Common Questions about System and Organizational Controls Reporting (SOC)
On the road to launching a successful startup, founders and teams eventually confront a set of issues and requirements associated with data security. A secure data infrastructure doesn’t just protect customer information; it also reassures potential investors and enterprise-level clients. So offering guarantees and documentation that prove your company’s commitment to security can remove some of the obstacles on the path to growth.
For this reason, boards and audit committees often appreciate SOC reports—the modern standard for an assessment of a company’s internal controls. Here are few common questions asked by company leaders as they approach the reporting process.
Why do we need a SOC report?
SOC 1 and SOC 2 reports are not required by law or by regulatory agencies, but they are often required or requested by clients before contracts are signed. A clean or “unmodified” opinion on a company’s internal financial controls (SOC 1) or data management protocols (SOC 2) provided by an independent 3rd party auditor can validate the company’s assertions about its security and functionality.
SOC audits can be expensive and stressful, and some audit formats may not be worth the cost to some companies. Before you proceed with the process, you’ll need to determine which audit type will bring the most value. For example, data service providers typically benefit from a SOC 2 report, but the choice between a SOC 2 type 1 audit and type 2 audit will also need to be made.
What’s the difference between Type 1 and Type 2?
A SOC 2 type 1 audit usually requires a lower investment of time and resources, since it involves a one-time examination of a company’s data infrastructure, followed by a “modified” or unmodified opinion. In other words, upon examination, the infrastructure appears to be secure or it appears to have gaps. A type 2 audit is somewhat more in depth and involves an assessment of samples taken over an extended period of time. Again, both cost and value will need to be taken into account when choosing between the two, since the second can be more involved and expensive, but may offer more meaning for potential clients.
Other than cost, are there risks associated with pursuing a SOC 2 audit?
Not really (though cost can be a significant factor for small startup companies). Even if a SOC 2 audit returns evidence of security or infrastructure gaps, this knowledge can be very helpful to companies who want to fix the gaps, gain a stronger footing, and attract larger enterprise clients. In the long run, it’s better to find out about these weaknesses and address them than it is to remain the dark. Legal problems or fines that can result from a weak audit are a minimal concern, since the process is voluntary and is usually requested by clients and partners.
Have you been asked to undergo a SOC 1 or SOC 2 audit, or are you considering a voluntary review? Contact our team for answers and guidance.