Simplifying SOC 2 Compliance for Beginners

Updated: Jul 29


Vector Image of adherence checklist of SOC 2 Standards
Simplifying SOC 2 Compliance for Organizations

Data is rapidly becoming one of the most valuable assets in the modern world. The digital giants that monopolize data are arguably the most influential companies in the world, prompting conversations about anti-trust legislation and digital privacy to take center stage.


Even companies such as Facebook, despite their overwhelming value control, are vulnerable to the by-product of the rapid move to digitization – the data breach epidemic. Due to these reasons, a security posture is no longer an option; it's a necessity.

From HIPAA, PCI-DSS, CCPA, and GDPR to ISO 27001, there are a ton of security frameworks designed to help organizations protect their customers' data. One of the most popular audits among these frameworks is the SOC 2 audit.

American Institute of Certified Public Accountants (AICPA) has developed SOC 1 & SOC 2 security frameworks along with SOC 3. Let's understand the difference between SOC 1 vs SOC 2 vs SOC 3 before we deep dive into SOC 2 audits.


SOC 1 vs SOC 2 vs SOC 3

Report Type

Use

Control objectives

Distribution

SOC 1

Systems processing transactions that affect their customers Internal Controls over Financial Reporting.

Ex: Payroll processing


Defined by service organization.

Users of the system and their auditors.

SOC 2

Systems processing transactions that affect the security, availability, processing integrity, confidentiality and privacy of customer data.

Ex: Cloud services & SaaS providers

Defined by the AICPA as Trust Services Criteria.

Users of the system and their auditors.

SOC 3

Same as SOC 2 & organizations that want to use compliance for marketing to the general public.

Ex: Cloud services & SaaS providers.

Defined by the AICPA as Trust Services Criteria.

Anyone can get it.

A SOC 1 report is based on the SSAE 18 standard. It provides information about a service organization's internal control effectiveness related to the client's control over financial reporting (ICFR).

A SOC 2 report evaluates internal controls, policies, and procedures that directly relate to the security of a system at a service organization. This report has been designed based on 5 Trust Service Criteria: security, availability, processing integrity, confidentiality, and privacy.

Like SOC 2, the SOC 3 report has been developed based on AICPA'sAICPA's 5 Trust Service Criteria. However, it is a public report of internal controls over security, availability, processing integrity, and confidentiality.

What is SOC 2 Audit?

SOC 2 is security compliance developed by the American Institute of Certified Public Accountants (AICPA). The service organizations complete and share this report with clients to demonstrate that their IT controls are equipped with the correct security practices.

The AICPA has developed 5 Trust Service Criteria (security, availability, processing integrity, confidentiality, and privacy) that a service organization can select to showcase that they have controls in place to mitigate risks and handle data security. Of the 5 Trust Service Criteria, 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.

For example:

  1. If an organization stores data containing personal information, then two Trust Service Criteria - security and privacy - are a must include.

  2. If the organization offers storage as a service, security and availability are two Trust Service Criteria that must be included.

What are SOC 2 Trust Service Criteria?

It has been established that organizations must implement Trust Service Criteria to achieve SOC 2 compliance and meet the latest SOC 2 framework standards. But, what are Trust Service Criteria? TSC is a defined framework that is used for designing, implementing, and evaluating information system controls. Here is a breakdown of each criterion and its respective applications.

It has been established that organizations must implement Trust Service Criteria to achieve SOC 2 compliance and meet the latest SOC 2 framework standards. But, what are Trust Service Criteria? TSC is a defined framework that is used for designing, implementing, and evaluating information system controls. Here is a breakdown of each criterion and its respective applications.

  • The Security Trust Service Criteria aid in protecting information as it runs through an organization. It secures the data from unauthorized access and disclosure.

  • The Availability Trust Criteria determines whether the organization's employees, clients, and partners can rely on its systems to do their work.

  • The Processing Integrity Trust Service Criteria is focused on data accuracy and the fulfillment of end-to-end processes that ensure whether applications are functioning without delay, error, omission, or accidental data manipulation.

  • The Confidentiality Trust Service Criteria evaluates how organizations protect confidential information. It ensures that there is only limited access to data storage and usage. This criterion conveys that only authorized individuals can view sensitive information like legal documents or Personally Identifiable Information (PII).

  • The Privacy Trust Service Criteria estimates how organizations protect customers' personal information like name, address, email, any other identification info, and purchase history.

Below is a table demonstrating the areas where these Trust Service Criteria are applicable.

Trust Service Criteria

Security measure

Security

  • Network/application firewalls

  • Two-factor authentication

  • Intrusion detection


Availability

  • Performance monitoring

  • Disaster recovery

  • Security incident handling

Processing Integrity

  • Quality assurance

  • Processing monitoring

Confidentiality

  • Encryption

  • Access controls

  • Network / Application Firewalls

Privacy

  • Access control

  • Two-factor authentication

  • Encryption

What are SOC 2 report types?

We've already covered how SOC 2 differs from SOC 1 and SOC 2 at the beginning of this article. In this section, we will discover the two types of SOC 2 reports: SOC 2 Type 1 and SOC 2 Type 2, and their respective elements.

SOC 2 Type 1

SOC 2 Type I reports address the company's security design at a specific point in time. It enables the potential customers and partners to assess if an organization can meet specific trust principles. It does so by providing a view of information security practices and management.

SOC 2 Type 2

A SOC 2 Type 2 report is an advanced version of a SOC 2 Type 1 report. This implies that it includes more information than what is covered under a Type 1 report. The Type II audit report also provides clear evidence for the efficacy of the organization's policies and controls. It gives a higher level of assurance on the service organization's data security and control systems. This report is based on the company's chosen Trust Principles and examines the internal control practices and policies over 6 to 12 months.

Here is a tabular distinction between SOC 2 Type I and SOC 2 Type II reports based on their elements, functions, and impact.

SOC 2

Type I

Type II

What does it contain?

Type I report describes what procedures and controls are installed.

Type II report, in addition to what is covered in Type I report, also provides detailed evidence for the operation of these procedures and controls.

What is the evaluation period?

Type I report is generated at a specific point of time.

Type II report is for a specific period of time, typically 6-12 months, over which the evidence is collected.

What does it test?

Type I report validates if the controls used are appropriate and sufficient or not.

Type II report, additionally covers the auditor’s judgement on the operating effectiveness of these controls.

How to achieve SOC 2 compliance?

After undergoing the information on SOC 2 and its types, the question arises: how to achieve SOC 2 compliance? The SOC 2 compliance process starts long before the actual audit. Organizations that undergo SOC 2 audit for the first time follow these steps:

Select a report type

Before starting the SOC 2 report process, ask yourself what type of report your organization needs- Type 1 or Type 2? A Type 1 report typically includes information on how the system controls are designed, whereas a Type 2 report mentions if those controls function as intended over a period of time.

Conduct a readiness assessment

The next step is conducting a readiness assessment to help your organization determine the preparedness for a SOC 2 final audit. The organization can perform a readiness assessment independently or engage an external auditing firm.

Execute the remediation plan

If the auditor identifies any gaps in the initial readiness assessment, now is the time to fix them. Remember, gap analysis and correction can take up to a few months, so organizations must ensure they have set up a project team with clearly defined roles and responsibilities to execute this remediation without any additional delays.

Define the scope

Plan and strategize to define the scope of the report. People, location, policies and procedures, and the technology stack you use impact the security of sensitive data. Start by determining which of the Trust Service Criteria (TSC), such as security, availability, processing integrity, confidentiality, and privacy, your organization wants to include in the scope. Keep in mind that security is a mandatory criterion.

Select the auditor

With an unprecedented number of CPA firms performing SOC 2 audits, choosing the right auditing firm is overwhelming. In addition to the final audit, the ''right'' auditor does a pre-audit to identify gaps, so you can streamline the process and be final audit-ready.

How can Scrut help you?

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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