Learn about compliance challenges that induce companies to undergo SOC 2 audits and what SOC 2 is about.
2020 with its COVID-related challenges and technological advancements made the use of online services and cloud environments a default route of contemporary IT solutions for businesses. All these challenges induce organizations to cooperate with third-party service providers to assure security and sustainability in the local and global business operations. According to Forbes, more than 83% of enterprise data processing is conducted in the cloud as of 2020, and the number of service providers involved in a large market keeps increasing. The shift to cloud environments and e-commerce represents multiple opportunities for organizations to increase the flexibility, efficiency, and competitiveness of their business operations; however, it also contains serious threats both for businesses and their service organizations.
The rising amount of cloud-based environments and software advancements for enterprises increased the possibility and number of data security and privacy threats. Moving to the digital work environment is the most challenging for those who are engaged in the financial and healthcare sectors because personal data related to these spheres are some of the most sensitive. Misconfigured cloud-hosted systems are among the major challenges to the organization’s security. It occurs because organizations often switch to the cloud so rapidly that they do not pay enough attention to proper security controls and procedures. To save costs, many organizations ignore architecture design, penetration testing, access controls, and other critical elements of secure infrastructure and development management. This negative trend was indicated by IBM in 2018 when the media sector topped the chart with 40 % of publicly disclosed incidents. Half of these incidents occurred due to misconfigured cloud servers that lead to allowing a remote attacker to exploit the asset and exfiltrate data. Thus, in conditions of the importance and multifunctionality of cloud-based platforms, it is essential for organizations to maintain consistent security protections for their business processes and meet all necessary security and compliance requirements.
To achieve consistency and effectiveness for their security and privacy controls and to gain a competitive advantage, businesses look for independent third-party assurances. Among the most effective decisions in this regard was the establishment of the System and Organization Controls (SOC) 2 auditing procedure. It is considered to be one of the most reliable auditing and reporting procedures for assessing security frameworks and managerial decisions applied by organizations. Modern service providers use a variety of security frameworks (e.g. NIST 800-53, ISO 27002, etc.) and operate under various regulations (e.g., HIPAA, PCI, DFARS, etc.) However, all such frameworks and regulations are built upon the same principles as SOC 2 as they protect the confidentiality, integrity, and availability of sensitive data. A successful SOC 2 auditing and reporting is important for demonstrating the effectiveness of the service provider’s program in preventing security risks and complying with regulations.
SOC 2 is a system of controls and an audit report developed by the American Institute of Certified Public Accountants (AICPA). It enables organizations to communicate relevant information about their data protection management program to their customers. The aim of this communication is to design a SOC 2 audit report that assures organizations’ clients, management, and users about the suitability and effectiveness of the service controls that are relevant to the confidentiality, integrity, availability, and privacy of their data. The only institutions that can perform a SOC 2 audit are the independent CPA (Certified Public Accountant) or related accountancy organizations. SOC 2 is appropriate for any type of organization that provides services and systems (e.g. Software-as-a-Service, Cloud computing, Platform-as-a-Service) to client organizations. Clients who entrust their personal data to a service organization may ask it to provide assurances about secure handling and processing of their data. As such, the SOC 2 audit report is the right way to establish trust between a service organization and its customers and other stakeholders.
An important part for determining the scope of a SOC 2 audit is understanding the main principles on which it is based – Security, Availability, Processing Integrity, Confidentiality, and Privacy.
Security is the general principle that applies to all activities and engagements. It is a foundation of the remaining Trust Service Principles. The security principle addresses whether a system provided by a service organization is protected against unauthorized access, malware, or data breach.
The Availability principle mainly applies to organizations that provide hosting services, data centers, or critical software services to their clients. It ensures that the system provided to the clients is available for further use as agreed upon (e.g., through Service Level Agreements (“SLA”). It also addresses whether the services provided by a service organization meet clients’ availability expectations.
The processing integrity principle is essential for e-commerce or financial services. It attests that services are provided in a complete, authorized, and accurate way.
The confidentiality principle should be included in SOC 2 reports of the organizations which handle sensitive data, such as Protected Health Information (PHI) or Personally Identifiable Information (PII). It addresses the agreements between the organization and its clients regarding how the information is used, who has access to it, and how it is protected. The confidentiality principle also verifies that the organization properly protects clients’ information.
The Privacy principle addresses how consumers’ personal data is collected, stored, processed, and used. It ensures that the client’s data is handled in accordance with any commitments and criteria defined in the common privacy principles issued by the AICPA.
The SOC 2 auditing and reporting procedure is exercised according to one of the two types: the SOC 2 Type I and SOC 2 Type II reports. The SOC 2 audits are designed to assure clients, management, and user entities of service organizations about the suitability and effectiveness of its controls.
Both the SOC 2 Type I and Type II reports provide organizations with independent service reports. They include the service organization’s description of controls as well as offer expert opinions on the managerial representation of the service organization’s current controls. These two report types also have equal procedures of evaluating the suitability of the organization’s systems design.
The key difference between these reports is generally related to timing. Hence, SOC 2 Type I report is carried out on a specified point of time whereas SOC 2 Type II report is conducted over a specified period of time, usually a minimum of six months. Furthermore, in comparison to SOC 2 Type I, a Type II report not only evaluates the control systems but also offers a description of the service tests regarding its operating effectiveness. SOC 2 Type II also provides the results of each test whereas SOC 2 Type I does not involve testing.
Given the larger scope of operation, most organizations undergo SOC 2 Type II audits. However, the CPA auditors advise organizations that are engaging in a SOC 2 audit for the first time, to start with a Type I and move on to a Type II in the following audit period. Such a plan provides service organizations with a good starting point and more time to focus on the description of their system and maturing their environment over time.
The right approach to the SOC 2 audit helps service companies to reduce uncertainty and build resilient environments. SOC 2 is designed to keep the organization’s reputation intact by helping prevent data breaches, hacker attacks, data losses, etc. These and many other disruptions result in huge financial damages including lost revenues, opportunities, and customers. Properly following the SOC 2 audit demands helps ensure that the company’s operations, finances, intellectual property, and reputation are protected. Additionally, a SOC 2 audit report provides service companies with a competitive advantage by demonstrating to existing and potential clients its dedication to security and delivery of high-quality services. Furthermore, knowing that the organization’s internal controls are properly validated, gives peace of mind for organizational management to be confident in their posture. The final, but probably the most important benefit is that SOC 2 auditing and reporting procedures help maintain trust and provide transparency between the company and its customers.
When preparing for a SOC 2 audit, organizations must pay attention to controls around the development and management of infrastructure, software, people, processes, and data. All these components, in addition to the company’s organizational structure, background screening procedures, workforce standards, would be evaluated upon the main Trust Service Principles. In addition to this, to prepare for a SOC audit, companies must define their main objectives, scope, select the Trust Services Principles, perform a gap analysis, and address identified gaps.
All steps and procedures, mentioned above, demand deep expertise and understanding of the modern service environments and the SOC 2 audit and reporting procedures. As such, it is reasonable to rely on a trusted and experienced partner, which would accompany your organization during the whole SOC 2 auditing and reporting process.
If you need any help with SOC 2 audit readiness or other information security and compliance services, we’ll be happy to assist: