Privacy, data security, and information handling are among the biggest concerns that organizations have when working with SaaS companies and service providers that store data in the cloud.
Enterprise companies and multinationals, in particular, are concerned about a vendor’s data handling and security standards as much as its product or service quality.
Companies often, find it hard to close enterprise deals with B2B clients unless they can assure the client of data security and proper management of sensitive information.
Getting a SOC 2 compliance certificate can make your job much easier.
Service Organization Control 2 (SOC 2) is an audited certification used to evaluate the data security standards and information management capabilities of service providers that store client data in the cloud.
In this article, I’ll describe the SOC 2 compliance requirements in detail and define the steps required to pass an independent SOC 2 audit successfully.
What Is SOC 2 Compliance Anyway?
The American Institute of CPAs (AICPA) developed Service Organization Control 2 (SOC 2) as a part of its Service Organization Control reporting platform.
SOC 2 is a technical audit and certification of the data security standards of technology-based organizations that store customer data in the cloud.
It measures the overall effectiveness and security of the data management practices of a company. It certifies that customer data is being handled, processed, stored, managed, and controlled in a fully audited and secure environment.
SOC 2 has become an essential certification for SaaS companies and other tech businesses to prove their data security standards.
Enterprise-level B2B clients often use SOC 2 audit reports to assess, provide information, verify a third-party vendor’s data management processes and filter out service providers.
When a business is SOC 2 compliant, it enforces proper systems to ensure security, availability, processing integrity, confidentiality, and customer data privacy.
Organizations working with SOC 2-compliant service providers can rest assured that their data is that much less vulnerable to attacks, such as data theft, unauthorized access, extortion, malware installation, or any other kind of manipulation.
Since AICPA regularizes SOC 2 audits, only approved and certified CPA firms can conduct SOC 2 audits of tech service companies.
Types Of SOC 2 Reports And Their Differences
There are two types of SOC 2 audit reports. For 100% SOC 2 compliance, companies need to obtain both types of SOC 2 audit reports.
SOC 2 Type 1 audit report measures, evaluates, and tests the data management and information security systems of a service provider at a specific point in time.
SOC 2 Type 2 audit report assesses the effectiveness of a company’s security systems, information management standards, and sustainability over a longer period depending on the report’s scope (usually 6 to 12 months).
Differences Between SOC 1, SOC 2, and SOC 3
It’s easy to confuse SOC 2 with SOC 1 and SOC 3, two similarly named audit reports.
Here are the key differences between them.
SOC 1 (Type 1 and 2): SOC 1 reports focus on reviewing and evaluating the safety of the procedures used for financial information handling.
SOC 2 (Type 1 and 2): SOC 2 reports evaluate how securely a tech service company manages and handles customer data. Because of the nature of SOC 2 compliance, these reports often have sensitive and confidential information that organizations might not be willing to share publicly.
SOC 3: These reports use the same criteria as SOC 2 but offer a trimmed-down version of the information about internal processes to be shared publicly to provide security assurance to the consumers.
How SOC 2 Compliance Works
The purpose of SOC 2 compliance is to give organizations a clear picture of how their data will be managed and handled to work with third-party service providers confidently.
SOC 2 compliance and audit processes are based on five core trust principles. These principles apply to most tech service companies. However, a company can omit a principle if it doesn’t apply to its business model.
Let me explain these principles in more detail.
This is the most crucial principle out of the five core trust principles of SOC 2 compliance.
It states that a SOC 2 compliant organization must ensure complete security of customer data from unauthorized access, theft, manipulation, alteration, destruction, or any other change from its original form.
To achieve this level of security, organizations should apply access controls and user rights management.
Additionally, you also apply two-step login authentication and data encryption to strengthen data security.
This principle requires that a SOC 2 compliant service provider ensures service availability and accessibility to its users at all times.
You can ensure this by enforcing a service level agreement (SLA) that clearly outlines the timelines on the availability of the product, system, and data stored with the service provider.
It should also list the conditions that could affect system availability and the possible measures that the company will take in such circumstances.
To ensure that system availability is up to the level agreed in the SLA, SOC 2 compliant service providers must set up a performance monitoring mechanism that alerts the system admin in case of any deviation from the agreed service level.
Additionally, service providers should have a disaster recovery plan and a security handling mechanism to deal with any possible threats to the system.
This principle states that a SOC 2 compliant service provider should ensure that the system achieves its purpose by servicing the correct data, in a complete form, at the right time. The data should always be complete, valid, accurate, timely, and authorized.
However, sometimes processing integrity isn’t enough to ensure data integrity. For example, if the data entered into the system is inaccurate, the resultant will also be inaccurate despite flawless processing. This is why quality assurance and monitoring are crucial before data entry, during data processing, and after the process is successfully completed.
The confidentiality principle requires that SOC 2 compliant service providers ensure the complete security and confidentiality of sensitive data. Data is considered confidential if its access is limited to specific individuals or entities.
To ensure confidentiality during data transmission, service providers should use data encryption, network and application firewalls. Maintaining high-level access controls also plays a crucial role in safeguarding confidential data from unauthorized access and unwanted exposure.
The privacy principle requires that SOC 2 compliant service providers develop a mechanism that addresses the system’s collection, use, retention, disclosure, and disposal of personal information in conformity with an organization’s privacy notice and with the criteria determined by AICPA.
This also includes protecting sensitive personal data related to health, race, sexuality, and religion.
How to Get Started With SOC 2 Compliance
The trust principles I’ve described in the previous section are the foundation of SOC 2 compliance. Any organization looking to get SOC 2 certified needs to tailor its processes, organizational structure, data handling practices, service level agreements, and customer relationship in line with these trust principles.
The time it takes an organization to fully comply with SOC 2 certification requirements depends on its existing structure and data handling practices.
Some organizations already have rigorous processes and only need to make minor changes before undergoing a SOC 2 audit.
Others need complete restructuring, better systems, and legal documentation to move towards SOC 2 compliance.
Based on the SOC 2 audit’s trust principles, here are some of the steps service providers can take to align with the certification requirements.
Step 1: Understand What SOC 2 Principles Apply To Your Business
The first step of becoming a SOC 2 compliance service provider is to understand the certification requirements. Unlike many other quality certifications, SOC 2 does not require companies to apply every trust principle strictly.
Instead, you need to identify the principles that apply to your business model and are most crucial to your customers. Remember, the objective of SOC 2 compliance is to ensure that your customers can work with you knowing that their data is in safe hands and will not be manipulated in any way.
This is why you should prioritize the processes that your customers are most concerned about and directly impact their business.
Step 2: Run Internal Audits For Requirement Gathering
Once you understand how SOC 2 applies to your business model, run an internal audit of your systems and processes to evaluate your current performance against the required standards.
You should conduct this audit through your internal employees who are aware of the SOC 2 requirements.
Ensure that they conduct an unbiased audit that gives you a clear picture of where you currently stand. Use this as a requirement gathering exercise and note down all the potential improvement areas.
Step 3: Apply Security Controls
SOC 2 compliance recommends five core trust principles. Service providers can choose to apply the principles that are relevant to their business models.
However, security is a mandatory principle that every SOC 2 compliant company must ensure.
The security principle requires that service providers protect customer data from theft, unauthorized access, modification, and any kind of manipulation that the customer disapproves of.
To ensure this, you need to apply specific security controls throughout your data management processes.
Here are the steps that SOC 2 recommends.
Access Controls: Create a complete access control system that ensures that data is only accessible to the approved users. The authorized users should be assigned roles with their own set of permissions to ensure that the ability to cause any significant change to data (if needed) remains with the most trusted users.
Two-Factor Authentication: On top of access rights, apply two-factor authentication (2FA) to ensure that the approved user accounts are secure and protected from unauthorized access and identity theft.
Data encryption: The data should be saved in an encrypted format, and only the approved users with the necessary access keys can interpret it.
Step 4: Ensure Best Practices In Data Management
Applying the fundamental security controls is mandatory for all service providers to comply with SOC 2 requirements.
For the rest of the trust principles, you need to analyze the gaps in your internal processes and decide if you need to apply them before moving on to the official audit stage.
Apart from security, the other principles that most businesses need to comply with are privacy and process integrity.
To ensure that you don’t face any problems in your compliance certification, make sure you apply the required quality checks for data protection.
Step 5: Run Internal Audit To Measure Compliance
Hiring an AICPA approved firm to audit your company for SOC 2 compliance is an expensive undertaking. Therefore it’s vital that your audit meets the required criteria in your first attempt.
For this purpose, you need to run an internal audit to measure compliance before the actual audit occurs. This helps you identify any shortcomings in the system or any process deficiencies that your team might have overlooked.
Take this internal audit seriously and treat it with the same importance as the official audit because it can help you ace the official audit.
Step 6: Schedule Your Official SOC 2 Audit
Once you’re satisfied with your internal processes and ensure that everything is compliant with the SOC 2 audit criteria, schedule your official audit with an approved audit firm.
SOC 2 audits can only be performed by AICPA approved audit firms and can cost you anywhere between $20,000 to $45,000.
The audit usually takes around 2-3 months to complete if your company has all the information readily available and documented.
Once you successfully pass the SOC 2 compliance audit, you can proudly feature its badge on your website and mention it in your sales and marketing material so that your customers know you can handle their data in line with the best data security practices.