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SOC Reports

The Finer Points Of A SOC 2

Aug 11, 2015 by Venminder Experts

In review, a SOC 1 report reviews financial and audit controls of a vendor. Basically a SOC 1 tells you if your vendor manages their books well (or not). But is it the right report for you? Does it have anything to do with the products and services your vendor provides to you? 

For example, if you are hiring an internet banking provider, shouldn’t you care more how they control the privacy, security, availability, integrity and confidentiality of their data center facilities and server hosting? The answer is yes and that means you should be asking for a SOC 2 report. And remember, a SOC 2 is not the next level up from a SOC 1. They are two totally different animals. For more information, check out our recent post on SOC 1, 2 or 3 - Understanding the Differences

A SOC 2 was designed for technology companies who are classified as service organizations.  Examples would be data centers, I.T. managed services, Software as a Service (SaaS) vendors or other technology or cloud computing providers. 

A SOC 2 report covers the 5 Trust Services Principles:

  • Security – Is the service provider’s system protected against unauthorized access?
  • Availability – Is the service provider’s system available for operation as promised? (contractually or otherwise)
  • Processing Integrity – Is the service provider’s system accurate and trustworthy?
  • Confidentiality – Is customer information protected?
  • Privacy – Is NPI used, retained, disclosed, and destroyed in accordance with the providers’ privacy policy? 

Just like with a SOC1 there are Type 1 and Type 2 reports. The big difference between a Type 1 and Type 2?  A Type 1 merely says the controls are in place. But a Type 2 tells you if the controls are in place and if they’re working! 

Expect to sign an NDA to receive a copy of the SOC 2 report. SOC 2 reports are intended solely for the information and use of the specified parties –generally, the user entities and their auditors. They are not made public and your distribution of the report should be tightly managed on a need to know basis. After all, a SOC 2 is exposing detailed information about the very heart of how a vendor operates their business. 

There are 3 main sections in every SOC 2 report:

  1. The Service Auditors Report,
  2. The Managements Assertion, and
  3. The Description of Systems.

What to look for:

  • In the Management Assertion section look for language that details what the report covers. You should be able to spot the products and services you receive from the vendor in this section. If not, the report is useless to you.

  • Look to see what Trust Services Principles (see above) are covered in the Service Auditors Report section. It is not required that all 5 are covered, management of the vendor is allowed to specify which criteria they want included in the report. It’s not always indicative of a problem if all 5 are not covered, you should just be sure all your areas of concern are addressed. 

  • Are your vendors vendor’s covered? If you see language such as “inclusive” then they are covered. If you see the words “carve-out” then the audit did not include your vendors third party providers. If your vendors vendor’s store or process customer data then you’ll need separate assurance from your vendor that their vendors are held to the same standard to which you hold your vendor. 

  • Are there material exceptions that cause you concern? In the Service Auditors Report section look for words like “inadequate” or “misrepresentation”. Big. Red. Flag. 

  • Don’t forget to pay particular attention to the “User-Entity” (that’s you!) Controls.  Often missed, this section is very important. The rest of the audit is about what the vendor will do to ensure safety, security, etc but in this section the vendor is saying it’s only good if you are doing your part by establishing processes and procedures to hold up your end of the bargain. 

Finally, if you are looking for the best independent audit on a technology vendor, a SOC 2 is the only audit report that uses a pre-defined set of criteria regarding the services a vendor provides to you. Therefore, for critical or high risk technology vendors that either process, transmit, or store customer data, a SOC 2 Type 2 is really the only answer. 

Analyzing a Vendor SOC Report eBook

Venminder Experts

Written by Venminder Experts

Venminder has a team of third-party risk experts who provide advice, analysis and services to thousands of individuals in the financial services industry.

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