SOC 2 – Demonstrating Service Commitments and System Requirements

When handling customer data, service organizations need to demonstrate their ability to do so securely and in alignment with their service objectives. As such, the System and Organization Controls (SOC) 2 report was developed by the American Institute of Certified Public Accountants (AICPA) to provide this framework. SOC 2 is used to demonstrate such information to customers, prospects and other stakeholders. These reports offer assurance that a service organization is able to meet its service commitment and system requirements. The AICPA developed this benchmark to instill high standards in data security, availability, processing integrity, confidentiality and privacy for customer data handling.

SOC 2 is often seen as a competitive advantage, as it highlights an organization’s commitment to maintaining a strong control environment and security practices. Below, we explore what goes into a SOC 2 report, as well as its importance and key components.

What is SOC 2?

Organizations use SOC 2, an auditing procedure, to assess and communicate their approach to managing customer data and provisioning services according to the AICPA’s “Trust Service Criteria” (TSC). Unlike standardized compliance frameworks, SOC 2 reports are customized to each organization, reflecting their unique practices and operations. This flexibility makes SOC 2 highly versatile across industries, as the controls implemented for compliance are tailored to the organization’s specific requirements.

There are two types of SOC 2 reports, according to the AICPA:

• Type I: Evaluates an organization’s systems and the suitability of its control designs at a specific moment in time.
• Type II: Assesses the operational effectiveness of those controls over a period, usually ranging from six months to a year.

The Trust Service Criteria

The AICPA TSC allows organizations to design their controls to achieve the applicable combination of the five key areas provided below (based on their business needs and contractual obligations); only mandating that security is assessed:

1. Security: As this is the only criteria the TSC requires organizations to evaluate, it focuses on risks that could compromise the availability, integrity, confidentiality, and privacy of information or systems. Concerns that could affect an entity’s ability to achieve its objectives include: unauthorized access to information and systems; unauthorized disclosure of information; and damage to systems concerning privacy of information or systems.
2. Availability: This evaluates whether information and systems are accessible and operational to support the achievement of the entity’s objectives.
3. Processing Integrity: This measures system processing, making sure it is complete, valid, accurate, timely and authorized to meet the entity’s goals.
4. Confidentiality: This area assesses that information designated as confidential is protected.
5. Privacy: This evaluates whether personal information is collected, used, retained, disclosed and disposed of in a way that meets the entity’s requirements.

Why SOC 2 Compliance Matters

SOC 2 compliance helps organizations mitigate data breach and cyber risks by establishing a formal protocol. It also assures customers that their data is handled securely.

Companies operating in highly regulated industries can lean on SOC 2 compliance as a valuable complement to other regulatory standards, such as GDPR or HIPAA. Organizations can even integrate additional criteria into their SOC 2 reports to address these regulations, producing what is known as a “SOC 2+” report. This demonstrates the company’s ability to meet both the SOC 2 TSC and other relevant compliance requirements, ultimately streamlining comprehensive regulatory oversight.

Consider sectors like cloud computing, SaaS and technology, where data security is a critical concern. Performing this audit and achieving SOC 2 compliance provides assurance that organizations’ processes and systems can mitigate risks through a sound control environment.  

Lastly, SOC 2 compliance can be used to facilitate continual improvements in enhancing risk management by helping businesses identify weaknesses through auditing their processes. Proactively addressing these vulnerabilities allows organizations to minimize the likelihood of data breaches and other security incidents.

Our next article discusses how to achieve SOC 2 compliance, avoid common obstacles and best practices for maintaining compliance. To talk to our team of internal audit and SOC 2 report experts, please contact us.