Apple, Microsoft, Facebook, Ikea, Morgan Stanley – all the big names have been plagued by cyber attacks and security breaches – and there are tons more that are either not reported, or thrown under the wraps. Such attacks not only cause financial losses but also tarnish the organization’s reputation and diminish customer trust, especially when confidential data is targeted. As a result, information security is becoming a growing concern and area of investment for organizations across geographies, scale and industries, even more so for tech companies dealing with a plethora of sensitive data. This also includes businesses that outsource their day-to-day operations to third party organisations such as cloud computing companies, SaaS providers, and data analytics and business intelligence companies.
It is evident that technology leaders, and security teams are focussed on developing tighter controls on their information security. The most universal way of doing this is by obtaining a SOC 2 report through an accredited CPA. SOC 2 is fast becoming a globally accepted standard to ensure that a company’s information is secure from security, privacy and availability perspective, and is often used as a standard requirement for vendor assessments. Given the increasing importance of SOC 2 reports, let’s deep dive into what SOC 2 is, and focus on the next immediate question : Type I or Type II?
A service organisation controls (SOC) report is a way to verify that an organisation is following specific best practices related to protecting their customers’ data before outsourcing a business function to that organisation. A SOC 2 report is a form of security compliance that many US-based technology firms have standardised. SOC 2 reports are built on clearly defined controls across 5 trust criteria : Security, Availability, Processing Integrity, Confidentiality, and Privacy.
SOC 2 reports can be of two types: Type I or Type II
But what does your company need, SOC 2 Type I or SOC 2 Type II? Let’s look at the similarities and differences between Type I & Type II to understand what suits best for your business.
SOC 2 Type I
Type I reports address the company’s security design at a specific point in time, and it enables the potential customer and partners to assess if the company can meet specific trust principles. The auditor checks the sufficiency of the design for all technical, administrative and logical controls. The auditor will also validate if the controls are preventive, detective or corrective in nature.
This report helps in providing the view of infosecurity practices and management. It helps in knowing if the company’s security measures are in place and it comes in handy when companies need a report as soon as possible.
Moreover, an audit for this report is generally less expensive since auditors require significantly less data, consequently less auditor hours to assess the data, to determine the compliance posture of a service organisation.
SOC 2 Type II
In short – a SOC2 – Type II report is a Type I report on steroids, i.e., it has all the stuff covered under a Type I report, and more. The Type II audit report also provides a clear description of the evidence for the efficacy of the organisation’s policies and controls, and opinions with respect to the effectiveness and consistency of these controls.
The Type II audit report gives a higher level of assurance on data security and control systems of the service organisation. This report is based on the company’s chosen Trust Principles, and it examines the internal control practices and policies over 6 to 12 months.
Preparing for a Type II audit is more time-consuming than a Type I audit. But with no doubt and surprise, Type II is considered the best as it’s a significant investment in terms of money.
Difference between SOC 2 Type I & SOC 2 Type II
|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|
The important question: Which type of report do you need? If you are new to SOC 2 controls, and the primary purpose is to build compliance as a capability, or you have significant time and budget restrictions, it is ideal to start with a SOC 2 Type I audit. This will help you get familiarised with the controls and identify information security gaps that you can address over the course of the next 6-12 months. During this period, you can build the necessary processes against the failed controls, collect evidence to show operating effectiveness of your controls and procedures, which will accelerate the time lines for a SOC 2 Type II audit.
However, oftentimes the SOC 2 report is a critical requirement of a vendor assessment of the organisation you are trying to serve. And more often than not, this mandates a SOC 2 Type II report, rather than a SOC 2 Type I report. In such cases, it is worth spending the additional time and effort to get audited for SOC 2 type II, because it will lend fortified credibility to your infosec practices and builds instant trust with the customers.
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