Over the last decade, cybersecurity has become an increasingly important issue for individuals, businesses, and even state and national governments. The onset of the COVID-19 pandemic has only exacerbated the complications surrounding cybersecurity. With millions of workers transitioning to remote work, the need for increased security standards and regulations has never been greater. For this reason, it’s essential to learn some of the most important terms related to cybersecurity compliance, including SOC 1, SOC 2, SOC 3, and GDPR.
Service Organization Control (SOC) 1 is an audit report created by the AICPA that applies to businesses that provide services to other companies. Also known as the Statement on Standards for Attestation Engagements (SSAE) 18, the SOC 1 report emphasizes the controls of a service organization relevant to the audit consumer’s financial statements. These controls are generally related to business practices, information technology, or both.
As a result, SOC 1 is a reflection of a company’s ability to protect its user’s financial data. Generally, this type of audit is designed to provide objectives to improve operational efficacy at a given point or over a specified period of time. In any case, SOC 1 is most often associated with financial processes and is limited to the management of the service organization (SO), its users, and its auditors.
It’s important to note that there are two types of SOC 1 reports. You can learn more about them here:
According to the AICPA, Type 1 and Type 2 reports differ in the following ways:
Type 1 – This report pertains to the fairness of an SO’s system and a description of the system’s ability to achieve the control objectives by the specified date.
Type 2 – This report covers the same points as Type 1, but rather than reporting on objectives for a specified date, a Type 2 report covers the description and operating effectiveness over a set period (at least six months).
SOC 2 is similar to SOC 1 insofar as it is an AICPA audit report, but it varies in its primary focus. SOC 2 compliance requirements focus on five basic principles to ensure the security of a service organization’s client data: security, availability, processing integrity, confidentiality, and privacy. Since every service organization differs in its specific business processes, the precise controls used to comply with each of the aforementioned principles can vary.
That said, there are some standard practices that can be applied to the majority of service organizations:
Security breach management
Just like SOC 1, SOC 2 also has two types of auditing reports:
Type 1 – The SOC 2 Type 1 report outlines the suitability of design controls to the SO’s system at a specific point in time. Essentially, this kind of report shows that a SaaS company has the best security practices in place (as outlined in the 5 principles above).
Type 2 – The SOC 2 Type 2 report provides a much more thorough vision of an SO’s design controls than Type 1. The type 2 audit requires a company to pass a complete examination of its control policies and practices over a specified period of time.
SOC 3 audits are relatively simple as they cover all of the same cybersecurity principles as SOC 2 audits. However, the final SOC 3 report is intended for a larger audience beyond the auditor, the service organization’s management team, and the SO’s stakeholders. As a result, SOC 3 reports are shorter and contain fewer details than SOC 2 reports. In fact, SOC 3 reports are often openly published as proof of a company’s cybersecurity compliance.
On May 25th, 2018, the European Commission of the European Union implemented the General Data Protection Regulation (GDPR), granting legal protections related to the transfer of personal data inside and outside of the EU. In essence, the GDPR aims to give consumers more control over their personal data and provide international businesses with more standardized regulations. Even though the GDPR is mandated within the EU and European Economic Area (EEA), it also applies to businesses or service organizations that collect or transfer data of EU citizens — regardless of the location.
There are several general provisions that make up the body of the GDPR, with more specific stipulations to account for less common circumstances. In any case, here are the most important takeaways from the sweeping GDPR legislation:
Provisions within the GDPR apply to any organization that collects or processes data from EU citizens, as well as the “data subjects” (individual residents of the EU).
An organization only has the legal right to collect or process personal data if one of the following is true:
To be compliant with the GDPR, a data collector or processor must implement the best practices to protect consumer data and prevent cybersecurity breaches. This includes informing and requesting consent from data subjects, as well as implementing processes like those outlined in the five principles of SOC 2. Additionally, service organizations are responsible for conducting data protection impact assessments in the event that a security risk or a similar breach of protocol occurs.