Businesses are increasingly asking their vendors (i.e., service organizations) for independent assurance that their data is in safe hands. Some of your customers may be asking you for a SOC report, and you may be wondering, what is a SOC exam, and what is the value of having one performed?
SOC is an acronym that stands for System and Organization Controls. It’s an audit performed by an independent third-party that reports on system-level controls in place at a service organization. There are four categories of SOC exams:
- SOC 1 addresses internal controls that are relevant to the financial statements of your service organization’s clients.
- SOC 2 addresses your service organization’s controls that are relevant to your operations and compliance, as outlined by the AICPA’s Trust Services Criteria (TSC) of security, availability, processing integrity, confidentiality and privacy.
- SOC 3 is a lot like a SOC 2 in that it’s based on the TSC, but the resulting report can be freely distributed. This is unlike a SOC 1 or SOC 2 report, which both have restricted use (i.e., they’re only supposed to be read by the user organizations that rely on the service organization’s services).
- SOC for Cybersecurity addresses internal controls relevant to your organization’s cybersecurity risk management program.
Read more: SOC 1 vs SOC 2: What’s the difference?
What’s the value of having a SOC audit performed?
Aside from the fact that one or more of your customers may be requiring you to provide a SOC report in order to continue doing business with them, there are quite a few benefits to having a third-party perform a SOC audit.
Give customers peace of mind: A SOC report provides meaningful insight into your service organization’s risk and security landscape, vendor management, governance over internal controls, and regulatory compliance. It provides peace of mind to your customers that their data is in safe hands. It also satisfies their third-party vendor management processes, as they are reasonably assured their systems and network are secure.
Cut down on questionnaires: Your organization has likely had to fill out multiple vendor management or security questionnaires for your customers, which can be time-consuming and an added burden on your staff. However, by having a SOC audit performed, you can provide your customers with the SOC report — often in lieu of filling out their questionnaires.
Reduce financial statement auditor questions: A SOC report can also help reduce the time you spend answering your customer’s auditor’s questions around your controls, processes and operations. You’ve probably received questions in the past from financial statement auditors; a SOC report can answer their questions.
Discover and close gaps in your processes: The questions your auditor asks during a SOC exam helps you identify vulnerabilities in your system and processes, which you can then fix or improve, using best practices, in order to mitigate your risk. For example, you may discover that your organization experiences enough annual change that you should ideally be performing a security assessment every six months rather than every 12.
Make your policies and procedures more robust: Part of the SOC exam involves evaluating the policies and procedures your organization has in place. Your auditor may find you’re missing policies or procedures, or that certain ones need to be adjusted, and following their recommendations will allow you to make improvements and further mitigate risk.
Stay up to date on standards and regulations: Once the SOC exam is finished, your auditors will have a much deeper understanding of your organization and will know how up to date you are on security standards and regulations. You can use your auditors as a resource going forward to provide and execute on recommendations, as well as help ensure you are in compliance with required regulations.
The fact that SOC exams are typically performed annually also helps you stay up to date. For example, if the AICPA has updated certain regulations, and you’re required to update related control language, the SOC exam will bring this need to light.
Gain a competitive advantage and expand your customer base: These days, when data breaches are seemingly always in the news, it’s far more likely that a potential customer, choosing between two companies to perform a service, will go with the company that has a SOC report readily available over another company that cannot show compliance. The service organization with the SOC report demonstrates they have a serious commitment to security and protecting data and is officially SOC certified.
In addition, publicly traded companies are required to use service providers that are SSAE 18 qualified, and since SOC is governed by the SSAE 18 standard, having a SOC report can actually help you grow your customer base.
SOC audits are increasingly common, and customers are increasingly requiring them in contracts as a condition of doing business with them. In fact, not being SOC compliant could actually lose you customers in the future, so maintaining your customer base is another added — and significant — benefit.
Wipfli is an experienced SOC auditor
With data breaches costing companies an average of $3.86 million per data breach, it’s imperative that service organizations consider having a SOC audit performed to reduce their risk.
If you haven’t had a SOC exam before, we recommend starting with a readiness assessment to evaluate your internal control structure and recommend remedial actions to take before performing the SOC exam. Wipfli can help. Click here to learn more about our SOC exam services.
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