SOC 2 Type 2 Compliance Audit FAQ
Why is SOC 2 Used?
One of the most important reports for third party (vendor) SOX compliance is the SOC 2 Type 2 Audit.
The SOC 2 Type 2 audit (attest) report provides for compliance and assurance. SOC 2 Attestation is popularly known as SOC 2 Audit,SOC 2 Engagement,SOC 2 Examination,SOC 2 Certification,SOC 2 Compliance.
SOC 2 compliance reports are part of AICPA's SSAE 18 Attest Standard that is used for the SOC 1, SOC 2, and SOC 3 reports. Since 1992, these reports have been known as SAS 70 audit reports. In 2011 the SOC 1 was brought under SSAE 16 Standard and SOC 2 under AT 101. Finally, in 2017 the SSAE 16 along with other SSAE standards got merged into one SSAE 18, bringing all SOC 1, SOC 2, and SOC 3 reports under SSAE 18. This is the main difference between SSAE 16 vs 18 pertaining to SOC compliance reports. AT-C section 205 provides guidance on “Examination Engagements. AICPA Guide, SOC 2®Reporting on an Examination of Controls at a Service Organization”.
SOC stands for System and Organization Controls. The definition got changed in 2017 from the earlier one as Service Organization Controls as these compliance reports were mainly being used for vendor(third-party) compliance audits as these organizations were service organizations. The auditor auditing these service organizations is called Service Auditor or popularly SOC Auditor.
What does SOC 2 Type 2 Mean?
A Type 2 compliance report provides for operating effectiveness of controls over a period such as 6 months or maximum 12 months in contrast to certifications such as ISO/IEC 27001 that provides a certificate which is valid for 3 years. For missing periods or periods immediately after the report, some User Entities or User Auditors may insist on a SOC Bridge Letter.
A Type 2 compliance report usually is about 100 pages depending on the controls reported on. The Type 2 report comprises of all the applicable controls that are reported by the SOC Auditor (Service Auditor). The SOC 2 Type 2 report is now of 4 sections, Section 1 is the Auditors Opinion, Section II is the Management Assertion, Section III is the Description Criteria or System Description and Section IV is a detailed list of controls as per applicable TSC 2017 along with the results of the auditors' test of controls.
In comparison, an ISO/IEC 27001 does not provide such a detailed list of controls that are applicable to the entity. The SOA or Statement of Applicability of controls and details of audit or non-compliances (NC) in an ISO/IEC 27001 is between the auditor firm and the entity. These details are not shared with the end-user of the entity and these end-users or clients would not know what are the exact controls that have been implemented by the entity.
SOC 2 Report Comprise of?
The SOC 2 Type 2 compliance report uses the Trust Services Criteria (TSC) to report on the controls of an entity. Formerly they were known as the Trust Services Principles and Criteria (TSPC). The most updated one is the TSC 2017 which is now aligned with the COSO Risk Framework.
The TSC 2017 has 5 criteria Security (or Common Criteria), Availability, Confidentiality, Processing Integrity, and Privacy. The Security criteria itself has about 300 Points of Focus each of which may have multiple controls that are implemented by the entity.
A SOC 2 Type 2 compliance report can only be issued only by a Licensed CPA as a SOC Auditor, also known as a Service Auditor.
A SOC 2 Type 2 compliance report mirrors the ISAE 3000 based on the International Standard on Assurance Engagements standard used in Europe. A Licensed CPA such as ours can issue a joint SOC 2 and ISAE 3000 report.
To issue a SOC 2 compliance report for a public (listed) entity, the CPA Firm must be registered with the PCAOB.
The SOC 2 report can be qualified or unqualified.
What is SOC 3, Applications of SOC 2 Report?
A SOC 3 report is an abridged SOC 2 report that can be shared with any person or displayed on the organization's website. It is a shorter version of the SOC 2 reports without Section IV. Unlike the SOC 3, a SOC 2 report can be shared only with knowledgeable parties such as prospective clients against an NDA, or a confidentiality agreement.
SOC 2 vs SOC 1 the major difference is the kind of data being processed or stored by the service organization. If it is financial data ICFR (Internal Controls over Financial Reporting) a SOC 1 is used. In all other cases, a SOC 2 is used.
SOC 2 compliance reports now have many flavors
- SOC 2 Type 2 for Cloud Security using CSA’s CCM Framework
- SOC 2 Type 2 for Cloud Security using C5 Cloud Standard
- SOC 2 Type 2 for Cyber Risk
- SOC 2 Type 2 for Privacy is used for any specific privacy mandate or using the Trust Services Privacy Criteria formerly known as AICPA’s Generally Accepted Privacy Principles(GAPP)
- The AICPA SOC 2 Link The AICPA SOC 2 Guide
- More on SOC Reporting Services
- More on SOC 2 vs ISO/IEC 27001, 27701 PIMS.