A Pain-Free Guide to SOC 2 Audits and Reports

SOC stands for System and Organization Controls, and a SOC 2 Audit evaluates a company's controls concerning its customers' data. These controls ensure that data is securely managed to protect the company's and its clients' interests. Per the AICPA (American Institute of Certified Public Accountants), an audit focuses on the following five categories: security, availability, processing integrity, confidentiality, and privacy.

Here’s a breakdown of each category:

Security

• Focuses on safeguarding data from unauthorized access or theft
• Assesses authentication controls, access rights, encryption, activity logging, and more

Availability

• Evaluates the ability to ensure timely and reliable access to systems and data
• Looks at redundancy, backups, disaster recovery planning, and related controls

Processing Integrity

• Examines accuracy and completeness of system processing
• Covers input validation, error handling, reconciliation checks, and transaction logging

Confidentiality

• Centers on keeping data private and protected from unauthorized disclosure
• Reviews encryption, access controls, data classification, and transmission security

Privacy

• Confirms PII (personally identifiable information) and sensitive data is collected, stored, and processed in adherence with laws, regulations, and commitments
• Checks consent practices, data minimization, and opt-out options

SOC 2 audits can seem daunting for companies going through the process for the first time. I spoke with Tim Rolston, Director of Information Technology at ModSquad (our parent company), to get his insights on navigating SOC 2 successfully. This article will provide a comprehensive understanding of SOC 2 audits, reports, and certification, incorporating insights from Tim.

It's essential to know that there are three types of SOC 2 audits: Type 1, Type 2, and Type 3.

"SOC 2 Type 1 looks at your controls at a specific point in time. They'll review your controls and determine if they are good enough, providing a baseline for improvement," explains Rolston. These audits are a good option for companies just starting the SOC 2 process since they're cheaper and help identify deficiencies to correct before a Type 2 audit. They can also be used as an initial gap assessment if the budget allows.

In contrast, "SOC 2 Type 2 examines your controls over a year. It's more expensive, but people prefer it as it's not just about passing the audit; it's a demonstration of consistent compliance over a year". This is the most common type of SOC 2 audit pursued by companies and is considered the most substantial validation of controls.

Lastly, there's the much less utilized SOC 2 Type 3 audit. This simplified public report indicates that controls have been evaluated and found compliant. While it may not be as comprehensive, it’s certainly better than not being SOC 2 certified.

As remote work becomes more common, SOC 2 audits are often conducted virtually using tools that help track “evidence” to prove adherence to standards and facilitate communication between the company and the auditor. These tools ensure that the company is doing things as they should and enable the auditor to review the relevant information they need to see.

"The auditor uses these tools to keep notes, which can be later referred to when drafting the report," says Rolston. Daily video calls can also help auditors remotely observe and evaluate controls.

The SOC 2 audit usually takes one month to complete, followed by another two months to write the report. Receiving a favorable report and solidifying that stamp of approval is worth the wait and investment, even if it's time-consuming.

Preparation for a SOC 2 audit varies depending on the specific criteria you aim to meet - security, integrity, confidentiality, privacy, or availability. Rolston explains, "A good example would be if you were focusing on security, you have to ensure that your firewalls are okay and only those who should have access actually do. You would need to document processes like a quarterly board of directors meeting where security and risk management are discussed."

The evidence required to demonstrate compliance can range from screenshots to spreadsheets to detailed third-party reports. It doesn't need to be fancy.

For organizations undergoing their first SOC 2 audit, Tim emphasizes the importance of choosing the right audit firm. Boutique firms with seasoned auditors tend to be more flexible and collaborative than large firms with junior auditors. Their experience enables them to evaluate better controls that don't fit a typical mold.

Tim also recommends a preliminary gap analysis to identify and address any areas needing remediation before the official audit begins. Though it adds costs upfront, it will be easier to pass the initial audit.

Finally, Tim stresses that it’s crucial to maintain open communication with your chosen audit firm: "Talk to your auditor. The auditor is not there as a teacher or exam proctor. They will help you." By partnering closely with your auditors and taking their guidance, your organization will be well-positioned for a smooth SOC 2 audit process.

Upon completion of the audit, a SOC 2 report is generated. This comprehensive report outlines the company's information systems' description and control design. It also includes the testing of controls and their operating effectiveness.

Rolston explains that while achieving the certification is vital for a company's reputation, it's also important to remember that "You can't fail a SOC 2 audit. The auditor isn’t going to say, 'You failed.' They'll simply write that you didn't do what you said you were doing. However, if you don't do this, it may be projected as a failure by potential clients or customers."

SOC 2 certification is vital because it represents a company's commitment to security and data protection. Furthermore, it helps the company build a strong security reputation.

Once certification is achieved, the work doesn't stop. SOC 2 compliance must be re-evaluated annually through follow-up audits to ensure things are still up to par. "You have to update it every year. Whenever you update it, you'll spend the month doing the audit. And then it'll take the auditors two months to write the report," Rolston explains.

Tim notes that the detailed report follows a standard format, documenting the specific controls examined and any exceptions or issues identified by auditors. Again, while organizations don't technically "pass" or "fail" an audit, problems highlighted in the report could raise red flags for potential customers, which is something no company wants.

If you want to stay updated with SOC 2 information, the primary resource is the AICPA SOC 2 page. Tim notes that the website isn’t the most user-friendly, but it's factual and trustworthy, which is what counts.

SOC 2 audits, reports, and certifications are crucial in establishing security and transparency for your company. Maintaining compliance requires a sustained commitment to secure controls and regular re-certification. For organizations that handle sensitive customer data, the effort needed to provide that extra assurance and peace of mind is well worth it.

As more businesses move towards digitization, getting SOC 2 certified can give them a competitive edge. By working closely with auditors, fixing any identified gaps, and staying up-to-date on evolving best practices, companies can make the SOC 2 audit process as smooth and painless as possible. The result is a well-deserved validation of trust to help businesses and customers breathe easy.

Thanks again to Tim Rolston for generously sharing his time and expertise on SOC 2 to ensure we all successfully navigate this essential process.