As data breaches become more widespread, most businesses are prioritizing information security. According to a study by IBM and Ponemon Institute, the worldwide average cost of a data breach in 2023 would be USD 4.45 million, a 15% rise over the previous three years.
In this high-risk environment, potential clients want assurance that they can trust you to preserve their sensitive data. A SOC report is one of the best ways to provide this confidence.
What is a SOC Report?
A Service Organization Controls (SOC) report is a means to ensure that a company is adhering to certain best practices before outsourcing a business function to them. These best practices are connected to finances, security, processing integrity, privacy, and availability.
The SOC reports, developed and certified by third-party auditors, are designed to give independent assurance and assist potential partners in understanding any possible risks associated with dealing with the examined business.
Why is a SOC Report critical?
Cloud computing has transformed the way many businesses operate. While it has resulted in revolutionary changes in how service providers work, it has also resulted in security concerns around consumer and client data. SOC certification ensures your firm adheres to information security and processing regulatory standards.
Types of SOC Reports
SOC reports are overseen by the American Institute of Certified Public Accountants (AICPA) and focus on providing assurance that the controls put in place by service companies to protect their clients’ assets (usually data) are effective. The primary types are SOC 1, SOC 2, and SOC 3 (along with subsets of the first two).
The primary distinction between a SOC 1 and SOC 2 report is the scope of the study. A SOC 1 report focuses on outsourced services provided by service organizations that are important to the financial reporting of a corporation (user entity).
A SOC 2 report is an attestation report produced by a Certified Public Accountant (CPA) company. Its primary focus is the operational risks associated with outsourcing to third parties outside of financial reporting. The Trust Services Criteria (TSC) comprise five categories: security, availability, processing integrity, confidentiality, and privacy.
A SOC 3 report (formerly known as a SysTrust) contains comparable reporting topics as a SOC 2 report but is less extensive. It eliminates some description information and any comprehensive controls/testing outcomes. Whereas a SOC 2 report is of limited consumer access, a SOC 3 report is a general-use report that may be used for promotional purposes.
Type I vs. Type II Reports
There are two types of SOC 1 and SOC 2 audits:
- Type 1 audits are completed at a specified moment in time.
- Type 2 audits are undertaken over a fixed period of time, usually at least six months.
Key Components of a SOC Report
Every Security Operations Control report shall include the auditor’s view on whether the service organization’s control description is given fairly and effectively.
If a report is unqualified, it implies that the auditor determined that the firm accurately described its design and operational efficiency. Still, a qualified opinion suggests that the auditor discovered significant differences between the company’s assertions and reality. The view is harmful if many controls fail and the objective is unsatisfied.
The report will also include the service organization’s declaration that all controls being tested were operational during the auditor’s checks, a description of the system, and what the auditor saw when the system was working.
The reader should witness a tale about what the system was supposed to do and what it did.
It should display the goals and extent of the testing, together with information on the management structure, communications guidelines, risk management for information security, system monitoring, documentation practices, system functions, and physical access to controls.
How to Use a SOC Report
When you get a SOC report from another organization, you should carefully study all the content.
Just because you received an unqualified report does not indicate that there aren’t exceptions that might eventually raise red lights for your organization—unqualified just implies that an aim did not fail altogether.
Examine the management reactions to failed controls to establish whether compensating measures are in place and what remedial measures were implemented (if any).
Consider any exceptions or deviations discovered by the auditor to assess if you can tolerate any associated risk.
Ensure you understand everything and have a solid handle on how all controls function.
Discuss your concerns with the business, and find out whether they’ve taken any actions to address any possible issues since the report’s publication.
Use the data to spark internal debate on the risks of outsourcing a business function to a service company.
While no choice is genuinely risk-free, SOC reports exist to assist businesses in understanding the amount of risk associated with critical business and security decisions. The finest offensive is a great defense, where planning and preparation and the insights provided by SOC reports come into play.
What Type of SOC Report Does My Business Need?
The services provided by your business may be a decisive element in evaluating which SOC report is appropriate for your company. Some businesses may need both a SOC 1 and a SOC 2.
The SOC 1 report examines the controls in place at your company that influence your client’s financial statements. A SOC 1 report assures how your business handles sensitive data. Organizations that are likely to require a SOC 1 include, but are not limited to:
- Payroll service providers
- Collection agency for receivables
- Third-party administrators (claims administrators, benefit plan recordkeepers, and so on)
A SOC 2 report discusses your service organization’s controls for the trust services criteria, which include security, availability, integrity, confidentiality, and privacy. Depending on your requirements, the SOC 2 report might examine any or all of the trust services criteria. Service organizations that are likely to require a SOC 2 include, but are not limited to:
- Providers of Software as a Service (SaaS)
- Providers of managed services
- Service providers who must conduct vendor security evaluations
What Can I Expect During the SOC Examination?
The first stage in the SOC evaluation process is determining which sort of SOC report will assist your firm the most. The formal procedure then begins with a SOC Readiness Assessment.
This overview is intended to assist the service organization in preparing for the examination by identifying weaknesses, gaps, and other potential concerns so management can understand their repair choices.
Working with an auditing firm specializing in SOC reporting can help make the process run smoothly for everyone.
Manage and Maintain Your Data Security Goals with ZenGRC
Obtaining a SOC report takes time but is critical for most service providers. By establishing strong internal controls and adopting a SOC framework as a guide for applying secure business rules, your organization may function comfortably in an increasingly digital environment.
ZenGRC, a compliance and audit management system, makes the road to compliance faster and easier by eliminating cumbersome manual tasks, streamlining onboarding, and keeping you up to speed on the progress and efficacy of your programs.
ZenGRC gives the visibility you need to assess the evolution and efficacy of your compliance actions and their impact on risk reduction. An audit overview report highlights the frameworks, requirements, and controls under consideration, the activities to be completed, and the current audit condition.
You get a single, real-time view of risk and compliance, with seamless connectivity to platform tools, giving you the context-specific perspective you need to make educated, strategic decisions that keep your company secure and gain the trust of your customers, partners, and employees.
An automated and integrated reference database can assist you in staying ahead of the ever-changing regulatory environment. RiskOptics can be used to:
- Get audit-ready in less than half an hour.
- Reduce staff burdens through cooperation and automated workflows.
- Understand the impact of SOC compliance initiatives on your cyber risk posture to learn how to allocate resources.
Request a demo now to see how ZenGRC may help you simplify your audit process.