SOC 2 Audit Process: How Does It Work?


Vector Representation of SOC Audit Report
How Does a SOC Audit Work?

As organizations outsource their functions to the service organizations and with the increasing popularity of cloud services, the service organizations, customers, and auditors need to ensure that risk and controls at the service organizations align with the compliance standards and ensure that the controls are designed and operating effectively.


The important thing that places a service provider on top of the list is the ability to show their effective implementation of internal controls against the services they offer. An easy way of assuring customers is by undergoing a thorough System and Organization Control (SOC) audit. This report is essential to win the trust of your potential customers.


What Is A SOC Audit?


Designed by the American Institute of Certified Public Accountants (AICPA), a SOC audit is an independent assessment of an organization's internal controls. A SOC report is issued after an auditor thoroughly examines the organization to verify that they have an effective system of controls related to the 5 Trust Service Criteria - security, availability, processing integrity, confidentiality, and privacy.


The report issued by a Certified Public Accountant (CPA) provides assurance over the design and operating effectiveness of controls. It clearly outlines potential risks for customers or partners considering working with the organization.


What are SOC 1, SOC 2, and SOC 3 reports?


AICPA has developed three kinds of SOC reports: SOC 1, SOC 2, and SOC 3.


SOC 1 Report


A SOC 1 report assesses service organization controls that are relevant to a user entity's internal control over financial reporting. A SOC 1 report helps management, investors, auditors, and customers evaluate internal controls over financial reporting within guidelines laid out by the AICPA.


There are two types of SOC 1 reports: SOC 1 Type 1 and SOC 1 Type 2


SOC 1 Type 1 audit evaluates an organization's systems and produces a point-in-time assessment of the controls on a specific date. In comparison, a SOC 1 Type 2 audit covers the operating effectiveness of the controls over a specific period.


SOC 2 Report


SOC 2 audit ensures service providers securely manage customers' data. It was developed by the American Institute of Certified Public Accountants (AICPA) based on 5 Trust Service Criteria (TSC) - security, availability, processing integrity, confidentiality, and privacy. The service organization selects one or more TSCs to demonstrate they have controls in place to mitigate risks to the service they provide.


Of the 5 TSCs, all the SOC 2 reports must include security trust service, while the other 4 are optional - added to the examination at the discretion of management.


There are two types of SOC 2 reports: SOC 2 Type 1 and SOC 2 Type 2


A SOC 2 Type 1 report typically says if an organization's system controls are correctly designed, whereas a SOC 2 Type 2 report says if those controls function as intended.


SOC 3 Report


Like SOC 2, SOC 3 reports on controls based on 5 Trust Service Criteria (TSC) - security, availability, processing integrity, confidentiality, and privacy.


They are written in a way intended for people with a general interest in the service organization without getting into the specific details. SOC 3 reports can be distributed publicly, and the audited companies can use them for marketing purposes.


Who Performs A SOC 2 Audit?


Only an AICPA-certified third-party organization can conduct a SOC 2 audit. Any organization looking to get a SOC 2 report for fortifying their compliance, building customer trust, and boosting sales must, in turn, engage with an independent SOC 2 auditor or a firm for SOC reports.


Here's what you should look at while choosing a SOC auditor:


  1. Reputation - An AICPA affiliate or a CPA must perform a SOC 2 audit. Organizations must only engage with an independent SOC2 auditor or assessor to conduct an audit and receive a SOC 2 certification.

  2. Experience - Choose a CPA who has performed similar SOC 2 audits and assessments and worked with similar companies in the same industry.

  3. Communication style - Many auditing firms deliver excellent work and match your financial goals, but all of that goes in vain when there's miscommunication. So, choose an auditing firm that fits your communication style.

  4. Knowledge of tech stack - Choose an auditing firm that understands the tools you use. It will enable them to test the controls comprehensively and help you collect the right evidence with reduced effort.

  5. Price - If you are tight on budget, choose a CPA firm that matches your financial goals. That being said, low costs often are accompanied by hidden, more often than not, substantial costs. If the low-cost auditor can't adhere to the timelines for the audit, critical for a customer sale, it might lead to lost sales.

  6. Approach - The Thumb rule, understand how an auditor approaches the process. Try and understand how the auditor will execute the audit and how the auditor will interpret the policies and controls.

  7. Team availability and escalation SLA - Check if the auditing team has enough resources to process the audit. To minimize the bill of goods, make sure you ask the auditing firm the below questions:

  8. What's your average SLA on response time?

  9. How is your escalation process?


What are SOC controls?


SOC 2 compliance is based on Trust Service Criteria (TSCs). TSC was established by the Assurance Services Executive Committee (ASEC) of the American Institute of Certified Public Accountants (AICPA). The TSC is used to evaluate and report the suitability of the design and operating effectiveness of controls relevant to:


  1. Security

  2. Availability

  3. Processing Integrity

  4. Confidentiality

  5. Privacy of the organizations' infosec posture


Security

The security trust criteria help in protecting information throughout its lifecycle in an organization. It protects the data from unauthorized access and disclosure.


Security controls are designed to include an array of risk-mitigating solutions such as endpoint protection and network monitoring tools. Security controls include tools like:


  1. Firewalls for both your network and web applications

  2. Multi-factor authentication

  3. Intrusion detection


Availability

The availability of trust criteria determine whether the organization's employees, clients, and partners can rely on its systems to do their work.


It addresses whether systems include controls to support and maintain system operation, such as performance monitoring, data backups, and disaster recovery plans. For instance, if the data center is flooded or there's a hardware failure, ensure that data is available to access.


Processing Integrity

The processing integrity trust criteria focus on data accuracy and the completeness of the end-to-end process of ensuring that applications function without delay, error, omission, or accidental data manipulation.


Processing integrity is aided by quality assurance (QA) to ensure that the system is achieving its purpose.


Confidentiality

The confidentiality trust service criteria ensure all types of sensitive data are stored correctly.


Unlike personal information (PI) covered in privacy TSC, confidential information is not so easily defined. Any personal or non-personal information can be defined as confidential. It needs to be protected appropriately or as agreed upon with clients. Some examples of confidential data include:

  • Banking information

  • Legal documents

  • Business plans

Privacy

The Confidentiality and Privacy trust criteria share similarities but are subtly different.


The Confidentiality TSC assures clients that their confidential information is protected, whereas Privacy evaluates how an organization protects its customer's PII. Privacy assesses how, why, and when an organization shares that information. It addresses personal information like name, address, email, other identification info, and purchase history.


Choosing which TSC to include depends on the type of business. It is always better to document as many as possible.


Why is SOC audit important?


The rising trend in data breaches continues to angle upwards. The world's largest professional networking platform, LinkedIn, had a data breach in June 2021 that exposed 700 million of 756 million users' personal information like name, phone numbers, geolocation, gender, and other social media accounts on the dark web.


If your service organization doesn't do something to build trust, you'll lose business and customers. SOC audit helps in building customers' trust. We recommend using an automation tool like Scrut to pain out the complex SOC audits process.


Start your compliance process with us!

Scrut Automation is a smart and radically simple Governance, Risk, and Compliance automation platform for growing startups and mid-market enterprises. With Scrut, Compliance teams can reduce ~70% of their manual effort in continuously maintaining compliance towards SOC 2, ISO 27001, GDPR, PCI DSS, and privacy laws like HIPAA, GDPR, and CCPA. Schedule your demo today to see how it works.


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