September 25, 2023
What is a SOC Audit?
In today’s business landscape, client trust and organizational security have taken center stage. It is crucial for businesses to not only safeguard their own operations but also provide assurance to their customers regarding the protection of their data. This is where SOC assessments, more commonly referred to as SOC audits, play a vital role.
A SOC (System and Organization Controls) audit is a thorough assessment conducted by a reputable third-party auditor. The purpose of this audit is to ascertain whether a service organization complies with the stringent controls and procedures necessary for service delivery and data protection.
SOC audits are categorized into SOC 1, SOC 2, and SOC 3, each serving different purposes. While SOC 1 applies primarily to controls impacting customer financials only, SOC 2 extends to an organization’s operations, encompassing key areas such as organizational controls and cybersecurity (as discussed below). SOC 3 reports are simply an executive summary of a SOC 2 Type II.
The significance of a SOC audit is twofold. Firstly, it provides the service organization with an authoritative report and attestation, demonstrating its commitments to users, including data security. Secondly, it assures the organization’s clients and potential customers that their sensitive data is handled with the utmost care and protection, establishing trust in the business relationship.
For organizations that process large amounts of customer data, learning about SOC audits is essential. By undertaking a SOC audit, organizations can ensure that their data security practices are properly implemented and certified, avoiding potential losses or penalties.
Types of SOC Reports
SOC reports are vital for businesses to prove their commitment to maintaining a robust and secure control environment. The SOC 2 revolves around five key categories that ensure a system’s information’s safety, availability, integrity, confidentiality, and privacy.
Trust Services Categories (TSC)
These five categories form the backbone of the SOC 2 auditing process:
- 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 upon.
- Processing Integrity: System processing is complete, accurate, timely, and authorized.
- Confidentiality: Information designated as confidential is protected as committed or agreed upon.
- Privacy: Personal information is collected, used, retained, disclosed, and disposed of in conformity with the commitments in the entity’s privacy notice and criteria set forth in Generally Accepted Privacy Principles (GAPP).
These categories align with the COSO Internal Control Framework, which is a globally recognized framework for designing, implementing, and conducting internal controls and assessing their effectiveness.
SOC Reports and Their Benefits
Each type of SOC report serves a distinctive purpose and is relevant to particular scenarios:
- SOC 1 reports focus on controls at a service organization relevant to user entities’ internal control over financial reporting. These are beneficial for businesses like payroll processors or financial services firms that must demonstrate they have controls in place to handle client financial data securely.
- SOC 2 reports are intended for broader usage and focus on a business’s non-financial reporting controls relating to security, availability, processing integrity, confidentiality, and system privacy. These reports are essential for technology and cloud computing companies that store customer data.
- SOC 3 reports are a less detailed and more general version of SOC 2 reports. They can be freely distributed and provide a high-level assurance about a company’s systems without revealing sensitive details. This makes them ideal for businesses wanting to assure stakeholders about their controls without divulging too much information.
In addition to these three types, SOC audits can also be classified as either Type 1 or Type 2:
- Type 1 Audit: A Type 1 SOC audit is a point-in-time assessment. It evaluates the design of controls at a specific date. This type of audit can ensure that the controls are suitably designed, but it does not test their operating effectiveness.
- Type 2 Audit: A Type 2 SOC audit assesses both the design and operating effectiveness of controls over a specified period, usually six months to a year. This type of audit provides a more comprehensive view of the effectiveness of an organization’s controls over time.
The benefits of SOC reports extend beyond just compliance. By obtaining a SOC report, companies can demonstrate due diligence to regulators, build trust with customers, show security strength to potential customers, and gain valuable insights into their own control environment to manage risks effectively.
Components of SOC Audit Reports
The main components of a SOC audit report include:
- Opinion Letter: Also known as the Independent Service Auditor’s Report, this is where the auditor provides their opinion on the design of controls implemented and effectiveness of the controls in place.
- Management Assertion: This is a statement from management confirming that they have provided a complete and accurate description of the system and that the controls were designed and implemented effectively.
- Description of the System: This section provides an overview of the system being audited, including its services, infrastructure, software, data, people, and procedures.
- Description of Controls – and if Type II – Service Auditor Tests and Results: This section outlines the controls to meet the in scope TSCs for a SOC 2, or to meet the defined Control Objectives for a SOC 1. In a Type II assessment, the auditor describes the tests they performed to assess the effectiveness of the controls and the results of those tests.
After an auditor has assessed the control environment, they will issue a report that outlines their findings. Organizations can then use this information to strengthen their security posture. Auditors conclude their audits with one of four opinions:
- Clean Opinion: Similar to ‘passing’ a certification. This may still include minor exceptions noted. (This is the best outcome).
- Qualified Opinion: The auditor found some exceptions, which pose a risk to meeting service commitments, but they aren’t significant enough or pervasive throughout the environment to impact the overall effectiveness of the controls.
- Adverse Opinion: The auditor found significant and material exceptions that impact the overall effectiveness of the controls.
- Disclaimer Opinion: The auditor couldn’t complete the audit due to certain limitations.(A very rare outcome)
Once a report is complete, the organization may use the findings to improve their security posture. Oftentimes, this is where the unbiased recommendations of a specialized consultant can provide great value.
Preparing for a SOC Audit
Preparing for a SOC audit can be a daunting task. The process is often complex and time-consuming, collecting detailed information about an organization’s systems and controls. This meticulous process includes understanding the requirements, identifying compliance gaps, crafting policies, and gathering evidence.
One of the major challenges is ensuring that all necessary policies and procedures are in place and documented. This requires an in-depth understanding of the Trust Services Criteria and how they apply to your business operations. Another challenge is identifying any compliance gaps within your organization. These gaps could potentially lead to non-compliance, so it’s crucial to identify and address them before the audit.
The Role of a Consultant
Utilizing a consultant who is closely familiar with SOC requirements can play a pivotal role in assisting with audit preparations. Often bringing in-depth expertise in cybersecurity and compliance, they can help organizations navigate the complexities of SOC audits. From conducting preliminary assessments to identifying potential gaps in controls to assist in creating and implementing necessary policies, consultants can provide invaluable support throughout the entire preparation process.
Steps to Prepare for a SOC Audit
Here are some steps you can take to prepare for a SOC audit:
- Collect Existing Policies: Begin by gathering all your existing policies and procedures. This will give you a clear picture of what is already in place and what needs to be developed or refined.
- Identify Compliance Gaps: Conduct a gap analysis to identify areas where your current controls do not meet SOC requirements. This will allow you to address these gaps proactively before the audit.
- Craft Necessary Policies: Based on the results of your gap analysis, develop any necessary policies or procedures to ensure compliance with SOC requirements. This might include creating new policies or revising existing ones.
- Gather Evidence: Collect evidence of your controls in action. This might include system logs, access records, or documentation of policy enforcement. This evidence will be crucial for demonstrating your compliance during the audit.
The Audit Process
The SOC 1 or SOC 2 audit process is a thorough examination of an organization’s systems and controls, typically divided into two main stages – preparation and execution.
This stage involves understanding the trust service categories or control objectives, identifying relevant systems and controls, and documenting policies and procedures. Key roles involved in this stage include:
- Executive Sponsor: Provides strategic direction and resources for the audit.
- Project Manager: Manages the project timeline, coordinates tasks, and ensures milestones are met.
- Legal Team: Reviews legal implications and advises on compliance requirements.
- HR Team: Ensures employee policies and procedures meet SOC 1 and SOC 2 requirements.
- IT/Security Team: Validates and documents technical and security controls.
- External Consultant: Provides expert advice, helps prepare for the audit, and identifies potential compliance gaps.
The execution stage is when the external auditors come in. These auditors are from qualified cybersecurity teams and licensed CPA firms and are responsible for conducting an independent review of the organization’s controls. They will perform tests, review evidence, and ultimately provide an opinion on the effectiveness of the controls in place.
Duration of SOC Audit
The length of a SOC audit can differ depending on various elements like system intricacy, how ready the organization is, and what the audit covers. Generally, getting everything in order might take around 2 to 3 months. Following that, the actual audit procedure itself can last another 1 to 3 months.
Get the Most Value From a SOC Audit
SOC audits are a great way to ensure that an organization’s systems and processes comply with industry standards. However, the audit should be more than just a compliance exercise. It can also give organizations valuable insights into their security posture and help identify potential risks or weaknesses in their controls.
Organizations should take advantage of this opportunity to meet compliance requirements and improve their security posture. A SOC audit should be seen as an opportunity to review, refine and enhance the organization’s security controls and processes.
By taking a proactive approach to SOC audits, organizations can ensure compliance and stronger security for their business. Doing so will help build trust with customers, partners and vendors and give them peace of mind that their data is secure.
If you’re looking for assistance in performing a SOC Audit or Assessment, contact Tevora see how we can best assist you.