If you’re searching for a SOC 2 software solution, you’ve come to the right place. The SOC 2 framework helps organizations manage their compliance with the System and Organization Controls (SOC) 2 framework. This framework, established by the American Institute of Certified Public Accountants (AICPA), defines criteria for managing customer data based on five Trust Services Criteria, namely Security, Availability, Processing Integrity, Confidentiality, and Privacy. Given the growing importance of data protection and cybersecurity in today’s digital landscape, it is not surprising that companies are turning to SOC 2 software solutions to ensure they meet all necessary requirements. 

SOC 2 compliance software  

One such solution for streamlining the SOC 2 process is compliance software. These software platforms are specifically designed to help organizations achieve and maintain SOC 2 compliance by automating various tasks related to documentation, reporting, risk assessment, and remediation. With the constantly evolving regulations governing information security and privacy practices, having a reliable compliance management system in place can be incredibly valuable for companies looking to safeguard their customers’ sensitive data while minimizing the risk of costly fines or reputational damage resulting from non-compliance. 

What to look for in SOC 2 software 

When businesses are evaluating various options for SOC 2 compliance software, there are several key factors that should be taken into consideration. These factors include ease of use, customization capabilities, scalability, integration with existing systems or processes, reporting features, and trust in the design of the platform. 

• Ease of use is an important factor for businesses to consider when choosing SOC 2 compliance software. The software should be intuitive and user-friendly, allowing users to navigate and utilize the features without requiring extensive training or support. 
• Customization capabilities are also crucial, as they allow businesses to tailor the software to their specific compliance needs. This ensures that the software aligns with the unique requirements and processes of the organization. 
• Scalability is another important factor to consider, as businesses need software that can adapt and grow with the organization. The chosen software should have the ability to accommodate changes and expansions in the organization’s size or compliance needs over time. 
• Integration with existing systems or processes is vital for businesses to ensure a seamless workflow. The software should be able to integrate with other systems or processes used within the company, such as human resources or IT, to avoid duplication of efforts and streamline compliance management. 
• Reporting features that enable streamlined communication between stakeholders involved in maintaining compliance efforts are essential. The software should have robust reporting capabilities that provide real-time insights and facilitate effective collaboration amongst compliance teams. 
• The software should provide a strong sense of confidence in a company’s level of preparedness for the audit. Compliance leaders should consider the expertise in the design of the platform when selecting a SOC 2 compliance software solution. 

By carefully evaluating these factors, businesses can select the most suitable SOC 2 compliance software that meets their unique requirements and enhances their compliance efforts. 

A-SCEND compliance automation software 

• A-SCEND is the only compliance software that can take you from readiness to report in a single motion. The software platform combines decades of auditor experience with intuitive automation, providing the highest-quality reports in record time to help organizations scale faster. 

• With A-SCEND, you can automate the SOC 2 process and: 

• Make SOC 2 easy: A-SCEND is the only SaaS compliance management solution that includes live auditor assistance, making it the fastest and easiest way to complete your SOC 2 audit. Everything you need to know and provide for a SOC 2 audit is clearly laid out in a language that you will understand, with clear questions and requests for evidence. 
• Get on-demand expert advice: You don’t want to trust your organization’s security and reputation to software alone. You will have access to experienced auditors to answer any questions you may have along the audit journey. 
• Fix audit gaps in advance: Through the SOC 2 Readiness Assessment you will gain a complete understanding of what policies, procedures, and system configurations will require remediation prior to your audit. 
• Learn from thousands of SOC 2 projects: A-LIGN is the top SOC 2 report issuer in the world. We’ve used that experience across thousands of SOC 2 projects to determine the best practices, tips and tricks for getting your SOC 2 done quickly and affordably. 
• Consolidate your audits: A-LIGN is the only provider that combines compliance automation software and experienced auditors under one roof. That means your entire compliance process can be completed with the same vendor. 

Learn how A-LIGN can streamline your audit process, saving you time and resources. Get in contact with our team today. 

The SOC 2 framework is an essential and rigorous evaluation process for organizations that provide third-party services to others. It is designed to ensure the highest level of trust and transparency when it comes to the security, availability, processing integrity, confidentiality, and privacy of the systems, applications, and data belonging to their customers and users. The framework was introduced by the American Institute of Certified Public Accountants (AICPA) as part of their System and Organization Control reporting platform. 

One of the goals in following the SOC 2 framework is to achieve SOC 2 compliance. Achieving compliance means that a service organization has met all necessary criteria pertaining to one or more of the five Trust Services Criteria (TSC): Security, Availability, Processing Integrity, Confidentiality, and Privacy. Ensuring SOC 2 compliance is vital for organizations that handle sensitive customer data in industries such as finance, cloud computing, healthcare, or technology services since these businesses are obligated to demonstrate they have specific safeguards in place. 

To determine if a company meets all requirements for SOC 2, a thorough analysis is performed via a SOC 2 audit. A SOC 2 audit must be conducted by an independent certified public accountant or auditing firm with knowledge and expertise in this field. The primary goal of this audit is to evaluate an organization’s internal controls for managing and protecting customer data. This includes assessing policies and procedures related to access control, physical security measures, data backups and recovery processes, system monitoring tools, encryption technologies used for protecting confidential information, personnel training programs on security awareness and many other additional factors depending on the scope of TSCs being evaluated. 

SOC 2 framework Trust Services Criteria 

Understanding SOC 2 requirements is an essential first step of achieving compliance. These requirements are based on five Trust Services Criteria created by the AICPA:  

1. Security: This criterion evaluates whether an organization’s systems and applications are protected against unauthorized access (both physical and logical) and other vulnerabilities, ensuring protection and integrity of client data and information. 

2. Availability: This criterion verifies that services provided by an organization are available for operation according to agreed-upon terms, ensuring reliability and sustainability. 

3. Processing Integrity: This criterion assesses the accuracy, timeliness, and completeness of system processing as well as the authorization of transactions to ensure data is processed as intended. 

4. Confidentiality: This criterion ensures that sensitive customer information is properly stored, classified, protected, and accessed only by authorized personnel to maintain confidentiality. 

5. Privacy: This criterion involves the collection, storage, retention, disclosure, disposal of personal information in adherence with privacy policies and any applicable laws or regulations. 

Why SOC 2 matters 

To have a more comprehensive grasp on SOC 2 definition, it is essential to understand its purpose and significance for organizations providing services to users and customers. The framework offers a standardized way for such organizations to demonstrate their commitment towards maintaining robust security controls over confidential user and customer data. It helps instill trust among clients who rely on these service providers for critical business operations while also promoting an ongoing culture of compliance within the organization itself. 

One useful tool for entities embarking on their journey towards SOC 2 compliance is the SOC 2 questionnaire. A questionnaire serves as a valuable resource for self-assessment and an opportunity to communicate with auditors about specific controls in place at the organization. The questionnaire typically consists of detailed questions related to each TSC and assists with providing relevant examples evidence supporting those answers. This document aids in streamlining the audit process and identifying potential gaps in controls or areas requiring improvement. 

In conclusion, adopting the SOC 2 framework signifies an organization’s commitment to maintaining robust security measures surrounding customer data. By understanding all aspects related to SOC 2 compliance – from audit processes through requirements based on Trust Services Criteria – businesses can effectively navigate their path towards achieving this critical certification. Utilizing tools like questionnaires can also help ease some complexities associated with audits and provide valuable insight into an organization’s readiness for obtaining compliance status. 

As industries continuously evolve and place increasing importance on protecting sensitive customer information against various threats – both internal and external – adhering to stringent compliance frameworks like SOC 2 becomes an essential business practice for service providers. In the end, it not only helps strengthen customer trust but also ensures long-term success in competitive markets. 

How to get started 

A great first step is to assess your readiness with our SOC 2 checklist. A-LIGN offers a variety of services, including SOC 2 automation through the use of our A-SCEND platform. Contact A-LIGN today to start the conversation about how we can streamline your compliance journey. 

Organizations cannot afford to leave their clients’ trust to chance. They face complex pressures from customers, regulators and cyberattacks to implement appropriate controls within their environments to protect customer and proprietary data. For many organizations, SOC reports play an integral role in demonstrating an organization’s level of commitment – exemplifying how it will gain their customers’ trust. A SOC report helps to show an organization has identified the key threats and vulnerabilities that pose a risk to its operations and customers, and has implemented an internal controls framework to address those risks. Keep reading to learn about the types of SOC reports and understand the difference between SOC 1 vs SOC 2. 

What is a SOC report? 

A System and Organization Controls (SOC) attestation is a signed report produced by an independent Certified Public Accountant (CPA). The SOC report includes the overall processes and controls as described by the organization and the auditor’s assessment of the controls, at a point in time or over a period of time. 

Organizations rely on SOC reports to demonstrate to customers, vendors, and stakeholders that they have the appropriate policies, procedures, and controls in place to manage and mitigate the key threats and vulnerabilities that pose a risk to their environment. Companies are asked by their clients to provide them with a SOC report to prove: 

• Its internal controls environment is implemented and operating effectively such that the financially relevant systems can be relied upon; or 
• Its internal controls environment is implemented and operating effectively as it relates to the security, confidentiality, availability, processing accuracy or privacy of data. 

Since organizations can potentially be held liable for inaccurate financial reporting, security breaches, disclosure of confidential or private information, system downtime, and incorrect processing of transactions, SOC reports have become a method for organizations across a wide range of industries to show that these risks has been considered and addressed. 

SOC 1 vs SOC 2 vs SOC 3 

There are three different SOC reports available, all of which have a different focus and use. They do not represent a progression (e.g., a SOC 2 report isn’t “better” than a SOC 1 report), but instead address different risks and needs for the organization. 

SOC 1 

A SOC 1 report follows the guidance outlined in the Statement on Standards for Attestation Agreements, which focuses on the internal controls that have an impact on the financially relevant systems and reporting. The main goal of a SOC 1 report is to ensure the controls identified by the organization are in place and/or operating effectively to appropriately address the risk of inaccurately reporting financials. The scope of a SOC 1 audit is more limited than its counterparts but plays a vital role in establishing trust between a service organization and its user entities that rely on its controls for financial statement accuracy. 

SOC 2 

A SOC 2 report can be used by a number of organizations that provide some sort of service (e.g. SaaS, colocation, data hosting, etc.) to another. While it addresses risks associated with the handling and access of data, it isn’t a cybersecurity assessment that evaluates specific technical configurations (although a SOC for Cybersecurity report does). A SOC 2 report focuses more on how an organization implements and manages controls to mitigate the identified risks to the different parts of an organization. 

The SOC 2 audit testing framework is based on the Trust Services Criteria (TSC), which are used to identify various risks (points of focus) an organization should consider addressing. Based on the TSCs the organization selects to be in-scope, the third-party compliance and audit firm evaluates whether the organization has the appropriate policies, procedures and controls in place to manage the identified risks effectively. 

There are five Trust Services Criteria. The first criteria, Security, must be included with every SOC 2 report and is referred to as the “Common Criteria”. 

• Security 
• Availability 
• Processing Integrity 
• Confidentiality 
• Privacy 

When considering the SOC 1 vs SOC 2 difference, the important thing to remember is that a SOC 1 report is geared towards financial reporting controls, while a SOC 2 audit evaluates operational risk management in terms of data protection. 

SOC 3 

A SOC 3 report is coupled with a SOC 2 report and is a scaled-down version of the SOC 2 report. The report is intended for a broader public audience including prospective customers and stakeholders. The SOC 2 report provides greater detail regarding the organization’s controls and operations. A SOC 3 report is effectively a summary of the SOC 2 report that provides less technical information, making it suitable for an organization to share publicly on its website or to hand out to prospective customers. 

Understanding SOC report types 

SOC 1 and 2 reports vary by two distinct types referred to as “Type 1” or “Type 2.” A type 1 attestation is a point in time or “snapshot” of controls designed and implemented as of a specific date. A type 1 assesses whether or not those controls are appropriate for the risks facing the organization, but does not provide an evaluation of how effective they are over a period of time. That’s because it’s only looking at the controls as they exist at that given date. 

On the other hand, a type 2 attestation assesses whether the controls were designed and operating effectively over a specified period. The compliance and audit firm typically issue type 2 reports for durations of three, six, nine, or twelve months. Type 2 reports covering a shorter duration provide less value to the readers of the report regarding the operational effectiveness of the controls in place. Understandably, a Type 2 report takes longer to complete and provides a more thorough evaluation of operational performance. 

Elevate your compliance with A-LIGN 

As a licensed CPA firm with more than 20 years of experience when it comes to SOC reports, A-LIGN has the people, process, and platform you need to help your organization reach the summit of your potential as it pertains to compliance. Our strategic approach to compliance can help you meet the risks over a broad range of frameworks, making it easy to meet multiple standards without starting from scratch ahead of every audit. 

In the early days of a business, owners have a lot to worry about: whether their product or service is a good fit for the market, whether they can effectively reach their target audience, what pricing strategy will help them grow. Needless to say, cybersecurity compliance may be the last thing on their minds, no matter how important it might be. 

With so many other important problems to solve, startup founders might wonder whether compliance is an issue they can put off until a later stage of the company. While this mindset is tempting, there are several reasons founders should consider getting started with compliance early on. 

The Importance of Laying a Security Foundation 

If you have any hopes of scaling an enterprise that remains successful for years to come, it’s unquestionable that security policies and procedures will be necessary. Even if your business isn’t in a highly regulated industry that requires compliance with specific regulations, someone will likely want to see proof of security down the line (see the next two sections of this post). 

Like with any other process, it’s much easier to establish a solid foundation for security compliance when your business is small rather than when it has grown large and complex. Suddenly introducing security requirements at a later stage can lead to confusion and frustration among employees. Plus, a lackadaisical approach to security puts your business at risk for breaches in those intervening years, which can make or break a young company. 

Starting early with compliance means that new hires are automatically trained on good security practices, and you can easily layer in more sophisticated procedures over time as your needs and goals change. Specifically, undergoing a compliance audit like SOC 2 can identify gaps in your strategy that you likely wouldn’t uncover otherwise. 

Showing Investors You’re Serious About Compliance 

Okay, we know you skimmed that last section to get to the important stuff: investment. The reality these days is that investors care about compliance. Many investors see a lack of security strategy as a major risk, and they may decline to invest in your business if it proves inadequate. In fact, our 2023 Compliance Benchmark Report found that 29% of organizations have lost a new business deal because they were missing a compliance certification. 

Going through compliance audits early on can show investors that you take security seriously. Plus, an audit report can make it much easier for your team to answer questions about security during the investor’s due diligence process. 

Setting Yourself Apart from the Competition 

More than ever, consumers care and are knowledgeable about cybersecurity, especially when it comes to their personal data. When choosing between similar SaaS products, buyers may choose the business that clearly demonstrates a commitment to cybersecurity compliance.  

In a survey conducted by McKinsey, 85% of respondents said that knowing a company’s data privacy policies is important before making a purchase. Even more significant, many people surveyed said they consider switching brands when a company’s data practices are unclear, and a majority said they look specifically for companies that have a reputation for protecting data. 

As you look to increase revenue over the early years of your business, committing to cybersecurity and communicating your policies to the market can help you build trust with customers and gain an edge over organizations whose security strategies are less mature. 

Compliance Challenges for Startups 

Technology industry analysis from A-LIGN’s 2023 Compliance Benchmark Report 

There’s no doubt that compliance can be time-consuming, expensive, and difficult to manage. The technology industry in particular, which many startups are in, conducts more audits per year and uses more auditors than average. 

Here are a few of the top issues startups face in the compliance process: 

1. Limited staff resources: This is the greatest challenge for most organizations, especially early on. Managing compliance risk takes time, and few startups have any to spare, let alone dedicated staff members for compliance. 

2. Multiple audits: Especially in the technology space, it is common for organizations to conduct multiple compliance audits a year, which stretches resources even thinner. 

3. Manual collection of data: Without any automated systems in place to help with compliance, teams have to manually pull together information needed for audits. That takes — you guessed it — even more time. 

How a Strategic Compliance Approach Can Help 

The solution for minimizing compliance challenges comes down to one thing: planning. That’s where the idea of strategic compliance comes in. Strategic compliance takes a proactive approach to audits and assessments by consolidating audits and auditors into a single annual event.  

Why Audit Consolidation? 

Our 2023 Compliance Benchmark Report found that one of the greatest compliance process challenges organizations face is the complexity involved in conducting multiple audits throughout the year. Duplicating efforts across various audits and providers, rather than getting multiple evaluations accomplished all at once, is the biggest downside to traditional compliance.  

Consider, for example, that if you complete a SOC 2 certification, you will have met 100% of evidence requirements for SOC 1 and 90% for HIPAA. So, why go through separate audits at different times when you could have covered nearly all the requirements for three compliance processes in the same audit? With a strategic approach and the right partner, you can gather all the necessary evidence and use it for multiple certifications. 

Automated Readiness Assessments 

If your business has never been through the audit process before, you might be apprehensive about diving in. Automated compliance readiness assessments can evaluate how prepared your business is for an audit before actually beginning the process. Completing these assessments helps you get your ducks in a row, meaning the audit itself takes less time and effort. You can complete readiness assessments for many common compliance certifications, including SOC 2, ISO 27001, HIPAA, and CMMC. 

The Value of Selecting the Right Audit Partner 

Choosing a quality auditor is important for any compliance-focused organization, but the stakes are higher for startups. With limited resources and a lot to prove, a poorly conducted audit can be disastrous. Startups need to allocate their precious time and money to partners that can help them level up.  

Here are a few things to look for when choosing a compliance vendor: 

1. The ability to produce actual reports and certifications. Some companies only offer software, which can help get you ready for an audit but is no replacement for the real thing. These companies farm out your actual audit to third parties. The audit they offer might be cheap, but you know what they say: You get what you pay for. Our research found that 32% of organizations have rejected a security report due to the reputation or quality of the auditor. 

2. A full suite of compliance services. As your startup scales, you may need to complete more audits and certifications. So, it will pay dividends down the road if you go with a vendor who can help you with many different compliance processes. Select and build a relationship with a compliance partner with your business’s future in mind.  

3. Experience and credibility. Your compliance vendor should have a proven track record of success and longstanding relationships with standards organizations like ISO, HITRUST, and the AICPA. 

A-LIGN: A Trusted Cybersecurity and Compliance Partner for Startups 

A-LIGN is a technology-enabled cybersecurity and compliance partner trusted by more than 4,000 global organizations to mitigate cybersecurity risks. Our compliance management platform, A-SCEND, combined with our audit experts offers startups and growing businesses a single-provider solution for their evolving compliance needs. 

Ready to get started on your compliance journey with expert guidance? Reach out to A-LIGN today. 

In the realm of cybersecurity assurance, the stakes have never been higher. The sophistication of cyber threats is increasing, which can cause significant financial and reputational damage. To combat these threats, organizations must ensure that their cybersecurity measures are robust, effective, and compliant with relevant third-party and regulatory standards. 

Traditionally, many organizations utilize self-assessments to attest to their cybersecurity compliance. However, recent events such as the Penn State University case, have cast a shadow of doubt over the reliability and credibility of these self-assessments.  

While self-assessments can be the initial introduction to a compliance journey, we believe in the value of third-party assessments for cybersecurity assurance. Keep reading to learn why third-party evaluations are not just preferable, but essential. 

The Limitations for Self-Assessments 

Objective Scrutiny

Self-assessments, by their very nature, lack external validation. Even with the best intentions in mind, an organization may unintentionally overlook their own vulnerabilities or be biased in its evaluation. After all, it’s like grading your own homework – people are more likely to give themselves the benefit of the doubt or be less harsh when reviewing their own work. A third-party assessment brings an objective lens to the compliance process, ensuring that evaluations are free from internal biases. With the help of an external partner, organizations can be confident that no stone is left unturned. 

Expertise and Specialization

Many third-party assessors specialize in cybersecurity evaluations and keep up to date with the latest threats, vulnerabilities, and best practices. Working with a trained and experienced team ensures a thorough and comprehensive assessment based on current standards. Internal teams are often juggling many responsibilities and may lack the know-how of an audit team that is steeped in compliance trends on a daily basis. When it comes to something as serious as cybersecurity, it is worth it to bring in best-in-class experts.  

Credibility and Trust

In the eyes of stakeholders, including clients, partners, and regulators, a third-party assessment carries more weight than any you could complete internally. It signals that the organization is serious about its cybersecurity posture and is willing to have its defenses scrutinized and improved with feedback from external experts. A third-party assessment can help organizations build trust and credibility with their customers, backed by an unbiased audit team. 

Legal and Regulatory Defensibility

Should a security breach occur; a recent third-party assessment can provide a strong defense in legal and regulatory scenarios. A quality assessment, performed by a trusted audit partner, demonstrates due diligence and a proactive approach to cybersecurity. Of course, the goal of any cybersecurity program should be to prevent breaches in the first place, but even the most prepared organizations still find themselves in difficult situations. With the backing of a third-party evaluation, organizations may be able to mitigate penalties associated with a security breach and minimize reputational damage. 

Continuous Improvement

Cybersecurity compliance should not be based on a single moment in time. Instead, organizations should seek out real-time validation and an always-on compliance program enabled by technology. Third-party assessors can help you move from reactive to proactive and can provide feedback and recommendations based on the latest industry standards. Technology-enabled assessors in particular can help you assess current state with compliance software and give you customized feedback from professional auditors on how to improve. This feedback can help organizations keep compliance top-of-mind throughout the year and continuously improve their cybersecurity posture. 

The Role of Quality in a Third-Party Assessment 

It is clear that a self-assessment is inferior to one conducted by a third-party, but it is important to keep in mind that not all third-party audits are created equal. Once you’ve decided to go down the path of engaging an outside party for an audit, there are important factors to consider when choosing an assessor. 

One of the main criteria to look for in an auditor is the quality of their report. There are many low-cost, low-quality audits on the market today, but you get what you pay for. Budget auditors often cut corners when it comes to the number of controls tested, which can leave your team open to vulnerabilities. In some cases, your internal team may even be looking at more controls than a low-cost external partner. 

The area where you’ll see the biggest difference in quality is the final report. Best-in-class assessments are often upwards of 100 pages and provide a comprehensive overview of an organization’s security posture. This document is a physical manifestation of security, demonstrating compliance to all key stakeholders. 

The Importance of Third-Party Evaluations for Cybersecurity 

For CIOs and CISOs, the message is clear: while self-assessments can serve as periodic internal checkpoints, they cannot replace the depth, expertise, and objectivity that quality third-party evaluations offer. By opting for external assessments with a trusted compliance partner, CIOs and CISOs not only bolster their organization’s defenses but also build trust with stakeholders, ensure regulatory compliance, and position their organizations as leaders in cybersecurity best practices. In our current cyber landscape, third-party assessments from trusted assessors are not just best practice; they are a necessity. 

Get Started with a Third-Party Assessment

If you’re ready to take the next step from self-assessments to a trusted, third-party evaluation, contact A-LIGN. Our team of experienced auditors will help you every step of the way to ensure you have the right protections in place to secure your organization against cyber threats

Enron, WorldCom, Tyco… even two decades after their respective scandals, these names are still synonymous with corporate fraud. Congress passed the Sarbanes-Oxley Act of 2002, commonly referred to as SOX 404, in response to these egregious examples of corporate greed and misconduct. The law holds U.S. companies responsible for their financial record-keeping and reporting practices, and it stipulates criminal penalties for misconduct related to the manipulation, destruction, or alteration of financial records. 

As a U.S. company, especially a publicly traded one, it’s vital to know what parts of SOX apply to your business and how to ensure compliance. Section 404 of the act (SOX 404) deals specifically with the internal controls and procedures that companies must implement in their financial reporting process. Keep reading to learn more. 

What Is SOX 404? A Summary 

SOX Section 404 (“Management Assessment of Internal Controls”) is commonly considered one of the most resource-intensive sections of the act to which companies must adhere. There are two subsections: 

SOX 404(a) requires that companies implement and maintain effective internal controls. Companies document compliance with an “internal control report” with each of their annual reports mandated by the Securities Exchange Act of 1934, such as Form 10-K. This report, provided by company management, should describe and assess the effectiveness of the company’s internal control over financial reporting (ICFR). 

SOX 404(b) requires that an independent auditor attest to and report on the assessment of internal controls provided by company management. 

The Importance of SOX 404 

While complying with SOX 404 can be a headache for executives, it serves an important purpose. Beyond shielding investors from risk, SOX 404 also safeguards a company’s reputation and longevity by annually assessing the design of their control environment and ensuring the controls are operating effectively with no gaps that would lead to a risk of incorrect financial statements. 

Who Must Comply with SOX 404? 

The Sarbanes-Oxley Act applies to all publicly traded companies in the U.S. (including wholly owned subsidiaries and publicly traded foreign companies that do business in the U.S.) with some important distinctions between SOX 404(a) and SOX 404(b). The Dodd-Frank Wall Street Reform and Consumer Protection Act codified an exemption to SOX 404(b) for non-accelerated filers, as defined by the Securities and Exchange Commission (SEC). In other words, companies that do not rise to the level of accelerated or large accelerated filers according to the SEC are not required to enlist an independent auditor for SOX testing and will only fall under the requirements of SOX 404(a). 

The SEC updated its definitions of accelerated filer and large accelerated filer in March 2020, which led to a greater number of companies becoming exempt from SOX 404(b). Combined with previous SEC updates to its definition of smaller reporting companies (SRCs) in June 2018, companies meeting any of the following criteria are exempt from SOX 404(b): 

SRCs (i.e., companies with less than $250 million in public float or less than $100 million in annual revenues with less than $700 million in public float) that reported less than $100 million in annual revenues in the most recent fiscal year 

Emerging growth companies (EGCs) for the first five years following their initial public offerings, as long as they do not exceed annual gross revenues of $1.235 billion, have not issued more than $1 billion in non-convertible debt in the past three years, and do not become large accelerated filers 

Newly acquired businesses in the first year following acquisition 

Do Private Companies Need SOX 404 Testing? 

While private companies and nonprofits are not required by law to perform SOX 404 audits, there are situations in which third parties may encourage them to perform various internal control audits (SOC/ISO) to ensure all systems and processes used in financial reporting are reviewed.  

How SOX 404 Compliance Testing Works 

The complete SOX testing process involves several rounds of internal testing throughout the year followed by an annual independent audit as required by SOX 404(b). If you are preparing for your first official SOX audit, consider working with compliance experts who can help you set processes up the right way and avoid headaches down the road. 

That said, no matter how mature your company is or how robust your internal controls are, some deficiencies might be uncovered during SOX 404 testing. Often, auditors point to incomplete design or documentation of controls as the cause of weaknesses. Luckily, hiring an experienced compliance auditor gives you access to expert advice that helps you decide what parts of your processes require additional steps, signoffs, or documentation to ensure the effectiveness of internal control design and operations.  

Combining SOX 404 Testing with Other Compliance Requirements 

When it comes time for your yearly SOX audit, an external third party can provide subject matter expertise ensuring robust coverage of the control environment. As you research auditors, take into account any other compliance testing your company requires. Look for a SOX auditing firm that can help you with other compliance and cybersecurity certifications like SOC 1 or SOC 2. 

Considering the strain that compliance testing can put on internal resources in terms of manpower and finances, it’s in your business’s best interest to avoid going through multiple rounds of auditing with different testing providers. Using an auditor who can identify the overlap of internal controls, processes, and evidence requests to satisfy multiple compliance efforts reduces the burden on your employees. Simply put, your team can get back to doing their jobs instead of tracking down documentation and information for auditors. 

SOX 404 Compliance: Simplified 

In summary, the Sarbanes-Oxley Act of 2002 was passed in response to major corporate scandals of the early 2000s. SOX 404 applies to most U.S. publicly traded companies and requires a yearly audit of internal controls and processes related to financial reporting. With A-LIGN, you get comprehensive control framework coverage and testing that will provide management and investors comfort that internal controls over financial reporting are designed and operating effectively. With the right controls in place, you don’t have to dread your annual SOX audit. 

Reach out to A-LIGN’s SOX 404 experts today to learn how our decades of experience, comprehensive offerings, and flexible scheduling can help you avoid the fiscal year-end time crunch. 

If your organization handles, processes, stores, or transmits financial information, or information that can impact the financial statements of your customers, then it’s the ideal candidate for a SOC 1 audit. As an evaluation of the internal controls your organization has in place, a SOC 1 audit reviews how your organization protects client data. To go through an examination and receive a SOC 1 report, an organization must demonstrate that it is committed to and capable of delivering secure services.

What is a SOC 1 report?

A SOC 1 audit typically covers a period of six to 12 months. Following completion of the audit testing, a CPA firm will issue a report to review the findings and implement new measures if needed. It is considered an “attestation” report whereby management asserts certain controls are in place to meet the objective of the report. The firm’s auditors will provide an opinion on whether it agrees with management’s assertion.

An organization may be required to obtain a SOC 1 report by clients or stakeholders. The opinion stated by the firm in the report is valid for twelve months following the date of issuance. A bridge letter, or gap letter, is a document that states there have been no material changes or significant events within an organization’s control environment between SOC reports. The letter is issued by the organization and typically covers a period of three months or less.

Who should get a SOC 1 audit?

Enterprises that handle sensitive financial data, especially those whose actions affect financial reporting, should conduct SOC 1 audits to demonstrate to clients and partners that their information is in good hands. These include:

• Payment processors: These companies are contracted to distribute the payroll for employees at other organizations, and as such, must be trusted to perform this high-value responsibility.
• Collections organizations: These firms collect debts on behalf of another organization, and, in turn, directly impact financial reporting.
• Benefits administrators: These administrators manage, direct, and plan group benefits programs such as health, dental, vision, workers comp, 401(k), retirement and other plans. 
• SaaS MSPs: Software-as-a-Service MSPs that process financial statements have a direct impact on financial reporting.

What are the benefits of SOC 1?

Even if it’s not required by a customer or investor, there are still benefits to pursuing a SOC 1 audit. The following benefits demonstrate the value of a SOC 1 audit:

• Ensure protection of your customers’ and partners’ financial information
• Demonstrate a commitment to corporate governance
• Provide assurance to customers and partners that your systems are secure

What is the difference between a SOC 1 Type 1 and Type 2?

There are two types of SOC 1 audits that an organization can conduct – Type 1 and Type 2. So, what’s the difference?

A SOC 1 Type 1 audit assesses an organization’s internal controls at a specific point in time. The report acts as a snapshot of your environment to determine and demonstrate if the controls are suitably designed and in place.

A SOC 1 Type 2 audit assesses an organization’s internal controls over time, typically a twelve-month review period. It serves as a historical review of an environment to determine and demonstrate if the controls are suitably designed and in place, as well as operating effectively over time.

How does a SOC 1 report differ from a SOC 2 report?

You might have heard of a SOC 2 report and are now wondering how it differs from a SOC 1 report. While similar, there are a few key differences you should be aware of when deciding whether to pursue SOC 1 or SOC 2.

SOC 1 is ideal for organizations whose data processing or storage can impact the financial reporting of their customers, and SOC 2 reports are relevant for a broader group of organizations because they focus on information and IT security. These may include data centers, IT managed services, SaaS vendors, and other technology and cloud computing businesses. SOC 2 audits are structured across five categories called Trust Services Criteria and are relevant to organizations who process data that does not directly affect the financial statements of end users:

1. Security (required): Security controls protect information throughout its lifecycle. Organizations establish security controls to protect against unauthorized access, unauthorized disclosure, or damage to systems. Controls include a range of risk-mitigating solutions including endpoint protection and network monitoring tools to prevent or detect unauthorized activity.
2. Availability (optional): Availability controls keep systems operational and available at a level that meets stated business objectives.
3. Processing Integrity (optional): Processing Integrity controls ensure systems operate predictably and without accidental or unexplained errors.
4. Confidentiality (optional): Confidentiality controls protect sensitive information throughout its lifecycle from collection to disposal.
5. Privacy (optional): Privacy controls are specific to protecting personal information, especially information captured from customers.

How can I prepare for an audit?

Proactively preparing for a SOC 1 audit can save you time and better position your organization for a successful and efficient evaluation.

Define the scope: To ensure that your audit proceeds on schedule and within budget, define the scope. Will the assessment engage the entire organization, or will it be limited to specific departments? Determining this before the evaluation begins is critical.

Take inventory of assets: Compile a comprehensive list of the information systems in use including servers, routers, firewalls, load balancers, and applications so that you and your auditors can better envision the scope of the assessment.

Conduct a readiness assessment: An efficient audit requires a readiness assessment to identify what’s missing from an effective and complete internal controls environment. Remediating deficiencies before the audit begins is another critical effort.

Determine control objectives: There is flexibility allowed when compiling SOC 1 reports such that the reports of a company working with a CPA firm might differ from a similar company working with another firm. Prior to commencing the audit, determine internally and with your auditing partner which control objectives are to be included in your report.

Perform continuous monitoring: Following the completion of your audit, it’s essential to continue monitoring and assessing your control environment for maximum effectiveness, and then make improvements when necessary.

How A-LIGN can help

With thousands of SOC 1 assessments completed and more than 20 years of experience, A-LIGN is a leader in helping organizations protect the financial information of their customers and business partners. Click here to start your SOC 1 compliance journey.

Compliance isn’t just a contractual or regulatory requirement; it’s a cornerstone of trust, reputation, and operational excellence. As executives and managers evaluate compliance services, the temptation to “cert shop” or choose third-party assessors based solely on cost can be compelling. Making decisions based solely on price can pose significant risks. In this blog post, we will explore the perils of prioritizing cost over quality in compliance services. 

Quality Over Quantity 

The old saying “you get what you pay for” rings true when it comes to selecting an audit partner. While a cheaper assessor may seem like an attractive option, consider the quality of their work. Lower cost doesn’t always mean better value in the long run. Auditors who offer their services at a lower price point may lack the necessary expertise or thoroughness required for a comprehensive assessment. This can lead to overlooked vulnerabilities, ultimately putting your organization at risk.  

The A-LIGN 2023 Compliance Benchmark Report revealed that over 30% of respondents had chosen not to do business with a vendor due to poor quality of assurance reporting. Prioritizing quality over quantity ensures that your organization receives the level of expertise and attention to detail necessary for a robust and effective assessment process. 

Hidden Costs 

While low-cost assessors may initially seem like a budget-friendly option, there may be hidden costs associated with their services. A cheaper service might not be as exhaustive, potentially missing critical vulnerabilities that could leave your organization exposed to security breaches. The 2023 Verizon Data Breach Investigation Report (DBIR) references crimes of opportunity (i.e., opportunistic exploit) as the number one driver for bad actors. 

Addressing a security breach can be significantly more costly than the initial savings gained from choosing a cheaper auditor. The financial ramifications of a data breach can include regulatory fines, legal fees, damage control, and the loss of customer trust. Additionally, the cost of low-quality reporting should not be overlooked. Inaccurate or incomplete reporting can result in a lack of actionable insights and hinder your ability to make informed decisions to improve your cybersecurity posture effectively. 

Reputational Harm 

The reputation of your organization is everything. It is what differentiates you from your competitors and instills trust in your stakeholders and clients. Switching assessors solely based on price can have a negative impact on your reputation. When stakeholders, clients, or industry peers discover that you have chosen an auditor solely because they offered the cheapest price, it can lead to a perception of taking shortcuts or prioritizing cost over quality. A subpar assessment can erode trust as check-the-box assessments bring into question both the character and competence of your organization. It’s important to remember that the cost of reputational harm far outweighs any short-term cost savings gained. 

Inconsistent Assessments 

Switching audit providers frequently can lead to inconsistent evaluations. Each assessor has their own methodology, approach, and areas of focus. By constantly changing audit firms, it becomes challenging to track progress, identify recurring issues, and measure improvement over time. Consistency is key when it comes to cybersecurity assessments. Building a long-term relationship with a trusted partner allows for a more accurate and reliable evaluation of your organization’s security posture. By establishing continuity in the assessment process, you can effectively track your organization’s progress in addressing vulnerabilities and mitigating risks. 

Reactive and Fragmented Compliance 

Strategic compliance is about being proactive. It’s a process that consolidates audits and assessments, making them more efficient and less disruptive. The 2023 Compliance Benchmark Report found that 94% of respondents believe that consolidating their compliance obligations will save them time and money. However, many organizations are still taking a reactive approach to compliance. When time and budget constraints are in place, organizations are left to make less-than-ideal choices about their assessors. This leaves an opportunity for proactive organizations to get a competitive advantage by adopting a strategic approach to compliance. 

Relationship and Partnership Building 

Building a relationship with a trusted third-party assessor is invaluable. When you work with the same audit team over time, they become intimately familiar with your organization’s unique challenges, processes, and compliance needs. This deep understanding allows them to provide compliance aligned to you – tailored insights and recommendations specific to your organization’s circumstances. By building a long-term partnership, you gain trusted advisors who can guide you through the complex world of cybersecurity compliance. The best third-party compliance firms help you navigate changing regulations, provide strategic guidance, and ensure that your organization stays ahead of the curve in terms of security practices and compliance requirements. 

Prioritizing Long-Term Value 

While it is understandable to consider costs, it is equally crucial to prioritize the long-term value that a trusted and reliable auditor can bring to your organization. By focusing on quality, expertise, and consistency, you can safeguard integrity, security, and the ability to create value over time. Cybersecurity compliance is not a one-time checkbox exercise, it is an ongoing commitment to protect your organization and its stakeholders from ever-evolving threats. By choosing a reputable and experienced assessor, you are investing in the long-term success and resilience of your organization. 

While optimizing cost is essential, it can’t be the only factor when selecting a compliance partner. The potential pitfalls of “cert shopping” can have wide-ranging implications, from financial repercussions to significant reputational damage. By focusing on long-term value, you can ensure that your organization’s integrity and security are protected. Strategic compliance isn’t just about adhering to standards and regulations; it’s about leveraging them for business growth and trust-building and creating lasting value for your organization. 

As organizations strive to maintain trust and assurance, understanding the specific compliance focal points within your industry becomes crucial. A-LIGN’s 2023 Compliance Benchmark Report provides in-depth industry benchmarking data across multiple sectors, including technology, IT services, professional services, healthcare, finance, manufacturing, and government. 

In this blog, we’ll be exploring the valuable insights uncovered by the benchmarking data, shedding light on the top audit priorities within various sectors. 

What is the most important audit? 

SOC 1 is the most important audit across the most verticals, including the technology, IT services, professional services, and manufacturing sectors, with SOC 2 and ISO 27001 contending for second and third place to varying degrees. While any of these three audits are useful for demonstrating trust and assurance, SOC 1 is generally considered less intensive than SOC 2 or ISO 27001, which could explain its popularity. However, the finance sector prioritizes SOC 2 over SOC 1 because SOC 2 places a greater emphasis on demonstrating the effectiveness of its data security controls. 

The healthcare and government sectors are the outliers, which both prioritize HIPAA compliance over all others. Since HIPAA is a federal law focused on healthcare security and privacy, most non-healthcare organizations can safely ignore it. The government sector also prioritizes FedRAMP and FISMA, which are both government-specific compliance frameworks. 

What is the greatest challenge to audit processes? 

The professional services, healthcare, manufacturing, and government sectors cited limited staff resources dedicated to compliance as the greatest challenge to their audit process. These sectors could strongly benefit from strategic compliance initiatives, such as consolidating audits and auditors, and leveraging compliance management and audit software to streamline the audit process. Each of these strategies has the potential to unlock compliance efficiencies, reducing the strain on their limited resources. 

Likewise, the technology and IT services sectors could benefit from audit consolidation, as their greatest challenge is the complexity of conducting multiple audits. Consolidating audits can help ensure consistency and efficiency and save organizations significant time and resources. 

On the other hand, the finance sector cited tedious and manual evidence collection as their greatest challenge. This challenge could be related to the finance sector’s preference for the more intensive SOC 2 audit. In any case, the finance sector could be best served by adopting compliance management and audit software solutions, which offer features such as automated evidence collection and continuous monitoring of compliance state to streamline the audit process. 

Which industry conducts the most audits?  

The technology and finance sectors conduct more audits than the other industries. 60% of the technology sector conducts four or more audits per year, compared to 51% of the general population, and works with four or more auditors, compared to 30% of the general population. 32% of the finance industry conducts six or more audits per year, compared to 16% of the general population.  

A logical explanation for the high volume of audits in these industries is the importance their customers and partners place on data security and privacy. It also makes sense that the technology industry cited the complexity of conducting multiple audits as their greatest challenge since they also conduct so many audits. 

What are organizations looking for in a service provider? 

The biggest reason the technology sector would switch audit providers would be for a more efficient, less time-consuming process, which seems logical since they conduct so many audits each year. In fact, every industry said that the main reason they would switch audit providers is for a more efficient, less time-consuming process, which ultimately speaks to the value of consolidating audits and auditors. Consolidating audit service providers not only increases the efficiency of audits, saving both time and resources, but also ensures the consistency of results. 

When evaluating audit firms, the technology and IT services sectors favor audit firms that use technology throughout the entire audit process. The professional services, healthcare, manufacturing and government sectors prefer the ability to complete the entire process, from readiness to report, with a single provider. The finance sector prefers the ability to complete multiple assessments with a single provider, which again highlights how they tend to conduct more audits than any other vertical. 

Delving deeper into demographics and verticals 

If you are interested in learning more about the benchmarking data of your specific vertical, be sure to check out A-LIGN’s 2023 Compliance Benchmark Report which includes a full breakdown of upcoming audit plans and budgets, as well as best practices for achieving strategic compliance. 

Learn more — Download A-LIGN’s 2023 Compliance Benchmark Report.