What is SOC 3?

History and background of SOC reports

SOC reports are part of AICPA's history of promoting security compliance. Starting in the 1970s, AICPA sought to standardize accounting security practices. In 1992, the organization introduced the SAS 70 auditing standard, which extended compliance to electronic technology.

The Statement on Standards for Attestation Engagements no. 16 (SSAE 16) replaced SAS 70 in 2010. Under this new framework, the focus shifted to digital service organizations. SSAE 16 also featured System and Organization Controls (SOC) reporting. The new system introduced SOC 1, SOC 2, and SOC 3 reports. SSAE 16 also added two-tiered Type 1 and Type 2 report classifications.

SSAE 18 appeared in 2016, updating the scope of SOC requirements. In 2017, the AICPA introduced a new Cybersecurity SOC class. The result is a flexible library of reports. SOC/SSAE now promotes robust security across all business areas and is especially important in cloud computing.

Understanding different SOC reports

Companies can choose between SOC 1, SOC 2, and SOC 3 compliance. The AICPA manages all three reporting standards. However, the report classes have significant differences, which affect their use cases.

SOC 1

SOC 1 reports focus on the security of financial reporting and determine whether a service organization protects client data, ensures data integrity, and conforms to high privacy and confidentiality standards.

SOC 1 auditors assess security controls related to financial data. They check encryption and firewall protection. Assessors also examine access controls to ensure that only authorized individuals can access financial information.

SOC 1 has two report types. A SOC 1 Type 1 report assesses compliance at a single point in time. A SOC 1 Type 2 report assesses compliance over 3-12 months.

SOC 2

SOC 2 reports take a broader approach to data security compliance than SOC 1 audits. SOC 2 compares an organization's security controls and policies against five TSCs. These criteria include data security, availability, processing integrity, confidentiality, and privacy.

SOC 2 audits test whether a service organization can protect data on-premises and in the cloud. They assure user entities that their information will remain private and guard against data breaches.

SOC 2 reports also come in two varieties. SOC 2 Type 1 reports assess information security in snapshot format. SOC 2 Type 2 reports audit security performance over 3-12 months. SOC 2 audits are suitable for private use by service and user organizations.

SOC 3

SOC 3 reports also assess general information security principles. Like SOC 2 reports, SOC 3 assessments compare security systems with AICPA's five TSCs.

There are two key differences between SOC 2 and SOC 3 reports. Firstly, SOC 3 reports are Type 2 by default. There are no SOC 3 Type 1 reports.

Secondly, SOC 3 is a more limited audit assessment than SOC 2 reports. SOC 3 audits generate brief attestations, not full reports. Attestations include a CPA's opinion regarding the quality of an organization's security systems. They do not include detailed feedback about performance and operational controls.

Unlike SOC 2, SOC 3 reports are suitable for public consumption. They are often used in marketing campaigns to demonstrate the security credentials of cloud providers.

Why SOC 3 matters

SOC 3 matters because it provides a quick and widely-respected way to prove a company's data security credentials.

SOC 3 enables companies in data-dependent sectors to attract more business. Securing data is critically important in the digital economy. User organizations are reluctant to partner with unsafe data centers, third-party accountancy tools, or cloud service providers.

Attestations are accessible and easy to read. Clients can quickly sense whether a service organization takes security seriously. Unlike SOC 2 reports, attestations do not include confidential or proprietary information. This generic nature makes SOC 3 useful for marketing purposes.

SOC 3 simplifies risk assessment. The TSC system aids risk management when preparing for audits. Independent external auditors highlight data security risks. A service organization can use CPA feedback to identify risks and improve security policies and technologies.

SOC 3 also contributes to regulatory compliance. SOC guidelines align closely with Global Data Protection Regulation (GDPR) and Health Insurance Portability and Accountability Act (HIPAA) requirements.

Obtaining SOC 3 compliance

Achieving SOC 3 compliance is demanding. Auditors strictly grade organizations according to Trust Services Criteria. Preparation before the audit process is essential to obtain a positive SOC report. Follow the steps below to achieve attestation without excessive corrective work.

1. Choose the correct report type

Firstly, organizations must select the correct SOC report class. Choose a class that reflects your business needs.

SOC 3 reports suit a service organization that must persuade many potential partners that they operate tight security controls. Reports test security over time, providing evidence of continuous compliance. The resulting document is easy to share but light on detail.

SOC 2 reports assess security to the same level as SOC 3. However, a SOC 2 report generates more data. Companies can use this information to fine-tune security processes. SOC 2 reports also provide more assurance. They may be more appropriate for companies that work in very security-conscious sectors.

2. Prepare for the audit

Thorough preparation improves your chances of a successful SOC 3 audit.

Start by analyzing the TSCs. Identify areas relating to your data processing activities. Use internal resources or hire external expertise to carry out a gap analysis. This analysis identifies areas where security policies and controls do not meet AICPA standards.

Implement needed controls such as firewalls, threat detection systems, backups, or access management systems. Create policies for core processes like incident response plans, managing access, and onboarding or offboarding users.

Finally, schedule an internal audit. This process tests security systems to ensure that they meet SOC 3 specifications. Interview employees to verify their security knowledge. Adjust controls if testing detects any problems.

3. Arrange a SOC 3 audit

Certified public accountants (CPAs) carry out SOC 3. Organizations can use the AICPA website to find a service auditor with relevant experience in their area.

4. The audit window

SOC 3 audits last from 3-12 months. The duration depends on the complexity of data processing and data sensitivity.

The CPA will assess your controls according to the five TSCs. Auditors execute on-site testing and visit premises for fieldwork. Visits will include employee interviews, making training and raising awareness critically important.

Auditors request policy documents for review. They may request all policies or take a sample of policies related to the TSCs. As a result, every document in your library must be compliant before SOC audits begin.

5. Attestation

At the end of the audit period, the service auditor produces an attestation report summarizing their findings. The attestation records whether the organization meets AICPA standards for processing integrity, security, privacy, availability, and confidentiality.

The service organization can then publish the attestation. Organizations can share SOC 3 reports with other parties or post them on their website.

Real-world implications of SOC 3

SOC 3 reports help companies navigate an increasingly insecure online marketplace. Organizations use positive attestations in many ways, and reports are relevant for almost all economic sectors.

Healthcare companies commonly use SOC 3 reporting. For example, health insurers must assure customers and health providers that they handle data appropriately. Reports provide evidence that insurers can secure data over time. Their concise nature makes them accessible and understandable.

Cloud service providers also routinely use SOC 3 to demonstrate compliance. Cloud payroll processors are a good case study because they handle vast amounts of confidential financial data and need to market their services to large numbers of client companies. SOC 3 balances security assurance with accessibility—exactly what CSPs need.

Failure to obtain positive assessment reports can be damaging. Consider a company that provides personal budgeting assistance via a cloud platform.

This company handles private payment data and confidential information about debt and purchases. However, the absence of SOC-compliant controls leads to a confidential data breach. Following the breach, attracting future sign-ups becomes challenging. The company may also face penalties under PCI-DSS regulatory requirements.

Frequently Asked Questions (FAQs)

How can a business obtain SOC 3 compliance?

Companies seeking SOC 3 compliance must complete a SOC audit process. Beforehand, companies should familiarize themselves with AICPA's Trust Criteria and implement relevant controls and policies.

The service organization must engage a qualified CPA to carry out the audit. The service auditor tests controls, reviews policies, and interviews employees. During the audit window, auditors return regularly to assess continuous compliance.

Auditors conclude by writing SOC 3 reports. The report briefly evaluates how closely the service organization follows TSC standards. If the auditor delivers a positive judgment, the organization passes. It can now claim to be SOC 3 compliant.

Are there tools or resources available to aid in the SOC 3 compliance journey?

Yes. Companies have many resources when they seek SOC 2 or SOC 3 compliance.

Microsoft's Service Trust Portal (STP) is one option. This portal provides background information about how Azure cloud environments conform to SOC 2 and 3 criteria. Azure users can also measure their controls against Microsoft standards. They can use this information to prepare for SOC 3 audits.

NordLayer also provides a suite of tools to aid SOC 2 and SOC 3 compliance. Users can encrypt data, manage access, apply authentication factors, and automate user provisioning. All of these technologies contribute to SOC compliance. Collecting them in one place makes monitoring progress and managing security easier.

How often should a business renew or re-evaluate its SOC 3 compliance?

SOC 2 and SOC 3 attestation lasts for one year. Organizations often schedule SOC 3 audits to renew their certification. With SOC-compliant systems in place, follow-up audits should be faster and smoother than the initial SOC audit.

Conclusion: SOC 3 could make sense for your business

SOC 2 and SOC 3 compliance is a good way for a service organization to build client trust and improve data security practices.

SOC 2 and 3 audits check core functions like access management, processing integrity, and privacy protection. However, SOC 3 is often preferable due to its simple and easy-to-share report format. Choose a SOC report that suits your business needs and improves operational security to meet industry best practices.