A SOC 2 Type 2 report is an in-depth examination of a service organization’s information security policies, procedures, and operations. These reports are important for companies that need to demonstrate effective security controls to customers and business partners. The “Type 2” designation means the report includes detailed testing of controls over a minimum 6 month period.
What is a SOC 2 report?
SOC stands for System and Organization Controls. SOC 2 reports are governed by ATTESTATION STANDARDS established by the American Institute of Certified Public Accountants (AICPA). There are 3 types of SOC 2 reports:
- SOC 2 Type 1 – Point-in-time snapshot of security controls
- SOC 2 Type 2 – In-depth audit of security controls over an extended period
- SOC 2 + HiTrust – Type 2 report plus certification of HITRUST security framework compliance
The SOC 2 framework examines controls relevant to security, availability, processing integrity, confidentiality, and privacy. A SOC 2 Type 2 report is considered the gold standard for SaaS companies and cloud providers to demonstrate trust and transparency to customers.
Purpose of a SOC 2 Type 2 Report
The primary purpose of a SOC 2 Type 2 report is to provide independent validation that a service organization has necessary controls and safeguards when hosting or processing customer data. These audits examine security policies, procedures, IT systems, and internal controls over a minimum 6 month period.
A SOC 2 Type 2 seal of approval gives customers assurance that the organization can adequately protect their sensitive data and maintain critical operations. The extensive testing provides a higher level of confidence compared to a point-in-time Type 1 examination.
What’s Included in a SOC 2 Type 2 Report?
A SOC 2 Type 2 report is organized into 5 sections:
- Independent service auditor’s report – Opinion on whether the description of controls is presented fairly and controls were suitably designed and operating effectively
- Management’s assertion – Statement accepting responsibility for controls
- Description of service organization’s system – Details about the organization, services provided, control objectives, and related controls
- Service auditor’s description of testing and results – Summary of the testing procedures performed and results
- (Optional) Service organization’s response to exceptions noted – Explanations for any control deficiencies or deviations identified
Independent Auditor’s Report
This section provides the auditor’s opinion on whether management’s description of the service organization’s system is fair and the controls suitably designed and operating effectively to meet control objectives.
A qualified opinion indicates material weaknesses were identified in the design or operating effectiveness of controls. An adverse opinion means pervasive weaknesses were found. A clean opinion gives users assurance about the organization’s controls.
Management’s Assertion
Management provides an assertion accepting responsibility for designing, implementing, and maintaining effective controls within the system. This letter demonstrates accountability to customers and business partners relying on the report.
System Description
This in-depth section describes the service organization’s system and controls. Details include:
- Overview of operations and technology environment
- System boundaries – People, processes, data, infrastructure in scope
- Principal service commitments and system requirements
- Risk assessment process
- Control objectives related to security, availability, processing integrity, confidentiality, and privacy
- Details of control activities in place to meet each control objective
- Complementary user entity controls needed for effective security
The system description provides customers a thorough understanding of the organization’s architecture, responsibilities, and controls relevant to data security and availability.
Service Auditor’s Testing and Results
This section documents the testing procedures conducted by the auditor to evaluate whether stated controls were adequately designed and operating effectively throughout the review period. Testing may include:
- Interviews with personnel
- Observation of processes and procedures
- Inspection of documents and records
- Examination of hardware and software configurations
- Sampling and testing of specific controls
The results present the auditor’s findings regarding the suitability of control design and operating effectiveness in achieving specified control objectives.
Service Organization’s Response (Optional)
For any issues or deviations identified, the service organization may provide responses explaining the causes and addressing remediation plans. Transparency around deficiencies demonstrates diligence.
Key Control Objectives in a SOC 2 Report
While examined controls will vary by organization, SOC 2 reports generally assess controls relevant to security, availability, processing integrity, confidentiality, and privacy. Examples of key control objectives include:
Security
- Logical access controls over protected information
- Change management processes
- Incident detection and response procedures
- Security awareness training
- Vulnerability scanning and patching
Availability
- System monitoring
- Backup procedures
- Disaster recovery planning
- Capacity management
- Service level management
Processing Integrity
- Accurate system processing and transaction logging
- Data input and output validation controls
- Error identification and correction
- System interface controls
Confidentiality
- Encryption of sensitive data at rest and in transit
- Access restrictions to confidential data
- Retention and disposal policies
- Third party confidentiality commitments
Privacy
- Privacy policies and procedures
- Opt-in preferences for personal information use
- Personal information access controls
- Data anonymization and aggregation methods
Key Criteria for SOC 2 Type 2 Compliance
Obtaining a clean SOC 2 Type 2 report signifies the organization meets key criteria for security, availability, and confidentiality:
- Documented policies and procedures – Comprehensive documentation of internal controls, processes, and IT infrastructure specifications.
- Secure infrastructure configurations – Hardened configurations for firewalls, servers, routers, databases, and other systems.
- Access management – Role-based access controls, authentication, authorization, and audit logging.
- Encryption technologies – Encryption of sensitive data in transit and at rest using industry standard algorithms.
- Change control – Documented change management procedures with oversight controls.
- Incident response – Documented plans for incident detection, response, and recovery.
- Risk assessments – Periodic information security risk assessments and vulnerability management.
- Vendor management – Oversight controls for third party providers.
- Personnel controls – Vetting, security awareness training, and termination procedures.
- Disaster recovery – Documented plans for business continuity and disaster recovery.
Who Needs a SOC 2 Type 2 Report?
SOC 2 reports are becoming essential for any service organization handling customer data, especially businesses offering SaaS, cloud services, data hosting, financial services, healthcare services, or payment processing. Specific organizations that often request SOC 2 reports include:
- Cloud infrastructure providers (IaaS, PaaS, SaaS)
- Managed service providers (MSPs)
- Data centers and colocation facilities
- Healthcare organizations
- Payment processors and financial services
- Technology and software companies
- Professional services firms
- Higher education and nonprofits
Ideal Candidates for SOC 2 Certification
Obtaining and maintaining SOC 2 compliance requires ongoing dedication. The following attributes make an organization an ideal candidate for SOC 2:
- Commitment to security and compliance from leadership
- Sufficient resources to sustain controls and support audits
- Mature set of security policies, procedures, and documentation
- Skilled staff to implement and operate controls
- Culture of compliance and adherence to controls
- Software platforms and infrastructure that enable control automation
- Vendors and partners willing to undergo security reviews
Challenges of SOC 2 Certification
While SOC 2 compliance demonstrates security maturity, the certification process also comes with challenges:
- Significant time commitment – Documentation and implementation of controls requires months of work upfront.
- High costs – Large professional services firm fees for assessments often exceed $50,000+ annually.
- Resource intensive testing – Months of audits drain IT and compliance staff time.
- Frequent re-testing – Controls must be continually validated with Type 2 audits every 6-12 months.
- Ever-evolving standards – Expectations and requirements constantly expand requiring updates.
Organizations must weigh the benefits of trust and transparency provided by SOC 2 versus the significant investments to obtain and maintain compliance on an ongoing basis.
Maintaining SOC 2 Compliance
While the initial SOC 2 certification process is arduous, maintaining compliance over time presents further challenges. Organizations must:
- Monitor control performance and test controls periodically
- Review policies and procedures at least annually
- Evaluate changes in technology and business operations for impacts to security and compliance
- Assess risks and update controls to address emerging threats
- Retain skilled staff to operate effective controls
- Work with vendors to maintain compliant partnerships
- Support ongoing independent testing for Type 2 reports
By embedding compliance into corporate culture, prudent security practices can be sustained.
Pros and Cons of SOC 2 Type 2 Certification
Below are some key advantages and disadvantages to weigh when considering SOC 2 Type 2 compliance:
Advantages
- Competitive differentiator demonstrating trust and transparency
- Meets baseline security requirements for partnerships
- Increased customer confidence in data protection
- Reduced risk of security breaches and data leaks
- Promotes disciplined controls and compliance practices
Disadvantages
- Significant costs for multiple yearly audits
- Drain on internal resources for testing and fixes
- Delays and effort of remediating any audit findings
- Upkeep of extensive documentation and evidence
- Ongoing changes required as standards evolve
Alternatives to SOC 2 Certification
If SOC 2 Type 2 seems impractical given resource constraints or other factors, organizations can consider several alternatives to validate security:
- SOC 2 Type 1 – Less rigorous point-in-time audit demonstrating baseline controls
- SOC 3 – General use report without detailed testing or controls information
- ISO 27001 – Validation of an ISMS management system and framework
- HIPAA – Compliance with healthcare data security and privacy standards
- PCI DSS – Adherence with payment card industry data standards
- Cloud security frameworks – CSA STAR, SOC 3, ISO 27017, FedRAMP
While less thorough than a Type 2 assessment, these options offer a more cost-effective way to demonstrate baseline due diligence and meet minimum customer requirements.
Conclusion
Obtaining and showcasing a SOC 2 Type 2 report signals to customers that your organization takes data security seriously. The extensive auditing provides assurance that you have necessary controls in place to protect confidentiality and maintain operations.
However, the significant investment required to obtain and renew SOC 2 compliance should not be underestimated. The costs and effort involved must be weighed against competitive needs. For resource-constrained organizations, a Type 1 or alternative industry certification may be more practical.
Ultimately, while demanding, SOC 2 Type 2 represents the highest standard for transparently communicating security practices to prospects, customers, and business partners.