For clients and partners, your business’s security and privacy practices are important because they share data with you. And they naturally want this data to be safe. A good way to assure your stakeholders it is, indeed, safe to do business with you is with the help of a Service Organization Control (SOC) audit.
What’s a SOC Audit?
The SOC audit meaning is in examining the controls within your organization (those controls that have to do with your clients’ financial reporting or operational security). The focus of SOC audits is internal controls and processes as they relate to client data.
For instance, a payroll processing company might undergo SOC testing. If it performs well, this will show its systems and controls adequately protect their clients’ data.
Who Can Perform a SOC Audit?
Now, what is a SOC audit process like, and who can carry it out? Such audits can only be conducted by independent Certified Public Accountants (CPAs) or licensed SOC auditors. The auditor must
- have expertise in financial reporting
- understand IT security
- know how IT security relates to handling client data.
All three competencies are necessary for the auditor to thoroughly evaluate the controls and provide reliable, comprehensive findings.
SOC 1 vs SOC 2 vs SOC 3
Still, what does SOC audit stand for exactly? One more way to get a better idea of it is by examining the three types of this audit.
- SOC 1
This focuses on controls at a service organization that may be relevant to a client’s financial statements. For example, the aforementioned payroll company may ensure accurate financial reporting with its help.
- SOC 2
This examines controls relevant to security, confidentiality, privacy, and the like. The task is to find out how technology and data management practices perform.
- SOC 3
This one’s similar to the previous type in terms of the controls it examines. The difference is that it is intended for a wider audience. For example, SOC 3 reports can be freely distributed or used in marketing materials.
| SOC compliance audit type | Focus Area | Report Distribution |
| 1 | Financial Reporting Controls | Restricted to Stakeholders |
| 2 | Operational Controls (Security, Privacy) | Restricted to Stakeholders |
| 3 | Operational Controls (Security, Privacy) | General Distribution |
SOC Type I vs SOC Type II Reports
Let’s sum it up at this point. So what does SOC stand for in audit? It stands for Service Organization Control. What does it examine? Your business’s controls related to financial reporting. The results of such audits can be presented in two types of reports.
SOC Type I reports assess the suitability of the design of controls at a specific time. It shows if the company has the right controls in place on a given day. In contrast, SOC Type II reports evaluate the operational effectiveness of these controls over a minimum six-month period.
That is,
- SOC Type I: Assesses design suitability at a specific point in time.
- SOC Type II: Evaluates effectiveness over time (at least, 6 months).
Usually, SOC auditors will explain to you which type fits your situation and how to prepare for it.
How to Prepare for a SOC Audit
As was said, it’s best to prepare for it with the help of experienced auditors. Below is a review of what you may need to do.
1. Select a Report Type
Choose between SOC 1, SOC 2, and SOC 3 reports based on your organization’s needs:
- SOC 1 is focused on financial reporting
- SOC 2 on operational controls such as security and privacy
- SOC 3 is similar to SOC 2 but for a broader audience.
Assess the nature of your services and the requirements of your stakeholders. Consult with an auditor to discuss which report type aligns with your business objectives and client expectations.
Try not to choose a report type based solely on perceived complexity or cost. The right type should align with your business practices and client assurance needs.
2. Define the Scope of the Audit
Clearly define what aspects of your organization’s controls, systems, and processes will be examined during the audit. Ask the stakeholders across your organization to help. They can identify critical areas that impact the security, availability, and processing integrity of the systems that
- store
- process
- transmit client information.
Engage with an experienced auditor from the very first days of planning. They’ll help to determine the appropriate scope. That’s important because overscoping means unnecessary complexity and costs; underscoping — the failure to address critical security concerns.
3. Conduct a Gap Analysis
Here, the task is to identify gaps between current practices and the required SOC standards. You’ll review your existing controls against the framework. More specifically, you’ll examine your
- IT environment
- policies
- procedures
- operations.
Don’t rush through this process. It really makes sense to thoroughly identify and address gaps because this way, your controls will be fully compliant and functioning as intended before the audit begins.
4. Perform a Readiness Assessment
It’s likewise a good idea to conduct a readiness assessment before the formal audit. You’ll thus test whether the systems and controls are, indeed, prepared.
Simulate audit procedures to identify any issues in meeting the SOC requirements. This typically involves testing the operational effectiveness of controls over a period (usually a few months) to ensure they are working as expected. Use the findings from the readiness assessment to make necessary adjustments. It’s smarter (and often cheaper) to do that before the audit than after it.
***
Of course, the preparation for SOC auditing sounds pretty challenging. And it is indeed so if you complete all those steps on your own. On the contrary, if you get professional auditors to help you, it can all be pretty smooth. In a word, the idea is to take care of things you can really improve and outsource planning and compliance checks to professionals.