Compliance Management Systems, Explained — and the Best Solutions For Building One
No matter what industry your organization operates in or where its business is conducted, it will almost certainly…
We’re all handling more data than ever before, and our clients, investors, and other stakeholders demand assurance that this information is safe and secure at all times. They want to be sure that data is not going to be leaked or hacked.
One way organizations are doing this is by using compliance and security frameworks to put the policies, procedures, controls, and monitoring necessary to secure their networks and data in place and prove that they are trustworthy for their clients, and doing so has been proven to work.
Among the most commonly adopted of these frameworks is Systems and Organization Controls 2, or SOC 2. Demonstrating SOC 2 compliance allows organizations to bolster their overall cybersecurity posture and provide assurance to stakeholders, customers, and prospective clients.
In this article, we’ll explore what goes into SOC 2 compliance and certification, how doing so can improve your organization’s overall security posture, and how to use modern GRC technology to achieve SOC 2 compliance.
What is SOC 2 compliance?
SOC 2 is a voluntary cybersecurity compliance framework developed by the American Institute of CPAs (AICPA) for service organizations that specifies how organizations should handle customer data. The standard covers five pillars, called Trust Services Criteria (TSC): security, availability, processing integrity, confidentiality, and privacy.
SOC 2 compliance is part of the American Institute of CPAs’ Service Organization Control reporting platform. Its intent is to ensure the safety and privacy of your customers’ data, that the company will comply with regulations, and that it has the processes in place to mitigate risk.
SOC 2 is not a prescriptive list of controls, tools, or processes. Rather, it cites the criteria required to maintain robust information security, allowing each company to adopt the practices and processes relevant to their own objectives and operations.
The five trust services criteria are detailed below:
Security
Security refers to the protection of information and systems from unauthorized access. This may be through the use of IT security infrastructures such as firewalls, two-factor authentication, and other measures to keep your data safe from unauthorized access.
Availability
Availability is whether the infrastructure, software, or information is maintained and has controls for operation, monitoring, and maintenance. This criteria also gauges whether your company maintains minimal acceptable network performance levels and assesses and mitigates potential external threats.
Processing integrity
Processing integrity ensures that systems perform their functions as intended and are free from error, delay, omission, and unauthorized or inadvertent manipulation. This means that data processing operations work as they should and are authorized, complete, and accurate.
Confidentiality
Confidentiality addresses the company’s ability to protect data that should be restricted to a specified set of persons or organizations. This includes client data intended only for company personnel, confidential company information such as business plans or intellectual property, or any other information required to be protected by law, regulations, contracts, or agreements.
Privacy
Privacy speaks to an organization’s ability to safeguard personally identifiable information from unauthorized access. This information generally takes the form of name, social security, or address information or other identifiers such as race, ethnicity, or health information.
SOC 2 is not a prescriptive list of controls, tools, or processes. Rather, it cites the criteria required to maintain robust information security, allowing each company to adopt the practices and processes relevant to their own objectives and operations. Organizations that decide to implement SOC 2 can attempt to achieve compliance with all or some of the five TSCs.
The two types of SOC 2 reports
SOC 2 compliance is part of the American Institute of CPAs’ Service Organization Control reporting platform, and it’s evaluated for each organization using two reports: SOC 2 Type I and SOC 2 Type II.
- Type I reports contain descriptions of the service organization's system(s) and the suitability of the design of controls.
- Type II reports cover everything in Type I plus descriptions of the operating effectiveness of those controls.
These reports are intended to ensure the safety and privacy of your customers’ data, that the company will comply with the standard’s requirements, and that it has sufficient processes and controls in place to mitigate risk.
For companies that are required to demonstrate SOC 2 compliance on an ongoing basis, it may be beneficial to explore a SOC 2 Type II report. The Type II report is considered the stronger of the two because it demonstrates that the security processes and procedures are in place and effective over a period of time, not a single point in time.
But, if you need to demonstrate SOC 2 compliance immediately — for example, there’s a timeline in place — Type I reports can be generated faster and more easily. You can use a Type I report later on as a good starting point for moving to a Type II report.
Who is SOC 2 for?
SOC 2 is designed for any technology service provider or SaaS company that handles or stores customer data. Third-party vendors, other partners, or support organizations that those firms work with should also consider achieving and maintaining SOC 2 compliance to ensure the integrity of their data systems and safeguards. Again, SOC 2 is a voluntary framework, so there’s no official regulatory requirement to comply with it.
Five benefits of SOC 2 compliance
Being SOC 2 compliant assures your customers and clients that you have the infrastructure, tools, and processes to protect their information from unauthorized access both from within and outside the firm.
Here are a few other benefits of being SOC 2 compliant:
Operational visibility
SOC 2 compliance means your firm will know what normal operations look like and is regularly monitoring for malicious or unrecognized activity, documenting system configuration changes, and monitoring user access levels.
If there are security incidents, you have the visibility and processes to identify, assess, and mitigate the threat through tight security controls. It's key to maintaining strong operational risk management.
Improved security posture
Implementing new security or compliance methodologies and processes opens up discussions into many areas of your business. Deploying SOC 2 and its accompanying platform will give your company valuable insights and spur more conversations on how and where to improve your operations and reduce the risk of security breaches — especially as data breaches are becoming increasingly common, with the average cost of a data breach approaching $9.44 million in the U.S.
By going through the SOC 2 certification process, your organization can understand where your sensitive data lives and implement controls, risk assessment processes, and policies to protect this data and, ultimately, your organization and customers. Complying with SOC 2 means you’ll have tools in place to recognize threats and alert the appropriate parties so they can evaluate the threat and take necessary action to protect data and systems from unauthorized access or use.
For SaaS companies, remaining SOC 2 compliant is an important aspect of both risk management and risk mitigation. It should be an essential piece to your compliance framework.
Increased third-party appeal, competitive advantage, and trust
SOC 2 is the most sought-after report for companies dealing with third parties storing customer data in the cloud in the US market.
SOC 2 also makes it easier to demonstrate your security standards to external stakeholders. Suppose a potential customer, auditor, or third party requests a report. In that case, you can easily provide them with this as long as you are SOC 2 certified, have processes in place, and have an efficient platform to execute.
With all three of those in place, you can easily distribute SOC 2 reports in no time to ensure you have adequate protection controls to protect them from hird-party risk. This can drastically speed up sales cycles and generate a substantial competitive advantage for your organization.
What is a SOC 2 audit, and how do I prepare?
SOC 2 compliance mandates that organizations establish and adhere to specified information security policies and procedures, in line with their objectives. An organization’s compliance status is determined through a technical audit from an outside CPA or accounting firm.
Typically, these audits involve filling out a security questionnaire, providing evidence to back your answers up, an independent evaluation of your data, and generation of a SOC 2 report.
SOC 2 compliance can cover a six to 12-month timeframe, to ensure that a company’s information security measures are in line with the evolving requirements of data protection in the cloud. There are a few ways to prepare for an independent SOC 2 audit.
Keep your policies, controls, and procedures up to date
Achieving or maintaining SOC 2 compliance depends on the quality and effectiveness of the controls, policies, and processes you put in place to keep your organization’s data secure. Conducting regular reviews to ensure they remain effective and updating them as needed can help make sure you’re in the best possible position come audit time.
Automate SOC 2 evidence collection
Collecting all of the evidence you’ll need to present to auditors for each and every individual audit is a tedious, time consuming process. Using technology to automate that process and collect all the evidence you’ll need in real time, all the time, can drastically streamline things. Having visibility into controls evidence at all times can also help you spot compliance gaps that can be corrected before the auditors find them.
SOC 2 compliance audit checklist
Preparing for a SOC 2 audit can seem like an arduous task, but the process typically looks similar for most organizations. Follow this checklist to ensure your SOC 2 compliance audit goes smoothly.
1. Choose the type of report you’ll pursue
The first step in preparing for a SOC 2 compliance audit is to determine whether your organization needs to prove compliance at a point in time with a Type I report, or whether you’ll need to show compliance over a period of time with a Type II report. See above for the reasons you might choose one over the other.
2. Define the scope and goals of your audit
Now, you’ll want to take a look at the five Trust Services Criteria and decide which of them your organization wants to pursue. The Security TSC is always required, but the other four are optional. The more TSCs your organization complies with, the higher the level of assurance you can offer partners, customers, investors, and other stakeholders — but meeting the requirements of each new TSC will require additional investment of time and resources.
3. Make necessary upgrades or modifications to your controls
Take the findings from the regular reviews of your internal controls, policies, and procedures that you’ve been conducting and fix, improve, or modify any areas as necessary to meet SOC 2 requirements.
4. Develop your system description
Your SOC 2 auditor will require your organization to submit a written system description covering all of the controls, policies, and processes relevant to the TSCs you’re trying to satisfy. It includes details like how your company’s data is processed, what third parties it works with, who handles data and information and how they handle it, and what safeguards are in place to secure data and assets.
This report should be comprehensive, but written in a clear and concise manner.
5. Perform an internal SOC 2 audit
It’s a good idea to conduct an in-house audit of your SOC 2 compliance as sort of a practice run before inviting an external auditor in for the real deal. Doing this can help you identify and address gaps in your compliance before the official audit begins, which increases the odds you’ll achieve certification.
6. Find an experienced, trustworthy auditor for the official audit
When you’re ready to have the official audit performed, take the time to identify an auditor that has experience in your industry and has familiarity with the methods and systems your organization employs in its security programs.
When the audit is complete, the auditor will provide you with a final report and determine your compliance status. These statuses can fall into one of four categories:
Unqualified: Your organization is in compliance with SOC 2 requirements.
Qualified: Your auditor found issues, but they weren’t a big enough problem for your organization to be considered noncompliant.
Adverse: Major issues were uncovered and your organization is not in compliance with SOC 2.
Disclaimer: There wasn’t sufficient evidence available for the auditor to make a determination.
Are there alternatives to SOC 2?
You might see SOC 2 and ISO 27001 compared when researching security certifications. While each is well-regarded, they are different in simple ways.
The main focus of SOC 2 is to show that you have the internal security controls in place to protect customer data. ISO 27001 ensures organizations have Information Security Management Systems implemented to manage information security.
SOC 2 is also more widely accepted in the U.S., while customers in other parts of the world will be more familiar with ISO 27001 since it is primarily an international standard. These security frameworks both work toward the end-goal of consumer and third-party protection.
If you want to get into more nuance, we’ve written about the differences between SOC 2 and ISO 27001 in the past.
What are the differences between SOC 1 and SOC 2?
Despite the similarity in their names, SOC 1 and SOC 2 are completely different standards with different purposes. While SOC 2 is aimed at helping technology service organizations and SaaS companies protect sensitive systems and data, SOC 1 is designed to help organizations ensure the effectiveness of their internal controls around your handling of customer financial information. A third report, SOC 3, covers much of the same information as SOC 2 but is designed to be presented publicly to a more general audience.
How are SOC and SOX compliance different?
We compared these two in detail in our post on SOC vs SOX compliance, but the high-level distinction is that SOX, short for the Sarbanes-Oxley Act of 2002, is a federal law that organizations must demonstrate compliance with, while SOC 2 is not a legal requirement and is completely voluntary.
For example, SOC 1 compliance allows service providers to show customers they have the appropriate internal controls. SOC 2 compliance is specific to SaaS companies and technology service providers.
SOX compliance is mandated by federal law and necessary for any publicly-traded company in the U.S. to protect investors from fraudulent financial reporting.
5 benefits of SOC 2 compliance
SOC 2 compliance is determined by a technical audit from an outside party. It mandates that organizations establish and adhere to specified information security policies and procedures, in line with their objectives.
SOC 2 compliance can cover a six to 12-month timeframe, to ensure that a company’s information security measures are in line with the evolving requirements of data protection in the cloud.
Being SOC 2 compliant assures your customers and clients that you have the infrastructure, tools, and processes to protect their information from unauthorized access both from within and outside the firm.
In practice, the benefits of SOC 2 Compliance are pretty simple.
Operational visibility
SOC 2 compliance means your firm will know what normal operations look like and is regularly monitoring for malicious or unrecognized activity, documenting system configuration changes, and monitoring user access levels.
If there are security incidents, you have the visibility and processes to identify, assess, and mitigate the threat through tight security controls. It's key to maintaining strong operational risk management.
Greater protection
You’ll have tools in place to recognize threats and alert the appropriate parties so they can evaluate the threat and take necessary action to protect data and systems from unauthorized access or use.
For SaaS companies, remaining SOC 2 compliant is an important aspect of both risk management and risk mitigation. It should be an essential piece to your compliance framework.
Improved security posture
Implementing new security or compliance methodologies and processes opens up discussions into many areas of your business. Deploying SOC 2 and its accompanying platform will give your company valuable insights and spur more conversations on how and where to improve your operations and reduce the risk of security breaches.
Data breaches are becoming increasingly common and with the average cost of a data breach approaching $9.44 million in the U.S.
By going through the SOC 2 certification process, your organization can understand where your sensitive data lives and implement controls, risk assessment processes, and policies to protect this data and, ultimately, your organization and customers.
Third-party appeal and building trust
SOC 2 is the most sought-after report for companies dealing with third parties storing customer data in the cloud in the US market.
SOC 2 also makes it easier to demonstrate your security standards to external stakeholders. Suppose a potential customer, auditor, or third party requests a report. In that case, you can easily provide them with this as long as you are SOC 2 certified, have processes in place, and have an efficient platform to execute.
With all three of those in place, you can easily distribute SOC 2 reports in no time to ensure you have adequate protection controls to protect them from third-party risk.
Are there alternatives to SOC 2?
You might see SOC 2 and ISO 27001 compared when researching security certifications. While each is well-regarded, they are different in simple ways.
The main focus of SOC 2 is to show that you have the internal security controls in place to protect customer data. ISO 27001 ensures organizations have Information Security Management Systems implemented to manage information security.
SOC 2 is also more widely accepted in the U.S., while your international customers will be more familiar with ISO 27001 since it is primarily a globally-focused standard. These security frameworks both work toward the end-goal of consumer and third-party protection.
If you want to get into more nuance, we’ve written about the the differences between SOC 2 and ISO 27001 in the past.
What are the differences between SOC 1 and SOC 2?
Despite the similarity in their names, SOC 1 and SOC 2 are completely different standards with different purposes. While SOC 2 is aimed at helping technology service organizations and SaaS companies protect sensitive systems and data, SOC 1 is designed to help organizations ensure the effectiveness of their internal controls around your handling of customer financial information. A third report, SOC 3, covers much of the same information as SOC 2 but is designed to be presented publicly to a more general audience.
Here's a quick overview of the major differences:
| SOC 1 | SOC 2 |
| Focuses on internal control over financial reporting | Focuses on protecting sensitive information across five Trust Services Criteria |
| Used by customers and their auditors to understand how the organization’s controls could impact their financial statements | Used by customers and prospects for assurance of data protection processes |
| Applies to service organizations that can impact the financial statements of their end users and customers | Applies to service organizations handling sensitive information and data |
| Examples: Payroll software, collections agencies, billing and invoicing platforms, financial management and reporting platforms | Examples: SaaS companies, cloud services organizations, data processing centers |
How are SOC 2 and SOX compliance different?
Occasionally, SOC 2 is confused with a U.S. law that carries a similar acronym: SOX, or the Sarbanes-Oxley Act of 2002. We compared these two in detail in our post on SOC vs SOX compliance, but the high-level distinction is that SOX is a federal law aimed at ensuring organizations meet specific financial reporting standards for safeguarding data, tracking attempted data breaches, logging electronic records for auditing, and proving compliance. Any publicly-traded organization must demonstrate compliance with SOX, while SOC 2 and its related framework, SOC 1, are not legal requirements.
For example, SOC 1 compliance allows service providers to show customers they have the appropriate internal controls. SOC 2 compliance is specific to SaaS companies and technology service providers.
SOX compliance is mandated by federal law and necessary for any publicly-traded company in the U.S. to protect investors from fraudulent financial reporting.
How to streamline SOC 2 compliance with LogicGate Risk Cloud
If you are a company that handles or stores customer data — which, in all honesty, is just about every company these days — complying with SOC 2 will ensure your firm complies with industry standards, giving your customers the confidence that you have the right processes and practices to safeguard their data.
A modern GRC platform like LogicGate Risk Cloud can help your organization automate SOC 2 compliance by helping you map your business processes, audit your infrastructure and security practices, and identify and correct any gaps or vulnerabilities.
Learn more about LogicGate's SOC 2 Compliance Application to see how it can help your organization prepare for and achieve a SOC 2 attestation report.
SOC 1®, SOC 2® and SOC 3® are registered trademarks of the American Institute of Certified Public Accountants in the United States. The AICPA Trust Services Criteria for Security, Availability, Processing Integrity, Confidentiality, and Privacy is copyrighted by the Association of International Certified Professional Accountants. All rights reserved.
