SOC 2 Compliance Hub

SOC 2 overview

Understanding the basic principles of SOC 2 compliance speeds up the whole process of preparing and deciding what to include in your audit and getting your final report ready.

Here’s what you need to know.

SOC 2 basics

Data breaches are happening more often these days. In the second quarter of 2021, the number of reported US data breaches increased by 38% compared to the first quarter.

With threats always changing, companies are rightly worried about keeping sensitive and private information safe.

So, what can your organization do to stay safe from a breach?

Different standards and certifications, such as ISO 27001, GDPR, CCPA, HIPAA, PCI DSS, etc., help companies improve their overall security and show customers they can be trusted. 

SOC 2, System and Organization Controls 2, is one of the most respected security standards.

Who created SOC 2 and why? 

SOC 2 was developed by the American Institute of Certified Public Accountants (AICPA)in 2010. It sets out requirements to help organizations keep customer data safe in the cloud.

These requirements are based on five Trust Services Criteria (TSC) defined by the AICPA:

1. Security: Keeping information safe from unauthorized people
2. Availability: Making sure your systems are reliable for employees and clients to use
3. Processing Integrity: Checking that company systems work like they’re supposed to
4. Confidentiality: Protecting private info by controlling who can access, store, and use it
5. Privacy: Keeping sensitive personal info safe from people who shouldn’t have it

In the end, SOC 2 is about helping service organizations earn the trust of their customers. If your organization deals with customer data in any way, it will need to be SOC 2 compliant to stay competitive in its industry.

How do you become SOC 2 compliant? 

To become SOC 2 compliant, organizations need to go through a thorough audit with a licensed CPA. During this audit, the auditor checks how well the company’s security measures align with one or all of the Trust Service Criteria.

Unlike stricter security frameworks like ISO 27001, SOC 2 doesn’t have a fixed checklist of requirements or controls that every company must follow to be compliant. Instead, SOC 2 is more flexible. Each company chooses which Trust Service Criteria are relevant to its services and sets up security measures that meet them.

Before starting the formal SOC 2 audit, companies decide what will be covered in the audit. They pick which Trust Service Criteria to focus on (though Security is always included). They also choose whether they want a Type I or Type II report and set the timeframe for the audit (for Type II reports).

SOC 2 Type I vs. Type II reports

Along with choosing which Trust Service Criteria (TSC) apply, companies also have to decide whether to get a Type I or Type II SOC 2 report.

A Type I report looks at a company’s internal controls at a specific moment. It shows how well these controls are designed and put into action.

On the other hand, a Type II report gives a longer look. It checks how those controls perform over a few months, usually 3 to 12. Both types have their pros and cons.

Type I reports are quicker and usually cheaper, but some big customers might prefer Type II. Most requests for a SOC 2 report ask for Type II. Type I reports are handy if a company needs to show SOC 2 compliance fast to close deals.

Type II reports take more time and cost more, but they’re seen as top-notch for data security. The longer the audit for Type II, the stronger the report. Most companies that aren’t in a rush to get a SOC 2 report go for Type II.

This section will explain SOC 2 compliance details, including the Common Criteria and requirements.

What is SOC 2?

SOC 2 is a security framework that tells organizations how to protect customer data from unauthorized access, security problems, and other risks. The American Institute of Certified Public Accountants (AICPA) developed SOC 2 based on five Trust Services Criteria: security, availability, processing integrity, confidentiality, and privacy.

Recent headlines underscore the critical importance of SOC 2 compliance. Big companies like Experian, Equifax, Yahoo, LinkedIn, and Facebook have all had major data breaches. In the US alone, data breaches surged by nearly 40% in Q2 of 2021.

With the threat of breaches growing, keeping info and data safe is crucial. A single breach can cost millions and damage a company’s reputation, causing a loss of customer trust.

SaaS companies can get different certifications to show they’re serious about info security. One of the best-known is the SOC report, especially the SOC 2 when it comes to customer data.

What does SOC 2 stands for?

SOC 2 stands for Systems and Organization Controls 2.

The AICPA made it in 2010. SOC 2 helps auditors check if an organization’s security measures are working well.

It focuses on how companies should manage customer data in the cloud. Basically, SOC 2 is about building trust between service providers and their customers.

What is SOC 2 compliance?

SOC 2 compliance refers to adhering to the standards outlined in the SOC 2 framework, ensuring that a company’s security practices meet the criteria set by the AICPA. This involves implementing measures to manage and store customer data securely, particularly in the context of the five Trust Services Criteria (TSC): Security, Availability, Processing Integrity, Confidentiality, and Privacy.

A SOC 2 report is the outcome of a SOC 2 audit, which is conducted by an independent auditor to assess a company’s compliance with SOC 2 requirements. The report provides details on the company’s security posture in relation to the Trust Services Criteria evaluated during the audit.

Organizations that handle sensitive customer data, especially those storing data in the cloud, typically need a SOC 2 audit report to demonstrate their commitment to data security and compliance. SOC 2 compliance is often pursued by SaaS companies, service providers, and organizations in various industries where data security is paramount. The need for a SOC 2 audit report arises when organizations seek to assure customers, partners, or regulatory bodies of their adherence to rigorous security standards.

What is a SOC 2 audit?

Unlike certain security frameworks such as ISO 27001 and PCI DSS, SOC 2 doesn’t have fixed requirements applicable to all organizations. Instead, each company devises its own controls tailored to meet the criteria of its Trust Services Criteria.

Subsequently, an independent auditor assesses whether these controls align with SOC 2 standards. Following the audit, the auditor compiles a report detailing the extent to which the company’s systems and procedures comply with SOC 2.

Every organization undergoing a SOC 2 audit receives a report, irrespective of the audit outcome. Auditors use specific terms to describe the results:

1. Unqualified: The company passed the audit.
2. Qualified: The company passed, but certain areas need improvement.
3. Adverse: The company failed the audit.
4. Disclaimer of Opinion: The auditor lacks sufficient information to form a fair judgment.

SOC 2 Type I vs Type II: What’s the difference?

There are two types of SOC 2 reports:

1. SOC 2 Type I reports: These evaluate a company’s controls at a specific moment. They answer the question: are the security controls designed properly?

2. SOC 2 Type II reports: These assess how controls perform over a period, usually 3-12 months. They answer the question: do the security controls function as intended?

Consider your objectives, costs, and timeline constraints when deciding between them. While a Type I report can be quicker, a Type II report provides stronger assurance to customers.

Our recommendation? Aim for the SOC 2 Type II report directly.

Many customers prefer Type II reports, and you’ll likely need one eventually. Opting for a Type II upfront can save time and money by condensing the audit into one.

For urgent SOC 2 needs, a Type II report covering a shorter 3-month period can be a suitable option.

Who needs a SOC 2 report?

If your company handles customer data in any way, SOC 2 compliance is likely necessary.

Here’s why:

SOC 2 requirements establish strong internal security controls, ensuring a secure foundation for your company’s growth. Moreover, it fosters trust with your customers.

Many service organizations pursue SOC 2 compliance due to client demands. Your customers rely on you to safeguard their sensitive data. A SOC 2 report serves as the ultimate reassurance.

Additionally, it can fuel sales growth and expansion. It showcases your organization’s sophistication and unwavering commitment to security, setting you apart from competitors.

In essence, a SOC 2 audit is crucial for two main reasons: First, it upholds top-tier security standards for your business. Second, it opens doors to substantial growth opportunities.

Why is SOC 2 important?

Achieving SOC 2 compliance is a substantial undertaking, requiring careful planning, effort, and financial investment. It’s only natural to question whether the process is truly worthwhile. Do those three letters—SOC 2—really make such a significant difference? Why is SOC 2 compliance so important?

The advantages of SOC 2 compliance go well beyond simply obtaining the report itself.

Here are a few benefits you can expect from adhering to the SOC 2 framework:

Protects your brand’s reputation

SOC 2 is vital for safeguarding your brand’s reputation. Regardless of how reputable your brand is or how loyal your customers are, a security breach can drive customers away.

A single breach can severely damage your brand’s reputation and incur significant costs for recovery, implementing new controls, and rebuilding customer trust. SOC 2 processes and controls are designed to mitigate these risks and shield your company from such devastating consequences.

Distinguishes you from the competition

While any company can claim to prioritize customer safety and security, customers often require evidence to support these claims.

This is precisely where a formal SOC 2 audit comes into play.

By achieving and maintaining SOC 2 compliance, you demonstrate that your company prioritizes top-notch security. This not only reassures customers but also indicates your commitment to safeguarding their data. This assurance could be the deciding factor that leads customers to choose your company over a competitor lacking a SOC 2 report.

In essence, SOC 2 certification provides tangible evidence that gives prospects the peace of mind they need to engage in business with your company.

Attracts more customers

Achieving SOC 2 compliance can help you appeal to security-conscious prospects, thereby enhancing your sales efforts. Many potential clients, especially those certified in SOC 2 themselves, may only consider working with your firm if you also possess a SOC 2 report for specific Trust Services Criteria.

Moreover, SOC 2 compliance enables you to establish trust with customers more rapidly. Strengthening trust leads to the retention of more long-term customers, elevating customer lifetime value and opening up growth opportunities. Ultimately, this can result in reduced marketing costs while bolstering your business’s reputation and bottom line.

Improves your services

Undergoing a SOC 2 audit offers more than just insights into security vulnerabilities; it also provides opportunities to streamline your organization’s controls and procedures.

By identifying areas for enhancement, SOC 2 empowers you to make security improvements that enhance operational efficiency. This, in turn, frees up time and resources that can be redirected toward enhancing your products and services, ultimately improving their quality and customer satisfaction.

Moreover, SOC 2 encourages organizations to develop robust and sustainable security processes rather than merely addressing issues as they arise. It fosters the establishment of security practices that become deeply ingrained in the company culture. For example, implementing measures like multi-factor authentication or single sign-on and creating comprehensive documentation and policies become standard operating procedures within your organization.

By embedding these practices into your company’s DNA, SOC 2 compliance not only strengthens your security posture but also enhances your ability to pursue larger deals, navigate mergers or acquisitions, and secure new funding rounds more seamlessly.

Saves you time and money

Without a SOC 2 report, you’ll likely find yourself grappling with extensive security questionnaires from enterprise customers.

These questionnaires can be intricate and challenging to complete without established processes and documentation in place. Having a SOC 2 report not only simplifies selling to larger companies but also provides a robust framework for safeguarding sensitive data.

Moreover, SOC 2 compliant policies, procedures, and controls pave the way for obtaining other security certifications more smoothly. For instance, SOC 2 compliance aligns closely with ISO 27001 guidelines, streamlining the process of obtaining ISO 27001 certification.

While SOC 2 reports aren’t technically mandatory, they’ve become indispensable in practice.

Customers, especially enterprise brands, are increasingly expecting SOC 2 compliance. Additionally, obtaining an SOC 2 report offers a myriad of benefits.

The sooner you achieve compliance, the quicker you can enhance customer trust and distinguish yourself in the market.

SOC 1 vs SOC 2 vs SOC 3

The System and Organization Controls (SOC) framework, comprises three distinct types of reports: SOC 1, SOC 2, and SOC 3.

Here’s a breakdown of the differences between these three:

SOC 1:

• Focus: Concerns about internal controls over financial reporting.

• Audience: Typically used by entities that provide services that impact their clients’ financial statements.

• Report Types: SOC 1 reports come in two varieties: Type I, which evaluates controls at a specific point in time, and Type II, which assesses controls over a period of time (usually six to twelve months).

• Compliance Area: Primarily relevant for financial service providers like banks, insurance companies, and payment processors.

SOC 2:

• Focus: Centers on controls related to security, availability, processing integrity, confidentiality, and privacy of data.

• Audience: Commonly sought by technology and cloud computing organizations to assure customers about their data security practices.

• Report Types: SOC 2 reports assess the effectiveness of controls over a specified time frame, usually six to twelve months.

• Compliance Area: Applicable to any organization that handles customer data, especially those in SaaS, IT, and cloud computing sectors.

SOC 3:

• Focus: Similar to SOC 2 in terms of control areas but results in a more generalized report suitable for public distribution.

• Audience: Intended for use by a broader audience, including potential clients, investors, and the general public.

• Report Types: SOC 3 reports provide a high-level overview of an organization’s controls and compliance but lack the level of detail found in SOC 2 reports.

• Compliance Area: Like SOC 2, it applies to organizations handling sensitive customer data, offering a more accessible summary of their security posture.

To summarize, SOC 1 is geared towards financial reporting controls, SOC 2 focuses on broader data security controls, and SOC 3 provides a generalized overview suitable for public consumption.

Do I want a SOC 2 Type I or SOC 2 Type II?

The key distinction between SOC 2 Type I and SOC 2 Type II lies in the timeframe they cover. Type II entails a longer evaluation period, demanding more time and resources, yet it is more significant for your clientele. Enterprises, particularly those in finance, often seek partnerships with entities possessing a SOC 2 Type II report.

However, there are scenarios where a Type I report could suit your company’s requirements. For instance, if your systems are relatively new, a Type I report could swiftly demonstrate compliance without the delay of awaiting a Type II assessment.

Alternatively, if time is of the essence, a Type II report covering a concise, 3-month evaluation period might be preferable, especially if your clients insist on a thorough assessment.

SOC 3 reports vs SOC 2 reports

Both SOC 2 and SOC 3 reports adhere to SSAE 18 standards set by the AICPA and involve CPA audits along with thorough testing of security controls. However, there are notable distinctions:

1. Reporting type: SOC 2 provides both Type I and Type II reports, whereas SOC 3 reports are exclusively Type II.

2. Level of detail: SOC 3 Type 2 reports lack in-depth descriptions of auditor control tests, procedures, or results. They include the auditor’s opinion, management assertion, and system description. Due to the limited detail compared to SOC 2, SOC 3 reports may not fulfill the requirements of customers or their auditors.

3. Level of privacy: SOC 2 reports are typically private, shared only with customers and prospects under a Non-Disclosure Agreement (NDA). Conversely, SOC 3 reports are general-use documents that can be freely distributed or publicly posted on an organization’s website.

Why do customers always ask for a SOC 2 report?

The SOC 2 report is the most frequently requested among SaaS vendors.

Customers’ legal, security, and procurement departments often demand a copy of the SOC 2 report from SaaS vendors.

Unlike frameworks like HIPAA, GDPR, and CCPA, SOC 2 compliance isn’t driven by legal regulations. Instead, it serves to demonstrate that an organization’s internal controls effectively safeguard customer data.

What are the SOC 2 trust services criteria?

For SOC 2, there are five Trust Services Criteria to consider. Among them, only Security is mandatory for a SOC 2 report:

1. Security: Ensures information is safeguarded from unauthorized access.
2. Availability: Guarantees that employees and clients can depend on your systems for their tasks.
3. Processing Integrity: Validates that company systems function as planned.
4. Confidentiality: Protects sensitive information by controlling its access, storage, and usage.
5. Privacy: Safeguards personal data from unauthorized access.

Will I need both SOC 1 and SOC 2 report?

Determining which SOC report suits your company best relies on the type of data you handle for your clients.

For instance, if you manage payroll processing, a SOC 1 report is likely necessary. On the other hand, if you handle or host customer data, a SOC 2 report is required. SOC 3 reports are less formal and serve better as promotional material.

Certain organizations may necessitate both SOC 1 and SOC 2 reports based on their services and clientele. If some customers request SOC 1 while others ask for SOC 2, having both can simplify preparation and testing, as there’s overlap between them.

Trust Services Criteria

The SOC 2 framework centers around five Trust Services Criteria (TSC), formerly known as the Trust Services Principles.

These criteria form the foundation of your cybersecurity measures and encompass organization controls, risk assessment, risk mitigation, risk management, and change management.

The five Trust Services Criteria are:

1. Security: Shielding information from vulnerabilities and unauthorized access
2. Availability: Ensuring both employees and clients can depend on your systems to carry out their tasks
3. Processing Integrity: Verifying that company systems function as intended
4. Confidentiality: Safeguarding confidential information by regulating its access, storage, and usage
5. Privacy: Protecting sensitive personal data from unauthorized access

While Security is mandatory for every SOC 2 audit, the other criteria are optional and depend on the services your company offers to clients.

Given that many organizations may lack the resources to align their information security systems and internal controls with all TSC, it’s advisable to focus on the criteria nearest to compliance or those with the most significant impact on your operations. You can pursue the remaining criteria at a later stage.

What are the five AICPA Trust Services Criteria?

1. Security

The Security Trust Criteria primarily focuses on safeguarding information from unauthorized disclosure.

Also referred to as the Common Criteria, these criteria demonstrate that a service organization’s systems and control environment are shielded against unauthorized access and various risks.

Of all the Trust Services Criteria, Security stands out as the sole requirement for every SOC 2 audit. While the other criteria can be included in your report scope based on your organization’s discretion, they are not obligatory for attaining SOC 2 compliance.

2. Availability

The Availability Criteria assess whether your systems are dependable for your employees and clients to carry out their tasks.

Examples include measures like data backups, disaster recovery plans, and business continuity strategies. These initiatives are aimed at minimizing downtime in case of disruptions. For instance, if a flood occurs at your data center, having redundant power and computing systems ensures data availability despite hardware failures.

Consider expanding your SOC 2 scope if:

– You provide a continuous delivery or deployment platform.

– Downtime would hinder your clients from making or implementing changes to their services. (For example, cloud computing or cloud data storage providers)

3. Processing Integrity

The Processing Integrity Criteria assesses whether a system functions correctly, performing its intended tasks without delay, error, omission, or accidental manipulation.

It’s important to note that processing integrity differs from data integrity. A system can operate correctly even if the data it processes is incorrect. For example, in an e-commerce scenario, if a customer successfully completes an order, the company meets the Processing Integrity Criteria.

However, if the customer enters the wrong address, resulting in the product being delivered to the incorrect location, it indicates poor data integrity. Despite this, the company may still meet the processing integrity requirement because the system operated as intended, processing the order.

Consider expanding your SOC 2 scope if:

– Your services involve financial reporting or if you operate as an e-commerce company.

– Ensuring the accuracy of transaction processing is crucial to combat fraud.

4. Confidentiality

The Confidentiality Criteria assess how organizations safeguard confidential information by controlling its access, storage, and usage. It involves defining who can access specific data and outlining how that data can be shared. This ensures that only authorized individuals can view sensitive information, such as legal documents or intellectual property.

Consider expanding your SOC 2 scope if:

– Your organization deals with confidential information, including financial reports, passwords, business strategies, and intellectual property.

5. Privacy

This Trust Services Criteria (TSC) evaluates how an organization’s control activities safeguard customers’ personally identifiable information (PII). It ensures that systems handling personal data comply with the AICPA’s Generally Accepted Privacy Principles.

Examples of such information include names, physical addresses, email addresses, and Social Security numbers. Additionally, data related to health, race, and sexuality may be relevant to privacy for certain companies and service providers.

Consider expanding your SOC 2 scope if:

– Your organization collects, stores, utilizes, maintains, discloses, or disposes of personal information.

What is the SOC 2 common criteria list?

The Security Trust Services Criteria (TSC) is primarily concerned with ensuring the protection of information and systems throughout their lifecycle, from collection or creation to use, processing, transmission, and storage. It focuses on identifying and addressing vulnerabilities to prevent security breaches and unauthorized access.

Within the SOC 2 Common Criteria list, also known as the CC-series, there are nine subcategories:

1. Control environment (CC1): Evaluates whether the organization prioritizes integrity and security in its operations.

2. Communication and Information (CC2): Assesses the presence and effectiveness of policies and procedures for ensuring security, and how well they are communicated both internally and externally.

3. Risk Assessment (CC3): Determines if the organization conducts thorough risk assessments and monitors changes in risk over time.

4. Monitoring Controls (CC4): Examines how well the organization monitors, evaluates, and communicates the effectiveness of its security controls.

5. Control Activities (CC5): Evaluates whether appropriate controls, processes, and technologies are in place to mitigate risks effectively.

6. Logical and Physical Access Controls (CC6): Assesses measures such as data encryption and access restrictions to ensure data security both digitally and physically.

7. System Operations (CC7): Determines whether systems are adequately monitored to ensure proper functioning, and if incident response and disaster recovery plans are in place.

8. Change Management (CC8): Assesses how well the organization manages and approves material changes to its systems, ensuring proper testing and approval procedures.

9. Risk Mitigation (CC9): Evaluates the organization’s efforts to mitigate risk through effective business processes and vendor management practices.

SOC 2 common criteria mapping

Many organizations opt to pursue compliance with multiple security standards simultaneously. The American Institute of Certified Public Accountants (AICPA) facilitates this process by providing mappings of the Common Criteria onto the requirements of other frameworks. This includes widely recognized standards such as ISO 27001, GDPR, and others. By aligning with these frameworks, organizations can streamline their compliance efforts and ensure comprehensive coverage of security best practices.

Mapping SOC 2 common criteria to ISO 27001

ISO 27001 outlines requirements for developing, implementing, maintaining, and enhancing an information security management system (ISMS). It encompasses 114 controls categorized into 14 groups, many of which align with the SOC 2 Trust Services Criteria.

The AICPA provides a mapping spreadsheet that delineates the correlation between ISO 27001 and the Trust Services Criteria of SOC 2. This tool assists organizations in understanding the overlap between the two frameworks, facilitating compliance efforts and ensuring comprehensive security measures are in place.

Mapping SOC 2 common criteria to GDPR

The General Data Protection Regulation (GDPR) of the European Union safeguards the personal data rights of EU citizens and applies to any entity that handles their protected information. Comprising 99 articles distributed across 11 chapters, GDPR delineates stringent requirements for data protection and privacy.

Significantly, the Trust Services Criteria of SOC 2 align with a substantial portion of Chapters 2, 3, and 4 of GDPR. This correspondence underscores the relevance of SOC 2 compliance in ensuring adherence to GDPR standards.

To facilitate compliance efforts, the AICPA offers an EU GDPR mapping spreadsheet. This resource aids organizations in cross-referencing the criteria and controls outlined in GDPR with those specified in SOC 2, enabling a comprehensive approach to data protection and regulatory compliance.

Complying with SOC 2 standards is crucial for organizations aiming to establish and maintain robust data security practices. SOC 2 compliance not only enhances trust with customers but also demonstrates a commitment to safeguarding sensitive information. With data breaches becoming increasingly prevalent, adhering to SOC 2 requirements is essential to protect against unauthorized access and mitigate potential risks.

At CyberArrow GRC, we understand the challenges involved in achieving SOC 2 compliance. That’s why we offer a comprehensive solution to automate and streamline the compliance process. Our platform simplifies the implementation of SOC 2 standards, enabling organizations to navigate the complexities of compliance efficiently.

By leveraging CyberArrow GRC, organizations can expedite their journey towards SOC 2 compliance, saving time and resources. Our automated tools empower businesses to assess, implement, and monitor the necessary controls with ease, ensuring adherence to SOC 2 requirements.

With CyberArrow GRC, achieving SOC 2 compliance is no longer a daunting task. Our platform empowers organizations to enhance their security posture, build customer trust, and stay ahead of evolving regulatory landscapes. Invest in CyberArrow GRC today and elevate your organization’s data security practices to the next level.