System and Organization Controls 2 (SOC 2)
Your client data needs to be adequately protected. Failing to do so could cost you money, cause legal problems and result in a loss of customer trust and damage to your reputation. This is why security frameworks like SOC 2 are important.
SOC 2 is a standard that ensures client data is stored and processed in a secure manner. As such, this standard is especially useful for companies storing their data on their own hardware.
“For companies that have their private servers, as well as an IT department, the SOC 2 attestation can be a great way to showcase their security commitment and gain a market advantage,” explains David Cloutier, Senior Business Advisor, BDC Advisory Services.
Here is an overview of the SOC 2 standard, its benefits and how it compares with other similar standards.
The SOC 2 standard is a very useful framework with a technical approach. It is in high demand in the financial industry as well as in aerospace.
David Cloutier
Senior Business Advisor, BDC Advisory Services
What is SOC 2?
Developed by the American Institute of CPAs (AICPA), System and Organization Controls 2 (SOC 2) is a standard for managing and safeguarding data.
The SOC 2 standard is based on five principles called “Trust Service Criteria.” Here is what each of them entails.
The 5 SOC 2 principles
1. Security
The security principle ensures that the system is protected against unauthorized access. This criterion focuses on safeguarding data and resources to prevent breaches and unauthorized activities.
When it comes to IT security tools, the focus here is on firewalls, intrusion detection and multi-factor authentication, among others.
2. Availability
The availability principle ensures that the system is available for operation and use as committed or agreed upon. This criterion evaluates whether the system is accessible and usable as needed, minimizing downtime and ensuring reliability.
In practical terms, this principle can encompass implementing redundant systems, backup and recovery procedures and disaster recovery plans.
3. Processing integrity
The processing integrity principle validates whether the system processing is complete, valid, accurate, timely and authorized. This criterion focuses on the correct and authorized functioning of the system to ensure data integrity and accuracy.
More specifically, this can mean quality assurance and process monitoring.
4. Confidentiality
The confidentiality principle ensures that information designated as confidential is protected as committed or agreed upon. This criterion focuses on protecting sensitive information from unauthorized access and disclosure.
Encryption is a crucial tool for ensuring confidentiality, along with network and application firewalls as well as stringent access controls.
5. Privacy
The privacy principle ensures that personal information is collected, used, retained, disclosed and disposed of in conformity with the commitments in the organization’s privacy notice as well as with AICPA’s criteria, as defined in its generally accepted privacy principles.
Relevant tools include access control, multi-factor authentication and encryption.
What is a SOC 2 report?
A SOC 2 report is a document issued by an independent certified public accountant (CPA) after conducting an audit of an organization’s data security as prescribed by the SOC 2 standard.
The SOC 2 standard can lead to two levels of report:
- Type 1: this report describes your organization's systems at a specific point in time and whether the design of specified controls meet the relevant trust principles.
- Type 2: this report validates the effectiveness of these controls over a given period, typically six months to a year.
What is the difference between a SOC 1, SOC 2 and SOC 3 report?
The System and Organization Controls standard includes three types of report: SOC 1, SOC 2 and SOC 3.
SOC 1 is a financial audit report. It is intended primarily for internal readers.
SOC 2 is a security and controls report. It assesses your organization’s data security controls. Like SOC 1, it is intended primarily for internal readers.
SOC 3 reports contain essentially the same information as SOC 2 reports, but they are intended for the wider public. As a result, they are less exhaustive and are drafted to provide a high-level overview of your organization’s controls.
In sum, the distinction between a SOC 1 and SOC 2 report lies in their focus: SOC 1 is a financial audit report, whereas SOC 2 focuses on security and controls. Meanwhile, SOC 2 and SOC 3 contain basically the same information, but are formatted for different audiences.
SOC 1 vs SOC 2 vs SOC 3
| SOC 1 | SOC 2 | SOC 3 | |
|---|---|---|---|
| Content | Financial audit report | Security and controls report | Security and controls report |
| Audience | Internal readers | Internal readers | External readers |
How do you obtain a SOC 2 attestation?
Obtaining a SOC 2 attestation involves two big steps.
First, your organization needs to implement the criteria specified in the standard. “Certain companies do it by themselves, but others will hire consultants to support them,” explains Isabelle Ledoux, Senior Business Advisor, BDC Advisory Services. Depending on your level of cybersecurity maturity and the effort you are willing to put in, this step can take a few months or a few years.
Second, you need to select a qualified CPA firm to conduct the audit and issue the SOC 2 report upon successful completion. A SOC 2 type 1 report will typically take three to four months to obtain, while an audit for a type 2 report can take up to a year. This step may involve interviews, walkthroughs, testing of controls and reviewing documentation to verify compliance with the five Trust Service Criteria.
Note that if you want to maintain your SOC 2 attestation, you will need to conduct periodic reviews and update your controls as needed because it is generally valid only for one year. As a result, you will need to undergo an audit annually to maintain your attestation.
What are the benefits of a SOC 2 attestation?
There are several benefits related to obtaining a SOC 2 attestation. Here are the main ones.
Improved risk management
Obtaining a SOC 2 attestation involves assessing and enhancing internal cybersecurity controls. This reduces the likelihood of data breaches or operational disruptions.
Market access and improved credibility
Clients want to ensure their data is well protected. As a result, many organizations will only do business with companies who have obtained a SOC 2 attestation. Doing so will help you meet customer demands and expand your market reach.
Operational efficiency
Clients, suppliers and insurers may ask you about your data storage and processing practices. If you have no cybersecurity attestation, your team will spend a lot of time filling out documents to explain your practices. Obtaining a SOC 2 attestation will save time by providing a standardized and recognized framework that simultaneously satisfies the cybersecurity requirements of multiple stakeholders.
The companies who will benefit most from getting a SOC 2 attestation are those who have American clients or that work in the financial industry.
David Cloutier
Senior Business Advisor, BDC Advisory Services
What types of businesses should get a SOC 2 attestation?
The SOC 2 standard is mostly used in the United States. “Historically, the SOC 2 standard has been a North American standard using a more technical approach. Giving that it comes from the financial sector, the companies who will benefit most from getting a SOC 2 attestation are those who have American clients or that work in the financial industry.” explains David Cloutier.
ISO 27001 is another standard that uses more of a process management approach. Although they share similarities, the two standards can be complementary in many ways because they focus on different aspects of information security.
Is SOC 2 the same as ISO 27001?
Although similar—they are both focussed on managing data security—SOC 2 and ISO 27001 are different standards.
While SOC 2 was created by the AICPA, ISO 27001 was published jointly by the International Organization for Standardization and the International Electrotechnical Commission.
When it comes to content and principles, ISO 27001 covers a broader range of information security management practices. It focuses more on the “how” than the “what,” as its approach is focussed on governance, risk and process.
SOC 2, on the other hand, is a standard with a more technical approach to security: while it addresses fewer data management practices, it goes into more depth, and technical details, when it comes to the data management practices it does address.
To put it simply, SOC 2 is an IT-centric standard while ISO 27001 is management-centric.
Overall, when comparing their content, SOC 2 and ISO 27001 are between 60 to 80 % similar.
Isabelle Ledoux
Senior Business Advisor, BDC Advisory Services
Finally, cost is another important differentiating factor. SOC 2 requires a complete audit every year, while ISO 27001 works on a three-year basis: a complete audit on year one followed by surveillance audits in years two and three. As a result, obtaining a SOC 2 Type 2 attestation can often be more expensive.
Next step
Learn how to reduce the risk of cyberattacks that will seriously impact your business by downloading our free guide for entrepreneurs: Addressing Cybersecurity in Your Business.