SOC Audits: Selecting the Best Approach for Your Business
It is vital they understand the internal controls ensuring that the principles of confidentiality, integrity and availability are in place and reliable. This functionality is designed to protect their own data as well as that of their customers.
In today’s competitive market, businesses must demonstrate that they are reliable and trustworthy organizations. Tim Marley, VP of Risk & Compliance at Cerberus Sentinel, narrows in on the power of effective SOC audits and how cracking the process for these could improve efficiency, output and strategic planning.
When businesses partner with each other or operate in the same supply chain, they are putting their trust in a third party. It is vital they understand the internal controls ensuring that the principles of confidentiality, integrity and availability are in place and reliable. This functionality is designed to protect their own data as well as that of their customers.
To support this need, organizations can procure System and Organization Controls (SOC) audits to verify the integrity of their processes. These audits are governed by the American Institute of Certified Public Accountants (AICPA) and are an independent assessment of an organization’s system controls. These auditors are either Certified Public Accountants (CPA) or working under the leadership of CPAs licensed by the state where the user entity has its primary place of business. Unlike traditional financial statement audits, these auditors are cross-trained or have extensive experience in the field of information technology, information security and regulatory compliance over information systems.
To better understand the applicability, consider that the AICPA breaks down the business relationship to “user organizations” and “service organizations.” The user organization is the entity that has engaged a service organization to provide a service on its behalf. The service organization is the entity providing services to a user organization. It is the responsibility of the service organization to obtain the SOC attestation. Typically this comes at the request of one or more of their user (client) organizations. A common example of this is found when you hire a Managed Service Provider (MSP). The user entity wants to rely on the service organization (MSP) to provide the principles of confidentiality, integrity and availability for the user entity systems. At the end of the day, they want to know that their systems are securely managed.
See more: 6 Ways Smart Automation Is Helping Companies Meet SOC 2 Requirements Today
The Three Primary Types of Audits
There are multiple audits to choose from, and each is different and carried out for a specific purpose. This sometimes means the most challenging part comes down to identifying which approach best suits an organization. What are the different types of SOC audits, and what type of business are each of them suited to?
SOC 1
A SOC 1 audit is used to assess a service organization’s controls over the systems that impact a user entity’s financial statements. This type of engagement is commonly done to provide financial auditors with a sense of the reliability of the systems used to store and process financial information. SOC 1 reports are categorized into either type 1 or 2 engagements. Type 1 looks at the controls “as of” a specified date, whereas type 2 will examine those same controls over a specified period of time.
SOC 2
A SOC 2 report is intended to provide an objective assessment of the controls providing security, availability, processing integrity, confidentiality and privacy of an organization’s client-supporting environment. With 3rd party risk management on the rise, so is the number of organizations seeking a SOC 2 audit. SOC 2 audits are by far the most popular. They are often used by software-as-a-service (SaaS) providers, technology companies and cloud platforms to communicate the effectiveness and safety of their services. SOC 2 reports (similar to SOC 1 reports) are broken down into either type 1 or 2 engagements. Type 1 looks at the controls “as of” a specified date, whereas type 2 will examine those same controls over a specified period of time.
Preparation for these audits is key as the assessment is thorough. This means before organizations go through the audit, they need to assess their internal controls and ensure there are no gaps in their security and privacy postures that could lead to exceptions on the SOC 2 report. The reports produced by SOC 2 auditors are confidential and contain sensitive information, so they should only be shared with select stakeholders.
SOC 3
SOC 3 is a general use report which organizations can use for marketing or to display on their website or distribute freely through other open channels. The report does not contain any confidential information about an organization’s systems and controls, it is primarily used to demonstrate credibility to customers, prospects and other people visiting their website. Frequently, auditors may provide an optional SOC 3 report to clients upon completion of a SOC 2 engagement.
Now let’s look at two industry-specific audit processes.
SOC for Supply Chain
This is the newest framework from AICPA and it is designed to improve transparency among organizations working in a supply chain. Today, there are many interdependencies between organizations that partner together to produce, manufacture and distribute their goods. These supply chains are often long and complex and if one link in the chain goes down, it can impact everyone else. This new framework looks to address this challenge by allowing service organizations to implement SOC audits so they can demonstrate the reliability and trustworthiness of their systems and highlight that they are addressing risks that could jeopardize their services.
SOC for Cybersecurity
This is another new framework from the AICPA and it is designed to assess the effectiveness of an organization’s cybersecurity and risk management programs. It is a voluntary reporting framework, and it can be used by businesses to communicate on their cybersecurity risk management program and the effectiveness of controls within it. The key difference between a SOC 2 and SOC for Cybersecurity is scope. While a SOC 2 focuses on the systems that store and/or process client data, SOC for Cybersecurity is a holistic view of the organization’s cybersecurity risk management program.
Cybercrime is a global problem affecting all organizations, so the framework demonstrates an organization has effective processes and controls in place to detect, respond to, mitigate and recover from breaches and other security events.
SOC audits are an important tool today to understand the effectiveness of controls organizations have in place to safeguard their customers and their own digital assets. Assessors will provide actionable advice on ways to improve processes and systems to help reduce risks. Organizations can use this insight to increase safety and better serve their customers, offering important benefits to all.
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