What is SOC 2? A comprehensive compliance guide
SOC 2 is a widely-used cybersecurity and data protection framework. It guides organizations as they balance business objectives with safeguarding customer data. This article will define SOC 2 and explore parts of the framework. We will cover compliance best practices and consider how SOC will evolve to meet future threats.
SOC 2 definition
SOC 2 is a data security framework created by the American Institute of Certified Public Accountants (AICPA). External SOC 2 audits assess information security policies and controls. SOC reports prove an organization has robust measures to protect customer data and ensure regulatory compliance.
AICPA began offering advice about securing financial information in the 1970s with its Statement on Auditing Standards (SAS 1). The rise of digital finance led to AICPA's Statement on Standards for Attestation Engagement (SSAE 16) in 2010. SSAE includes three Service Organization Control (SOC) tiers that guide organizations in securing financial data.
SOC 2 is an in-depth security framework that assesses an organization's information security environment. It serves organizations that provide services to user entities—often via cloud computing.
SOC 2 auditors apply five Trust Services Criteria (TSCs) to assess how service organizations secure user data. SOC 2 reporting assures organizations that use SaaS companies. It encourages service providers to prioritize privacy and raises cybersecurity general standards.
SOC 2 compliance vs. ISO 27001: Clearing the confusion
SOC 2 is often confused with ISO/IEC 27001. Both security frameworks are popular among digital businesses that handle confidential data. However, there are significant differences.
ISO 27001 defines the properties of an ideal Information Security Management System (ISMS). It compares security systems against a set of controls and policies. SOC 2 uses a flexible range of TSCs as reference points.
ISO 27001 has general applicability. The security framework suits all companies that manage client data. SOC 2 is slightly more restricted. It focuses on service organizations like SaaS companies that handle data on behalf of others.
SOC 2 is generally limited to companies in the US, although TSCs are relevant worldwide. ISO standards apply universally. They are ideal for companies that handle data across jurisdictions.
Assessment methods also differ. Certified Public Accountants (CPAs) carry out SOC 2 audits. Certified assessment bodies manage ISO accreditation. ISO auditors take a broader security perspective. CPAs focus on financial data above all else.
There are many similarities as well. Both standards are used to design data handling systems. Both certifications require renewal and continuous monitoring. They are also constantly updated to reflect current security threats.
| SOC 2 | ISO 27001 |
|---|---|---|
Definition | Audit reports that show compliance with Trust Services Criteria (TSC) | Defines requirements for an Information Security Management System (ISMS) |
Geographical applicability | Primarily used in the United States | Recognized and used worldwide |
Applicability by industry | Can be applied to service organizations from any industry (most commonly used by technology-based ones) | Suitable for any organization, regardless of size or industry |
Compliance | Attestation by a licensed Certified Public Accountant (CPA) | Certificate issued by an accredited ISO certification body |
What is it for? | Proves system security against set principles and criteria | Focuses on defining, implementing, and improving overall security systematically |
SOC 2 types: Type I vs. Type II
Organizations need clarity about the difference between SOC 2 Type I and SOC 2 Type II reports.
SOC 2 Type I reports record an organization's security processes at a specific time. Auditors ensure systems follow SOC Trust Criteria. This process usually takes 1–2 weeks. It suits companies that need quick proof of their information security credentials.
SOC 2 Type II reports assess SOC 2 compliance over 3–12 months. Auditors compare security policies and controls with AICPA Trust Criteria. However, auditors revisit organizations to verify continuous compliance. This process delivers greater assurance but takes longer and is more costly.
SOC 2 Type I | SOC 2 Type II |
|---|---|
Captures security processes at a specific time | Verifies ongoing compliance |
Confirms compliance with SOC Trust Criteria | Compares policies to AICPA Trust Criteria |
Takes 1–2 weeks | Takes 3–12 months |
Suitable for quick proof of security credentials | Offers greater assurance but takes more time and costs more |
The five trust principles of SOC 2
Trust principles (or criteria) are the foundation of SOC 2 audits. You can learn more about each principle here. However, it's essential to introduce each principle to understand how SOC 2 compliance works.
Security
Ensuring data security is the core role of SOC 2 in business operations. Compliant companies protect customer data with effective access controls. Sensitive data should only be available to authorized users, while multi-factor authentication guards the network edge. Companies must install firewalls, encryption, and threat detection systems to cut data breach risks.
Availability
SOC 2-compliant companies must meet Service Level Agreement (SLA) data availability requirements. Users should have access to data when they need it. Load management and redundancy minimize downtime. Incident response plans should restore data availability during security events.
Processing integrity
The processing integrity principle requires companies to maintain data handling systems that meet client requirements. Service organizations should not edit, delete, or move data without authorization. Secure coding and app management practices should remove bugs and ensure accurate data storage.
Confidentiality
Confidentiality and privacy are related aims of the SOC compliance process. Compliant organizations must encrypt confidential data and limit access to groups specified by user entities. Access controls should implement least privilege principles. Access to confidential data or applications should only be possible for users with a legitimate business need.
Privacy
To achieve SOC 2 certification, companies must create robust user privacy safeguards. Privacy applies to data creation, storage, movement, and deletion. Processes that handle personal data must follow the organization's privacy policy. Policies must conform to AICPA standards and relevant privacy regulations.
Importance of SOC 2 compliance in business
SOC 2 compliance is valuable for all service organizations but is particularly important for SaaS companies. Several reasons make SOC reports essential digital security standards.
Protecting customer data
SOC 2 compliance demonstrates that a company takes data protection seriously. Business partners know service organizations have processes and technology to guard customer data.
Enhancing trust and credibility
Trust is all-important when cybersecurity failures ruin corporate reputations. SOC 2 compliance cuts the risk of data exposure or a malicious data breach. It shows that an organization understands data risks and handles customer data carefully.
Meeting regulatory and industry standards
Regulations like the EU's Global Data Protection Regulation (GDPR) and the California Consumer Protection Act (CCPA) foreground data protection. Companies with poor security may incur huge regulatory penalties. SOC 2 compliance is a good preventative measure.
Who needs a SOC 2 report and why?
SOC 2 reporting suits organizations that store, transmit, or process customer data. This category includes cloud service providers that use third-party SLAs. Cloud platforms and SaaS apps tend to handle large amounts of external data. Users must know their data remains secure and confidential.
SOC 2 is also relevant for digital financial companies. The security framework guards financial reporting and data storage systems. Banking, accounting, and payment processing companies use SOC 2 compliance to meet SOX and PCI-DSS standards.
Healthcare organizations also benefit from SOC 2 compliance. Insurance companies, providers, and health app developers use SOC guidance to defend Protected Health Information (PHI). SOC helps meet HIPAA regulatory requirements and makes it easier to secure health-related financial processing.
Decoding the SOC 2 audit process
CPAs assess SOC 2 compliance via an audit and SOC 2 report. SOC 2 Type I audits can take as little as 1–2 weeks. SOC 2 Type II assessments take 3–12 months (12–15 months if you factor in pre-audit preparation).
Audit costs vary. Type I audits are cheaper due to their limited scope. Expect to spend $5–20k with preparation included. Type II audits usually cost $ 30k–60k, although larger organizations can spend $100k or more.
The SOC 2 audit features a series of steps:
- Pre-audit preparation. Involves risk assessment, inventorying assets and data flows, implementing security controls, and creating monitoring systems.
- Gap analysis. Checking existing systems that meet SOC 2 criteria and taking necessary corrective action.
- Readiness assessment. A final assessment before engaging an external auditor.
- Audit window. External assessors assess information security risks and compare security measures with SOC requirements. Fieldwork tests network defenses and access controls. Auditors interview key stakeholders to understand the organization's security posture.
- Audit report. The auditor completes a SOC 2 Type II report. This stage may include a management review to challenge or supplement findings. Companies have time to take recommended actions. A final report confirms certification and is provided to all key stakeholders.
Preparation is critical for a successful SOC 2 certification. Project teams should use gap analysis to match security policies and technologies against TSCs and take action to meet the five core criteria.
Preparing for SOC 2 audit exercises also requires continuous compliance. Establish cybersecurity metrics and create effective access management or incident response policies. Train employees and back up policy documents with operational security measures.
External expertise can help to meet SOC 2 report requirements. Consider enlisting vulnerability testers and qualified SOC assessors. They can advise about required controls and identify relevant security gaps.
SOC 2 compliance checklist: best practices
The SOC 2 compliance journey presents unique challenges for every company. However, some. best practices apply no matter what systems you use. Keep these SOC 2 best practices in mind to simplify the compliance task:
- Scope the SOC project. At the start of the journey, understand what is in scope and what assets SOC 2 compliance does not cover. Use the scope to create a framework for controls and policies.
- Pick the right report. SOC 2 Type I reports quickly confirm your security posture. Pick SOC 2 Type II reports for in-depth assessments.
- Test for TSCs. When preparing, organize testing around trust criteria. Test data processing systems to ensure data integrity. Run incident scenarios. Test threat management tools to protect the network edge.
- Consider compliance requirements. Evaluate compliance with relevant data protection and privacy regulations. Use the SOC 2 framework to plug compliance gaps.
- Test your readiness. Carry out a readiness assessment. Involve stakeholders dealing with customer data. Check security systems against the SOC 2 criteria. Set aside sufficient time to make changes.
Common challenges in SOC 2 compliance and how to overcome them
SOC 2 compliance is not straightforward. Companies encounter many SOC 2 compliance challenges before they pass their first report.
Scoping the SOC 2 project
Scoping is a universal SOC 2 challenge. Remember that companies only need to assess the services they offer to clients. Include assets related to services being audited. In other words, organizations must show auditors that they deliver on their promises.
Preparing for SOC 2 audits
Audit preparation is always challenging, and companies should never jump into SOC 2 Type II audits without careful planning. Establishing effective policies and controls is complex. Scheduling a SOC 2 Type I audit may be advisable before the longer Type II journey.
Training employees for audits
Training staff also poses problems when achieving SOC 2 compliance. Auditors interview employees to verify that they understand confidentiality and privacy criteria. Assessors seek evidence that staff understand access and security policies. So staff need to be ready and well-informed.
Getting documentation right
Documentation is another pain point. Companies may have technical measures in place but lack policy and monitoring documentation. Policy libraries should cover every relevant aspect of information security—from incident response plans to change management strategies.
Securing time and resources
Another core SOC 2 challenge is ensuring compliance teams have the necessary time and resources. Project teams may need to hire external expertise or purchase SIEM tools. Every budget increase needs approval from company leaders. And project teams need time to achieve their objectives.
Comparing SOC 1, SOC 2, and SOC 3
SOC 1 | SOC 2 | SOC 3 |
|---|---|---|
Focused on financial reporting | Deals with general data protection issues | Deals with general data protection issues |
Suited to payroll processors, finance companies, or insurance claims processors | Suited to service organizations like cloud providers and data center managers | Suited to companies that need a quick security audit for marketing purposes |
Assessed by audits and SOC reports, leading to SOC 1 attestation and full SOC 1 report | Assessed by audits, leading to SOC 2 attestation and full SOC 2 report | Assessed by audits. Auditors provide opinions about an organization's security systems, not a full SOC report. |
Auditors assess SSAE 18 requirements related to financial reporting | Auditors compare security systems to SSAE 18 Trust Services Criteria | Auditors compare security systems to SSAE 18 Trust Services Criteria |
Has static Type I variety and Type II report that grades continuous compliance | Has static Type I variety and Type II report that grades continuous compliance | Only includes Type II reporting methods |
Case study: successful SOC 2 compliance journey
SOC 2 can seem abstract when we talk about TSCs and required controls. However, the SOC framework is a highly practical real-world tool. Organizations use SOC recommendations to design operational systems that protect customer data. Assessment is more than a paper exercise.
For example, the hypothetical company DataWise processes data to help clients manage objectives and analyze performance. DataWise handles large volumes of potentially confidential data. It must secure this data to meet SLAs and retain client trust. In this case, the security team decides that SOC 2 compliance will help achieve its objectives.
The SOC 2 framework identifies policy gaps, such as incident response and data continuity. DataWise launches training initiatives around TSCs to improve employee knowledge. It refines employee onboarding to cover critical security themes. Security officers also procure SIEM software to automate security functions and continuous user monitoring.
Careful preparation means that DataWise is ready for a SOC 2 Type II audit. Managers are comfortable with newly installed monitoring and threat response systems. They are ready to welcome auditors for fieldwork throughout the agreed audit window.
Conclusion: The future of SOC 2
SOC 2 is an established framework for protecting data and ensuring smooth relationships between user entities and data processors. However, the framework continues to evolve to meet emerging threats.
For example, supply chain management is now a core part of the SOC 2 framework. In 2020, AICPA published a Supply Chain Risk Management Reporting Framework. This reporting framework extends SOC compliance to manufacturers and retail suppliers. It aims to protect digital logistics systems against cyberattacks and data breach risks.
Artificial Intelligence is another trend in the future of SOC 2 compliance. AI and Machine Learning rely on large data flows and sophisticated analytical tools. Compliant companies must protect all personal data against disclosure. They must also ensure that analysis remains within the bounds of SLAs and respects confidentiality.
As cloud dependence grows, SOC 2 compliance will become ever more relevant. Companies with SOC attestation will benefit from greater trust, robust security, and smoother compliance. Learn how to apply TSCs by implementing SOC-compliant controls and applying continuous compliance principles to safeguard data in the future.
Disclaimer: This article is for informational purposes only and not legal advice. Use it at your own risk and consider consulting a licensed professional for legal matters. Content may not be up-to-date or applicable to your jurisdiction and is subject to change without notice.