SOC 2 Type 2 Compliance
What do you need to know about SOC 2 Type 2 compliance? As hackers become bolder and find new ways to extort businesses, Software-as-a-Service (SaaS) providers are prime targets for cyberattacks. Criminals train their sights on SaaS providers because they're a treasure trove of information—they store and process data in the cloud. Breaching a SaaS provider also grants bad actors access to businesses that use the SaaS to streamline their operations.
Due to the potential snowball effect of a data breach, SaaS providers are subject to high compliance requirements to protect sensitive data, maintain customer trust, and mitigate risks. Key SaaS compliance requirements range from data privacy and security to industry-specific standards such as SOC 2.
Service Organization Control 2 (SOC 2) is an audit standard the American Institute of Certified Public Accountants (AICPA) sets to help service organizations evaluate their control and processes. SOC 2 compliance for SaaS providers offers assurances on five trust services criteria—security, availability, processing integrity, confidentiality, and privacy controls.
Dig in as we detail the differences between the SOC 2 Type 1 and Type 2 reports and highlight the role each plays in your compliance efforts.
The primary difference between a SOC 2 type 1 and type 2 report is the level of assurance provided and the assessment duration. Typically, when evaluating your company's cybersecurity controls, you can choose between SOC 2 type 1 and type 2 attestation reports. Both reports offer valuable security insights, but they're remarkably different.
A SOC 2 Type 1 report assesses your company's cybersecurity controls at a specific point in time. It helps determine if the internal controls you've implemented to protect customer data are adequate and properly designed to meet trust services criteria at a single point in time.
A SOC 2 Type 1 is ideal if you're short on time or must demonstrate compliance quickly. It's a short-term solution to help you prove to a prospective client that your systems are secure when you need to close a deal. The timeframe is relatively short and only takes a few weeks.
Conversely, a SOC 2 Type 2 report evaluates your information controls and processes over a longer time, usually 3 to 12 months. Since a Type 2 assessment assesses the implementation of security measures over a specified period, it provides a more comprehensive assurance. It helps demonstrate that you've consistently implemented and applied the controls effectively throughout the assessment period.
Since SOC 2 reports contain sensitive details about your firm's systems and audits, you can't release them publicly. Anyone requesting a SOC 2 report must sign a non-disclosure agreement (NDA). If you wish to use the SOC 2 reports for marketing purposes, convert them to SOC 2 Type 3 reports. Also known as SOC 3 reports, SOC 2 Type 3 reports are watered-down versions you may release to the general public as marketing materials.
While you may see the SOC 2 and SOC 2 Type II used interchangeably, these terms are distinctly different. A SOC 2 is the framework developed by AICPA to help service auditors or CPAs audit a firm's cybersecurity control measures. The framework focuses on the five trust services categories and helps assure customers and stakeholders that you take adequate measures to protect sensitive data.
On the other hand, a SOC 2 Type II is a SOC 2 compliance report that assesses the operational efficacy of cyber security measures over a set period. It evaluates the design and implementation of security control measures over 3 to 12 months to determine if it meets set standards. A SOC 2 Type II report includes a description of your system, the control measures, and their effectiveness.
An independent third-party auditor will use the SOC 2 framework to evaluate your firm's controls, policies, and procedures to determine if their design and operational efficiency meet the trust services standards. The auditor will present their findings in a SOC 2 Type II report.
When planning a SOC 2 compliance audit, you must determine the type of report you need. You may then use a SOC Type 2 or SOC 2 Type 1 checklist to plan your compliance project.
The SOC 1 Type 2 and SOC 2 Type 2 reports are highly different because they're based on different frameworks and assess different types of control.
Also known as Statements on Standards for Attestation Engagements No. 18 (SSAE 18), SOC 1 evaluates financial reporting controls. Auditors use financial statements and assess your internal controls over financial reporting.
Conversely, SOC 2 is a framework that evaluates security control related to the five trust services criteria—security, availability, processing integrity, confidentiality, and privacy. You'll typically use this framework to reassure clients and stakeholders that you've taken adequate measures to protect sensitive data.
When planning a SOC 2 audit, the choice between SOC 2 Type 2 vs Type 1 comes down to the timeframe, client requirements, and company-specific factors. Type 1 report is ideal for new firms or existing companies that recently overhauled their systems. A SOC Type 2 is preferable because it provides higher assurance by covering a longer timeframe.
Getting a SOC 2 Type 2 certification is no mean feat—it takes considerable planning and budget. There are multiple SOC 2 Type 2 requirements to fulfill over a span of 3 to 12 months, making it a time and resource-intensive endeavor.
So, why is SOC 2 compliance important? That's because the benefits of attaining SOC 2 Type 2 certification are far-reaching:
Bolstered customer confidence: SOC 2 Type 2 certification demonstrates your company values your customers. It assures your customers that you've implemented excellent cybersecurity measures to protect your systems from cybercriminals and safeguard their data.
Enhanced brand reputation: SOC 2 helps safeguard your company against a data breach. A single data breach that exposes your customer information can prove ruinous. It drives your customers to decamp in droves while exposing your company to legal penalties, fines, and expensive recovery and cleanup. A SOC audit helps you secure your system and data while keeping out bad actors.
Regulatory compliance: Companies such as healthcare providers, cloud service providers, or financial institutions that handle sensitive data are subject to industry-specific regulations. SOC 2 Type 2 certification is the gold standard for complying with federal and industry-specific cybersecurity regulations.
Competitive advantage: SOC 2 Type 2 certification is the epitome of a secure SaaS company. It allows you to differentiate your brand and outpace the competition. Certification evidences your unwavering commitment to enhancing online security and protecting your customer's rights to safety and privacy. That adds to your company's appeal to the security-conscious customers.
Improved service delivery: A SOC 2 audit puts your entire system under the microscope to expose weaknesses and areas of improvement. That helps you build a robust and sustainable security process that enables you to deal with threats while streamlining your operations proactively. You can free up resources and redirect them toward improving product quality and customer experience.
Through the SOC 2 framework, the AICPA sets five requirements or trust service criteria (TSC) for evaluating cybersecurity processes and controls during an audit. The number of TSCs considered during an audit varies between organizations. Some trust principles are mandatory, while some are optional.
The five AICPA SOC 2 Type 2 trust principles include:
Security: It's a core part of every SOC 2 audit and is designed to safeguard against unauthorized data use and protect the systems from malicious attacks. Standard security controls include access controls, anti-virus, intrusion detection systems, and firewalls.
Availability: The availability criterion focuses on network performance monitoring and disaster recovery to ensure your systems maintain operational uptime and performance standards. Common availability controls include DDoS protection and Incident Response Planning (IRP).
Confidentiality: It shows how you protect confidential information, such as intellectual property, financial data, and customer data, throughout its lifecycle. It's a mandatory requirement for companies that collect sensitive data covered by NDAs. Standard features include encryption, access controls, and network firewalls.
Processing integrity: This principle evaluates if you process your cloud data reliably, accurately, and on time. It is a necessary part of a SOC 2 audit for companies that handle critical operations such as financial processing. Key features include quality assurance and process monitoring.
Privacy: This TSC assesses your capacity to protect Personally Identifiable Information (PII) from unauthorized access and breaches. It only covers personal information and is a core requirement for companies that store PII, such as birthdays, healthcare data, and social security numbers.
A SOC 2 Type 2 report summarizes the scope and findings of the audit. While the report could run to 100+ pages, it comprises five sections, regardless of the TSC audited. They include:
The auditor report: Also known as an opinion letter, the auditor report includes the audit timeframe, scope, findings, and an opinion. An auditor's opinion falls into one of four categories—unqualified, qualified, adverse, or a disclaimer of opinion.
Management assertion: It allows the business owner or their team to weigh in on the audit. The assertion covers the scope of the SOC 2 audit, timeline, and other considerations from the business's point of view. Requesting the auditor for a SOC 2 Type 2 report sample can help you breeze through this part if handling an audit for the first time.
Detailed system description: It's authored by you and your team and makes up the bulk of the SOC 2 report. It highlights your company, team, systems, and security controls and describes how you address the trust service principle covered by the audit.
Test results: The auditor uses the final section of the SOC 2 report to back up your assertion and detail their findings about your teams, systems, and security controls.
Additional information (optional): You may use this optional section to provide additional information. It may include responses to exceptions or relevant information such as recent mergers or acquisitions.
Once you're done with a SOC 2 report, you can turn it into a SOC 2 Type 3 by stripping away the sensitive information. You may use a SOC report to reinforce your marketing efforts.
Your team is in charge of writing the SOC 2 system description. It summarizes your service offerings and the controls you've applied to meet the TSC being audited. You should use the system description to help your customers understand the safety measures you've taken to make your services safe, reliable, and secure. Use it to demonstrate your firm's commitment to maintaining the highest information security standards.
Typically, a system description comprises eight different parts. Here's what to include in your SOC 2 report:
An overview of your company and services: Explain what your company does.
System boundaries: What's covered in the audit—people, software, production system, procedure, and data.
Subservice organizations: Provide a list of your company's third-party service providers and explain why.
Key system requirements and service commitments: Explain how your system meets system requirements and service commitments.
System components: Explain the five components that make up your system—infrastructure, software, people, data, policies, processes, and procedures.
Internal controls: Explain the steps your firm has taken to bake effective informative security controls in your security processes and controls.
Complementary controls by subservice organizations: List any security controls and their TSC for which a subservice organization is responsible.
End-user controls: List any controls your customers are responsible for that are relevant to the audit.
After completing the system description, the auditor will fill in their portion, and you can usually access the SOC 2 report download from your service provider's online portal.
On average, a SOC 2 certification takes 3 to 12 months. How long it takes to get a SOC 2 Type 2 report depends on the duration of the SOC 2 audit. The time varies between organizations due to size, systems complexities, scope of assessment, and audit readiness.
The extended timeline of a SOC 2 Type 2 audit allows the auditor to vigorously test your systems and policies. The audit process comprises several stages—scoping, design assessment, control testing, remediating deficiencies, and final reporting. Your company should work collaboratively with the service auditor to ensure timely completion.
Proper planning is mandatory when considering SOC 2 certification so you can allocate sufficient time for the assessment process. Also, plan for any necessary remediation efforts to address any control deficiencies that an auditor uncovers.
As data breaches and cybersecurity incidents continually make headlines, SaaS compliance is more critical than ever. Implementing effective cybersecurity measures allows you to proactively handle potential threats before they snowball into full-blown catastrophes that could damage your reputation and ruin your business.
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