System and Organization Controls (SOC) 2® reports are becoming more and more popular (and more necessary) as our world becomes more and more reliant on the use of data.
Data is one of the foremost assets that a business has—and it can be its largest differentiator. It’s critical that businesses do everything that they can to protect this valuable resource.
Related to the importance of a company’s data, breaches, hacks and ransomware attacks are growing at an alarming rate. Businesses are realizing that it isn’t just their protections that matter, but what their vendors and partners are doing to protect their data as well.
As these companies take a more proactive approach at securing their information, they are looking more closely at those they do business with. Third-party data breaches are concerning, and service providers entrusted with a company’s information can be a vulnerability. Companies need reassurance that their service providers are doing what they can to protect that data and the access they are allowed.
That’s where SOC 2 reports come in.
What is a SOC 2 Report?
The SOC 2 report is centered on a service organization’s IT controls. It’s an attestation report in which an organization’s management asserts that certain internal controls have been designed and implemented, and those assertions are audited by a qualified CPA firm.
The outcome of the review is either that the auditor agrees with the assertions and provides an “unmodified opinion,” or they may provide a “qualified” or even “adverse” opinion when issues with the assertions are found.
A qualified or adverse opinion means that the auditor identified one or more issues with the design or operating effectiveness of the internal controls or that the system description was not presented in accordance with the description criteria. The determination of whether the opinion is qualified or adverse depends on the pervasiveness or materiality of those issues.
For service organizations, a SOC 2 report can help enumerate the actions they are taking and build trust with customers. For businesses, a SOC 2 report provides assurances that their service providers have a plan to address data management and security.
What are the Criteria for a SOC 2 Report?
As set forth in the TSP 100, 2017 Trust Services Criteria specified by the AICPA, there are five trust services categories that can be utilized in SOC 2 reporting. While the Security category is part of every SOC 2 report, the remaining categories are added depending on the needs and requirements of the user entity.
Security: (Also known as the Common Criteria) These controls pertain to unauthorized access, both physical and logical, unauthorized disclosure of information and damage to systems that could compromise the ability of the organization to meet its objectives.
Availability: These are controls around system operation and use and include things like business continuity and disaster recovery plans.
Confidentiality: These controls show that information that is deemed confidential by policy or agreement is protected.
Processing Integrity: Processing integrity controls revolve around ensuring that any data processing is accurate, complete and authorized, and that there are processes to catch errors and correct them.
Privacy: Privacy controls are separate from those covering confidential information. Privacy pertains to personal information as opposed to other sensitive information.
What is the Intent of the SOC 2 Exam?
A SOC 2 report plays an important role in the oversight of the organization, vendor management programs, internal corporate governance, risk management processes and regulatory oversight.
It offers a third-party review of internal IT controls that assures customers and users that security and reliability are being managed as part of the services the organization is providing. It can also uncover areas of improvement for the organization for the different trust services criteria.
What are the SOC 2 Reports Used For?
The need for a SOC 2 report is frequently driven by client requests. However, satisfying a client requirement isn’t the only thing the report is used for.
Because a SOC 2 report reviews, and in some instances, tests, the existence and effectiveness of internal IT controls around key trust services, organizations can use the reports as a check to validate they are doing all they can to secure data and handle it appropriately.
While an unmodified opinion from an auditor in a SOC 2 report is the preferred outcome, a qualified opinion is not a failure, but an opportunity to focus on the specific areas that should be improved to increase security and reliability. It can also provide insight of an organization’s adherence to regulatory requirements and corporate governance.
For customers, a SOC 2 report offers assurances about a service provider’s service commitments and system requirements as they relate to areas like the handling of data, and processes and commitment to data protection. It also addresses the internal control components of the COSO framework: control environment, risk assessment, control activities, information and communication and monitoring. A SOC 2 report can be used by companies to help narrow their list of potential vendors.
Conversely, a service provider can offer a SOC 2 report as a business differentiator. It offers proof that an organization has considered what is required to protect the information it’s entrusted with, and that it’s taken the appropriate steps to put those protections in place.
Who Needs a SOC 2 Report?
SOC 2 reports are most common for businesses that handle, process or manage data. This includes but is not limited to Software as a Service (SaaS) providers, data centers, cloud service providers and managed IT providers.
What are the Common Areas of Focus for SOC 2?
Service organizations that complete SOC 2 reports handle information for their user entities in a variety of ways. These functions include, and the controls should cover, how they operate, collect, process, transmit, store, organize, maintain and dispose of their clients’ data.
Want to Learn More about What a SOC 2 Report is?
SOC 2 is a means to prove to the business partners to whom you provide services that you understand and respect the value of their data, and that you have the controls in place to protect their resources. If you have questions about SOC 2 reports, what a SOC 2 audit entails, or are looking for a qualified SOC 2 auditor, Warren Averett can help.