Preparing an IT department for a compliance audit of any kind can be a challenging task. In the case of a System and Organizational Control (SOC) examination, the scope of the audit could encompass a very broad range of policies and procedures. There are many items that could potentially be included on a SOC 2 compliance requirements list, so it’s helpful to have a good understanding of what goes into a SOC 2 report.
What is a SOC 2 Report?
A SOC 2 audit is performed primarily for the benefit of an organization’s customers. Performed by a third party, the audit provides a report detailing the auditor’s assessment of whether or not a service organization has the proper controls in place to meet the relevant Trust Services Criteria of the American Institute of Certified Public Accountants (AICPA) when it comes to data access.
While SOC 2 reports address security, they don’t directly deal with information security policies that would typically fall under the description of cybersecurity. They do, however, focus on the physical and logical security procedures put in place to implement those information security policies as part of a broader business model. From a customer’s perspective, an SOC 2 report provides details about what controls a service organization has implemented to provide oversight, manage vendors, mitigate risk, and enforce appropriate internal governance.
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Do You Need a Type I or Type II Report?
The first major question to ask when preparing for a SOC 2 report is what kind of report is being requested. Although both types of SOC 2 reports assess the design of a service organization’s controls, their primary difference is the amount of time that the report covers.
A SOC 2 Type I report provides an auditor’s determination of whether or not an organization’s controls are sufficient to meet relevant Trust Services Criteria at a specific point in time. The primary focus in a Type I report is on control design rather than on documenting how well those controls perform in practice. A SOC 2 Type II report, on the other hand, looks at whether those controls are effective over a period of time, usually six to twelve months. For most organizations, a Type I report is requested when they begin working with a customer and then followed up with a Type II report some time later.
What is the Scope of the Audit?
When it comes to SOC 2 reports, every report is unique. This makes it difficult to provide a universal checklist that can apply to every organization. The primary question comes down to determining what the scope of an audit needs to be.
Although the AICPA has defined five Trust Services Criteria, not all of them may be applicable to every service organization or customer. When a customer requests a SOC 2 report, they must define what the scope of that report will be. This determines what controls, safeguards, policies, and procedures the auditor will assess and include in their final report. Defining the scope of the report can help to determine what steps need to be included in a SOC 2 compliance checklist.
SOC 2 Trust Services Criteria
The foundational Trust Service Criteria, security is sometimes referred to as the “common criteria” because it must be included within the scope of any SOC 2 report. It is the most comprehensive criteria because the systems and processes it requires are foundational to other criteria. The security audit primarily focuses on the design of access controls that manage and record how people access systems where data is stored and how those users are authenticated. It also covers how inappropriate, unauthorized, or suspicious activity is reported and addressed. Systems should be in place to document how data is being accessed, used, and otherwise managed.
As of 2019, the security/common criteria was aligned with the 2013 COSO Internal Control – IntegratedFramework. Developed by the Committee of Sponsoring Organizations, (COSO), this list of 17 principles is used to evaluate the design and effectiveness of an organization’s internal controls. These principles are grouped into five components:
- CC1 Control Environment: Establishes policies, procedures, expectations, and strategies that enable an organization to govern an oversee objectives.
- CC2 Communication and Information: Establishes how and under what conditions information is shared internally and externally.
- CC3 Risk Assessment: Identifies and assesses risks (both their likelihood and their potential impact) that could threaten the security objectives of an organization’s control, including fraud and vendor risks.
- CC4 Monitoring Activities: Assesses and evaluates internal controls to determine whether they are sufficient to meet organizational objectives. Also outlines what corrective actions should be taken in the event of control deviations or deficiencies.
- CC5 Control Activities: Actions established through policies, procedures, and processes that work in conjunction throughout all levels of an organization to ensure the achievement of security objectives.
In addition to the 2013 Internal Control-Integrated Framework, organizations preparing a SOC 2 audit checklist also often refer to COSO’s 2017 Enterprise Risk Management – Integrated Framework to make sure they have the right controls and processes in place to manage risk.
This requirement focuses on how well a service organization keeps the information it stores and the services it provides available for use and operation by its clients. It is especially important for third-party vendors who need to access a contractor’s databases, applications, or functions in the course of their work. The terms of system and data availability should be included in a service level agreement (SLA) as well.
As many customers rely upon service organizations to process their protected data in some way, they often want assurances that all data processing will be valid, accurate, complete, timely, and authorized. This protects customers from processing errors that could have an impact on their business. Processing integrity controls are especially important for financial services companies.
This provision applies to a special form of non-personal data designated as “confidential.” While not easily defined, it’s generally considered to be any form of proprietary information that is essential to a client’s business operations and could result in damages were it to be compromised. Some examples of confidential information could include business plans, legal documents, technical drawings, or other intellectual property. Once designated as confidential, this data must be accorded the same privacy and access protections that apply to personal data.
The protection of personal information and data falls under the privacy Trust Services Criteria. Personal information refers to any data that can be attributed to an individual. While many of the controls that apply to personal information are covered by the security provisions of the Trust Services Criteria, additional privacy controls are often required when a service organization is directly involved with gathering and processing an individual’s personal information on behalf of a client. Some of these controls include (but are not limited to) procedures for providing notice when data is gathered, accommodating choice and consent, governing access and disclosure, and stipulating the use, retention, and disposal of data.
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Preparing for a SOC 2 Audit
When a customer requests a SOC 2 report from a service organization, the type and scope of the report will be clearly defined. Once it knows what criteria the auditor will be evaluating, security and compliance officers can begin to prepare by gathering the requested information and conducting internal SOC 2 self-assessment to identify potential risks or existing gaps in compliance controls. At this point, a more specific checklist can be developed based on the scope of the audit to help prepare for the auditor’s assessment.
A SOC 2 examination can be a stressful event for any IT leader, but with the right preparation, it doesn’t have to be something to be feared. If test procedures and security policies are well-developed and maintained on a regular basis, preparing for an audit should not present a huge disruption to standard operating procedures. The best service organizations approach compliance as a year-round priority, not just something to be concerned about when an audit is scheduled.
Frequently Asked Questions
Question: What is SOC 2 compliance and why is it important for IT leaders?
Answer: SOC 2 compliance is a set of standards that organizations must meet in order to demonstrate that they have implemented effective controls for protecting the security, availability, processing integrity, confidentiality, and privacy of their customers’ data. It is important for IT leaders to ensure SOC 2 compliance because it demonstrates to customers and regulators that the organization takes data security and privacy seriously and is committed to maintaining best practices for data protection.
Question: What are the key components of a SOC 2 compliance checklist for IT leaders?
Answer: A SOC 2 compliance checklist for IT leaders should include:
- Identifying and assessing risks to the organization’s systems and data.
- Implementing controls to mitigate those risks, such as firewalls, intrusion detection systems, and access controls.
- Regularly monitoring and testing the effectiveness of the controls in place.
- Developing incident response plans and regularly testing them.
- Regularly reviewing and updating policies, procedures, and standards related to security and privacy.
- Conducting regular employee training on security and privacy best practices.
- Regularly monitoring compliance with laws and regulations related to security and privacy.
Question: How can IT leaders ensure that their organization is prepared for a SOC 2 audit?
Answer: IT leaders can ensure that their organization is prepared for a SOC 2 audit by:
- Conducting regular self-assessments to identify and address any gaps in controls.
- Keeping documentation of all security and privacy controls in place, including policies, procedures, and test results.
- Regularly reviewing and updating controls to ensure they remain effective.
- Regularly testing incident response plans to ensure they are effective.
- Ensuring that all employees are trained on security and privacy best practices.
Question: What are the common challenges that organizations face when trying to achieve SOC 2 compliance?
Answer: Common challenges that organizations face when trying to achieve SOC 2 compliance include a lack of understanding of the standard, difficulty in obtaining and cleaning data, lack of resources and infrastructure, resistance to change from employees, and privacy concerns with the data used for training.
Question: What are the best practices for achieving SOC 2 compliance?
- Develop a clear understanding of the SOC 2 standard and the controls required.
- Start small and scale up gradually.
- Invest in the necessary infrastructure and resources, such as hardware and software.
- Hire or train specialized personnel with the necessary skills.
- Regularly monitor and evaluate the effectiveness of the controls in place.
- Regularly review and update policies, procedures, and standards related to security and privacy.
- Regularly conduct employee training on security and privacy best practices.
- Regularly monitor compliance with laws and regulations related to security and privacy.
- Keep documentation of all security and privacy controls in place, including policies, procedures, and test results.
- Regularly test incident response plans to ensure they are effective.
Please note that SOC 2 standard is a framework of security controls and compliance is not something that can be achieved overnight, it requires ongoing work and attention to keep the standard up-to-date.