SOC 2 Report Criteria and FAQs

SOC 2 FAQs

When a client pursues a SOC 2 audit for the first-time, they normally ask: What are the requirements of a SOC 2 audit? How are we going to be judged? What can I do to prepare? Which Trust Services Criteria should I select? KirkpatrickPrice strives to be your audit partner and will work with your organization to answer each of these SOC 2 FAQs.

Preparing for a SOC 2 Audit

One of the most common SOC 2 FAQs is: How should I be preparing for a SOC 2 audit? One of the best things to do when preparing for a SOC 2 audit is review the purpose of the final component of a SOC 2 audit report, which describes the controls in place to meet the Trust Services Criteria and describes the auditor’s test of controls to determine the effectiveness of the controls. Each category of the Trust Services Criteria has standards that you must meet to demonstrate your compliance. When preparing for a SOC 2 audit, your organization should go through these standards and review how you meet each one.

For example, the security principle requires that the entity, your organization, “has established workforce conduct standards, implemented workforce candidate background screenings procedures, and conducts enforcement procedures to enable it to meet its commitments and requirements as they relate to the applicable Trust Services Principles.” How would you organization review how you meet this standard?

The first element of this criteria is workforce conduct standards. An assessor would ask your organization questions like:

  • What are your workforce conduct standards? For many organizations, this will be a part of your employee handbook.
  • Do you have employees acknowledge the employee handbook?
  • Do you offer training to teach what your workforce conduct standards are?

The security principle criteria also specifies background screening procedures. To verify compliance with this criteria, an assessor would ask your organization questions like:

  • Do you have written policies and procedures? This may also be a part of your employee handbook.
  • Can we see evidence that background screening reports have been ordered? We want to ensure that when an organization says they’re doing background screening, they’re actually doing background screening.

The last element in this example is conducting enforcement procedures.

  • How do you enforce employee handbook standards that govern workplace conduct?
  • How do you enforce the policies and procedures relevant to background screening?
  • Do you communicate the consequences of violating these standards to your employees?

How would your organization prepare for a SOC 2 audit? Preparing for a SOC 2 audit requires many exercises in risk management, internal control review, and comparison with the Trust Services Criteria. To discover answers to more of your SOC 2 FAQs, contact us today.

Video Transcript

Some of the SOC 2 FAQs that we receive from clients who contact us about a SOC 2 report are: what are the requirements? What do I need to do to prepare? How are we going to be judged against the standard?

The way that a SOC 2 audit report works is we will be looking at criteria. As part of the Trust Services Principles (recently updated to the 2017 Trust Services Criteria), each principle has criteria that you must meet to demonstrate that you have placed this criteria into operation in order to meet the purpose of the principle that’s being audited.

Let me give you an example of a criteria so this idea can start to take shape and you can picture what an audit might look like when working with us during a SOC 2 engagement. In the security principle, which is also referred to as the Common Criteria for SOC 2 audit reports, there’s criteria that states, “The entity has established workforce conduct standards, implemented workforce candidate background screenings procedures, and conducts enforcement procedures to enable it to meet its commitments and requirements as they relate to the applicable Trust Services Principles.” When we look at that criteria, we’re going to be asking you: What are your workforce conduct standards? For a lot of people, that will be contained within an employee handbook that governs the conduct standards that you have for your employees while they’re under your employment. Do you have them acknowledge the handbook? Do you do training in order for them to understand what the standards are? Those are the types of things that we would look at in order to determine whether or not the criteria are in place.

This piece of criteria also specifies background screening procedures. So, we would expect to see a procedure on that written out, usually part of an employee handbook. We would also want to see evidence that the background screening reports have been ordered and you’re actually doing that for any employee hired. We have encountered situations where an organization says that they’re doing background checks in accordance with the criteria, but then we see that they haven’t done the background checks. We need to see that the criteria has been met.

The last piece in this example I’ve given you is that you conduct enforcement procedures in order to enable your organization to meet its commitments. In other words, if you have an employee handbook that governs workplace conduct, if you have a policy that you must perform background checks when people are hired, how do you enforce that? How do you make sure that people are actually following the rules? We would ask you how you monitor that, if you address standards in performance reviews, and do you communicate to your employees that violation of those standards or background check requirements would result in some type of discipline up to termination.

This is an example of criteria and how you’d be able to demonstrate that you meet the criteria. That’s the type of thing to prepare for in your SOC 2 audit report.

What Will Be in My SOC 2 Report?

The Seven Components of a SOC 2 Report

You’ve partnered with a licensed CPA firm, you’ve properly scoped your environment, you’ve conducted a SOC 2 gap analysis, you’ve remedied any non-compliant findings, you’ve worked with your auditor, you’ve completed your SOC 2 audit and achieved SOC 2 compliance, and now you’re finally receiving your SOC 2 report. Congratulations! You may be wondering, what will be in my SOC 2 report? The seven components of a SOC 2 report include:

  1. Assertion – Provides a description to users on the service organization’s system controls, intended to meet Trust Services Criteria.
  2. Independent Service Auditor’s Report – Provides a description of the service auditor’s examination of the suitability and effectiveness of the controls to meet the criteria.
  3. System Overview – Provides background information on the service organization.
  4. Infrastructure – Provides a description of the software, people, procedures, and data within the organization’s environment.
  5. Relevant Aspects of Controls – Provides a description on the control environment, the risk assessment process, information communication systems, and monitoring of controls.
  6. Complementary User-Entity Controls – Provides a description on how controls are implemented at the user organization.
  7. Trust Services Criteria, Related Controls, and Tests of Controls – Outlines the controls in place and describes the tests on the effectiveness of the controls to meet the criteria.

Now that you have achieved SOC 2 compliance and received your SOC 2 report, the seven components of a SOC 2 report will provide user entities with reasonable assurance and the peace of mind that the controls at your service organization are suitably designed, in place, and appropriately protecting client data. A SOC 2 report can only be read by the user organizations that rely on your services, but a SOC 3 can be freely distributed, used in many different applications.

Reach out to us today if your service organization has been asking any of the following questions:

  • What is a SOC 2 report?
  • What will be in my SOC 2 report?
  • What are the Trust Services Criteria?
  • Why is a SOC 2 report valuable?
  • What is a SOC 3 report?
  • How can I market my SOC 2 compliance?

Video Transcript

We frequently get the question: what will be in my SOC 2 report? The first of the seven components of a SOC 2 report is the assertion. The assertion provides a description to users on the service organization’s system controls, intended to meet Trust Services Criteria. The second section is Independent Service Auditor’s Report. The section provides a description of the service auditor’s examination of the suitability and effectiveness of the controls to meet the criteria. Next, we have system overview. The system overview provides background on the service organization. Infrastructure is next. Infrastructure provides a description on the software, people, procedures, and data. Next, we have Relevant Aspects of Controls. This section provides a description on the control environment, the risk assessment process, information communication systems, and monitoring of controls. Next, we have Complementary User-Entity Controls. This section provides a description on how controls are implemented at the user organization. Lastly, we have Trust Services Criteria, Related Controls, and Tests of Controls. This section outlines the controls in place and describes the tests on the effectiveness of the controls to meet the criteria.

If you have any questions about a SOC 2 report, or if you’re interested our SOC 2 compliance services, please reach out to us today.

What is the Purpose of the SOC 2 Privacy Principle?

Why Choose the Privacy Principle?

Once you’ve determined you are ready to pursue a SOC 2 audit report, the first thing you have to decide is which of the five Trust Services Criteria you want to include in your SOC 2 audit report. Typically, service organizations that are concerned about the Privacy Principle are collecting, using, retaining, disclosing, and/or disposing of personal information to deliver their services.

A classic example is a doctor’s office. What’s one of the first items that the receptionist hands you? A Notice of Privacy Practices. Why? You’re about to disclose personal information about your medical conditions to a medical provider, as well as provide them with other personal information like your data of birth, insurance information, list of medications that you’re on. So, what if the office shares that personal information with some type of a marketing company to help market services or prescriptions to you? What if they share it with a research organization that’s conducting research about treatments for your condition? What if they give that information to other medical providers who are providing services to you, or to an insurance company? That Notice of Privacy Practices must fully inform you of who your personal information will be shared with.

Including the Privacy Principle in your SOC 2 audit report ensures that your organization is handling client data in accordance with any commitments in the privacy notice as committed or agreed upon. The Privacy Principle also demonstrates that you’re handling client data in accordance with criteria issued by the AICPA, including:

  1. Management: Service organizations must define, document, and implement privacy policies and procedures, which govern how personal information is used.
  2. Notice: Service organizations must provide notice to consumers about its privacy policies and procedures, fully informing them of how personal information is used.
  3. Choice and Consent: Individuals must have the ability to choose how personal information is used and give consent for the use their personal information.
  4. Collection: Service organizations only collect personal information for the purposes described in the notice; services organizations will not use it for any another reason.
  5. Use, Retention, and Disposal: Service organizations will have privacy policies and procedures that define how personal information is used, retained, and disposed of.
  6. Access: Service organizations provide individuals with the ability to access their information for review and updating.
  7. Disclosure to Third Parties: Service organizations will only disclose personal information to third parties identified in the notice.
  8. Security: Service organizations protect personal information through physical and logical access controls.
  9. Quality: Service organizations need to have quality management procedures in order to not only protect personal information, but make to sure it’s complete and accurate in the way it’s used.
  10. Monitoring and Enforcement: Service organizations must monitor their compliance with privacy practices.

If you’re ready to begin your SOC 2 audit report and need some help determining which of the Trust Services Criteria you should include, contact us today.

Video Transcript

When you include the Privacy Principle in your SOC 2 audit report, it’s important to understand the purpose of the Privacy Principle and the generally-accepted Privacy principles issued by the AICPA. Typically, organizations that are concerned about the Privacy Principle are collecting information directly from consumers. They are using that information in some way in the course of providing their service and you have to determine if this applies to you.

The classic example is when you walk into a doctor’s office, what happens? They ask you to sign an acknowledgement that you have been given a Privacy Notice. That’s very obvious why that applies in that situation. You’re about to see a medical provider, you’re about to provide personal information about your medical conditions, you’re going to give them your data of birth, insurance information, the medications that you’re on, and they may use that information to share with some type of a marketing company to help market services or prescriptions to you. They might share that information with a research organization who’s conducting research about treatments and experiences with your medical providers. They might share that information with other physicians who are providing services to you. They might be sharing that information with insurance companies. That Privacy Notice is supposed to disclose that and let you know what you have the option to opt out and fully inform you as a consumer.

If you, in your business, are implementing the Privacy Principle, you have to have a method for managing your privacy policies and procedures that you will put into place to govern how personal information is used. You will provide notice to consumers about how you’re going to use their information so that they’re fully informed, you’re going to give them the ability to have some choice in the matter, and you’re going to ask them to give you consent to use their information in the way that you are intending to use it. You’re only going to collect information that is for the purpose of delivering your service, you’re not going to use it for another reason that you have not notified them about. You’re going to have privacy policies and procedures about how personal information is used, how you retain it, and how you dispose of it. Do you keep that information perpetually? Do you keep it for 20 years, 10 years, 7 years? You have to have those things defined in your policies about how you will keep and then eventually dispose of that information. You have to provide consumers with the ability to access their information; they have a right to know what you have and how you’re using it. You have to have privacy policies and procedures that govern how you disclose information to third parties who might be service providers to you and help you in the delivery of your services. You have to have security procedures in place in order to protect that information while you have it within your custody. You will have to have some quality management procedures in order to not only protect the information, but make sure it’s complete and accurate in the way that you’re using it and you don’t make mistakes in sharing information that you shouldn’t or misrepresent the consumers information in some way. Finally, you have to have your own monitoring practice in order to monitor that you are in compliance with your policies and procedures and you are monitoring how personal information is used on a daily basis.

There’s a lot of things to think about with the 10 principles within the SOC 2 Privacy Principle, and please contact us if we can help you understand this any further.

What’s the Difference Between SOC 2 Type I and SOC 2 Type II?

What is a SOC 2 Audit?

A SOC 2 audit, or Service Organization Control 2, is an audit of a service organization’s non-financial reporting controls as they relate to the Trust Services Criteria – the security, availability, processing integrity, confidentiality, and privacy of a system. A SOC 2 audit report provides user entities with reasonable assurance and peace of mind that the non-financial reporting controls at a service organization are suitably designed, in place, and appropriately protecting sensitive client data. There are two types of SOC 2 audit reports – SOC 2 Type I and SOC 2 Type II.

SOC 2 Type I vs. SOC 2 Type II

A SOC 2 Type I and SOC 2 Type II both report on the non-financial reporting controls and processes at a service organization as they relate to the Trust Services Criteria. There are many other similarities between SOC 2 Type I and SOC 2 Type II reports, but the key difference is that a SOC 2 Type I report is an attestation of controls at a service organization at a specific point in time, whereas a SOC 2 Type II report is an attestation of controls at a service organization over a minimum six-month period. The SOC 2 Type I reports on the description of controls provided by management of the service organization and attests that the controls are suitably designed and implemented. The SOC 2 Type II reports on the description of controls provided by management of the service organization, attests that the controls are suitably designed and implemented, and attests to the operating effectiveness of the controls.

As a CPA firm, we advise clients who are engaging in a SOC 2 audit for the first time to begin with a Type I and move on to a Type II the following audit period. This gives service organizations a good starting point and more time to focus on the description of their system, allowing them to mature their environment over time.

Many organizations are required to undergo a third-party SOC 2 audit. If you have questions about which type of SOC report you need or want help demonstrating to your clients your commitment to security and compliance, contact us today.

Video Transcript

There are two types of SOC 2 audit reports: Type I and Type II. Often times, if you’re doing a SOC 2 audit report for the first time, you’ll start with a Type I. It’s an engagement where we, as an auditor, are reporting on management’s description of the controls that are placed into operation. We will also provide an opinion on the suitability of the design of those controls.

A Type II report for a SOC 2 audit includes the exact same sections as I just mentioned in the Type I, but there’s an additional section that talks about the operating effectiveness of those controls that you’ve put into place. What the auditor does in a Type II report is perform tests of operating effectiveness to validate that the controls are in place and operating effectively. It’s important to understand the distinction between the two types of reports because your clients may ask for a Type II and you need to be aware of what the difference is between the SOC 2 Type I vs. SOC 2 Type II. If you are just beginning the SOC 2 audit process, you may consider beginning with the Type I so that we can spend more time focused on your description of the system that you have in place at your service organization, and whether or not those controls are suitably designed before moving onto testing of operating effectiveness in the SOC 2 Type II audit report.

What Is The SOC 2 Security Principle?

History of the SOC 2 Trust Services Principles

The Service Organization Control 2 (SOC 2) Report focuses on non-financial controls at an organization as they relate to security, availability, processing integrity, confidentiality, and privacy. These are also known as the Trust Services Principles. In 2014, the SOC 2 Trust Services Principles were updated, and one of the major changes was to the SOC 2 security principle. This change to the Common Criteria helped to eliminate the overlap between the Trust Services Principles (TSPs). Before this update, a lot of SOC 2 reports had the same controls repeated over and over in order to address the overlapping requirements between the Trust Services Principles. Since the update in 2014, they have developed what are known as the Common Criteria that apply to all SOC 2 audit reports.

What is the SOC 2 Security Principle?

The SOC 2 Security Principle is a must, and should be included in any non-privacy principle SOC 2 engagement. The Security Principle now consists of Common Criteria to all TSPs within the audit report, and includes the following seven categories:

  • Organization and Management: How is your company structured? How do you oversee the services your organization performs?
  • Communication: How do you communicate to your internal and external users about how your system works? How do you communicate policies, procedures, and expectations to authorized users and other parties?
  • Risk Assessment and Risk Management: How are you implementing controls to manage known risks? How do you select the controls that are put in place to meet the criteria? A risk assessment must be performed in order to determine what controls are necessary to address the risks that your organization is dealing with.
  • Monitoring: Monitoring is a follow up to risk management. Once you’ve put a control in place, how are you monitoring it to know that it is operating effectively and appropriately addressing the risk? Do any changes or remediations need to be made?
  • Physical and Logical Access: How do you control access to sensitive data and systems within your organization? You should be implementing physical controls, such as a door leading to an area that contains sensitive information that is controlled by a card reader or a lock and key. You should also be implementing logical controls such as implementing passwords or requirements for identifying a user before they are authorized to access a system.
  • System Operations: This criteria deals with how your organization manages day-to-day processes and procedures. This includes what you do on a daily, weekly, and monthly basis to execute your services.
  • Change Management: Lastly, when you have to make changes to your system or services, how are these changes being documented? How are you testing those changes and addressing any new risks that may be associated with these changes? How are they approved prior to making the change in your environment?

These common criteria should be reviewed by all organizations before being audited against the SOC 2 security principle and must be in place for your auditor to review. For more information on preparing for your SOC 2 audit or help with meeting these common criteria, contact us today.

Video Transcription

In 2014, the SOC 2 Trust Services Principles were updated and one of the major modifications is the Security Principle, which is really referred to now as having the common criteria for all of the Trust Services Principles within the SOC 2 Audit Report. What that means is that everything was condensed, all of the redundancies were taken out of the process, so that we could focus on this common criteria that applies to any of the Principles, so that a Service Organization would not have to repeat themselves over and over again throughout the report. The Security Principle is a “must” to have in your SOC 2 Audit Report because of that common criteria. It has to be included in a non-Privacy Principle SOC 2 audit engagement.

There are 7 categories within the Security Principle. There is Organization and Management – how is your company structured? How do you oversee the services that you perform? Communication – how do you communicate to internal and external users about how your system works? How do you communicate about policies and procedures and expectations? Risk Assessment and Management of Risk through the implementation of controls – how does your organization select the controls that you put in place to meet the criteria? It has to be done through some type of Risk Assessment in order to determine what kind of controls are necessary to address the risk that you are dealing with. The thing that follows up to that is the Monitoring of Controls – once you put a control in place, how do you monitor it to make sure that it’s effective and that you don’t need any changes or remediation if the control becomes ineffective? That’s done through Monitoring. There’s also Logical Access and Physical Access to sensitive information and systems – how do you control access like entering from a door into a sensitive area that may be controlled by some type of a card reader or lock and key?  And also Logical Access – are there passwords? Are there requirements for identifying the user before they access the system? And then also, we’ve got System Operations, which has to do with your day-to-day processing – what are your procedures? What do you do on a daily, weekly, and monthly schedule in the execution of your services? And lastly, we’ll be looking at Change Management, which is when you have to make changes to your system or your service that you’re providing, how do you document those changes? How do you test them? How do you evaluate the risk? How do you prove them in order to make sure that those changes are well-documented and approved prior to making the change in the environment?

So these are some areas to think about as you prepare to be audited against the Security Principle, because that criteria will be very important to have in place for your auditor to review.