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Who Needs to Be SOC 2 Compliant?

SOC 2 is one of the common compliance requirements that technology service companies should seriously consider implementing to be competitive in the market.

SOC stands for System and Organization Controls and is one of the frameworks developed by the AICPA (American Institute of Certified Public Accountants). Its primary purpose is to improve service organizations' internal controls.

There are three SOC frameworks, SOC 1, 2, and 3, with SOC 2 being popular in the technology and security industries. Specifically, the SOC 2 Type 2 report.

Here's a brief overview:

  • SOC 1 is a framework based on "Internal Control over Financial Reporting" that focuses on internal controls related to financial reporting.

  • SOC 2 is a framework based on "Trust Services Criteria", focusing on internal controls to protect customers' information.

  • SOC 3 is also called "SOC for Service Organizations: Trust Services Criteria for General Use Report", and is a simplified version of SOC 2 intended for a broader audience.

As you may have noticed, SOC 2 and 3 sound quite similar. The difference between SOC 2 and SOC 3 is what you get in the report. The former contains an auditor's opinion on the controls implemented in the company and their efficiency and is not publicly available. The latter does not include an auditor's opinion and can be made available to the public.

In short, SOC 2 is a framework with a list of requirements for service-providing companies to protect customers' information.

Do you need a SOC 2 Type 1 or Type 2 report?

When prospects ask about SOC 2 compliance, they usually mean an auditor's report that shows how your company meets the AICPA's Trust Service Criteria requirements. They are interested in knowing an auditor's opinion on whether your company has defined the proper controls and operated effectively to protect customer information and whether they can trust your company.

SOC 2 has two types of reports: Type 1 and Type 2.

You may need a SOC 2 Type 1 report to demonstrate that your company has a precise definition of the system you offer and that internal controls are adequately defined to protect it. A SOC 2 Type 1 audit and report is a relatively quick, affordable, and straightforward option, which will demonstrate what security controls were in place to protect the system at the time of the audit.

The downside of this report is that it's only useful for a short period, meaning that over time it will cease to be of value in demonstrating your security posture.

In contrast, SOC Type 2 reporting is much more complex and comprehensive. In addition to the SOC 2 Type 1 requirements, it measures the effectiveness of the internal controls your company implemented during a specific period, usually from six to twelve months.

Let's now briefly discuss the Trust Services Criteria, so you don't have to google it.

The AICPA has developed Trust Services Criteria (TSC) with a set of controls, which used to be called the Trust Service Principles, but that doesn't matter for now. It includes requirements for five areas, each of which is briefly defined here:

  • Security - Established by restricting access to information through user authorisation.

  • Availability - Established by ensuring the parties who own information have access to it.

  • Processing integrity - Established by minimizing flaws in all cybersecurity architecture.

  • Confidentiality - Established by taking additional measures to protect unique kinds of data.

  • Privacy - Established by paying particular attention to personally identifiable information.

The good news is that you can select the trust criteria to comply with based on your system and customers' requirements. But compliance with Security controls is mandatory, and that means you will need to implement Security criteria controls plus any others based on customer and business needs.

The general purpose of SOC 2 compliance is to ensure that your company keeps customers' data safe and that they can trust your company.

Who needs a SOC 2 report?

By definition, SOC 2 applies to a "service provider organization" that stores, processes, or transmits customer information. In reality, not all service-providing companies need it. Here are some types of companies that are usually required to be SOC 2 compliant:

  • Software as a service (SaaS) companies that provide programs, apps, and websites.

  • Companies that provide business intelligence, analytics, and management services.

  • Managed IT, cloud hosting, and computing companies.

If your company fits any of these descriptions, you should consider becoming SOC 2 compliant, as this will add more value to your business. Here you can read about some of the benefits of being SOC 2 compliant.

This is not an exhaustive list of criteria that apply to SOC 2, and if you are unsure, please contact us. We will help you determine if your company requires SOC 2, and if so, exactly which criteria you will need.

So, let’s return to the original question: who needs to be SOC 2 compliant? If your company is a service organisation that stores or processes consumer data, it likely needs to comply with the SOC 2 framework.

To establish compliance, you'll need to generate SOC 2 Type 1 or SOC Type 2 reports, depending on your company's specific legal or market needs.

If your company fits this description, contact us today to get a free consultation on SOC 2 compliance.


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