What is soc 2 audit? How does it work & explain its process!

13-Jan-2024

The SaaS market has grown substantially over the years with organizations adopting cloud-computing services. Amazon Web Services, Google Cloud Platform, and Microsoft Azure are some top examples of the growing cloud-computing services. With the growing reliance on cloud computing for organizational operations, it is also evidently crucial that organizations are concerned about the security of their data. Mishandling of data by the service providers can ultimately result in organizations becoming vulnerable to threats and several cybersecurity risks. This is where SOC 2 Audit comes in handy. To ensure the organization's data are securely managed by the service providers and to guarantee the security and privacy of the customers, SOC 2 lays out compliance regulations. 

Service and Organization Control (SOC) 2 audits is an auditing procedure and technology of companies policy developed and supervised by the American Institute of Certified Public Accountants (AICPA). The audit is designed, developed, and implemented in service organizations to ensure the confidentiality of customer data, Processing Integrity, Availability, and Security. It is a critical component for every organization in today's digital landscape, given cybersecurity threats are looming large and the growing concerns of partners and customers for the security of their data when in contract with service providers. Independent auditors conduct the SOC 2 audits, and they generate a detailed report that offers valuable insights into the data protection practices of an organization. In this blog today, let us get into an in-depth knowledge of what is SOC 2 audit, its processes, how it works, and how companies benefit from compliance with SOC 2 audit. 

What is SOC 2 Audit?

The SOC 2 Audit is a framework that governs the guidance for auditors to implement while assessing an organization's security protocols and the efficacy of their operation.  The Service and Organization Control 2 audit includes the regulations on handling customer's data by companies that are stored in the cloud. The absolute rationale for designing the SOC 2 audit by AICPA is to build trust and confidence between the customers and service providers. The AICPA outlines the procedure of managing customer data in the SOC 2 audit based on Trust Service Principles consisting of five criteria, namely; security, availability, processing integrity, confidentiality, and privacy.

SOC 2 Audit process  

The SOC 2 Audit process includes a framework built around five criteria of Trust Service principles outlined by the AICPA. These criteria form the basis for evaluating controls. To attain the SOC 2 certification, auditors- an independent third party assess the organization's controls and processes and check if they align with the Trust services criteria. This audit is performed to ensure customers and stakeholders that the service provider has established effective controls for protecting their data.

SOC 2 Audits Applicability: The audit framework is typically employed by service organizations that provide services, processing, storage, and transmission of customer's confidential data. The users are data centers, Software as a Service (SaaS) Companies, Cloud service providers, etc. 

Independent audits: An independent third-party auditor conducts the SOC 2 Audits and scrutinizes the organization's controls and processes to check if they align with the Trust Criteria principles of AICPA. The five criteria of the “Trust Services Principles” are further fragmented as follows:

Security: To ensure protection from unauthorized access, the following components must be present:

• Two-Factor Authentication
• Network/Application Firewalls
• Intrusion Detection

All these factors are effective in intercepting security breaches with the potential of unauthorized access to data and systems. 

Availability: This principle entails setting a minimum acceptable performance level for the availability of the system agreed upon by both parties. This ensures the accessibility of services or products within the stipulated contract, also referred to as a Service Level Agreement. 

Processing integrity: This principle attends to the achievement of the system's purpose, which means checking on the delivery of the right data at the right time and price. This entails the completion of data processing on time, and accurately, and must be valid and authorized.

Confidentiality: Access control, data encryption, and Network and application firewalls are the crucial factors that ensure the confidentiality criteria of the SOC 2 audit. It is crucial for companies to maintain information that is confidential and personal to the company, such as, Intellectual property, business plans, financial information, etc.

Privacy: This principle attends to the system's collection, application, retention, disposal, and disclosure of personal information in alignment with the organization's privacy notice and criteria laid out by AICPA's GAPP (Generally Accepted Privacy Principles). 

Two Types of SOC 2 Audits Reports

Two types of reports are inherent in SOC 2 Audits: Type I and Type II.

Type I Report: The Type I reports consist of the assessment of the company's proper and suitable design of the controls. It assesses the company's control pertaining to a specific single point in time. Type I report is important for showing that controls are implemented, especially during in the initial stages of compliance efforts.

Type II Report: The type II report assesses the practicality and effectiveness of the security controls the company has. The testing period here in this type extends for 3–12 months. The Type II presents a more comprehensive view of the practical functionality of the controls and offers a higher level of assurance. 

Importance of SOC 2 compliance

The importance of SOC 2 compliance is majorly reflected in how sensitive data are strongly protected, ultimately leading to higher trust and credibility from customers and partners in today's competitive business landscape. SOC 2 compliance also serves as a testament to the organization's commitment to providing security of the organization's data, aiding them in their growth and success in the long run. Let us highlight some points that show the importance of SOC 2 compliance here below.

Protecting sensitive data
As mentioned above, the importance of SOC 2 Compliance are majorly seen in protecting sensitive customer's data. Here are a few factors that show why it matters. 

• Data security: SOC 2 centers around controls pertaining to data security. Compliance to SOC 2 would mean the organization has in place robust measures for protecting sensitive information and data from unauthorized access, theft, and breaches. 
• Meeting Legal and regulatory obligations: SOC 2 compliance ensures that organizations are adhering to the several regulatory obligations tendered by Industries regulatory bodies -like HIPAA, CCPA, GDPR, etc. Their compliance to these legal obligations shows their commitment to protecting customer data. 
• Risk mitigation: SOC 2 Compliance helps organizations in mitigating risk of data breaches with potential of severe reputational and financial consequences. Organizations can do away with the likelihood of paying legal liabilities and fines.
   

Building trust and credibility

Another benefiting importance of SOC 2 Compliance is how organizations are enabled to build confidence and trust with its customers and subsequently build their credibility in the competitive industry. Some points demonstrating the importance of SOC 2 compliance are as highlighted under:

• Catering to & Fulfilling Customer expectations: Customers today partner and work with organizations with the expectation that their partnering company have a robust security practices and data protection measures implemented. SOC 2 compliance gives customers the confidence that their data is protected, secured and in safe hands, building more trust and confidence. 
• Competitive Edge: SOC 2 compliant gives organizations a competitive advantage, making them unique and setting them apart in the competition. A service provider with an established reputation of security controls will have the upper hand of attaining more clients.
• Third-party assurance: Another significant impact of SOC 2 compliance is the organization's independent evaluation of their controls by a qualified auditor. An external validation provides credibility about claims made by an organization of their data security and protection practices.
• Minimize due diligence: Organizations can streamline the process of due diligence for prospective customers on presenting an SOC 2 report. This helps in the clients and partners in understanding the controls put in place by the organization as they can easily review and can do away with extensive audits and questionnaires.
• Supplier relationships: Attaining SOC 2 Compliance can lead to multiple contracts and partnerships, as often it is the part of risk management strategy for numerous larger organizations. 

Numerous companies are recognizing the importance of SOC 2 compliance and many industries are benefitting from it.  Organizations, that manages sensitive customer data or are heavily reliant on secure service providers are reaping the benefits of SOC 2 Compliance. Some example of the use cases of SOC 2 compliance are:

SaaS and Technology Companies: These sectors that offer cloud services, data analytics services and online collaboration platforms are massively gaining confidence from customer as they ensure secure handling and storing of their data. 

Healthcare Sector: Healthcare industries are under stringent regulations and obligations like HIPAA. Hospitals and clinics that collect large amount of data and maintain health record are benefiting from SOC 2 Compliance as it shows their commitment to safeguarding patient's confidential health information. 

Banking and Financial Institutes: Financial and banking institutions such as Banks, Fintech Companies, Credit Unions, Payment Processors, etc. are the sectors that hold critical information and data of customer's and clients. These sectors are also the most vulnerable and prime targets of cybercriminals. Hence, an SOC 2 Compliance gives them the confidence layer that they need to building confidence and trust from their clients.  

E-Commerce and Digital Retailers:  Online Businesses, E-commerce platforms, etc. are also among the top reservoirs of people's data. Their operation requires the collection of confidential information for payment methods. Having an SOC 2 compliance guarantees customers that their data and private information are saved and secured. 

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