What Is a SOC 2 Report and Who Needs One?

In an era where data security and privacy are paramount, the SOC 2 report emerges as a critical tool for organizations that manage customer data. Tailored to ensure the safeguarding of information, a SOC 2 report not only enhances an organization's credibility but also solidifies its commitment to robust security practices. This article aims to explain what a SOC 2 report is, its significance, and which organizations require one.

Understanding SOC 2 Reports

Developed by the American Institute of Certified Public Accountants (AICPA), the SOC 2 report focuses on a company’s non-financial reporting controls as they relate to security, availability, processing integrity, confidentiality, and privacy of a system. Unlike SOC 1, which is concerned with financial reporting controls, SOC 2 is specifically designed for service providers storing, processing, or handling customer data, ensuring they adhere to high standards for the protection of that information.

Key Principles of a SOC 2 Report

SOC 2 reports are based on five Trust Services Criteria (TSC):

• Security: The system is protected against unauthorized access (both physical and logical).
• Availability: The system is available for operation and use as committed or agreed.
• Processing Integrity: System processing is complete, valid, accurate, timely, and authorized.
• Confidentiality: Information designated as confidential is protected as committed or agreed.
• Privacy: Personal information is collected, used, retained, disclosed, and disposed of in conformity with the commitments in the entity’s privacy notice.

Who Needs a SOC 2 Report?

A SOC 2 report is vital for any organization that provides services or stores data in the cloud and is involved in handling customer information. This encompasses a wide range of industries, including technology service providers, cloud computing vendors, SaaS companies, and more. Essentially, any organization that wants to demonstrate its commitment to comprehensive information security practices should consider obtaining a SOC 2 report.

Types of SOC 2 Reports

There are two types of SOC 2 reports:

• Type 1: Evaluates the suitability of the design of controls at a specific point in time.
• Type 2: Assesses the operational effectiveness of these controls over a defined period, typically at least six months.

Why Is a SOC 2 Report Important?

Obtaining a SOC 2 report signifies that an organization takes data security seriously and adheres to high standards for managing customer data. It builds trust with clients and partners by providing a third-party endorsement of the organization’s controls and practices. Furthermore, it can be a competitive differentiator in the marketplace, showcasing a proactive stance on information security and privacy.

Who Can Perform a SOC Audit?

A SOC audit can only be performed by an independent Certified Public Accountant (CPA) or an accounting firm that is licensed and qualified to conduct such audits. These auditors must adhere to the standards set by the American Institute of Certified Public Accountants (AICPA). They possess the necessary expertise in the areas of information security, data protection, and privacy regulations to evaluate and verify the effectiveness of an organization's controls as they relate to the Trust Services Criteria. Their independence ensures that the audit results are unbiased, providing stakeholders with assurance regarding the organization's compliance with SOC standards.

Can You Fail a SOC 2 Exam?

It's important to understand that the terminology used around SOC 2 reports is different from traditional pass/fail exams. Rather than being a test you pass or fail, a SOC 2 audit evaluates your organization's systems and processes against the AICPA's Trust Services Criteria. The outcome is a detailed report that outlines how your organization manages and secures customer data, including any areas where your practices do not meet the criteria fully.

The key terms used in SOC 2 reports to denote the audit outcomes include:

• Unqualified Opinion: This is the outcome organizations strive for. It indicates that the service organization's controls are suitably designed and operating effectively to meet the Trust Services Criteria. An unqualified opinion means there are no significant exceptions or deficiencies found during the audit.
• Qualified Opinion: A qualified opinion is issued when the auditor encounters issues that are not pervasive enough to require an adverse opinion but still significant. It means that there are one or more specific areas where the controls were either not designed adequately or not operating effectively.
• Adverse Opinion: This is the closest to what might be considered a "fail" in traditional terms. An adverse opinion is given when the auditor concludes that the organization's controls do not meet the Trust Services Criteria to a significant extent. This outcome indicates pervasive issues in the organization's control environment.
• Disclaimer of Opinion: Issued when the auditor is unable to obtain sufficient evidence to form an opinion on the organization’s controls related to the Trust Services Criteria. This might occur in situations where the auditor is restricted from accessing certain information or data necessary for completing the audit. A disclaimer of opinion does not necessarily indicate that there are issues with the controls, but rather that an assessment couldn't be adequately performed.

These terms provide a nuanced view of the audit results, reflecting the complexity and thoroughness of SOC 2 evaluations. Understanding these outcomes is crucial for organizations as they navigate through their SOC 2 compliance journey, ensuring they accurately interpret and respond to their audit results.

The Various Kinds of SOC Reports

Managed by the American Institute of Certified Public Accountants (AICPA), SOC reports aim to assure the effectiveness of controls safeguarding client data and assets. There are four main types of SOC reports, each with a different focus:

• SOC 1: Addresses internal controls over financial reporting, necessary for organizations impacting clients' financial statements.
• SOC 2: Pertains to internal controls over the security, confidentiality, privacy, and availability of customer data, applicable to organizations handling customer information.
• SOC 3: Similar to SOC 2 but shorter and public, suitable for organizations looking to market their compliance publicly.
• SOC for Cybersecurity: A framework assessing an organization’s enterprise-level cybersecurity risk management efforts, reflecting the increasing importance of cybersecurity.

Compass Makes SOC Reports Simple

As businesses increasingly move their operations and data to the cloud, the relevance of SOC 2 reports continues to grow. These reports not only affirm an organization's commitment to security, availability, processing integrity, confidentiality, and privacy but also act as a key factor in establishing trust with customers. Whether you’re a cloud service provider, a SaaS company, or any organization handling sensitive customer data, obtaining a SOC 2 report is a critical step towards demonstrating your dedication to secure and responsible data management practices.

Compass IT Compliance collaborates closely with a diverse range of clients across multiple industries, guiding them through every phase of the SOC reporting process. From the initial selection of relevant Trust Services Criteria and conducting thorough readiness assessments to the meticulous completion of the SOC 2 report in partnership with our independent CPA firm, Compass Assurance Team, we ensure a seamless and comprehensive journey. Our expertise and personalized approach enable organizations to navigate the complexities of SOC compliance with confidence and ease. Reach out to us today to discover more about how we can support your SOC 2 journey and elevate your data security posture to new heights!