Organizations must comply with many regulations and standards designed to streamline their operations and protect the privacy and integrity of the data they handle. While regulations like GDPR and HIPAA are mandatory, some standards like SOC 2, are optional. Still, organizations prefer to comply with these optional regulations as they boost the organization’s credibility in the eyes of customers, investors, and stakeholders. Moreover, there’s a positive reputation of trust within the business environment that augurs well for the overall profitability and growth.
In this article, we’ll talk in detail about SOC 2 compliance requirements, its benefits, and how you can comply with them.
What is SOC 2?
SOC 2 is a security framework that lays down the rules on how organizations must store, access, and handle customer data. The American Institute of CPAs (AICPA) created this standard to prevent data breaches and safeguard sensitive customer data like full name, date of birth, Social Security Number, and credit card details. It also helps organizations save millions of dollars in lawsuits when data breaches occur. Due to the overarching benefit of SOC 2 compliance for both individuals and organizations, it has become a de facto security standard.
An advantage of SOC 2 compliance is that it is highly customizable and can be adjusted to meet your organization’s operations. This adaptability is based on the understanding that every organization has a different scope, operation, data handling processes, and more, and SOC 2 aims to address these variations through its principles called Trust Services Criteria.
Trust Services Criteria
SOC 2 is based on the five Trust Services Criteria. An organization must adhere to these basic cybersecurity elements to become SOC 2-compliant. These trust services criteria are as follows.
- Security: Protects information from unauthorized access and vulnerabilities.
- Availability: Ensures employees and authorized users can access information to complete their work.
- Processing Integrity: Verifies if the systems work as intended.
- Confidentiality: Limits the access, storage, and use of protecting confidential information.
- Privacy: Safeguards sensitive information from unauthorized users.
As you can see, security is the core aspect of becoming SOC 2-compliant. Additional aspects may become a part of it based on the services offered by your organization.
Let’s now take a detailed look at each of these five criteria.
Security
The Security criterion is also known as the Common Criteria because it revolves around protecting an organization’s systems and data. This is the only mandatory criterion that determines SOC 2 compliance. The rest of the Trust Services Criteria can be added based on your organization’s operations. The auditor determines the relevance of the other four, and if required, they are evaluated.
There are nine sub-criteria included, and each answers a different security question.
- Control Environment: Do integrity and security matter to the organization?
- Communication and Information: Are there procedures to ensure security, and are they communicated with internal and external players?
- Risk Assessment: Does the organization analyze risks and how they are impacted by environmental changes?
- Monitoring Controls: Does the organization monitor its controls and evaluate their effectiveness?
- Control Activities: Do the existing controls reduce risks?
- Logical and Physical Access Controls: Has the organization implemented physical access controls? Does it use logical controls like encryption to restrict access to sensitive information?
- System Operations: Do the systems function as they should? Are there any incident response and disaster recovery plans in place?
- Change Management: Are material changes tested and approved before they are implemented?
- Risk Mitigation: Are there business processes in place to mitigate risks?
SOC 2 compliance auditors evaluate your organization’s operations and controls against the above criteria and accordingly, determine the results of the audit.
Availability
This second criterion determines if the data is easily accessible and available to employees who are authorized to use this data for their work. Auditors also evaluate if they can rely on your systems for their everyday work. For example, if the data is stored in a data center, the audit evaluates if you have a power backup and protection against natural disasters to ensure that the data is always available.
As mentioned earlier, only the security aspect is mandatory and the rest depends on the organization’s scope and activities. The availability criterion is for you if you offer a continuous delivery platform and if your clients depend on you for their continuous operations. Good examples of companies that require this criterion are cloud computing providers, data storage providers, and more.
Processing Integrity
This third criterion evaluates if your systems function as intended without causing delays or errors.
Often, processing integrity is confused with data integrity. To clarify, data integrity is whether a system processes data the way it should while processing integrity is whether the system works as it should. For example, let’s say there’s an eCommerce company. When a customer places an order for a product, processing integrity checks if the system allows the user to place an order and if it collects payment from the user. On the other hand, data integrity checks if the person entered the right address or placed a reasonable number of units of the product based on past buying behavior, etc.
The processing integrity criterion applies to eCommerce platforms, companies involved in financial reporting services, and those who undertake transaction processing on behalf of their clients.
Confidentiality
The next criterion is confidentiality, and as the name suggests, it determines how well an organization protects confidential information. Ideally, the organization must have processes in place to store, access, and limit access to confidential information. It must also have stringent controls to allow only authorized users to view them.
Some examples of confidential data can include intellectual property, financial reports, legal documents, and anything that can jeopardize your operations if it falls into the wrong hands.
Privacy
Privacy is the last aspect in the Trust Services Criteria and it looks into how an organization maintains the Personally Identifiable Information (PII) of individuals. This includes the full name, date of birth, government-issued IDs, social security numbers, and any other information that can be traced back to a specific individual.
You must protect such information from unauthorized users to ensure the privacy of individuals who transact with your organization.
Now that you know what’s covered in the SOC 2 audits, let’s take a brief look at the types of SOC 2 audits.
Types of SOC 2 Audits
There are two broad types of SOC 2 audits – type I and type II.
Type I audit evaluates a company’s operations against the established principles but at a specific point in time. On the other hand, SOC 2 Type II continuously evaluates SOC 2 compliance over a period, typically from three to 12 months.
Out of the two, type I audit is easier to achieve but is considered less reliable and trustworthy when compared to type II, which can take many months to complete. Moreover, many partners and clients may not agree to type I audits and based on their organization’s policies, would want you to get type II compliance. This is why more organizations directly opt for SOC 2 type II audits.
Do You Need a SOC 2 Audit?
As mentioned at the beginning of this article, SOC 2 is a voluntary compliance framework. Moreover, becoming SOC 2-compliant requires time, effort, and resources, as you will have to align your practices and processes to meet these security controls.
Given these constraints, do you need a SOC 2 audit? What can you gain from it?
Here are some ways how a SOC 2 audit can benefit your organization.
Enhances your Brand Reputation
Security is one area that can kill your brand in today’s fierce business landscape. To maintain your brand reputation, you must invest in security. SOC 2 compliance is proof that you are serious about security. In turn, this focus on protecting valuable data can enhance your brand’s reputation in the eyes of your shareholders.
Offers a Competitive Advantage
Today, almost every company talks about protecting customers’ data. But how many companies back up their words with action?
SOC 2 compliance can prove that your organization walks the talk. Also, it will reflect a sense of commitment to security, all of which can give you a competitive advantage.
Onboard More Customers
With plenty of options today, customers find it increasingly hard to choose one service over another. SOC 2 compliance can be that edge where customers can choose your organization over others. Moreover, given that SOC 2 compliance is voluntary, the effort you’ve taken to comply with it shows you in a positive light. This can be another reason for customers to prefer doing business with you.
Save Time and Money
The heading may seem counterintuitive at first because it takes additional time and money to comply with SOC 2. But in the long run, your organization can save on the legal costs of data breaches. When you voluntarily comply with SOC 2, you will have the controls in place to protect sensitive information, making it more difficult for unauthorized users to access them.
Cross-Compliance
SOC 2’s provisions overlap with those of other guidelines like ISO 27001 and GDPR. Note that GDPR is mandatory if you operate in the European Union or handle the data of EU residents. When you have processes in place for protecting the integrity and privacy of your customer’s data, the efforts required to comply with GDPR are reduced.
To give you an idea, GDPR has 99 articles spread across 11 chapters. Out of this, chapters 2,3, and parts of 4 align with the Trust Services Criteria. From a compliance standpoint, you make optimal use of your resources to gain compliance with multiple standards.
Due to these advantages, many organizations are choosing to voluntarily comply with SOC 2 guidelines.
Next, let’s talk about the SOC 2 audit.
What’s the SOC 2 Audit?
Unlike standards like ISO 27001, there are no specific compliance rules for SOC 2 because the controls are unique to every organization and hence, the process of checking their compliance will also vary.
Now this brings up an important question – how can auditors verify such subjective controls and their implementations?
The SOC 2 audits are intensive and involve five broad steps.
Step 1: Report Type
The SOC 2 audit and its steps depend largely on the audit and report type you need and the available time. You can choose from a type I or a type II audit and the audit process will vary accordingly. Note that SOC 2 Type II audits take longer because the auditors have to comprehensively test all your information systems. They will even run experiments and see the outcomes, and all of this is both time-consuming and resource-intensive.
Based on the report type, you can reach out to an auditor.
Step 2: Identify the Areas
If you choose the Type II audit, you may want to restrict the audit to specific functions or areas like finance, credit card processing, backup, etc. Many organizations prefer to move from one function to another, starting from the highest priority ones that have the most impact. This prioritization and limited scope can help to make the most of your resources and get some parts audits quickly. Otherwise, it can take years for auditors to check every system across your organization, especially if you’re a large enterprise with global offices.
Moreover, you can also select the Trust Services Criteria for which you want to audit. While some organizations prefer to do all five, many select only the security and privacy components. Again, this choice depends on your organization’s timelines and the reasons for seeking SOC 2 compliance.
Step 3: Understand Your Current State
Next, do an internal audit and understand where you stand. During this process, check your systems, controls, and documents, and see if their compliance rate is with the SOC 2 provisions. Also, ensure that your controls are accurately mapped to the SOC 2 provisions.
Using this information, you can identify gaps and create actionable plans to remediate them. Make sure to do one or more rounds of internal audit before you start the SOC 2 formal audit with an external auditor.
Step 4: Opt for a Readiness Assessment
Another aspect you can do before starting the audit is to ask the external auditor to perform a readiness test. If you make this request, the external auditors will do their gap analysis and provide a list of recommendations to implement.
As a part of this assessment, some auditors even help identify the criteria that are most appropriate for your organization and operations.
Take these inputs and start remediating the gaps before starting a formal audit.
Step 5: Start the Audit Process
Once you believe you are ready for the audit, start the process. Provide the necessary documents and access controls to your auditors to help them get started. Some documents that you may have to provide include asset inventories, system backup logs, ethics policies, incident response plans, and more.
Also, make sure your auditors have the necessary access to systems to carry out their audits. You will also have to arrange a walkthrough of your systems to help auditors get familiar with the workflows.
They may also want to talk to key employees who handle sensitive data on their knowledge and awareness about the security controls, processes, and workflows. Some auditors may even want the process owners to fill out a security questionnaire and answer specific questions.
After evaluations, they complete the audit and issue a report.
What is the SOC 2 Audit Report?
Every organization that undertakes a SOC 2 compliance assessment gets a written report, regardless of the result.
In the report, auditors often mention four outcomes, and they are:
- Unqualified – As per SOC 2, this term means you have passed the audit.
- Qualified – This state means that you have passed the audit, but you must make some changes to your systems or operations.
- Adverse – The organization has failed the audit. Most times, auditors provide the reasons for failure and even the actionable steps you can take to fix them.
- Disclaimer of opinion – This outcome on the report implies that the auditor did not have enough information and access to systems to make a fair audit.
If your report states anything besides “Unqualified”, you must take steps to fill the gaps. In some cases, auditors also allow the management or executives to provide answers to any exception, and the same is recorded on the audit report.
Let’s now see how you can select the right auditor for your SOC 2 compliance audit.
Choosing an Auditor
Selecting an appropriate auditor is a key step in SOC 2 compliance. Here are some factors to consider.
- Find an AICPA-accredited auditor firm to carry out the audit. Evaluate the company’s experience and ensure that they have audited companies like yours.
- Be clear on your requirements and tell the auditing firm which compliance type you need.
- Your auditing firm should be transparent and upfront about the process, timelines, and the costs involved. You can map this information to your requirements and evaluate if this firm is the right fit for your needs.
- If you have any questions or constraints, make sure to bring them up with your auditing firm before you sign a formal agreement.
You will most likely work with the auditors in your office premises for six months or more. Hence, it’s important to create a conducive environment and warm relations for a fruitful partnership.
Ideally, do a SOC 2 audit once every 12 months to continuously gain the benefits of SOC 2 compliance.
Final Thoughts
To conclude, SOC 2 audits are voluntary but offer many benefits for organizations. In this article, we looked at the criteria involved in SOC 2 audits, and how you can comply with its provisions. Moreover, we looked at the steps involved in the audit process and what you can expect in the audit reports. We hope this information provides all the information you need about SOC 2 compliance and helps you take steps toward becoming SOC 2 compliant.