SOC 2 Compliance and Certification

What is SOC 2?

SOC 2 is a security framework developed by the American Institute of Certified Public Accountants (AICPA). It defines criteria for managing customer data based on five “trust service principles”: security, availability, processing integrity, confidentiality, and privacy.

SOC 2 Certification Criteria

Unlike PCI DSS, which has rigid requirements, SOC 2 reports are unique to each organization. Based on their specific business practices, each organization designs its own controls to comply with one or more of the trust principles.

These internal reports provide important information about how your service provider manages data, not only for you but also for regulators, business partners, and suppliers.

Types of SOC reports:

Type I: Describes a vendor’s systems and whether their design is suitable to meet the relevant trust principles.
Type II: Details the operational effectiveness of those systems.

Why is SOC 2 important?

SOC 2 is essential for organizations to protect customer data from unauthorized access, security incidents, and vulnerabilities. It addresses the increasing threat landscape that companies face, as evidenced by recent high-profile data breaches affecting companies like Experian, Equifax, Yahoo, LinkedIn, and Facebook.

Data breaches have significant financial and reputational consequences, with the number of breaches in the US rising by almost 40% in Q2 2021. Information and data security have become top priorities for companies due to the potential cost of a breach, including financial losses, damage to reputation, and loss of customer trust.

For SaaS companies, achieving standards and certifications in information security is crucial. Among these, the SOC report, specifically SOC 2, is highly regarded in demonstrating a commitment to safeguarding customer data.

SOC 2 Frequently asked questions (FAQs)

FAQ: What is SOC 2 compliance?

SOC 2 compliance is part of the AICPA Service Organization Control reporting platform. It focuses on evaluating organization security and internal controls around security, availability, processing integrity, confidentiality, and privacy. SOC 2 is a technical audit and attestation that organizations have established internal controls that meet AICPA standards.

FAQ: Who needs to be SOC 2 compliant?

Software Vendors: Large enterprises often ask companies for a SOC 2 Type 2 report to ensure that an organization has a set of security controls in place.
Cloud Providers: Cloud service providers have numerous clients managing applications and workloads across their infrastructure.
Large Companies: Large organizations often go through audits to receive a SOC 2 Type 1 or SOC 2 Type 2 report to improve their overall security stature.

FAQ: What does SOC 2 require?

Organizations aiming for SOC 2 compliance may be evaluated against one or more AICPA Trust Service Criteria, such as Security, Availability, Processing Integrity, Confidentiality, and Privacy. To achieve SOC 2 compliance, organizations should implement a security program, perform a SOC 2 audit with a third-party auditor, and, for SOC 2 Type 2, maintain internal controls over time.

FAQ: What is the difference between SOC 2 Type 1 and SOC 2 Type 2?

SOC 2 Type 1: This report assesses an organization’s policies and procedures for Trust Service Criteria at a single point-in-time.
SOC 2 Type 2: This more comprehensive report evaluates the same criteria and controls over a period of time, usually 3 to 12 months. It demonstrates that security controls are in place and effective over a longer duration.

FAQ: How does SOC 2 apply to the public cloud?

Public cloud providers often achieve SOC 1, SOC 2, and SOC 3 reports to validate security efforts across their data centers and infrastructure. Many organizations operating in the public cloud also pursue SOC 2 compliance to demonstrate their security efforts to partners and clients.

FAQ: How do I prepare for a SOC 2 audit?

To prepare for a SOC 2 audit, organizations should implement applicable administrative policies and internal controls, perform a SOC 2 readiness assessment, collect necessary documentation, and find a reputable AICPA-affiliated SOC 2 audit firm. Working with a company like Dash can help build a SOC 2 security program and prepare for compliance.

FAQ: Is AWS/Azure SOC 2 compliant?

AWS and Azure have achieved SOC 1, SOC 2, and SOC 3 reports. However, organizations utilizing their cloud infrastructure are not automatically SOC 2 compliant. They must implement SOC 2 controls and undergo a SOC 2 audit with a third-party audit firm to achieve compliance.

FAQ: How do I meet SOC 2 requirements in the cloud?

To become SOC 2 compliant in the cloud, organizations should evaluate their current cloud security controls, determine security gaps, establish administrative policies and procedures, set security controls to meet policy standards, and enforce and maintain security controls across their cloud resources.

FAQ: How do I maintain SOC 2 compliance?

Organizations should perform a SOC 2 audit annually to keep their SOC 2 Type 2 report current. This requires maintaining all SOC 2 internal controls, ensuring administrative policies are up to date, and applying security controls to newly created infrastructure and resources. Continuous compliance monitoring systems can help maintain SOC 2 compliance.

Who can Perform a SOC Audit?

SOC audits can only be conducted by independent Certified Public Accountants (CPAs) or accounting firms. The American Institute of Certified Public Accountants (AICPA) has established professional standards to regulate the work of SOC auditors. These standards include guidelines for planning, executing, and overseeing the audit, and all AICPA audits must undergo a peer review.

While CPA organizations may hire non-CPA professionals with relevant IT and security skills to assist in preparing for SOC audits, the final reports must be provided and disclosed by the CPA.

If the SOC audit conducted by the CPA is successful, the service organization can display the AICPA logo on their website.

SOC 2 Security Criterion: A 4-Step Checklist

Security is the fundamental aspect of SOC 2 compliance and is a broad standard that applies to all five Trust Service Criteria.

The SOC 2 security principles focus on preventing the unauthorized use of assets and data handled by the organization. To comply with this principle, organizations need to implement access controls that prevent malicious attacks, unauthorized data deletion, misuse, unauthorized alteration, or disclosure of company information.

Here is a basic SOC 2 compliance checklist that covers security controls:

Access controls: Implement logical and physical restrictions on assets to prevent access by unauthorized personnel.
Change management: Establish a controlled process for managing changes to IT systems and methods to prevent unauthorized changes.
System operations: Implement controls that monitor ongoing operations, detect deviations from organizational procedures, and resolve them.
Risk mitigation: Employ methods and activities to identify, respond to, and mitigate risks while addressing subsequent business needs.

It’s important to note that SOC 2 criteria do not prescribe specific actions for organizations to take; they are open to interpretation. Companies are responsible for selecting and implementing control measures that align with each principle.

Below is a more detailed version.

SOC 2 Audit Checklist:

Determine your SOC 2 audit scope and objectives:
- Define the scope of the audit, including infrastructure, data, people, risk management policies, and software.
- Decide between SOC 2 Type I and Type II reports based on your goals and resources.
Select your trust services criteria:
- Choose the trust services criteria that align with your organization’s needs and priorities.
- The mandatory criterion is security, but you can select additional criteria based on available resources.
Run an initial readiness assessment:
- Conduct a practice version of the SOC 2 audit with the help of an auditor.
- Identify weaknesses or deficiencies in your systems, processes, and controls.
- Receive recommendations from the auditor on how to address the identified issues.
Perform a gap analysis and close each gap:
- Analyze the gaps between your current state and SOC 2 compliance requirements.
- Implement controls, update documentation, modify workflows, and provide training as needed.
- Consider outsourcing the gap analysis to a specialized firm if resources allow.
Conduct a final readiness assessment:
- Perform a final assessment to ensure that all identified weaknesses have been addressed.
- Patch up any remaining issues quickly before requesting a formal SOC 2 audit.

Remember, the SOC 2 audit process requires significant time, financial investment, and organizational commitment. Following this checklist can help you navigate the preparation process and increase your chances of passing the audit successfully.

SOC 2 Compliance Requirements: Other Criteria

While security forms the foundation of SOC 2 compliance, certain industries, such as finance, banking, or those emphasizing privacy and confidentiality, may have additional compliance standards to meet.

Customers prefer service providers that are fully compliant with all five SOC 2 principles, as it demonstrates a strong commitment to information security practices.

In addition to the basic security principle, here’s how to comply with the other SOC 2 principles:

Availability: Can customers access the system as per the agreed terms of use and service levels?
Processing integrity: If your company handles financial or eCommerce transactions, the audit report should include administrative details that protect these transactions. For example, is transmission encrypted? If your company provides IT services like hosting and data storage, how is data integrity maintained within those services?
Confidentiality: Are there any restrictions on data sharing? If your company has specific instructions for processing personally identifiable information (PII) or protected health information (PHI), these should be included in the audit document. The document should specify data storage, transfer, and access methods and procedures to comply with privacy policies, including employee procedures.
Privacy: How does the organization collect and use customer information? The company’s privacy policy must align with its actual operating procedures. For example, if the company claims to notify customers whenever data is collected, the audit document must accurately describe how these notifications are provided on the company website or other channels. Personal data management should, at a minimum, follow the AICPA’s Privacy Management Framework (PMF).

Meeting these additional criteria beyond security helps ensure comprehensive SOC 2 compliance and enhances customer trust in your organization’s commitment to information security and privacy practices.

Who Needs a SOC 2 Report?

If your organization stores, processes, or transmits any form of customer data, achieving SOC 2 compliance is likely necessary.

Here’s why:

SOC 2 requirements enable your company to establish robust internal security controls, creating a foundation of secure policies and processes that support scalable growth.

Additionally, SOC 2 compliance builds trust with your customers. Many service organizations pursue a SOC 2 report because their clients demand it. Your clients need the assurance that their sensitive data will be kept safe, and a SOC 2 report serves as the gold standard for providing that assurance.

Furthermore, a SOC 2 report can be instrumental in driving sales and expanding into new markets. It signals to customers a high level of organizational sophistication and a strong commitment to security. Moreover, it sets you apart from competitors and serves as a powerful differentiator.

In summary, a SOC 2 audit is important for two reasons: first, it helps your business maintain top-tier security standards, and second, it unlocks significant growth opportunities.

SOX Controls

Why is SOC 2 so important?

Achieving SOC 2 compliance may require significant effort, resources, and investment, leading to questions about its importance. Does having those three letters truly make a difference? Why is SOC 2 compliance important?

The significance of SOC 2 compliance extends beyond simply obtaining the report itself. Here are some of the key advantages you’ll gain by adhering to the SOC 2 framework:

Protects Your Brand’s Reputation: SOC 2 helps safeguard your brand’s reputation. Regardless of how excellent your brand may be or how loyal your customers are, a security breach or data exposure can have severe consequences. A single breach can damage your brand reputation, cost millions in recovery efforts, necessitate the implementation of new controls, and erode customer trust. SOC 2 processes and controls can mitigate these risks and protect your company from such devastating consequences.
Distinguishes You from the Competition: Any company can claim to prioritize customer safety and security, but customers value substantiated claims. This is precisely what a formal SOC 2 audit provides. Achieving and maintaining SOC 2 compliance demonstrates that you have robust security measures in place and shows customers that you are committed to safeguarding their data. This differentiation can influence their decision to choose your company over competitors lacking a SOC 2 report. Having SOC 2 certification offers tangible evidence to give prospects the peace of mind they need to do business with you.
Attracts More Customers: SOC 2 compliance enables you to attract security-conscious prospects, thereby boosting your sales. Prospective clients, particularly those certified in SOC 2, often require your firm to have a SOC 2 report for certain Trust Services Criteria before considering collaboration. Furthermore, SOC 2 compliance builds trust with customers more quickly, leading to more long-term customers, increased customer lifetime value, growth opportunities, and reduced marketing costs.
Improves Your Services: A SOC 2 audit not only identifies areas for security improvement but also provides insights into streamlining your organization’s controls and processes. This allows you to enhance security while increasing operational efficiency. With more time and resources available, you can invest in improving your products and services, resulting in higher quality and increased customer satisfaction. SOC 2 promotes the establishment of strong, sustainable security processes and encourages the integration of security practices into the company culture.
Saves You Time and Money in the Long Run: Without a SOC 2 report, you may find yourself having to complete extensive security questionnaires for every enterprise customer. These questionnaires can be demanding and time-consuming, especially without pre-existing processes and documentation. Possessing a SOC 2 report facilitates selling to larger companies and provides a set of robust best practices for protecting sensitive data. Moreover, SOC 2 compliant policies, procedures, and controls streamline the attainment of other security certifications, such as ISO 27001, resulting in time and cost savings.

While SOC 2 reports are not technically mandatory, they have become an expectation among customers, particularly enterprise brands. Furthermore, obtaining a SOC 2 report offers numerous compelling benefits. The sooner you achieve SOC 2 compliance, the quicker you can bolster customer trust and stand out in the competitive marketplace.

SOC 1 vs SOC 2 vs SOC 3

The SOC (System and Organization Controls) framework, developed by the American Institute of CPAs (AICPA), encompasses three different types of SOC reports: SOC 1, SOC 2, and SOC 3. Understanding the differences between these reports is important when determining the appropriate compliance for your business. Here’s an overview of SOC 1, SOC 2, and SOC 3:

SOC 1 vs SOC 2:

SOC 1 report: This report is relevant for organizations whose internal security controls can impact a customer’s financial statements. Examples include payroll, claims, or payment processing companies. SOC 1 reports assure customers that their financial information is being handled securely.
SOC 2 report: SOC 2 reports focus on demonstrating an organization’s cloud and data center security controls. It is based on the Trust Services Criteria, which consists of five criteria (security, availability, processing integrity, confidentiality, and privacy). SOC 2 reports are attestation reports where management attests to the existence of certain security controls, and an independent CPA firm verifies those claims. Both SOC 1 and SOC 2 reports can be Type I or Type II.

Difference between SOC Type I and Type II:

SOC Type I report: This report evaluates an organization’s controls at a specific point in time, assessing whether the controls are designed correctly.
SOC Type II report: This report examines how well the controls perform over a period of time, typically 3-12 months. Type II reports provide more comprehensive information and are generally preferred by enterprise companies and certain industries, such as finance.

SOC 3 Reports vs SOC 2:

SOC 3 reports: SOC 3 reports are always Type II reports, following the same standards as SOC 2 reports. However, SOC 3 reports provide a higher-level summary without detailed descriptions of the auditor’s control tests, procedures, or results. SOC 3 reports are general use reports that can be shared publicly on an organization’s website.
SOC 2 reports: SOC 2 reports are more detailed and provide specific information about the auditor’s testing and results. They are typically shared under a non-disclosure agreement (NDA) with customers and prospects.

Do I need both SOC 1 and SOC 2 reports? The need for SOC 1 and SOC 2 reports depends on the type of information you handle for your customers. If you provide payroll processing services, a SOC 1 report is likely necessary. On the other hand, if you host or process customer data, a SOC 2 report is required. SOC 3 reports are less formal and often used for marketing purposes. Some organizations may need both SOC 1 and SOC 2 reports based on their services and customer requirements, as there can be overlap between the two, streamlining readiness and testing efforts.

Here’s a table summarizing the key differences between SOC 1, SOC 2, and SOC 3 reports:

SOC 1	SOC 2	SOC 3
Purpose	Assures financial statement controls	Demonstrates cloud and data center security controls
Reporting Type	Attestation Report	Attestation Report
Focus	Financial information handling related to the Trust Services	Security controls
Type I vs Type II	Type I: Controls at a specific point in time	Type I: Controls at a specific point in time
Level of Detail	Detailed descriptions of control tests, procedures, and results	Detailed descriptions of control tests, procedures, and results
Distribution	Shared with specific customers under NDA	Shared with specific customers under NDA
Compliance Requirement	Depends on services provided to customers	Depends on services provided to customers
Examples of Applicability	Payroll processing, claims processing, payment processing	Cloud service providers, data centers

Glossary of SOC 2 Compliance Terms and Definitions

Term	Definition
System Description	An overview of a system, its structure, components, and how it operates, often included in technical documents or reports. It may also include information about related systems and technologies.
SOC 2 Bridge Letters	Documents issued to provide an overview of a system and organization controls (SOC) report when transitioning between audit periods. They explain the changes in controls and their impact, along with the duration of the bridge letter’s validity.
SOC Trust Services Criteria	Standards established by the AICPA (American Institute of Certified Public Accountants) for service organizations. These criteria ensure that a service organization has implemented proper internal controls over its operations, providing assurance to stakeholders.
Carved-Out vs Inclusive Method	Two methods for SOC reporting of subservice organizations (e.g., managed service organizations, data center providers). The carved-out method focuses on the subservice organization’s controls, while the inclusive method considers the subservice organization as part of the overall system’s controls.
Attestation Report	A report that vouches for the existence and provides evidence of compliance and controls within the context of SOC 2 compliance and audits. It demonstrates that an organization’s controls are suitably designed and effectively implemented.
SOC 3	A public report derived from a SOC 2 report. It contains less detailed information about an organization’s controls, but still provides assurance about the trust services principles and criteria being followed.
Testing Procedure	High-level procedures followed by auditors during SOC 2 compliance testing. Although specific methodologies may vary among auditors, testing procedures address the same requirements and involve similar evaluation of controls.
Subservice Organization	Vendors or organizations that provide services to the primary organization. In the SOC 1 or SOC 2 process, the primary organization identifies and assesses the impact of subservice organizations on its control environment.
SOC 2 Compliance Requirements	The standards and principles that form the basis of SOC 2 compliance. SOC 2 compliance requirements are based on the five trust service criteria (TSC) and may vary depending on the organization’s people, technology, and products.
AICPA	The American Institute of Certified Public Accountants (AICPA) is a professional organization representing CPAs in the United States. The AICPA developed the SOC reporting standard and audit and holds influence in the field of professional accountancy.
SOC Reports	Reports that assess and provide a detailed evaluation of controls, processes, and their implementation within an organization. SOC reports verify compliance with industry standards and demonstrate the organization’s commitment to best practices.
Audit Period	The duration during which an organization’s policies, procedures, IT control environment, etc., are evaluated in compliance and auditing. The audit period provides assurance to business partners and customers regarding the company’s controls before entering into agreements or sharing information.
SOC 2 Evidence Collection	The process of collecting appropriate evidence for the SOC 2 audit. Accurate and relevant evidence is crucial to avoid audit complications and ensure key findings are effectively demonstrated.
Auditor’s Opinion	The outcome or result of a SOC 2 audit provided by an auditor accredited by the AICPA. The auditor’s opinion reflects the audit’s findings regarding the security, availability, processing integrity, confidentiality, and/or privacy of the service organization’s controls.

Compliance Management System: Comparative Guide & Solutions

Here are some key statistics about SOC 2:

91%: Percentage of organizations that consider SOC 2 compliance important for managing third-party risk and ensuring the security of customer data. (Source: Ponemon Institute)
62%: Proportion of organizations that have undergone a SOC 2 audit to meet customer demands and demonstrate their commitment to data security. (Source: AICPA)
42%: Percentage of organizations that have reported improved customer trust and confidence after achieving SOC 2 compliance. (Source: A-LIGN)
74%: Proportion of organizations that have seen an increase in sales opportunities and competitive advantage as a result of SOC 2 compliance. (Source: A-LIGN)
$47,000 to $100,000: Estimated cost of a SOC 2 audit for a small to medium-sized business, depending on the complexity and scope of the assessment. (Source: A-LIGN)
43%: Percentage of organizations that have enhanced their cybersecurity posture and risk management practices through the implementation of SOC 2 controls. (Source: A-LIGN)
87%: Proportion of organizations that believe SOC 2 compliance has a positive impact on their overall security posture. (Source: Netwrix)

Third-Party Audit Firms

Below is a list of reputable third-party audit firms that specialize in conducting SOC 2 audits. This will help organizations find qualified auditors and streamline the process of selecting an auditing partner.

Audit Firm	Industry Specialization	Geographic Coverage	Reputation
PricewaterhouseCoopers (PwC)	Diverse	Global	Highly reputable “Big Four” firm
Deloitte & Touche LLP	Diverse	Global	Highly reputable “Big Four” firm
Ernst & Young LLP (EY)	Diverse	Global	Highly reputable “Big Four” firm
KPMG LLP	Diverse	Global	Highly reputable “Big Four” firm
Grant Thornton LLP	Diverse	Global	Known for mid-market focus
BDO USA LLP	Diverse	Global	Strong presence in the middle market
RSM US LLP	Diverse	Global	Strong focus on middle market clients
Crowe LLP	Diverse	Global	Known for risk consulting services
Moss Adams LLP	Diverse	North America	Specializes in technology and media
Baker Tilly US, LLP	Diverse	Global	Strong presence in the middle market

SOC 2 Compliance Timeline: Key Steps and Estimated Durations

Here’s an outline of the typical timeline and steps involved in achieving SOC 2 compliance, along with estimated durations for each step:

Preparing for the Audit:
- Determine SOC 2 Audit Scope and Objectives: 1-2 weeks
- Select Trust Services Criteria: 1-2 weeks
- Run Initial Readiness Assessment: 2-4 weeks
- Perform Gap Analysis and Remediation: 2-6 months
- Conduct Final Readiness Assessment: 2-4 weeks
Conducting the Audit:
- Audit Planning and Preparation: 1-2 weeks
- Security Questionnaire: 2-4 weeks
- Gathering Evidence of Controls: 4-8 weeks
- Evaluation and Process Walkthroughs: 4-8 weeks
- Follow-Up and Additional Documentation: 2-4 weeks
Addressing Any Findings:
- Remediation of Identified Issues: 1-6 months (depending on the complexity and number of findings)
Obtaining the Final SOC 2 Report:
- Finalizing Audit Documentation: 2-4 weeks
- Auditor’s Review and Report Issuance: 2-4 weeks

SOC 2 Compliance and Certification | A Step-by-Step Guide