What Happens if You “Fail” a SOC 2 Examination?

We understand that the SOC 2 audit process is a complex and vital step for businesses looking to demonstrate their commitment to data security, privacy, and trust. But what happens if you “fail” a SOC 2 examination? What does failure even mean in this context?

Understanding SOC 2 "Failure"

First, it’s important to clarify that there is not an outright failure in the SOC 2 audit in the way you might experience with other types of examinations. Rather, the audit report can result in findings that indicate either non-compliance or control deficiencies. When these issues arise, they are documented in the SOC 2 report, which is then shared with your stakeholders, such as clients and business partners. SOC 2 audits do not produce a simple pass or fail outcome; instead, they offer audit opinions that assess the effectiveness of controls. For a more detailed explanation of these audit opinions, we encourage you to read our dedicated blog post, Understanding SOC 2 Audit Opinions: An Auditor’s Perspective.

If significant deficiencies are found, they could affect the way your organization is perceived by customers and partners, especially if they rely on your services to safeguard sensitive data. The key concern isn’t necessarily the fact that deficiencies exist but how they’re addressed and what steps are taken to remediate the issues going forward.

As a firm that conducts SOC 2 audits in collaboration with our affiliated Certified Public Accountant (CPA), Compass Assurance Team, our approach is not about focusing on failure but on understanding and rectifying any gaps in compliance. We work closely with businesses to ensure they not only meet but exceed the trust and security expectations of their stakeholders.

Types of Deficiencies in SOC 2 Audits

Before diving deeper into the outcomes of a SOC 2 audit, let’s explore the two main types of deficiencies that may arise:

Control Deficiencies

These are issues where the controls you have implemented are not functioning as expected. For example, if your access control procedures are not being followed consistently, this could be seen as a control deficiency.

Material Weaknesses

A material weakness is a more severe issue. It indicates that there’s a high likelihood that one or more of your controls are so weak that they could fail to prevent or detect a data breach or other significant issue. Material weaknesses are the most serious finding in a SOC 2 audit.

When your SOC 2 audit identifies either control deficiencies or material weaknesses, these will be outlined in the report provided by your auditor. However, a report containing such findings does not mean the end of the road for your organization’s security posture.

Responding to SOC 2 Findings

Collaboration is key in the SOC 2 audit process. If an audit uncovers deficiencies or weaknesses, this is not viewed as a failure but as an opportunity for improvement. Below are the steps that we typically take to provide support throughout the entire process:

Immediate Post-Audit Assistance

After audit results are finalized, it is crucial to ensure that every identified issue is thoroughly understood. This involves providing detailed explanations and helping prioritize the most critical findings, offering practical, actionable advice on addressing them efficiently and effectively.

Root Cause Analysis

Understanding the root cause of control deficiencies is essential. This involves examining the underlying processes, technology, and human factors contributing to the audit findings. By understanding the ‘why,’ long-term solutions can be implemented to prevent the recurrence of the same issues in future audits.

Corrective Action Plans

After identifying issues, the next step is to design corrective action plans tailored to the specific operational environment, considering the industry, business model, and security framework. These plans can range from technical remediation (e.g., improving encryption protocols or addressing vulnerabilities) to training staff on enhanced security practices.

Ongoing Monitoring

SOC 2 requires continuous vigilance. As business relationships with vendors, growth, and technology usage evolve, ongoing monitoring helps ensure that addressed deficiencies do not resurface. This involves continuously assessing security controls to prevent future compliance issues.

Re-Examination or Re-Audit

In cases of significant findings, a company may opt for a re-examination or re-audit to demonstrate that issues have been resolved. This follow-up audit can help rebuild client and partner trust by showing that concrete steps have been taken to address deficiencies. Guidance and coordination through this process ensure that the re-audit is smooth and that all gaps have been properly addressed.

Client and Business Implications

A SOC 2 report with findings of control deficiencies or material weaknesses may cause some initial concern for clients and business partners. However, we believe transparency and proactivity in addressing issues are key to maintaining trust. Here’s what to expect if your SOC 2 audit contains such findings:

Customer Communication

Clients, especially those with strict regulatory or security requirements, will want clarity about the nature of any findings. It’s essential to craft clear, transparent communications to assure clients that the issues are being taken seriously and that corrective measures are underway.

Stakeholder Assurance

Maintaining stakeholder trust is vital, particularly when sensitive information is involved. If findings are shared with investors, partners, or regulators, creating an assurance framework can demonstrate the steps being taken toward remediation and improvement. This approach helps minimize business impact while preserving confidence in services.

Risk Mitigation

SOC 2 audits are fundamentally about risk management. Findings typically highlight areas where potential risks weren't fully mitigated. Addressing these findings involves improving the overall risk posture through comprehensive assessments and tailored audits, aligned with the organization's specific security landscape.

Prevention: A Holistic Approach to Avoiding Deficiencies

The best way to “succeed” in a SOC 2 audit is to prepare thoroughly and have a comprehensive compliance strategy from the start. At Compass, we believe in taking a holistic approach to SOC 2 compliance. Here’s what that looks like:

Pre-Audit Readiness Assessment

Readiness assessments can be invaluable in evaluating controls before an official SOC 2 audit. This process helps identify gaps or potential weaknesses early, ensuring a smoother audit experience.

Continuous Improvement

Maintaining security and compliance is a long-term effort beyond a single audit. SOC 2 is not just a one-time evaluation but a sustained commitment to information security, privacy, and compliance. A focus on continuous improvement ensures that organizations remain prepared for future audits or reviews.

Tailored Security Solutions

Every business has unique needs, so security solutions should be tailored accordingly. Whether in finance, healthcare, technology, or other industries, creating a security framework that aligns with specific operational objectives is key to meeting SOC 2 compliance standards.

Turning SOC 2 Findings into Opportunities for Growth

While the idea of "failing" a SOC 2 audit can be daunting, it’s crucial to remember that such findings are an opportunity to strengthen your organization’s security and trustworthiness. At Compass, we focus on empowering your business with the tools, knowledge, and support needed to not only address any issues identified in your SOC 2 examination but to build a sustainable and secure operational foundation. Our team assists with crafting tailored corrective action plans, providing ongoing monitoring, and ensuring your organization is always ready for future audits.

If your audit reveals deficiencies, don’t see it as a setback—view it as the first step toward improvement. We offer a collaborative approach, working closely with your team to understand the findings, address them effectively, and create a roadmap for continuous compliance. With our guidance, you can turn challenges into opportunities for growth, ensuring your stakeholders' trust and your organization’s long-term success. Know that Compass is here to guide you every step of the way, providing the expertise needed to navigate the complexities of SOC 2 compliance.

Contact us today to learn how we can help your organization strengthen its compliance posture and build a secure future.