System and Organization Controls (SOC) Certification

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Introduction

SOC stands for System and Organization Controls and was developed by the American Institute of CPAs. It is a voluntary compliance standard for service organisations to manage how they report financial and security data to customers. The SOC (System and Organization Controls) Certification is essential as it offers a third-party assessment of an organisation's internal controls that are associated with data security, confidentiality, and privacy.

System and Organization Controls SOC audit is therefore a comprehensive evaluation of a company’s internal control system. It is performed by a certified public accountant (CPA) to ensure that the company’s controls are operating effectively and efficiently. The audit is based on the American Institute of Certified Public Accountants (AICPA) SOC framework, which includes three types of SOC audits.

Types of SOC Audit

The three types of SOC audits are SOC 1, SOC 2, and SOC 3.

1. SOC 1 for Financial Reporting

This solution is specifically tailored for organisations that play a significant role in influencing the financial statements of their clients. SOC 1 reports are typically used by companies that provide services to other companies, such as data centres or payroll processors. 

SOC 1 reports are intended to provide assurance to stakeholders that the company’s financial statements are accurate and complete. There are two types of SOC 1 audit which are ‘SOC 1 Type 1’ and ‘SOC 1 Type II’

SOC 1 Type I: The type I report provides a description of your company, the internal control environment, references to your policies and procedures, and an opinion on the suitability and design of the controls in place at the point in time the report was issued.

It provides very little value to your customers/partners because it does not provide an opinion on whether you’re actually following your own policies and procedures. Typically, Type I report serves as a precursor to the SOC 1 Type II.

SOC 1 Type II: This provides clients in highly regulated industries documentable assurances that their confidential customer data is being handled correctly. The report examines the design of your compliance project at a specific point in time (month/day/year). The report will look at your policies to protect customer data along with information security measures.

2. SOC 2 for Trust Service Criteria

This is intended for companies in the IT, cloud, or SaaS sectors that deal with sensitive customer data. It is designed to “provide assurance to stakeholders that the company’s systems are secure, available, and processing transactions accurately.”

Therefore, SOC 2 compliance is usually for non-financial information, including security controls and processing integrity. It assesses the operational controls of a company to guarantee defence against data breaches, illegal access, and privacy issues.  The Purpose of SOC2 audit is to evaluate an organisation’s information systems relevant to: Security, availability, integrity, confidentiality, and/or Privacy.

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• Security: Security measures how protected the system is against unauthorised access (physical and logical).

  
  

• Availability: Is the system available for operation and use as agreed? Companies must document disaster recovery and business continuity plans and procedures. This also requires the performance of backups and recovery tests.

  
  

• Integrity: System processing must be complete, accurate, and authorised. Processing integrity is relevant to companies that process transactions, such as payments.

  
  

• Confidentiality: Does the system protect confidential information according to policy? This can cover B2B relationships and the sharing of sensitive data from one business to another.

  
  

• Privacy: The auditor will consider the privacy criteria when personal information is collected, used, retained, disclosed and/or disposed of. Keep in mind: Privacy is different from confidentiality. Privacy only pertains to personal information. Confidentiality pertains to other types of sensitive information.

  
  

Meanwhile, similar to SOC 1, The SOC 2 has a Type 1 and a Type 2 also. 

The SOC 2 Type 1 report describes a business's systems and whether the plan complies with the relevant SOC 2 trust services principles. This means that the SOC 2 Type 1 report concerns policies and procedures that are in operation at a specific moment in time. It assesses the design of controls in a service organisation as of a specified date. It determines whether the controls in place are suitably designed to meet the trust service criteria, such as security and availability, but does not check if these controls continue to perform over time.

Typically, this report applies to a system under development or an organisation that has been inactive for some time. It is a one-off picture. For instance, if a cloud service provides strong security measures in practice, a SOC 2 Type 1 report would confirm whether such measures as security controls were in place at the time of preparing this audit report.

The SOC 2 Type 2 report details the operational efficiency of systems. This implies that the SOC 2 Type 2 assesses and tests the design and operating effectiveness of the service organisation's controls over a certain period, usually ranging from six months to a year. It not only verifies the existence of controls but also checks the extent to which the controls worked over the time frame of the audit.

Therefore, the SOC 2 Type 2 audit is more detailed than SOC 2 Type 1 and it offers more comfort to organisations, such as those that have relied on the service provider for a long time. It is generally one of the basic requirements for organisations that deal with sensitive or high-risk information. The same cloud provider would go through a Type 2 audit with the aim of showing that its security measures, such as encryption protocols and firewalls, did not fail for a period of, say, 6-12 months.

Hence, the SOC 2 Type 2 report requires a Non-Disclosure Agreement (NDA) because it provides more detailed information about the service organisation's controls and their effectiveness, which can be considered confidential.

SOC 2 Type 2 and Cloud Providers

A significant application of SOC 2 Type 2 that must be considered is its role in ensuring compliance of cloud providers including the ‘Big Three’. While it's true that you cannot directly check the data of major cloud providers like Azure, Google Cloud, and AWS, the SOC 2 Type 2 report offers insight into how these providers implement and manage security and compliance controls.

SOC 2 Type 2 is an audited report provided by an independent third-party auditor, who evaluates whether the service provider meets the required standards over a period of time. The cloud providers undergo these audits regularly to demonstrate that they maintain high standards of security and data management, and they make these reports available to their clients

3. SOC 3 

SOC 3 audits are similar to SOC 2 audits, but they are intended for public consumption. SOC 3 reports provide a high-level overview of a company’s controls related to security, availability, processing integrity, confidentiality, and privacy.

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It should be noted that while it is meant for a non-technical, wider audience, it adheres to the same framework as SOC 2. This is because they are intended to be used by companies that want to demonstrate their commitment to security and compliance to their customers and partners.

Hence, it can be deduced that while SOC 1 is domiciled on Financial Reporting Controls, SOC 2 bothers itself on Security, Confidentiality, and Privacy Controls which is more detailed and crucial to Cybersecurity, SOC 3 focuses on providing Public Summary of SOC 2 whilst offering high-level assurances without technical details.

Importance of SOC Certification in Cybersecurity

1. The AICPA’s SOC for Cybersecurity can provide an extra layer of assurance of the practices and controls within an organisation’s cybersecurity risk management, which will build trust for customers and investors.

2. Improves risk management: SOC audits identify potential risks and weaknesses in an organisation’s control environment. The audit report provides recommendations for improvement, which can help organisations mitigate risks and prevent potential issues from occurring.

3. Meets regulatory requirements: SOC audits are often required by regulatory bodies or industry standards. By undergoing a SOC audit, organisations can ensure that they meet the necessary compliance requirements. This can help organisations avoid fines and other penalties for non-compliance.

4. Increases efficiency: SOC audits help organisations streamline their processes and identify areas for improvement. By implementing the recommendations provided in the audit report, organisations can improve their efficiency and effectiveness. This can lead to cost savings and improved performance.

5. The SOC for Cybersecurity examination provides a comprehensive assessment of an organisation’s cybersecurity risk management program, which in turn helps organisations to reduce uncertainty about their cybersecurity posture and establish better credibility with their customers and investors.

Conclusion

In a world where threats are becoming more frequent, SOC certification process not only reinforces security but also shows a proactive commitment to information protection. SOC certification is therefore a critical step toward sustaining reliable, secure, and robust operations. Hence, for enterprises looking to improve their cybersecurity posture and guarantee industry standard compliance, SOC Certification is essential because it strengthens security and fosters stakeholder and customer trust.