Today’s businesses are increasingly relying on the expertise of at least one service organization—some may reach out to two or more—to streamline their operations. It is crucial that each service organization ensures that their own system aligns with that of their client, for the sake of data security.
The System and Organization Controls (SOC) report has become the standard metric for reviewing and articulating the services and internal control processes of a service organization for the benefit of the client, or user organization.
These reports are invaluable to ensuring that user entities and service organizations stay on the same page in their shared goal in protecting the user organization’s data assets.
Do You Know How to Read and Interpret a SOC Report?
As a user entity, you probably understand your need to engage a trusted auditing firm to perform a SOC report. However, things may become somewhat foggy when it comes to reading and interpreting a SOC report. You are not alone in any confusion you have, but there are some simple ways to help you improve and fully understand your SOC reports.
Determine the Type of SOC Report You Need to Read and Interpret
There are four SOC reports your organization may need to perform, and the first step toward a better understanding of the results is to determine exactly which report you are preparing to review and interpret:
SOC 1 – Reporting on an Examination of Controls at a Service Organization Relevant to User Entities’ Internal Control Over Financial Reporting
The SOC 1 audit involves the user auditor’s review of the user entity’s financial statements to evaluate the effect of the controls at the service organization, per the AICPA. Under SOC 1, there are two types of audits a CPA may perform:
- Type 1. Report on the fairness of the presentation of management’s description of the service organization’s system and controls for a specific date.
- Type 2. Report on the fairness of the presentation of management’s description of the service organization’s system and controls throughout a specific period.
SOC 2 – Report on Controls at a Service Organization Relevant to Security, Availability, Processing Integrity, Confidentiality or Privacy
The SOC 2 report focuses the controls at a service organization, relating to security, availability and processing integrity for the systems that the service organization uses to manage and process user’s data. The report serves to ensure the confidentiality and privacy of the information processed by these systems, according to the AICPA.
Additional information to look for in your SOC 2 report include details about oversight of the service organization, vendor management programs, regulatory oversight, risk management processes and internal regulatory oversight.
Similar to SOC 1, SOC 2 features two types of reports. For SOC 2, both types of reports provide management’s description of a service organization’s system and the suitability of design controls. Type 1, however, features restricted use.
The SOC 3 is designed to meet the user’s need for assurance regarding the controls at an organization related to security, availability, processing integrity, confidentiality or privacy. However, these are general reports that do not have the need for, or knowledge, necessary to make it fully effective as a SOC 2 report. They are available for wide distribution.
SOC for Cybersecurity
As data breaches and other online threats increase each year—and businesses increasingly rely on online business communications and transactions—organizations feel the pressure to demonstrate due diligence in managing cybersecurity threats. The SOC for Cybersecurity is a relatively new risk management reporting framework developed to assist organizations to communicate relevant information about the effectiveness of their risk management programs.
Figure Out the Scope of the SOC That You want to Review
SOC 1 and SOC 2, in particular, provide clear scopes from which you may choose. With SOC 1, you will be looking at financial statements to determine the internal controls at an organization. Here, you can decide whether you need to read and interpret the details from a specific date, or dates, or you may choose to look at a specific period.
Additional scope parameters you may choose include:
- Specific locations
- Certain date or timeframe
- Systems involved
- Responsible staff members
- Business applications and technology platforms involved
- Processes that focus on internal control over financial reporting
While many of these scope focal points are comparably applicable to each type of SOC report, double-check to make sure all the language corresponds to your specific report. Your determining the scope will help you get the information you need to make it easier to read and understand the report.
Decide on the Key Areas to Review
Once you have determined your SOC type and its scope, you can start deciding precisely what it is you are trying to learn from the report in question. By breaking it down into key areas to review, you can better evaluate the relevancy and adequacy of the report. Here are three key areas to review:
The Auditor’s Opinion
First, the SOC examination report contains an auditor’s opinion regarding the description of the service organization’s system and whether it is presented fairly. The auditor also provides an opinion on whether the controls in the service organization are suitably designed to ensure the security of the user entity.
The auditor’s opinion is presented in four possible variations:
An unqualified opinion is the ideal, meaning that the auditor fully supports the findings. Any other opinion should direct your organization to evaluate the cause and impact of the qualifications.
The complementary user entity considerations (CUECs) are controls that your organization must implement. The SOC report will help you determine if those controls are applicable and whether you need to adopt and implement them to satisfy the CUECs.
Deviations and Responses
While you are often looking for specific good outcomes in a SOC report, you must also look for any shortcomings and deviations, as well as the possible impact of those deviations. If deviations threaten to negatively affect your business, you should work to mitigate or compensate for them.
Are There Any Subservice Organizations?
A subservice organization is basically a service organization to a service organization. It is a 4th party firm that assists the 3rd party in providing even further specialized services. Even though they seem far removed, they are still important to ensure your data’s integrity. If the subservice organization has any contact with your data, their system’s controls must also align with the terms of your agreement, notes Risk3Sixty.
Do You Feel Confident in Reading and Interpreting Your SOC Reports?
If you need help understanding just what you are reading in your respective SOC reports, you are not alone. Many of our highly successful clients need a little extra help in extracting the most meaningful information from their SOC reports. Our I.S. Partners, LLC. auditing team can help you instantly recognize the most important details, as well as what you can and should do with that information.