Businesses rely on third-party vendors to streamline day-to-day operations and assure sustained functionality now more than ever. This is seen by the rise of cloud computing, data centers, and Software-as-a-Service (SaaS) providers. However, the simplicity and comfort of these outsourced jobs comes with some inherent threat.  

The capacity to demonstrate the development and successful application of internal controls concerning services is a crucial distinction among service providers. A simple method of giving this guarantee to all the parties involved is to go through a System and Organization Controls (SOC) audit. 

What is a SOC Audit?

SOC (System and Organization Controls – originally Service Organization Controls) audits objectively analyze the risks associated with employing service organizations and other third parties.

They are essential in regulatory monitoring, vendor management programs, internal governance, and risk management.

For service businesses, there are three types of SOC audits:

  • SOC 1 audits focus on controls that affect financial statements. The auditor must comply with the SSAE 18 attestation standard. The auditor must also comply with AT-C section 320: “Reporting on an Examination of Controls at a Service Organization Relevant to User Entities’ Internal Control Over Financial Reporting”, and the AICPA Guide: “Service Organizations: Reporting on an Examination of Controls at a Service Organization Relevant to User Entities’ Internal Control Over Financial Reporting (SOC 1)”.
  • SOC 2 audits focus on controls surrounding information security, availability, processing integrity, confidentiality, and privacy. While this report also requires SSAE 18 attestation standards, the auditor must follow AT-C section 105 and AT-C section 205.
    Additionally, the auditing standards follow the AICPA Guide: “SOC 2 Reporting on an Examination of Controls at a Service Organization Relevant to Security, Availability, Processing Integrity, Confidentiality or Privacy” and TSP section 100: “2017 Trust Services Criteria for Security, Availability, Processing Integrity, Confidentiality or Privacy”.
  • SOC 3 audits are similar to SOC 2 audits, but their reports are significantly shorter and meant for the public view.

There are two types of SOC 1 and SOC 2 audits:

  • Type 1 – an audit performed and based on a specific point in time.
  • Type 2 – an audit conducted over a set time, generally at least six months.

Why Should I Have a SOC Audit?

SOC is an entirely voluntary approach that is proactive rather than punishing. Let’s look at some of the most essential advantages of having an audit performed.

It brings peace of mind

A SOC audit may give you and your customers peace of mind.

The fact is that the internet environment is more dangerous than ever. Hackers are becoming more daring, and not a month goes by without news of a huge ransomware attack or a massive data breach.

By planning for and undergoing a SOC audit and obtaining a SOC report, you can show that the processes and controls to secure the data you manage are influential and trustworthy. This helps reassure prospects and customers that their data is safe with your company and that your staff is ready to guard, identify, and mitigate cybersecurity threats.

Enables streamlining procedures and controls

A SOC audit can show you how to optimize your organization’s controls and procedures to boost efficiency.

Preparing for and conducting an audit forces companies to develop robust, long-term security practices in advance of security problems and occurrences rather than reacting to them.

It also pushes businesses to implement security procedures established in corporate culture. Best practices such as implementing multi-factor authentication or single sign-on, generating documentation and rules, become part of your company’s DNA and help to minimize risk.

Cuts down on the amount of surveys to complete

Most clients, particularly business customers, will request that you complete security questionnaires to demonstrate your organization’s security and privacy compliance posture. If you don’t already have processes and paperwork in place, these questions can be extremely lengthy and time-consuming to complete.

You may obtain a SOC report to show your organization’s security posture by undertaking a SOC audit – sometimes in place of a security questionnaire.

Preparing for Your SOC Audit

Obtaining a SOC audit might be a demanding task. You must choose your Trust Service Criteria (TSC), create rules, and implement information security controls, among other things. It’s hard to know where to begin.

Below are some suggestions to help you prepare, whether you’re new to the SOC audit process or a seasoned veteran. 

  • Select a report type.

Before inviting an auditor to your workplace, determine which type of SOC report your service organization requires. You have the following options:

  • SOC 1 Type I or Type II
  • SOC 2 Type I or Type II
  • SOC 3

Choose your audit type depending on your services, who you give those services to, your budget, and the urgency.

  • Define your scope.

The next stage is to define the scope of your audit. To do so, consider the following questions:

  • Are you looking for a SOC report for the entire organization or for a specific service?
  • What period of time will your audit cover?
  • Which Trust Services Criteria apply to your company?
  • Execute a gap analysis.

Once you’ve established your systems, controls, and records, you can perform a gap analysis to discover where you fall short in securing customer data. You may develop a remedial strategy to bring them up to speed before your formal SOC audit.

  • Complete a readiness assessment.

You might start doing a readiness assessment at this stage of the audit process.

During the readiness assessment, an auditor or consultant will do their gap analysis and provide suggestions to you. They will also go over the prerequisites of the TSC you’ve chosen.

The auditor will advise you on what you’re doing correctly and wrong after the evaluation and what needs to be done before the actual audit.

This would be the end of your preparation work. The next step would be to hire an accredited CPA to undertake a SOC audit and produce a formal report for your organization.

Who can Perform a SOC Audit?

Audits can only be performed by a certified Certified Public Accountant (CPA) or an organization authorized by the American Institute of Certified Public Accountants (AICPA). Non-accountants may be engaged to assist, but everyone is held to the same stringent standards.

Choosing an auditor is one of the most critical aspects of the SOC audit process, yet many businesses miss it. An auditor should have extensive expertise doing SOC audits and be able to provide samples of previous reports. They should ideally have experience dealing with your specific service company.

Furthermore, a SOC auditor should be someone with whom you can collaborate. They’ll be your companion for a few weeks to a year, so make sure your personalities and cultures mesh.

It is reasonable for most service companies to interview multiple auditors before selecting one. Because you’re essentially recruiting an employee, you should approach this as a talent hunt.

Understanding the Results of your SOC Audit

Although the SOC report has become the industry standard for reviewing, recording and reporting critical components of a service organization, it is not always evident how to digest and interpret the report results.

When reading a SOC report, keep the following points in mind:

Report Type

Understand the report type and dates while reading a SOC report. It’s fantastic if a vendor offers a SOC report. However, the reader will feel more at ease with a Type 2 report in the control environment since it examines operational effectiveness over time.

If the organization only has a Type 1 report, inquire when the Type 2 report will be available. Furthermore, it is hard to confidently count on the SOC report if the dates provided are over a year old.

Scope

Because SOC audits may only cover specific business units within a company, it is critical to understand what the SOC report covers. The scope of the audit will be provided in the report’s system description.

Opinion

A SOC audit, like a financial statement audit, includes an opinion. This opinion provides information on the control environment and should be used to determine if the service organization’s controls can be trusted.

Suppose an unfavorable or disclaimer of opinion is provided. In that case, it indicates that the control environment is inferior or that the auditor could not collect sufficient evidence to establish whether the environment was proper. If any of these opinions are issued, it should cause alarm and prompt an inquiry with the vendor.

There is also the potential of obtaining a qualified opinion, which occurs when the auditor singles out some feature of the control environment and states that the controls were sound except for this area. This viewpoint may or may not influence the reader’s organization. Thus, it is critical to understand what areas were evaluated.

Exceptions

Exceptions may seem negative, but they aren’t necessarily. They only signify anything unpleasant when they are significant enough to prompt a change in viewpoint.

These exclusions are detailed in Section IV of the report, and the auditor will explain them. Analyze the exceptions and then read the service organization’s answer to these exceptions while reading the report. The replies might explain what went wrong or what the company is doing to address these concerns.

Complementary User Entity and Subservice Organization Controls

Complementary user entity controls are another feature of the SOC report. These are the controls that the service organization expects the report’s readers to have in place to meet their own goals.

Understand the user entity’s obligations and ensure such controls are in place while viewing the report.

Additionally, there are rules for complimentary subservice organization. These controls require the service organization to rely on its vendor to do specific tasks to meet its objectives.

By reading the report, learn whose services are outsourced, to whom, and what is expected of these subservice companies.

Meet Your SOC Compliance Goals with ZenGRC

It takes time, but getting a SOC report is essential for most service providers. Your company may function comfortably in an increasingly digital world by building strong internal controls and utilizing a SOC ¡ framework as a guide for implementing safe business rules.

ZenGRC, a compliance and audit management system, provides a faster and smoother road to compliance by removing onerous manual procedures, simplifying onboarding, and keeping you updated on the progress and efficacy of your programs.

ZenGRC provides the visibility you require to evaluate the development and efficacy of your compliance activities and their influence on risk reduction. An audit overview report summarizes the frameworks, requirements, and controls being considered, the tasks that must be accomplished, and the present audit state.

You receive a single, real-time image of risk and compliance with seamless links to platform tools, providing the context-specific perspective necessary to make educated, strategic choices that keep your organization secure and earn the trust of your customers, partners, and workers.

A reference database that is automated and integrated can help you remain ahead of the ever-changing regulatory environment. You may use RiskOptics to:

  • Become audit-ready in less than 30 minutes
  • Reduce staff workloads through collaboration and automated workflows.
  • Learn how to allocate resources by understanding the impact of SOC compliance actions on your cyber risk posture.

Schedule a demo today to learn how ZenGRC can streamline your audit process.

Recommended