What Is a Vendor SOC Report?

Are you confused by the entire concept of SOC (system and organization controls) reporting? You’re not alone. Many people find this type of reporting very confusing so read on to get a basic understanding of this complex issue.

To begin, let’s review a basic definition of a SOC report:

It’s the resulting report from an independent audit of internal controls performed by a public accounting firm. The report will attest to the existence and effectiveness, for type II audits, of controls specified by the company being audited (your vendor). Basically, the report should tell you if your vendor has the right controls in place to safeguard your data and if those safeguards are actually working, based on the scope and type of the audit as determined by the vendor.

This definition might still be perplexing, so it’s helpful to understand some other aspects of a SOC report such as its purpose and different types of SOC reports.

What Is the Purpose of a SOC Report?

First and foremost, a third-party SOC report is produced to confirm whether a vendor’s controls are in place and operating effectively for type II audits or identify if there are any control exceptions. Controls refer to security measures the vendor has implemented to ensure data is protected.

An example could be logical access controls. Logical access controls should be in place to ensure that certain data and rights are given only to the appropriate people. Furthermore, the data and rights should be limited to only what is needed to perform the job function. To demonstrate this, controls may reference the principle of least privilege, where only the required access is provided and no more, or reference separation of duties, where a user would not have the ability to approve their own request or have access to data without another party knowing. More exceptions are found surrounding logical access controls than any other control area, primarily due to faulty termination or account audit processes.

Aside from simply confirming controls, a SOC report can serve other purposes such as:

1. An opportunity to verify independent testing of controls has been completed
2. Provides an overview of the product/service you’re using
3. Helps you with your requirement to continuously monitor vendors adequately
4. Verifies the vendor has adequate controls in place to protect their system

SOC reports are important and should be analyzed thoroughly. However, it should be noted that not all vendors will have one, and they are not required to. For example, a low-risk vendor, like your cleaning company, isn't going to have one and will likely be confused if you request this document. On the other hand, if a critical vendor does not have a SOC report or the report they have is overdue then that’s concerning. Lower risk, new, and small vendors will be less likely to have a SOC report. In these cases, you’ll want to pay closer attention to the additional due diligence evidence they provide.

The Different Types of SOC Reports

To touch on them briefly, here’s a quick overview of the three main reports you’ll see:

• SOC 1– Designed to review a vendor’s internal controls as they relate to financial reporting. SOC 1 audit reports are best for your non-information system-based products and services.
• SOC 2– An examination on the vendor’s controls over one or more of the trust services criteria which are security, availability, processing integrity, confidentiality and privacy.
• SOC 3– A high-level summary of the SOC 2 which can be shared publicly. Therefore, it’s not as comprehensive.

If you haven’t been requesting and reviewing SOC reports, then make sure you adopt this important practice. It’s a regulatory requirement for some and a good recommendation for others. In general, they’re the best audit reporting tool to review vendors and auditors and examiners will expect to see these reports and the corresponding analyses on file as part of your due diligence process. Ensuring that you have these documents and analyses on file can help avoid exam findings and a lot of headaches down the road. If you’re not sure where to begin, check out the American Institute of Certified Public Accountants (AICPA) website for helpful information like this here.

Get a more in-depth breakdown of vendor SOC report terms and definitions. Check out the interactive experience.