System and organizational control, or SOC, reports may be an obscure concept to some, but chances are your vendors or customers may soon ask you for one (if they haven’t already). Developed by the American Institute of Certified Public Accountants, SOC reports are the gold standard for evaluating the controls and practices of third-party service providers as it relates to data and financial reporting.
There are two main types of SOC reports: SOC 1, which examines internal controls over financial reporting, and SOC 2, which tests controls related to five principles for data (security, availability, confidentiality, privacy and processing integrity).
Growing Demand for SOC 2 Reports
In recent years, there has been an uptick in vendor security concerns and a demand for greater transparency, which in turn has resulted in more requests for SOC 2 reports. The primary purpose of these reports is to support due diligence around vendor selection and ongoing monitoring of third-party vendors and partners.
Security is a top concern for today’s companies, but remember that it is only as good as the weakest link, which could be a third-party vendor with weak controls. That’s why it is so important for companies to understand the power and potential of SOC 2 reports to support risk management efforts and deliver the numerous benefits outlined below.
Benefits of SOC 2 Reports
SOC 2 reports provide a number of benefits to vendors and their business customers in terms of security, availability, confidentiality, processing integrity and privacy. Here are a few of the biggest advantages of commissioning a SOC 2 report:
- Trust signal to customers: Having an updated SOC 2 report on file is a demonstration of your organization’s commitment to transparency and governance and can serve as a trust signal in a time of increasing awareness around safety and security. Third-party vendors that can provide a SOC 2 report on demand are more likely to maintain customers, which is always beneficial to bottom-line profits.
- Competitive edge: Having a SOC 2 report on file can also provide a competitive advantage over others vendors without one. Studies show that companies with strong and effective controls can manage and reduce operational risks that otherwise would result in reputation damage, fines and potential legal actions.
- Scalable solution to meet customer needs: Businesses grow and evolve over time to create new product offerings and adapt to an ever-changing competitive landscape. Contracted vendors and outsourced partners may need to adjust their services to support such pivots by their customers. A SOC 2 report is a valuable opportunity to evaluate a control environment and ensure alignment with customer needs and expectations, while supporting business growth.
- Regulatory compliance: The business environment continually grows more complex, as different states and territories enact new regulations around privacy and data, such as the California Privacy Rights Act or the European Union’s General Data Protection Regulation (GDPR). A SOC 2 report is an efficient and effective way to assess and demonstrate compliance with a wide range of regulations and standards.
- Efficient management of controls: Depending on the focus of a SOC 2 report (security, availability, confidentiality, processing integrity, or privacy), certain controls may involve various regulatory concerns and provide a good baseline to evaluate any gaps or missing elements. Managing one baseline set of controls allows management to be more focused and efficient in maintenance of their control environment.
Whether you are a third-party vendor providing a SOC 2 report or a customer requesting one, this assurance tool can provide significant benefits to your operations and bottom line. Customers gain confidence that the process and services they are paying for meet their performance expectations and quality standards. Vendors can better address customer needs and demonstrate their commitment to security, which paves the way for greater customer retention and profitability.
Want to learn more or get started with SOC reporting? RKL’s Information Systems Assurance and Advisory professionals have a combined two decades of experience conducting SOC reports. Contact your RKL advisor or reach out using the form below to start the conversation.