In an increasingly digital era, more and more organizations have turned to outsourcing key business operations to third-party vendors to increase efficiency and functionality. One essential service is the storage and protection of sensitive data that is incredibly vulnerable and in high demand by cybercriminals. In 2019 alone, there were 1,473 data breaches reported in the U.S., resulting in the exposure of 164,683,455 sensitive records. SOC 2 compliance is a crucial framework for technology and cloud computing companies that exists to ensure the security, availability, confidentiality, processing integrity and privacy of this data.
What is a SOC 2 Report?
Developed by the American Institute of Certified Public Accountants (AICPA), the System and Organization Controls for Service Organizations 2 (SOC 2) is a framework that determines the effectiveness of a service organization’s controls and practices. SOC 2 audits examine existing controls and evaluate whether or not an organization is sufficiently able to safeguard the security, availability, confidentiality, processing integrity or privacy of its sensitive customer and client data. Although organizations should conduct routine internal examinations to test their controls and improve security measures on a constant basis, the AICPA stipulates that only an independent CPA is qualified to perform a SOC 2 examination.
Unlike the SOC 1 report, which pertains to the financial statements of a Company and relevant organizational controls regarding financial reporting, the SOC 2 report is not about financial reporting at all. However, the reports are similar in structure and both can generate Type 1 and Type 2 reports. Type 1 reports describe an enterprise’s systems and whether their control design meets relevant trust services criteria while a Type 2 report goes into depth on the operational effectiveness of those controls. In general, a SOC 2 report can take anywhere from six months to one year to complete depending on the type of report and the established testing timeframe.
Who Needs a SOC 2 Report?
In the past, cloud vendors were only required to meet SOC 1 compliance standards, which focus on the financial aspects of an organization’s controls. While the SOC 2 auditing process is completely voluntary, the reliance on outsourced data storage and expanding cloud-based networks means that the SOC 2 report is becoming increasingly important for organizations that need to prove their ability to minimize the risk of customer data exposure. Some of the enterprises that frequently seek out SOC 2 audits come from industries such as:
- Cloud computing
- Software-as-a-Service (SaaS)
- Legal
- Medical
- IT security management
Even if an organization already has a SOC 1 attestation, a SOC 2 report can create a comprehensive picture of the security of their systems across the organization as well as their internal controls. For enterprises that process, store, or transmit customer data in any capacity, proof of SOC 2 compliance is essential.
Trust Principles and Organization Controls
To receive a SOC 2 report, an organization will need to demonstrate the sufficient design and implementation of controls within five main trust services categories. These categories include security, availability, processing integrity, confidentiality, and privacy. The security category is required for all SOC 2 engagements and the remaining four categories are optional, but can be included depending on the organization commitments to its customers. In combination, these categories can help a CPA determine whether or not an organization is using a process to monitor unusual system activity, authorized and unauthorized system configuration changes, and user access levels.
- Security
The security principle refers to an organization’s ability to protect against unauthorized access which can result in data theft, misuse of software, and improper disclosure of information. To meet this standard, security tools such as application firewalls, two-factor authentication, and intrusion detection might be used.
- Availability
Availability controls relate to the ease with which information and systems are available for use to help meet the entity’s objectives. Performance monitoring, disaster recovery, and security incident handling are just a few of the controls an auditor might look for during their reporting process.
- Confidentiality
For data to be considered confidential, access and disclosure must be restricted to specific people and organizations. To determine whether or not an enterprise is able to sufficiently protect a customer and client’s data against unauthorized access, the auditor will look for password encryption, network firewalls, and rigorous access controls.
- Processing Integrity
The processing integrity principle refers to whether or not a system achieves its purpose and if data processing is complete, valid, accurate, timely, and authorized to meet organizational objectives. This can be achieved through the use of quality assurance and careful processing monitoring
- Privacy
The privacy principle addresses an enterprise’s ability to collect, use, disclose, and dispose of personally identifiable information (PII) in a secure manner. PII refers to any documents that can distinguish an individual such as their name, age, Social Security number, address, race, religion, or healthcare-related information. Encryption, access control, and two-factor authentication are standard controls for ensuring privacy.
Benefits of SOC 2 Compliance
Undergoing a SOC 2 audit is an entirely voluntary process, but there are many benefits to receiving the report. By demonstrating SOC 2 compliance, an organization can prove its commitment to protecting the confidentiality and security of client and customer data, giving the organization a competitive advantage in a world where data breaches are becoming an increasingly common threat.
In addition to providing assurance that your systems and networks are secure, an enterprise can save a tremendous amount of money on fees and legal action by preventing a data breach before it occurs. A recent study released by IBM found that the average financial losses resulting from a single data breach totaled $3.92 million. Organizations can stay ahead of the curve and gain valuable insights into their risk posture, vendor management, and regulatory oversight with the information collected during a SOC 2 audit.
If you want to enhance the reputation of your organization and display your commitment to data privacy and security, you need to obtain SOC 2 compliance. Our team of experienced CPAs and security auditors at K Financial can deliver a thorough, comprehensive SOC 2 report to help you develop and implement robust internal controls and give your service organization a competitive edge.