SOC 2 Type II: a comprehensive guide

Key takeaways

• SOC 2 Type 2 compliance deals with broad information security issues. SOC 2 Type II audits assess data availability and integrity and ensure organizations have appropriate controls and audit systems to protect privacy and confidentiality.
• SOC 2 Type 2 audits are suited to all companies that handle personal or financial data. The SOC framework is a natural fit for financial firms and healthcare organizations.
• SOC 2 compliance boosts trust and helps companies remain competitive. It encourages continuous compliance and embeds a robust security culture. As a result, compliant companies experience fewer data breaches and incur lower costs.
• Companies should prioritize preparation before SOC 2 audits. Audit costs are lower for companies with mature security and privacy systems. Carry out gap analysis and risk assessments. Install technical controls. And implement staff training in data protection practices.
• SOC 2 Type II audits take 3–12 months. Unlike SOC 2 Type I audits, they assess continuing compliance. Attestations are valid for 12 months after the report is published. At that point, companies must renew their report and prove they remain compliant.
• SOC 2 Type II is not the only cybersecurity and privacy framework. Companies may combine SOC compliance with HITRUST, ISO/IEC, or PCI-DSS certificates. Find an accreditation mix that suits your business needs.

Understanding SOC 2

SOC 2 is part of the AICPA's Service Organization Control framework. The framework audits service organizations that handle customer data on behalf of user organizations. It includes three classes of SOC reports, each with sub-variants (or "types").

SOC 1 reports assess an organization's financial reporting security. SOC 2 compliance deals with general security and privacy issues. SOC 3 reports are concise security summaries, usually for marketing purposes.

There are two types of SOC 2 reports. SOC 2 Type I provides a snapshot of security controls. SOC 2 Type II compliance assesses security over 3-12 months. SOC 2 Type II reports deliver an in-depth operational analysis of whether an organization meets AICPA security standards.

User organizations use these reports to select secure providers. Filtering providers matters in the digital economy. Companies rely on cloud partners to minimize data security risks. SOC 2 reports offer an efficient way to assess partners without carrying out fresh audits for each contract.

AICPA SOC 2 framework: An overview

The SOC 2 framework uses AICPA's Trust Services Criteria (TSC) to assess organizations. Companies have flexibility regarding the controls they use. However, controls must adhere to TSCs to pass a SOC 2 Type 2 audit. There are five core TSCs:

• Availability. Data must be available to the user organization as set out in the initial services agreement. Incident recovery and backup processes should ensure maximum availability at all times.
• Security. Organizations must guard against unauthorized access and digital threats. Security systems should protect privacy, confidentiality, availability, and data integrity.
• Integrity. Data processing must be accurate, timely, and comprehensive. Service organizations should only process data in line with user objectives and requirements.
• Privacy. Service organizations must protect personal data. Privacy should focus on data collection, retention, disclosure, use, and deletion.
• Confidentiality. Organizations must protect data classified as confidential. The service organization should limit access and implement robust rules on data exposure and sharing.

Differences between SOC 1, SOC 2, and SOC 3

Choosing the correct SOC report class matters. Before we explore SOC 2 Type 2 compliance in more detail, it's useful to summarize how the three classes differ.

SOC 1 assesses the security of financial reporting controls. These reports are relevant to organizations that handle financial data for clients or outsource customer financial information. SOC 1 reports are limited in scope and do not consider general data security issues.

SOC 2 takes a broader perspective on information security. Its reports compare security systems with the TSCs listed above, resulting in a detailed assessment of how well the service organization manages data security and privacy.

SOC 3 reports are short summaries from a qualified SOC auditor. Auditors assess compliance over time and use trust criteria to evaluate security control frameworks. But they include opinions (or "attestations") instead of detailed evidence.

SOC 2 Type I vs. SOC 2 Type II

SOC 1 and 2 classes feature Type I or Type II reports. Type I reports assess controls at a single moment. Type II reports evaluate security and risk management over time. SOC 2 reports are private, and sharing must follow non-disclosure agreements. Organizations can freely share SOC 3 reports without restrictions.

Benefits of SOC 2 Type II compliance

SOC 2 Type 2 compliance has many advantages, making it a common strategy for cloud service providers and outsourcing partners. SOC 2 Type II benefits include:

• Lowering costs. In 2023, the average data breach cost in the USA was $9.48 million. SOC 2 compliance helps users and service organizations prevent losses and saves money in the long run.
• Competitiveness. Service providers need to prove their security credentials to remain competitive. SOC 2 compliance shows that companies take security seriously, making them more appealing business partners.
• Security. Companies must secure IT assets and keep data safe. Meeting AICPA standards is a solid foundation for ongoing data security. Companies can stay up to date and benefit from regular external assessment.
• Regulatory compliance. Data security is a critical compliance concern. SOC 2 compliance helps to meet GDPR, PCI-DSS, and HIPAA requirements.
• Awareness. SOC 2 guidelines change as technology and threats evolve. Companies that follow AICPA best practices maintain awareness of relevant threats and can use their knowledge to train a security-focused workforce.
• Streamlined collaboration. SOC compliance makes it easier and quicker to answer security questionnaires. Simplify vendor risk management for potential partners and divert resources to critical tasks.

Who requires SOC 2 Type II?

SOC 2 Type II compliance isn't always essential. Generally speaking, SOC 2 Type II audits apply to companies that process, store, or send personal data on behalf of user organizations.

In practice, this covers a lot of different business sectors. SOC 2 compliance applies to cloud service providers that handle sensitive data. Service health and financial service providers benefit from following AICPA data protection standards.

SOC 2 is worth considering for any organization that wants to prove its commitment to information security and privacy. If an organization collects or handles user data, SOC 2 is worth considering.

Scope of SOC 2 Type II report

A typical SOC 2 Type II scope follows the AICPA's Trust Services Criteria. Reports assess the design of security systems, including policies and technical controls. They also assess the operation of security systems over time to verify the design is effective.

The design section evaluates existing security policies. Policy assessment includes incident response plans, change management, and asset inventory management. Auditors also check for valid access management practices and technical solutions such as encryption or firewalls.

The operational section assesses how these design functions work. The organization's security systems must ensure security, availability, integrity, privacy, and confidentiality. To achieve SOC 2 Type II certification, companies must also sustain compliance over 3–12 months.

The final report documents both the design and operation of the system. Auditors grade the service organization against trust criteria. They provide a basis for their opinions and supply recommended corrective actions (if applicable).

The SOC 2 audit process

Preparation for the SOC 2 Type II audit

Preparation is critical to ensure a favorable SOC 2 report outcome. Start by understanding your SOC 2 obligations. Inventory data assets and identify personal or customer data that requires protection. Consider whether you need a Type II audit or a cheaper and quicker Type I version.

If you choose to undergo a Type II audit, determine which Trust Services Criteria apply. Security is always a core concern. However, privacy only applies to organizations that deal with personal data. And data integrity is most important for organizations that handle financial information. Choose exactly which criteria are relevant to your company.

Policies should be put in place to meet AICPA criteria. For example, you may need to introduce a personnel management protocol (PMP). PMPs ensure systematic onboarding, offboarding, training, and access management. They also contribute to secure change management policies.

Cover relevant security controls as well. Verify that you have robust data protection, risk management, network security, and security testing policies. And factor in secure development practices if this relates to your services.

Remember that SOC 2 Type II compliance requires a continuous monitoring process. Auditors assess compliance as an ongoing task. Include policies to log data, track user activity, and scan for vulnerabilities regularly.

Carry out an internal audit after the implementation phase. The audit should identify the remaining actions. It is an essential precursor to an external SOC audit.

Key steps in the audit

The audit process itself generally follows similar steps. Auditors begin by working with the service organization to understand existing policies and controls.

Auditors use this pre-assessment to develop an audit scope (as above). They inventory and describe the security system and carry out a risk assessment to identify critical threats.

Auditors then evaluate the organization's operational effectiveness over time. Throughout the audit period, assessors check controls to ensure they meet TSCs. They access management and verify that the organization logs events and changes.

Auditors also attend the service organization in person. They usually interview stakeholders and carry out observational fieldwork.

After the auditor period, assessors collect their findings in a SOC 2 Type II report. This draft version undergoes a management review to check its accuracy. Auditors may change their findings if requested.

Finally, the auditors publish a finished version of the report. The CPA provides its final report to the audited organization and relevant stakeholders such as regulators or user organizations.

Post-audit activities and follow-ups

SOC 2 Type II compliance is an ongoing process. Companies should use the audit findings to embed continuous monitoring systems. SOC 2 report validity lasts for 12 months following the final report. This encourages companies to maintain security systems and schedule frequent internal follow-ups.

Cost implications

SOC 2 Type II certification can be a costly project. Organizations must consider whether the investment is feasible and worthwhile, considering their business objectives and operations.

Factors influencing the audit cost

A typical SOC 2 Type II audit cost ranges from $30–60k, but various factors influence the total. Most importantly, larger organizations are more costly to audit. The same applies to organizations with complex data processing operations, as auditors must check data centers, users, and applications.

Poorly prepared companies incur higher audit costs. They tend to require more expensive corrective actions, such as technical controls or staff training. Companies that handle sensitive data classes require more extensive assessment.

Cost-saving tips

Take preparation seriously to save money. Enlist external expertise to carry out a gap analysis. Give project teams resources to plan SOC 2 compliance measures. Double-check with an internal audit before requesting certification.

Organizations can also explore automation tools. Automated monitoring systems provide an off-the-shelf solution to ensure continuous compliance.

Be clear about the audit scope as well. Some organizations misunderstand SOC requirements and spend too much on unnecessary security solutions. External expertise can help by checking that your scope is compliant and cost-effective.

Companies can also simplify the task by using a SOC 2 compliance kit. These resources include sample policy templates, evidence-gathering tools, and compliance checklists. They cut the risk of error and make documenting compliance far easier.

Validity of SOC 2 Type II reports

SOC 2 Type II reports are not permanent. A successful audit is valid for 12 months. After that point, the audit expires. The recommendations may remain valid, but partner organizations may request a more recent report to verify security.

Renewing a SOC 2 Type II attestation is simple and affordable. Auditors often sell multi-year packages that spread the costs. If you use the same auditor for each renewal, the process should pass smoothly.

Comparison with other standards

SOC 2 Type II vs. ISO/IEC 27001

SOC 2 Type II vs. HITRUST

SOC 2 Type II vs. other relevant standards

SOC, HITRUST, and ISO/IEC frameworks aren't the only security accreditations. For instance, PCI-DSS accreditation may be preferable for companies that process credit card data. PCI-DSS audits tend to be less expensive and invasive than SOC assessments. And they suit smaller businesses that handle financial information.

Companies can also use National Institute of Standards and Technology (NIST) standards to validate their technical controls. NIST frameworks cover critical regulations like the HIPAA Security Rule, while the NIST CSF helps meet SOX regulations in the financial sector.

SOC supplements these standards. Organizations can combine SOC 2 or shorter SOC 3 reports with NIST or PCI-DSS certification. Adding SOC reports reassures partners and provides valuable technical guidance.

Conclusion

SOC 2 Type II compliance secures data and manages critical risks. SOC-audited organizations ensure data availability and integrity. They secure data using suitable controls. Compliant companies also have systems to guard user confidentiality and personal privacy. Use our resources to build SOC 2-compliant systems that improve trust and give you a competitive advantage.

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.