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Vendor SOC Inclusive Method vs Carve Out Method

3 min read
Featured Image

For many of us, this time of year includes plenty of shopping, cooking and carving a big turkey for family and friends. While this type of carving is simple and straightforward, there’s another type of “carving” involved in SOC reports that can be a little more confusing. In this blog, we’re going to discuss the differences between the carve-out method and the inclusive method that are used in SOC audit reports.

The Fundamentals

Before we define these two methods, it’s important to understand some basic definitions:

  1.  What is a SOC report? SOC stands for system and organization controls and is a general term that includes many types of reports. A SOC report is a type of audit that provides your organization with insight on how well the vendor is reducing risk by implementing appropriate controls. There are different types of SOC reports, covering things like a vendor’s financial controls, confidentiality, privacy and even cybersecurity risk programs.
  2. What are vendor controls? A control refers to a security measure implemented by the vendor that is intended to mitigate risk to your organization. For example, a cybersecurity control would be the required implementation of multi-factor authentication to be used by a vendor’s employees.
  3. What is a subservice organization? Also referred to as a fourth party, a subservice organization is your vendor’s vendor. It’s essential to understand your vendor’s critical service providers, as they’ll have a direct impact on your organization. Subservice organizations are where the carve-out and inclusive methods really comes into play!

Carve-Out vs Inclusive Methods

Since there’s no specific SOC report for subservice organizations, you’ll want to be aware of how your vendor includes them in their SOC reports. They’ll either use the inclusive method or the carve-out method to document the relationship within their SOC report. So what exactly does that mean? Here’s an overview:

  • Carve-Out Method: This method is most common and means that the subservice organization’s controls are NOT included in the scope of the SOC report. The vendor has CARVED OUT all the controls that the subservice is responsible for and essentially made them not applicable. When this method is used, your vendor should provide documentation that reveals their own due diligence and vendor management practices. When your vendor uses this method for critical controls that impact the service or product you use them for (for example: data centers), it’s recommended that you review your fourth party’s (vendor’s subservice) SOC report as part of your due diligence.
  • Inclusive Method: In this method, the controls from the subservice organization that support normal operations are included in the SOC report and will be reviewed by the auditor. The fourth party will also include written assertations in the report and open their organization to the auditor as part of the SOC process.

SOC reports have a lot of moving pieces and the method of how subservice organizations are handled is just one of them. Understanding whether your vendor’s subservice organizations were included in the audit (inclusive) or not (carved out) and how they impact the product or service you use your vendor for is a key step in determining how deep you have to dig into those fourth parties.

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