Most businesses will request a SOC report, although it is not formally required. All businesses have risks, and as an investor, you may want to be familiar with the risks involved. That is why before getting outsourced services to a specific organization, you may want to verify that the organization is following specific practices. So, that is where Service Organization Controls reports come in.
Let us look into more details concerning the same.
What is a SOC Report?
A Service Organization Control (SOC) report is the final result of a SOC audit, which assesses whether or not a service provider adheres to specific best practices of cybersecurity.
The audits are undertaken by independent auditors and they assure and assist potential clients to understand the possible risks associated with doing business with the examined dealer. SOC reporting provides a comprehensive and repeatable reporting process to help establish transparency and trust between user entities and service organizations.
Types of a SOC Report
SOC reports come in three different types, which include SOC 1, SOC 2, and SOC 3. We shall discuss them below.
1. SOC 1 Report
A SOC 1 report is a SOC report that assesses how the services provided affect the customer’s control over financial reporting. SOC 1 reports are designed to meet the needs of user entities and accountants who audit financial statements.
It is essentially an assessment of how effective a service organization’s controls are. SOC 1 reports come in two forms;
a) SOC 1 Type One
It concentrates on the service entity’s system, a description of a stated date, and how the system controls are suitable for achieving control objectives. SOC 1 Type 1 reports are normally confined to user entities, managers, and auditors.
b) SOC 1 Type Two
In a SOC 1 Type 2 report, the analysis is the same as that of type 1, except that it also includes views on the effectiveness of the operation of pre-established controls that are made to achieve the related control objectives in the description over a set period.
Type two of the SOC 1 report involves control objectives that address potential risks that the internal controls plan to mitigate. Its scope includes all the relevant control domains as well as assures that the internal control of financial reporting is only available to authorized persons. This report type also ensures that individuals are limited to performing only authorized and appropriate actions.
2. SOC 2 Report
A SOC 2 report is the most popular and operates more and is widely related to matters of security and governance. It describes how your services remain secure, how you protect sensitive data, and notes how well the organization keeps its commitments.
SOC 2 report has five Trust Service Categories abbreviated as TSC, and each contains criteria against which your controls and commitments to service would be examined, in case you choose to add certain categories. They include;
a) Security
Is your system safe? Is it protected against physical and logical access, use, or modification?
b) Availability
Is the system available for use as agreed?
c) Processing Integrity
The system should have complete, accurate, valid, and authorized processing.
d) Confidentiality
Is your clients’ confidential information protected as agreed?
e) Privacy
Personal information collected should be used, retained, and disclosed in conformity with the privacy notice and with other accepted privacy criteria.
3. SOC 3 Report
A SOC 3 report is an auditing technique that shows how well an organization’s internal security procedures for data centers and the cloud are working. They are designed for customers who need to be assured about the controls in a service organization that are relevant to security, privacy, availability, and processing integrity confidentiality but lack the need for or knowledge necessary to use a SOC 2 report effectively.
At higher levels, the service auditor evaluates the effectiveness of SOC in cybersecurity risk management programs according to the selected TSC. SOC 3 reports are less common but are usually made public as they do not contain any confidential information. Such reports are relevant to organizations that go through many SOC audits, have a matured and well-implemented system, and have many reports.
In general, service auditors look for the following policies and controls;
- Disaster recovery
- Access controls
- Processing monitoring
- Intrusion detection
- Quality assurance
- Two-factor authentication
- Network and application firewalls
- Encryption
- Security incident handling
- Performance monitoring
What Does a SOC Compliance Report Include?
A SOC report usually has four sections.
1. The Management Assertion
It is created by the executive leadership of the business that is being audited. This section attests to the effectiveness of the measures that were investigated and included in the audit. It also confirms and endorses the focus area, time frame, tools, and service providers that were used.
2. The Independent Auditor’s Opinion
The audit company handling the evaluation and conducting the audit procedure fills out this area. It certifies the auditor’s duties, what was done during the audit process to arrive at the report’s conclusion, and the alignment of testing.
3. System Description of the Control Environment
This section is the longest in a SOC report and it is a detailed description of the given control environment. Each testing area has sections dedicated to management controls, human resources, access controls, privileged access, specific sections dedicated to the TSC scope items being reviewed, vendors’ cloud providers, etc. It contains a comprehensive overview of the control environment as well as several sensitive data elements that are only relevant to certain restricted entities.
4. A Detailed List of Controls and Outcomes of Test
The last portion of the SOC report puts the testing done and outcomes into the Section 3 description. Naturally, the auditor tests all of the controls mentioned in the third section. Thus, consider section 4 to be the outcome of the entire audit process.
Importance of a SOC Report
Besides the fact that your current and potential customers may require a SOC report to work with you, there are other benefits of performing a SOC audit. Let us go through them briefly.
a) Gives Customers Peace
A SOC report offers valuable information into the risk and security landscape, governance over internal controls, vendor management, and regulatory compliance for your service firm. Your consumers may have peace of mind knowing their data is secure. Additionally, because they can reasonably be convinced that their systems and network are safe, it fulfills their third-party provider management standards.
b) Reduces Questionnaires
Very certainly, your company has been required to complete numerous protection questionnaires for your clients, which can be time-consuming and put additional stress on your personnel. But if you conduct a SOC audit, you may give your clients the SOC report instead of having them complete questionnaires.
c) Discover and Close Unwanted Gaps
The SOC exam questions an auditor poses to assist you to find weaknesses in your systems and procedures. You can subsequently address or strengthen these weaknesses using best practices to reduce your risk. For instance, you might find that your company undergoes a sufficient annual change that, rather than yearly, you should preferably undertake a security review every six months.
d) Gain a Competitive Advantage
Due to the prevalence of data breaches today, it is far more probable that a potential client will choose one company over another for a service and request a SOC report over one that cannot demonstrate compliance. The service provider that has a SOC report and has received official SOC certification proves that they are seriously committed to security and data protection.
Customers are requesting SOC audits more frequently in contracts as a requirement for dealing with businesses. Maintaining your customer base is an additional advantage because failing to be SOC compliant could result in you losing consumers in the future, as SOC audits are becoming more popular.
SOC Report for Cybersecurity
System and Organization Controls (SOC) for Cybersecurity is a market-driven, adaptable, and voluntary reporting system that enables firms to share information regarding the cybersecurity risk management strategy and the efficiency of the controls inside it. It was published by the American Institute of Certified Public Accountants (AICPA) in an attempt to fight the increasing cybersecurity attacks.
To allow all enterprises to communicate pertinent information about their risk management and cybersecurity programs, it employs a standard language for cybersecurity reporting that is similar to IFRS for financial reporting. The adoption of this common language improves and supplements exposures based on other widely used security frameworks, such as NIST, and allows for comparison between disclosures.
Frequently Asked Questions on SOC Reports
1. Is a SOC 1 report mandatory?
If your business offers a service that can affect your clients’ internal oversight of financial reporting, your customers or investors might demand SOC 1 reports. A SOC 1 can show you have specific IT general controls in addition to business procedure controls to support the completion of control objective statements. This depends on the sector your firm serves and the level of risk connected with the services you are providing.
2. When do you need a SOC report?
The law does not require SOC reports. Yet, some businesses demand a SOC assessment from potential vendors before working with them. Suppliers may also choose to volunteer for a SOC audit to show their customers that they are dedicated to secure financial reporting or cybersecurity.
3. When does one need a SOC 1 report?
A SOC 1 report is needed when a company relies on the service organization’s controls to implement efficient controls over the financial reporting procedures, a SOC 1 report is typically required.
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