports:

SOC Report Description
SOC 2 Type I
  • Describes the organization’s system and the suitability of controls
  • Takes a “snapshot-in-time” approach
  • Sets a baseline for future audits
SOC 2 Type II
  • Describes the organization’s system, the design of controls, and the operating effectiveness of controls
  • Verifies how well your data security and privacy controls work over time (usually since your last SOC 2 audit)

Organizations typically complete a Type I report for their first SOC 2 audit, to establish a baseline of security; and then complete Type II reports for subsequent audits. Regardless, these reports can play an essential role in:

  • Overseeing organizations and their data center controls;
  • Assessing vendors and their data center controls;
  • Improving vendor management programs;
  • Supporting, guiding, and improving internal processes related to corporate governance and risk management;
  • Improving regulatory oversight and achieving compliance.

A SOC 2 report can take nine months to one year to complete, especially if you’re using spreadsheets to track your progress. Reciprocity’s ZenComply software can help you achieve SOC 2 compliance in a fraction of that time. Contact our experts to find out how.

SOC 2 Compliance Requirements

Your organization’s security controls undergird the SOC 2 audit. These controls include:

  • Logical (technology) access controls;
  • Physical access controls;
  • Change management;
  • System operations;
  • Risk mitigation.

If these controls aren’t in place, your organization may fail the audit and not achieve SOC 2 compliance.

SOC 2 criteria are fairly broad and open to interpretation. For instance, you may implement two-factor authentication to prevent unauthorized access to your enterprise network, while your competitor may implement firewalls or physically restrict access to data centers. This flexibility enables you to achieve compliance in ways that best suit your organization.

When to Become SOC 2 Compliant

If given a choice, you want to achieve SOC 2 compliance sooner rather than later. If your competitors achieve SOC 2 compliance before you, they are in a better position to earn the trust of customers, the market, and regulators.

Also, your risk of cyberattacks and data breaches may be increasing by the day. To protect your organization and its data, you need strong security practices and controls in place. SOC 2 compliance guides you in implementing these controls to resist attacks and breaches effectively.

SOC 2 Compliance Costs

A SOC 2 Type I audit could cost $10,000 to $20,000, while a SOC 2 Type II audit might cost $30,000 to $60,000.

You will also incur other costs for:

  • Readiness assessment
  • Gap assessment
  • Compliance preparation
  • Remediation
  • Legal fees
  • Annual SOC 2 reports

These costs may vary depending on numerous factors, including:

  • Type of audit and report (Type I is generally cheaper than Type II)
  • Number of trust services criteria included in your audit scope
  • Your organization’s size and complexity
  • Amount of automation and preventive internal control systems
  • Additional security tools you may need to implement
  • Employee training programs you may need to design

Broadly speaking, SOC 2 audits and achieving SOC 2 compliance can cost your organization $60,000 to $220,000.

If you think this is too expensive, consider the alternative: In 2021, the average cost of a data breach hit $4.24 million, up from $3.86 million in 2020. You can avoid these huge costs by implementing robust data protection controls and achieving SOC 2 compliance that proves the efficiency of these controls.

SOC 2 Audits

Who Can Perform a SOC 2 Audit?

Only independent certified public accountants (CPAs) can perform SOC 2 audits. Moreover, these audit professionals must follow the planning, execution, and oversight guidelines set by the AICPA to guide their work. A peer review must be performed on all AICPA audits.

CPA firms may hire non-CPA professionals with relevant skills to prepare for SOC audits. Only a CPA, however, can provide and disclose the final SOC 2 report.

What Happens During a SOC 2 Audit?

A SOC 2 audit works much like any other audit. Before and during the audit, the CPA or accounting firm will help you determine your audit scope. Here you will identify which SOC report you need and which of the five trust services criteria apply to your organization.

The CPA will collect evidence and examine your controls for each trust services criterion included in scope. If the auditor finds problems or gaps, you will have to respond with corrective actions for remediation.

How to Prepare for a SOC 2 Audit

The key to SOC 2 readiness is preparation. Before the auditor arrives, make sure that you:

  • Establish your audit goals and scope;
  • Organize your materials and required documentation proving the effectiveness of your controls;
  • Conduct a self-audit to find and remediate any compliance issues early.

Why You Need SOC 2 Compliance

SOC 2 compliance documents that your organization:

  • Has the processes and infrastructure in place to protect customer data from unauthorized user access;
  • Can recognize threats to this data and any inherent vulnerabilities;
  • Can quickly investigate relevant information on security incidents to remediate systems, prevent a recurrence, and restore the integrity of processes and data.

A SOC 2-compliant company maintains a high level of information security and ensures that all sensitive data is handled responsibly by authorized personnel only.

SOC 2 compliance also shows your organization’s commitment to protecting the privacy and security of this information. This is especially relevant and necessary for today’s cloud requirements in the connected digital era.

In addition, here are six crucial reasons to achieve SOC 2 compliance:

  • Customer demand. Customers expect that their data will be protected from breaches and theft, so you could lose business without a SOC 2 attestation.
  • Lower data breach costs. A data breach can affect your organization financially. SOC 2 compliance means that you have put controls in place to prevent such breaches to avoid their associated costs.
  • Competitive advantage. A SOC 2 attestation will give you an edge over competitors that cannot exhibit compliance.
  • Earn customer trust. SOC 2 compliance enhances your organization’s reputation as trustworthy with both customers and regulators.
  • Peace of mind. Passing a SOC 2 audit provides assurance to you as an organizational leader that your systems and networks are secure.
  • Achieve compliance with other regulations. SOC 2’s requirements dovetail with other frameworks such as HIPAA and PCI DSS, so obtaining SOC 2 certification can speed up and streamline your overall compliance efforts.

In addition, a SOC 2 report can provide valuable insights into your organization’s risk posture, vendor management, internal governance, regulatory oversight, and the like. Leverage these insights to strengthen your cybersecurity profile, strengthen vendor relationships, and stay compliant with all applicable laws.

How to Choose SOC 2 Compliance Software

The right SOC 2 compliance software can help streamline and speed up the audit and compliance process, but it’s not easy to choose this software.

How can you know which software will work best for your organization’s compliance management program? For best results, choose a tool that offers these capabilities:

  • Quick, easy deployment with preloaded templates;
  • User-friendly design;
  • Easy internal audit capabilities;
  • Vendor management tools;
  • Continuous controls monitoring;
  • Integration with your technology stack;
  • Visual dashboards and insightful reporting.

Reciprocity ZenComply has all these features and more. Instead of using spreadsheets to manage your compliance requirements, adopt ZenComply to streamline evidence and audit management for all of your regulatory frameworks.

It is a single source of truth that ensures your organization is always audit-ready. Policies and procedures are revision-controlled and easy to find in the document repository. Workflow management features offer easy tracking, automated reminders, and audit trails. Insightful reporting and dashboards provide visibility to gaps and high-risk areas.

Schedule a demo to see what ZenComply can do for your organization.

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