System and Organization Controls (SOC) reporting

SOC reports focus on financial data security. But contribute to general digital risk management and data protection.

Companies in the digital economy rely on external partners to process and store customer data. Companies cannot afford to use service organizations that put data at risk. SOC reports show that suppliers follow industry best practices for securing critical information.

Types of SOC reports

AICPA maintains three types of SOC reports: SOC 1, SOC 2, and SOC 3. There is also a specialist Cybersecurity SOC report. Companies should understand how reports differ before choosing which SOC report to use.

SOC 1 report

SOC 1 reports look at financial reporting aspects of service organization control systems. This type of SOC assessment focuses on how organizations secure financial data. Auditors assess financial reporting controls for data integrity and accuracy. They look for robust threat detection and management systems as they apply to financial reporting systems.

SOC 1 reports suit service organizations that provide outsourced tools to manage financial information. Examples could include payroll processors or cloud accounting services. They also relate to organizations that store financial data on behalf of user organizations.

SOC 2 report

A SOC 2 report is more in-depth than a SOC 1 report. SOC 1 reports look at broader information security risks related to third-party outsourcing. Auditors assess risks related to data security, availability, processing, and integrity. They also consider confidentiality and privacy issues where appropriate.

Unlike SOC 1 reports, Certified Public Accounting (CPA) experts carry out SOC 2 reports. They also use a more complex set of best practices to assess IT security at service organizations.

SOC 2 reports compare operational security controls with Trust Services Criteria. These trust criteria include five categories:

• Security. Auditors check that organizations protect financial data against external and internal threats. They assess access control systems to verify that only authorized users can access sensitive data.
• Availability. Data must be available for user organizations as agreed in service level agreements.
• Processing integrity. Companies must process data in a timely and accurate manner, and there should be no unauthorized changes or deletions.
• Confidentiality. Service organizations must only share financial data in line with pre-agreed rules.
• Privacy. Third parties must handle user data according to agreed privacy guidelines. Auditors check data usage, sharing, storage, and deletion.

SOC 3 report

A SOC 3 report is essentially a simplified SOC 2 report. Auditors do not include in-depth information about testing outcomes and controls in place to protect data.

SOC 3 reports deliver a qualified auditor's opinion about the internal security posture of a service organization. As such, they help when comparing providers. SOC 3 reports are also marketing tools for public-facing organizations promoting the security credentials of outsourcing services.

SOC cybersecurity reports

SOC for cybersecurity assesses internal cybersecurity risk management at service organizations. Assessors check for robust threat detection systems and incident response plans. They analyze firewalls, encryption, and password management policies. Reports identify potential vulnerabilities and assure users that technical controls are in place.

Benefits of SOC reporting

SOC reporting options have many benefits for user organizations and service providers. Advantages include:

• Compliance. Organizations may need a SOC report to meet sectoral compliance requirements. For instance, companies that process medical claims use SOC reports to show that their financial reporting systems are secure.
• Security. SOC reports encourage service organizations to improve their internal security policies. Auditors deliver objective opinions about privacy, cybersecurity, and data integrity. Organizations can use this information to enhance their controls and improve staff training.
• Trust. Digital supply chains rely on trust between users and service providers. SOC reports assure user organizations that their partners meet security best practices. Companies know financial data will be well-protected against data breaches and unauthorized access.

Choosing the right SOC report for your organization

Selecting the right SOC report matters. Reports providing too little depth may not meet the requirements of clients. However, complex SOC reports can impose excessive burdens on service organizations. And clients may not demand extensive proof of security controls.

Needs vary between industries. For example, SOC 1 reports are probably sufficient for companies handling payroll functions for commercial partners. User organizations want evidence that partners handle financial data responsibly. However, wider IT management issues are less relevant.

Security needs differ in sectors like finance or healthcare, where user organizations handle confidential client data. In these sectors, SOC 2 reports are vital. Data confidentiality is a priority. Users need confidence that partners will secure data and apply privacy protections.

Compliance is another consideration. SOC 2 reports can help organizations meet GDPR requirements or follow HIPAA regulations. Technology, banking, health, and education companies tend to demand SOC 2 attestation to meet compliance standards.

Importance of SOC in various industries

SOC reports are critically important parts of the security landscape and apply to many economic sectors. Any organization that handles outsourced user data can benefit. However, SOC reporting has particular importance in the following sectors.

Technology

Tech companies rely on SOC reports to comply with data privacy regulations. Regulations like the California Consumer Protection Act (CCPA) and the EU's General Data Privacy Regulation (GDPR) require companies to manage consent and prevent data exposure. SOC reports show that technology companies understand privacy and meet compliance standards.

SOC reports also assure users of cloud services. User organizations need assurance that cloud apps or services encrypt data and manage access. SOC reports make it easier to onboard cloud partners without lengthy security assessment procedures.

Financial services

Companies handling financial information use SOC 1 and 2 reports to manage data risks. SOC 1 reports specifically deal with financial reporting. Reports show that companies take risk management seriously and safeguard all forms of financial data. SOC reporting promotes trust between users and services and makes it easier to market financial services to security-conscious customers.

Healthcare IT

HIPAA regulations demand high privacy and data protection standards for patient data. However, the adoption of cloud-based data processing and storage presents security challenges.

Organizations use SOC 2 reports to assess cloud partners and leverage cloud technologies. SOC attestation gives them confidence that protected health information (PHI) will remain confidential and secure.

SOC reporting also helps organizations comply with the HITRUST compliance framework. SOC 2 engagement allows companies to develop cloud security practices according to HITRUST standards. The two regulatory frameworks are not identical. However, achieving SOC 2 attestation makes it easier to meet HITRUST requirements.

Getting started with SOC reporting

Obtaining a SOC 1 report or achieving SOC 2 attestation is attainable for all digital organizations. But how should you begin the reporting process? Follow these steps to prepare for a successful assessment.

1. Choose the right SOC report type

Before you start, choose whether to seek a SOC 1, SOC 2, or SOC 3 report. As noted above, each report has a slightly different emphasis and scope. In summary, a SOC 1 report rapidly verifies financial reporting security. SOC 2 goes into more detail about security and privacy measures. SOC 3 has the same scope as a SOC 2 report but results in a less detailed document.

2. Carry out a SOC readiness assessment

Readiness assessments analyze your existing security posture and identify areas of improvement. The scope varies depending on which type of SOC report you choose. However, standard preparation for a SOC 2 report includes several key stages.

Companies should inventory assets that are relevant to SOC assessment. Data flow analysis can help to understand how your organization handles data, making it easier to isolate urgent security issues.

It's also important to identify information security risks for each asset. List existing controls and policies, then use gap analysis to identify corrective actions needed to meet SOC standards.

The readiness assessment should generate a road map to SOC compliance. The plan should assign responsibility to named individuals and include milestones to schedule project delivery.

3. Implement controls to meet SOC standards

Use the readiness assessment to install relevant technical controls and improve security policies. Focus on threat management, access control, policy creation, and incident response.

If you seek SOC 2 attestation, use SOC trust criteria as a guide. Controls should make data available for users. They should protect data against external and internal security risks. Systems must ensure data integrity and accuracy. Controls must keep data confidential and meet relevant data privacy regulations.

Organizations that lack in-house security knowledge may benefit from the expertise of external auditors. Experts can advise about SOC requirements and identify vulnerabilities that in-house teams miss.

4. Execute security testing to verify compliance

After the implementation phase, test security systems to ensure they meet SOC criteria. Carry out a random sample of security policies to verify their comprehensiveness and accuracy. Use penetration testing to assess security controls. And simulate security alerts to check that incident response policies translate into action.

A SOC 1 report requires relatively light testing of financial data processes. SOC 2 report preparation should be more in-depth. Use external testing services to provide objective feedback. And schedule corrective action following testing.

5. Arrange a SOC assessment

Arrange a SOC audit when you are confident your security posture is ready. Only certified public accountants (CPAs) can execute SOC audits, although this can include licensed software professionals. Find a local provider and schedule an audit date.

Auditors will test security systems and consult policies. They will check logging practices to verify that the organization monitors security events. They will also interview personnel to assess security awareness and training.

Auditors compile a report with their findings, including suggested remedial work. The report describes the organization's security system and attests that it meets SOC 2 standards. Following a successful audit or remediation, the auditor approves the report. Service organizations can then supply SOC verification to users as needed.

Conclusion

SOC reporting proves that a business takes security seriously. There are various tiers of reports, and assessments can take days or weeks depending on the level of complexity required. Achieving SOC attestation makes sense for all organizations that handle data in the cloud for clients or individuals. A positive assessment boosts trust, improves security, and allows companies to grow with minimal security worries.