Relying on trusted third party service organizations to perform ongoing specialized skills, tasks, functions and projects is an extremely attractive strategy for businesses of all sizes and industries today.
One key reason that some business leaders pause before running headlong into outsourcing relationships involves the risk to their data. Fortunately, the American Institute of CPAs (AICPA) saw this emerging issue in 2011 and developed the System and Organizational Controls (SOC) 2 audit as a solution intended to allay data security concerns for both clients and service organizations.
Given the value and weight of each SOC 2 reporting session to clients, it is important that service organizations do everything possible to provide assurance regarding internal controls, using any available tools. One crucial tool includes SOC 2 readiness testing.
Why Are SOC 2 Audits and SOC 2 Readiness Testing So Important to Service Organization Engagements?
The reasons that companies are increasingly joining forces with information technology gurus are varied and include reducing and controlling operating costs, focusing on core business tasks, accessing cutting-edge technological capabilities, and freeing internal IT resources for other fundamental purposes.
The most common service organizations tap into the client’s internal system, network and cloud service account to perform duties associated with the following:
- Data hosting
- Data processing
- Software-as-a-Service (SaaS)
- Data-as-a-Service (DaaS)
- Infrastructure-as-a-Service (IaaS)
- Platform-as-a-Service (PaaS)
- Shared hosting
- Virtual Private Server (VPS)
Business leaders launch intensive searches to find service organizations with whom they can entrust their intellectual property and trade secrets, human resource details and confidential customer data.
Ultimately, however; no matter how much vetting a client company does to find a service organization with incomparably impressive credentials, the business leaders still have duty to protect all data that collected, stored, transmitted, processed, and disposed by a service provider. That protective duty certainly extends to service organizations whose primary purpose is to tap into those resources.
A Quick Refresher on SOC 2
The AICPA developed the SOC 2 as an auditing process that results in a SOC 2 attestation report that offers controls assurance covering a defined set of the service organization’s systems. The SOC 2 report covers a specific time period—anywhere from six to 12 months, ordinarily—agreed upon between the service organization and the service auditor.
The SOC report focuses on the five Trust Services Criteria (TSC), which are made up of security, availability, processing integrity, confidentiality and privacy. Security is the only element that is mandatory for each SOC report, and it is also the most commonly cited focal point of SOC 2 reports since its purpose is to determine whether all relevant systems are properly protected against the threat of modification or unauthorized access.
SOC 2 audits and attestation reports require ongoing commitment from management to ensure controls are consistently performed, so it is not a one-time deal then everyone moves on. With that commitment comes the organic creation and cultivation of a company culture that focuses on the framework of controls and testing that lead to better data security and less worry.
A SOC 2 report gives service organizations an opportunity to catch missteps and inconsistencies so they can take remediation steps before encountering a data breach or other costly compromise of their system, unprotected.
SOC 2 Readiness Testing Is the Last and Most Vital Step in SOC 2 Audit Preparation
After defining the scope of a SOC 2 audit, assessing management’s control environment and mapping out remediation plans, there is one more step in SOC 2 preparation: SOC 2 readiness testing.
Even with all the other preparatory steps locked into place, conducting readiness testing is crucial for ensuring the service organization’s controls work as intended. CIOs for service organizations perform SOC 2 readiness testing before engaging a service auditor.
Readiness testing is so important because service organizations need to fully and comprehensively evaluate their whole control environment before launching an official SOC 2 audit. It is not at all unusual for various inconsistencies, deficiencies and other problems to surface during a SOC 2 readiness assessment. The service organization’s opportunity to catch the problem and immediately correct it helps them to avoid suffering the consequences of a less than satisfactory finding in the final audit report.
Benefits of SOC 2 Readiness Testing That Both Clients and Service Organizations Appreciate
Somewhat a “dry run” of the official SOC 2 audit, carefully performed SOC 2 readiness testing could mean the difference between an unqualified auditor opinion and a qualified auditor opinion, or worse.
There are a few specific benefits of SOC 2 readiness testing that make it more than worth the effort, including the following:
The Ability to Narrow the Scope of the Audit.
The scope of a SOC 2 audit can take on a life of its own, thanks to a sprawling list of information systems, locations, people and more that IT leaders must consider including. A SOC 2 readiness test can help narrow the scope down to the exact business process and the specific systems to be included in the official SOC 2 audit to save valuable time and resources.
The Opportunity to Clarify Remediation Strategies.
It is important to know exactly what is needed for remediation and correction all internal control weaknesses and deficiencies before launching the audit.
Standard Strategies for SOC 2 Readiness Testing That Any Service Organization Can Use
There really is no official industry standard when it comes to SOC readiness testing methods, but there are some core elements, points and ideas that may help get service organizations like your own moving in the right direction, like the following:
- Make sure SOC is right for your business.
- Choose and meeting with a service auditor to discuss issues and concerns for an upcoming audit.
- Select SOC 2 audit elements, such as the system in question and the TSC, or TSCs, to include in the audit.
- List management commitments.
- Evaluate controls and gaps to make sure they are in place, correctly designed and operating effectively.
- Remediate discovered gaps regarding controls, policies and procedures, and processes.
- Develop system description that reflect elements of the system, as well as criteria, controls and assertions.
- Run and maintain processes to build an effective audit period.
- Prepare to run your official SOC 2 audit with last-minute walk-throughs.
Have You Developed Your Approach to SOC 2 Readiness Testing?
If you have not developed your own unique approach to SOC 2 readiness testing, you have many options. The fact is that there is no single strategy out there for everyone to use when preparing for a stellar SOC 2 audit. At I.S. Partners, LLC., we have recommended and used a variety of SOC 2 readiness testing methods with our clients, depending on their specific needs and concerns. We can definitely help you find an approach that works best for your service organization.