A Comprehensive Guide to SOC 2 Report: Meaning, Types, and Compliance 

What is a SOC 2 Audit Report?

A SOC 2 (System and Organization Controls 2) audit report is a document designed to provide detailed information about the internal cybersecurity controls in place at a service organization. This document is prepared following a SOC 2 audit to outline the findings and assessment results concerning security, availability, processing integrity, confidentiality, and privacy controls.

It is usually issued by an independent third-party auditor, a certified public accountant (CPA), who evaluates an organization’s internal controls and security policies. The evaluation is based on one or more of the five Trust Service Criteria (TSC) provided by the American Institute of Certified Public Accountants (AICPA).

With the rising trend of data breaches, cyber threats, and ransomware attacks, customers want assurance and proof that the sensitive data they entrust with you is safe. A SOC 2 report is how you prove to them. A detailed SOC 2 Type 2 report on how you protect your systems and sensitive information assures clients and stakeholders that you have internal security controls to protect customers’ data.

Who needs a SOC 2 Audit Report?

Any service organization that stores, processes, and transmits sensitive customer information needs a Service Organization Control 2 report. If your organization provides services or systems to other organizations, you need a SOC 2 report to assure your customers of the effectiveness of the internal controls at your service organization.

SOC 2 reports are relevant to industries, including:

1. Software as a service (SaaS) organizations,
2. Business-to-business (B2B) service providers
3. Healthcare and HealthTech organizations
4. Financial services organizations
5. Non-profit organizations
6. State and Local governments
7. Manufacturing industries

Compliance with the Trust Services Criteria is important for service organizations that provide third-party services to other companies (client companies). A SOC 2 report helps your customers assess and analyze the risks associated with your business.

Client companies often request a SOC 2 report from their service providers, especially if confidential, sensitive information is entrusted to the service organizations. SOC reports help client companies feel more confident that service providers are operating properly and complying with the SOC 2 principles.

Why Should My Organization Get a SOC 2 Report?

Your service organization needs a SOC 2 report because it is the first step in proving compliance with SOC 2 standards. A SOC 2 report demonstrates that you have robust controls for security, availability, processing integrity, confidentiality, and privacy, which are the five Trust Service Criteria.

Here are six solid reasons why a SOC 2 report important:

1. To Build Trust and Credibility

A SOC 2 report proves your commitment to data security and privacy. This show of commitment demonstrates to customers and clients that you care about their privacy and well-being, boosting their trust in your brand and services.

2. Develop Competitive Advantage

Having a SOC 2 report can set you apart from competitors who don’t. Clients and customers nowadays are increasingly concerned about security. A report that proves you’re secure will help you stand out and win more business, especially from security-conscious clients.

3. Enhance Security Posture

The SOC 2 auditing process, including gap and readiness assessments, helps identify and address vulnerabilities in your organization’s controls. This proactive approach strengthens your overall security, potentially preventing data breaches and cyber-attacks.

4. Facilitate Regulatory Compliance

While SOC 2 itself is not a regulatory requirement, it often aligns with various industry regulations, making it easier to comply with other standards like HIPAA, GDPR, or PCI DSS. If your systems and procedures align with the requirements of the SOC 2 framework, you’re well on your way to achieving compliance with other regulatory frameworks.

5. Operational Efficiency

Preparing for a SOC 2 audit often leads to improved internal processes and controls, resulting in more efficient and secure operations.

6. Create Paths to Other Frameworks

Complying with SOC 2 standards aligns your business’ internal controls with several other cybersecurity frameworks, thereby opening a mapping path for compliance.

What Does a SOC 2 Report Prove?

A SOC 2 report provides evidence that your organization’s internal controls are working effectively to protect and secure the information you handle. This report proves that you have the controls in place to prevent data breaches and demonstrates the effectiveness of these controls for your customers.

Specifically, a SOC 2 report proves that:

• You have the necessary data security measures to safeguard customer information from unauthorized access.
• You are capable of detecting anomalies and security incidents throughout the entire system.
• In addition to mitigating risks, you can swiftly address and repair any damage, restoring functionality promptly in the case of a data breach or system failure.

Bernard Gallagher, The Pun Group’s Director of Advisory Services, revealed how a SOC 2 report provides a competitive advantage for organizations, according to their experiences with various clients.

“Obtaining a SOC 2 report provides several competitive advantages for organizations, enhancing their market position, credibility, and operational effectiveness.

Based on experience with various clients, a SOC 2 report can offer competitive advantages by: building trust with customers and partners, meeting customer and regulatory requirements, differentiation from competitors, streamlining sales and contract processes, improving internal controls and processes, gaining insights for continuous improvement, and facilitating business growth and expansion.

By leveraging these advantages, organizations can meet immediate compliance and security needs and strategically position themselves for long-term success and growth in their respective markets.”

What Does a SOC 2 Report Cover?

A SOC 2 report focuses on five key Trust Service Criteria (TSCs) and nine Common Criteria (CC-series). These common criteria serve as the foundation for evaluating the effectiveness of controls related to the TSCs.

5 Key Trust Service Criteria

The five Trust Service Principles that make up a SOC 2 report are:

• Security. Ensures the system is protected against unauthorized access, which could compromise the integrity, confidentiality, and availability of information.
• Availability. Ensures the system is available for operation and use as committed or agreed, minimizing downtime and ensuring consistent service.
• Processing Integrity. Ensures the system processing is complete, valid, accurate, timely, and authorized, thereby maintaining the reliability of the data being processed.
• Confidentiality. Ensures information designated as confidential is protected as committed or agreed, safeguarding sensitive information from unauthorized disclosure.
• Privacy. Ensures personal information is collected, used, retained, disclosed, and disposed of in conformity with the commitments in the entity’s privacy notice, protecting individuals’ privacy rights.

A service organization preparing for a SOC 2 audit must identify the relevant trust requirements, optimize its systems, and write controls to meet the SOC 2 framework’s criteria.

While an organization can choose which trust criteria/requirements to include within the scope of its SOC 2 audit based on relevance to the services it provides, every SOC 2 report must include the Security Criteria.

SOC 2 Common Criteria List

The Common Criteria are a set of requirements that are used across the five Trust Service Criteria to assess the controls of a service organization. These common criteria serve as the foundation for evaluating the effectiveness of controls an organization has in place related to any of the Trust criteria.

These requirements are structured into nine categories:

1. Control Environment. How does this organization demonstrate a commitment to integrity and ethical values?
2. Communication and Information. How does this organization obtain or generate and use relevant, quality information to support the functioning of internal control?
3. Risk Assessment. How does this organization identify and assess risks that could affect the achievement of security standards?
4. Control Activities. How does the organization select and develop control activities that contribute to mitigating risks to achieving security objectives?
5. Monitoring of Controls. How does the organization select, develop, and perform ongoing and/or separate evaluations to ascertain whether the components of internal control are present and functioning?
6. Logical and Physical Access Controls. What controls are in place to prevent or detect unauthorized access to systems and information?
7. System Operations. How does the organization manage the operations of systems to ensure they are functioning as intended?
8. Change Management. What controls are in place to manage changes to systems to ensure the ongoing security and availability of information systems?
9. Risk Mitigation. What controls are in place to mitigate risks arising from business disruptions and other threats?

These questions help assess whether an organization has the appropriate controls to ensure the security, availability, processing integrity, confidentiality, and privacy of information and systems.

Components of a SOC 2 Report

A SOC 2 report contains the detailed opinions of your CPA auditor about the posture of your security control and the effectiveness of the internal controls in place at your service organization.

The attestation report usually comes with five main sections. Here are the primary sections found in a SOC 2 report:

1. Independent Service Auditor’s Report

This is the opening section containing the most sought-after auditor’s opinion. This part of the report is what most people look for in a SOC report. Most people read this part to understand the auditor’s view on whether the system’s description is fair and if the controls are well-designed and effective.

The opinion an auditor decides to write about a service organization after a thorough audit is divided into four broad categories:

• UNQUALIFIED – you passed the audit with flying colors!

This is the best outcome for a service organization. An unqualified opinion means the auditor found no material weaknesses or significant deficiencies in the organization’s controls. The organization’s description of its system is fairly presented, and its controls are well-designed and operate effectively.

The organization has achieved its control objectives. You should look forward to and prepare for this result.

• QUALIFIED — Most aspects satisfactory except for –

A qualified opinion indicates that the auditor found issues with the service organization’s controls, but these issues are not pervasive enough to warrant an adverse opinion. It’s often phrased as “except for…” in the audit report, highlighting specific areas of concern. The issues are important enough to mention but don’t undermine the overall system of controls.

• ADVERSE – Failed

This is a negative outcome indicating severe problems within an organization system. The opinion means the auditor found material weaknesses pervasive throughout the system, and the organization’s description of its system is not fairly presented in a material way. This is a result of controls not being suitably designed or not operating effectively to meet control objectives, which means no one user or customer should rely on the organization’s system of controls.

• DISCLAIMER OF OPINIONS – No comments

This is when the auditor cannot form an opinion due to limitations. This means that the auditor couldn’t gather sufficient evidence to form a basis for an opinion.

This might be due to significant uncertainties or scope limitations preventing a thorough audit. The auditor essentially says they can’t comment on the reliability of the organization’s controls.

2. Management’s Assertion

This is the first section of a SOC 2 report, and it contains information about the services, products, applications, systems, procedures, processes, and security controls at play in a service organization. The management of the service company confirms that their system is accurately described and that their controls are well-designed and effective. This section is written by the service organization being audited.

3. System Description

This section is the most detailed in the SOC 2 report and a must-read for clients and customers. System description provides a comprehensive, in-depth narrative of an organization’s system, infrastructure, software, people, procedures, and data. If management assertions were a quick overview of an organization, a system description would provide a deep dive.

Its purpose is to provide a clear understanding of the scope of the system being audited. System description offers context for the controls and processes in place and helps report users understand how the organization delivers its services.

It usually includes:

• System components (infrastructure, software, people, procedures, and data)
• Relevant aspects of the control environment, risk assessment process, and monitoring activities
• Complementary user entity controls

4. Trust Services Criteria and Related Controls

This section lists the applicable trust services criteria and the specific controls the service organization has implemented to address each criterion.

5. Test of Controls and Results (Type 2 only)

This section details the auditor’s testing procedures and the results of those tests for each control in a Type 2 report. It provides evidence of the controls’ operational effectiveness over the specified period.

What Type of SOC 2 Audit Report Does My Organization Need?

Depending on the maturity and necessity of proof of information security, your organization may need a particular type of SOC 2 report. There are two types of SOC 2 reports:

1. SOC 2 Type 1 Report

This report assesses the design of your organization’s security controls at a specific time. It evaluates whether the controls are well designed to meet the relevant trust services criteria. However, it only tests the operational effectiveness of these controls over time.

Customers commonly require a SOC 2 Type 1 report to verify their controls. Since it can be produced quickly, service providers can demonstrate customer compliance much sooner. Less mature companies also commonly use This type of report to gain verification.

2. SOC 2 Type 2 Report

This report is more comprehensive and more detailed. It not only assesses the design of your controls but also tests their operational effectiveness over a period of time (usually 3-12 months)

Although more expensive and time intensive, they are better in the long run because they give customers a vivid description of your security posture over a period of time rather than at a single point. This ongoing evaluation gives customers greater confidence in your ability to protect their data, fostering long-term trust and business relationships.

If your goal is to demonstrate to clients that you have robust and consistently effective controls, a SOC 2 Type 2 report is your best option. For organizations who handle highly sensitive customer information SOC 2 Type 2 report is very important because it monitors how your infrastructure and processes works to keep the data safe over time.

Here is a quick summary of the difference between the two types of SOC 2 audits.

Who Issues a SOC 2 Report?

A SOC 2 audit report is prepared and issued by a certified third-party auditor you will hire. The auditor comes in, looks into your systems, and prepares a detailed report describing how your processes, securities, and controls comply with the requirements of the trust service criteria.

The auditor evaluates the design and effectiveness of your controls. This can be a Type 1 (design of controls at a specific point in time) or Type 2 (design and operating effectiveness of controls over a period).

This report is prepared after a thorough audit. The auditor gives detailed, unbiased opinions about the state of your system and your compliance status. You must choose The Pun Group, an AICPA-approved auditor, to conduct your audits and issue you a SOC 2 report.

How to Prepare for a Thorough SOC 2 Audit

SOC 2 reports are a product of SOC 2 audit. To successfully prepare for a thorough SOC 2 audit, your service organization should follow these key steps:

1. Understand SOC 2 requirements. Familiarize yourself with the Trust Services Principles relevant to your services.
2. Perform a gap analysis. Assess your current controls against SOC 2 requirements to identify areas that need improvement.
3. Implement and document controls. Develop and implement necessary controls. Ensure all processes and controls are well-documented.
4. Conduct internal audits. Regularly test your controls to ensure they’re operating effectively.
5. Prepare required documentation. Draft a comprehensive system description. Gather evidence of control implementation and effectiveness.
6. Train employees. Ensure all staff understand their roles in maintaining compliance.
7. Engage with a qualified auditor. Choose a reputable CPA firm experienced in SOC 2 audits. SOC 2 audits are usually conducted by certified CPAs. Our accredited accountants at The Pun Group, with over a decade of audit experience, have done this for several clients from different industries.
8. Perform a readiness assessment. Consider a pre-audit review to identify any last-minute issues. Our readiness and consulting services at The Pun Group assess whether your controls are sufficient, what gaps exist within your systems, and how those gaps can be bridged.
9. Address any identified weaknesses. Correct any gaps or issues found during preparation. Our auditors work hand in hand together with your compliance team to rectify any gap discovered during
10. Maintain ongoing compliance. Implement processes for continuous monitoring and improvement.

Preparing for SOC 2 audits is an ongoing process. It can also be a bit of a hassle, given all the entities you must put in place to guarantee success. You must start well before your audit date and focus on creating a culture of security and compliance within your organization.

The Pun Group’s team highlighted their approach to SOC 2 audits,

“The Pun Group’s approach to SOC 2 audits helps build trust and credibility with clients and stakeholders through a combination of thorough assessment practices, transparent communication, expert guidance, and a focus on continuous improvement.”

Bernard Gallagher, The Pun Group’s Director of Advisory Services

Working with experienced SOC 2 compliance auditors makes the whole process easier and hassle-free. The Pun Group brings a wealth of experience and a strong reputation for thorough SOC 2 audits. Our expert auditors provide comprehensive SOC reports and detailed evidence on all your organization’s controls.

What Is the Validity Period of a SOC 2 Report?

SOC 2 reports have no fixed validity period. The AICPA does not specify a specific validity period within the framework. However, it is important to refresh your SOC 2 compliance every 12 months to ensure your control systems comply and adapt to emerging threats and new standards.

If there is a gap between your audit periods, you should obtain a SOC 2 gap bridge letter. These letters are issued and signed by the management of a service organization. Upon request, they are provided directly to your customers to instill confidence in the service organization’s compliance position.

A bridge letter is necessary because it indicates that your controls have not significantly changed since the last audit and confirms that they are still in place and effective.

Simplify your SOC 2 Audit Process with The Pun Group

Navigating the complexities of SOC 2 audits can be daunting and exhausting for any service organization, no matter its size. But the audit process becomes easy and seamless with The Pun Group professionals by your side. With over 10 years of compliance experience under our belt, we help you streamline the entire SOC 2 audit process.

At The Pun Group, we understand the critical importance of meeting SOC 2 requirements to build trust and ensure the security of your services. Our seasoned team brings deep expertise and a client-centric approach to guide you through each step of the audit. From initial readiness assessments to final reporting, we tailor our services to meet your unique needs and compliance goals.

We provide comprehensive support including gap analysis, risk assessments, and remediation strategies to address any issues that arise during the audit process. Our proactive approach not only simplifies the audit but also strengthens your overall security posture, ensuring you are well-prepared to handle any compliance challenges.

We are here to ensure that your SOC 2 audit is not just a compliance requirement but an opportunity to enhance your business’s credibility and operational integrity.

Contact us today and schedule a consultation!

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