SOC 2 Compliance Checklist – Audit Requirements Explained. In this post, we are going to explain SOC 2 Compliance, its criteria, its importance, and everything else you want to know.
So, shall we start with SOC 2 Compliance Checklist – Audit Requirements Explained.
What is SOC 2 Compliance?
First of all, SOC stands for Service Organization Control.
Likewise, SOC 2 is a compliance standard for service organizations which elucidates how they should secure clients’ data and privacy. Well, complying with SOC 2 standards denotes a service organization’s robust security posture, which leads them to achieve loyal customers.
Secondly, SOC 2 standard relies upon Trust Services Criteria viz. Security, confidentiality, privacy, availability, and process integrity.
However, SOC 2 criteria may be unique to each organization, depending upon their unique business practices. Each organization can develop controls that abide by one or more of the Trust Services Criteria to gain clients’ trust.
Additionally, SOC 2 reports will provide deeper insights to the clients, stakeholders, suppliers, and business partners into how a service organization/provider manages customer data using effective controls. Basically, it is based on the principles of policies, communications, processes, and monitoring.
Types of SOC Reports
This article is all about SOC 2 report, but there are three types of SOC reports in total, as stated below:
- SOC 1: Developed meticulously for organizations that offer financial reporting services to their patrons.
- SOC 2: This security standard is designed for organizations with risks and concerns related to Information Security. Based upon the Trust Services Criteria and any service provider/company can avail it to reassure the common concerns of their potential clients.
- SOC 3: Also based upon the TSC. However, SOC 3 isn’t as detailed as SOC 2.
All in all, both SOC 1 and SOC 2 have two subcategories, namely Type I and Type II.
Up next with SOC 2 Compliance Checklist – Audit Requirements Explained is talk about types of compliance.
Types of SOC 2 Compliance
There are two main types of SOC 2 audits and reports – Type I and Type II:
- Type I audit and report details whether the service organization’s internal data security control systems abide by the relevant trust principles. This type of audit is executed on a specific date, at a specific moment in time.
- Type II audit and report explains whether organization’s control systems and activities have optimal operational efficiency or not. As a result, this type of audit conducts over a long period of time, anywhere between 3 to 12 months. The auditor runs penetration tests to scrutinize and evaluate how the service provider deals with various data security risks. By the same token, the type II audit report is much more insightful compare to type I.
For organizations to be compliant with SOC 2 Type II, a third party auditor, typically a licensed CPA firm will review the following policies and practices of your firm:
- Software: Review operating software and programs of systems.
- Infrastructure: the hardware and physical components of systems
- Procedures: manual and automated procedures involved in the operations of a system.
- People: the relevance of individuals assigned to different operations of a system.
- Data: the information that a system gathers, uses, stores, and discloses.
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The Trust Services Criteria (TSC)
Certainly, Trust Services Criteria is the scope or domain that your SOC 2 audit covers. Each organization does not need to comply with all the stated TSCs. Not all TSCs will be apt for all types of organizations and their particular niche.
For instance, if your company does not deal with payments or transactions at all, there is no need to cover the ‘Processing Integrity’ criteria in your SOC 2 report just for the sake of it. Only the ‘Security’ criteria must be complied with, and other relevant TSCs can be added as per the risk related concerns of your stakeholders and clients.
The Five Main Trust Services Criteria are as follows:
1. Security
The service provider/organization must take effective measures to protect computing and data systems from unauthorized access, both logical and physical.
Further, these systems must be secure from any possible destruction and unauthorized disclosure of sensitive data that may affect the enterprise’s ability to meet its business objectives. Chiefly, it shouldn’t in any way compromise the availability, privacy, confidentiality, and processing integrity of systems or data.
The most common SOC 2 security controls to review are logical access restricted to authorized personnel only, within an environment. Additionally, other factors are also analyzed such as:
- MFA (multi factor authentication).
- Password complexity.
- Branch protection regulations.
- Firewalls.
2. Availability
The systems are available, up and running for operational use as agreed upon. Concurrently, this criterion requires organizations to document a BCP (Business Continuity Plan) and DR (Disaster Recovery) plan and actions. It also typically involves testing the performance of backup and recovery systems.
3. Confidentiality
Consequently, confidential data, organizational data as well as customer data are secure as per the security agreement. This envelops B2B relationships and sharing of confidential data from one business to the other.
4. Processing Integrity
It involves system processing being well authorized, precise, valid, on time, and complete. Equally, this is applicable to service organizations that process transactions or payments. The smallest of errors in processing or calculations may directly affect your client’s crucial procedures or finances.
5. Privacy
Companies that gather, use, store, retain, disclose and discard the “personal information” of customers to cater to their business objectives must abide by sector privacy principles. Evidently CICA (Canadian Institute of Chartered Accountants) and AICPA (American Institute of Certified Public Accountants) makes those principles.
SOC 2 Compliance Checklist
By now we have understood that ‘Security’ is the founding stone of SOC 2 Compliance and all the other TSCs rely upon this broad umbrella.
SOC 2 security principles require service organizations to protect their customer data and assets by preventing any kind of unauthorized access. The key to this prevention is access controls that will mitigate misuse or illegal deletion of data, malicious attacks, data breaches, and so on.
Here is a simple SOC 2 Compliance Checklist comprising all the system controls to cover security standards:
1. Access Controls: physical and logical restrictions imposed on data and assets to prevent unauthorized individuals from accessing them.
2. System Operations: the controls to monitor currently running operations. Identify and resolve any vulnerability within business processes.
3. Change Management: Controlled processes to securely manage any changes made to the IT infrastructure, system, and processes and protect them from unauthorized modifications.
4. Risk Mitigation: security measures and action plan to help an organization detect risks; respond and mitigate them, without hindering other business processes.
By all means, SOC 2 Compliance Criteria do not dictate service organizations what to do and what not to do. Further, businesses are free to choose their relevant controls to cover specific security principles.
SOC 2 Audit Requirements
The SOC 2 Audit Process involves initial preparation and final execution. Furthermore, there are some of the key requirements of the SOC 2 Audit Procedure:
Prepare for the audit
Before hiring a CPA firm to conduct a SOC 2 audit for your service organization, make sure to carry out a few steps.
1. Define Audit Scope and Objectives
Make sure to identify and cater to the client organizations’ concerns and risk related questions. In return, it will help you choose and include relevant controls in the audit scope.
If you are not sure which TSCs to choose for your service, you can ask the auditor for assistance. With a clear scope and audit roadmap, you will be able to work on the documentation of policies.
2. Document procedure and policies
SOC 2 Type II is a long term procedure that may take more than 3 or 6 months. Hence, it is required to accurately and comprehensively document the information security policies based on the TSCs. Indeed, the auditor will use these policies to accordingly assess the controls.
The documentation process may be time consuming as per the chosen controls and principles. Likewise one must increase the size of the team working on documentation to accelerate the entire process.
3. Run a readiness assessment test
Moreover, run a gap analysis test against your documented policies to determine how much your organization is prepared for the SOC 2 audit.
Consider this assessment as a preliminary exam. Analysing and evaluating your own practices, framework and policies helps you identify risks beforehand if any.
Final Execution of SOC 2 Audit
Once the prepping up phase is over, the CPA firm will execute the audit as per SOC 2 checklist:
- Review the audit scope: CPA discusses the scope of the audit with you for clarity and to make sure both parties are on the same page.
- Model a project plan: The CPA auditor creates an action plan and convey the projected timeline for the completion of the plan.
- Testing controls: With the audit scope in mind, the auditor deeply analyses and tests the chosen controls to check for optimal operational efficiency.
- Documenting results: The auditor documents the evaluation of your controls and the results.
- Final delivery of audit report: The CPA auditor issues the final audit report comprising their opinion to manage information security of organization.
Best Practices for SOC 2 Compliance
Preparing for SOC 2 audit must involve a strategic plan with robust technical and administrative measures to simplify the entire process. Well prepared organizations are likely to face lesser challenges and achieve SOC 2 certification faster.
Below given are the Best Practices to employ when preparing for SOC 2 audit:
1. Set up administrative policies
SOPs (Standard Operating Procedures) and updated administrative policies are two basic elements upon which your security principles are established.
These policies must align well with your organizational workflows, infrastructure, employee structure, technologies, and day-to-day activities. Important thing is that your teams must understand these policies clearly.
Nevertheless, security policies determines how to employ security controls within your IT environment to retain the privacy and security of customer data. These policies must cover standard security procedures for different areas, such as:
- Disaster Recovery (DR): Define clear, strategic DR and backup standards and explain how you enforce, manage and test them.
- System Access: Define how you authorize, revoke or restrict access to sensitive data.
- Incident Response: Determine how you detect, report, analyse, and resolve security incidents.
- Risk Assessment and Analysis: Define how you assess, manage and resolve security related risks.
- Security Roles: Define how you assign roles and responsibilities to individuals based on their designation.
Make sure to timely review and update these policies, as your organizational processes change or evolve. The auditor checks these policies against your security controls to review their effectiveness.
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2. Create technical security controls
With security policies in mind, make sure robust technical security controls are in place within your IT infrastructure. These security controls are created around various areas, such as:
- Encryption.
- Firewalls and networking.
- Backups.
- Anomaly Alerts.
- IDS (Intrusion Detection Systems).
- Detailed Audit Logging.
- Vulnerability Scanning.
3. Documentation
Gather all relevant information, evidence, and materials that helps to accelerate the SOC 2 audit process. Then, collect the following documents in one place:
- Administrative Security Policies.
- Cloud and Infrastructure related Agreements, Attestations, and Certifications including:
- SOC 2 Report.
2. BAA (Business Associates’ Agreement).
3. SLAs (Service Level Agreements).
- All documents related to third party vendors such as contracts and agreements.
- Documents related to Technical Security Controls.
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Why SOC 2 Compliance is Necessary?
Service organizations that offer services to client organizations such as PaaS, and SaaS must comply with SOC 2 standards.
Why? Because, the SOC 2 audit and report acts as an assurance to stakeholders, clients, and all other entities involved that your internal control policies and practices strictly abide by AICPA guidelines.
By the same token, such an independent report also confirms that an organization is secure to protect customer data.
Who conducts SOC 2 Audit?
AICPA regulates SOC 2 audit and reporting and these procedures are conducted by a third party auditor from a licensed CPA firm. Only this way will the service organization receive official certification.
The CPA firm must have a specialization in Information Security and must ensure objectivity by being completely independent of the service provider in question.
These CPA firms are allowed to employ a non CPA, third party consultant that has expertise in Information Security to help in the audit process. But, the final report will be published by the CPA alone.
Thank you for reading SOC 2 Compliance Checklist – Audit Requirements Explained. We shall conclude.
SOC2 Compliance Checklist Audit Requirements Explained Conclusion
To conclude, SOC 2 is one of the significant frameworks to help service companies determine the data security controls they leverage to secure clients’ data.
A ‘passed’ SOC 2 audit report confirms that a service organization is abiding by best security practices when handling clients’ personal and sensitive data. When a CPA firm has a negative opinion on an audit report, it may provide a qualified or adverse opinion for correction.
