What is SOC 2?

If you’re running a SaaS company (or any business handling sensitive customer data), you’ve probably heard of SOC 2 compliance. But what is it, and why does it matter? Whether you’re a startup just getting started or an established enterprise ready to level up your GRC program, understanding SOC 2 is essential for staying competitive and keeping your customers’ data safe. 

Let’s dive into everything you need to know about SOC 2, from the basics to how it helps you build trust and give your customers the confidence they expect.

What does SOC 2 stand for?

Let’s start with the meaning of SOC 2. SOC 2 stands for System and Organization Controls 2. Developed by the American Institute of Certified Public Accountants (AICPA), it’s a leading security framework that helps organizations prove they have strong data security controls in place — both in their technology and day-to-day operations — to reduce the risk of security incidents and breaches.

What is SOC 2 compliance?

In simple terms, SOC 2 compliance helps businesses prove they know how to handle sensitive customer data properly. It sets clear standards for managing data to ensure confidentiality, integrity, and privacy. While SOC 2 is primarily used in the U.S., it’s recognized globally, particularly in the SaaS industry.

If your business stores or processes customer information — think software companies, financial institutions, or healthcare providers — SOC 2 is a big deal. And with the average data breach costing $4.88 million, it’s easy to see why.

Achieving SOC 2.0 compliance shows customers, partners, and investors that you take security seriously. It helps you earn trust and stay ahead in a world where data protection is the new baseline.

SOC 2 attestation vs. certification: What’s the difference?

Let’s clear up a common misconception: SOC 2 is often called a “certification,” but that’s not technically accurate. What you actually receive after a successful audit is a SOC 2 attestation report.

This report is issued by an independent third-party auditor who evaluates your security controls and confirms they’re working as intended. Unlike formal certifications from regulatory bodies, SOC 2 is an attestation — a professional opinion confirming that your organization meets the required standards.

So next time SOC 2 comes up, remember: it’s a trusted seal of approval from an external auditor, not a certification.

What are the 5 Trust Services Criteria in SOC 2 compliance?

When you undergo a SOC 2 audit and receive your report, it means your security controls have been put to the test by an independent auditor. These controls serve as the guiding rules for managing systems and data responsibly, and are evaluated across five key categories, known as the Trust Services Criteria (TSC):

• Security: Your systems are protected from unauthorized access, whether someone’s trying to break in physically or digitally.
• Availability: Your services are up and running when users need them, as promised.
• Processing Integrity: Your systems process data accurately, completely, and on time, without errors or tampering.
• Confidentiality: Sensitive information is kept private and only shared with the right people, as agreed.
• Privacy: From how personal data is collected to how it’s stored, shared, and deleted, this principle ensures it’s handled properly according to your privacy policy.

Organizations can choose one or more of these trust principles to include in their SOC 2 report, depending on what’s most relevant to their business operations. However, it’s important to note that Security is the only mandatory principle and forms the foundation of every SOC 2 report.

Understanding SOC 2 controls

While there are many controls associated with each of the five TSC, the controls related to the common criteria, Security, include standard IT general controls, such as:

Who needs SOC 2 compliance?

Chances are, if your company handles sensitive customer data or provides services built on trust such as cloud platforms, data storage, or financial services, you need to be SOC 2 compliant.

This key framework is especially relevant for businesses in the following industries:

• SaaS providers: Required when storing or processing customer data.
• Cloud service providers: Ensures system security and availability.
• Fintech companies: Protects financial data and builds customer trust.
• Healthcare & health tech: Safeguards personal health information (PHI) and supports regulatory compliance.

💡 If you’re a startup in any of the above industries, be sure to check out SOC 2 for Startups.

Why SOC 2 matters

SOC 2 isn’t just for large businesses. Did you know that 43% of cyberattacks target small businesses? If your SaaS company fails to protect customer data, the consequences can be severe — think financial losses, reputational damage, and even legal trouble.

Cybercriminals often exploit the limited resources and data security awareness in small businesses and startups, making them prime targets. With data breaches becoming more common and consumer trust at risk, protecting customer data is critical. 

Safeguarding your data isn’t just a best practice; it’s essential for your company’s survival and success.

What are the benefits of SOC 2 compliance?

Becoming SOC 2 compliant not only strengthens your risk management but also offers several key advantages for your business:

1. Increased Trust: Clients prefer working with businesses that are SOC 2 compliant, boosting sales, customer retention, and enabling a faster sales cycle.
2. Improved Security Posture: SOC 2 helps you adopt best practices for data security and privacy, strengthening your overall security posture.
3. Reduced Risks: SOC 2 ensures there are no security gaps in your organization’s systems, reducing the likelihood of data breaches, human error, and other security vulnerabilities, and enhancing your risk management.
4. Stay Competitive: Many companies, especially in regulated industries, require a SOC 2 report before engaging in business. Compliance opens doors to new opportunities and helps you close deals faster, enabling your business to reach its full potential.
5. Attract Investors: Being SOC 2 compliant shows investors that your company prioritizes security, making you more attractive to potential backers.

Bad press might be seen as good press, but would you really want your company’s name in a headline about a privacy violation scandal? Probably not. No matter how you spin it, SOC 2 compliance demonstrates a genuine commitment to data security while helping your business protect itself and its customers.

What is a SOC 2 audit?

A SOC 2 audit is a thorough assessment that evaluates how your company manages and protects sensitive customer data. The audit is conducted by a third-party auditor who examines your company’s internal controls, processes, and policies to ensure they align with SOC 2 standards.

There are two types of SOC 2 audits:

• SOC 2 Type 1: Focuses on the design of your company’s security controls, assessing whether your processes meet SOC 2 criteria at a given point in time.
• SOC 2 Type 2: Evaluates both the design and effectiveness of your controls over a specific period (usually 3-12 months), providing a deeper look at how well your company manages data security day-to-day.

Here’s a quick comparison of the key differences between SOC 2 Type 1 vs Type 2 audits:

SOC 2 Audit Type	Focus	Timeframe	Purpose
SOC 2 Type 1	Design of security controls	Point in time	Assess suitability for meeting SOC 2 criteria
SOC 2 Type 2	Design and effectiveness of controls over a period	Specific period (usually 3-12 months)	Evaluate how well controls are maintained over time

Who can perform a SOC 2 audit?

A SOC 2 audit can only be performed by an independent auditor at a licensed CPA firm, specifically one that specializes in information security. It’s also important to select an auditor with experience in your specific industry. SOC 2 audits are regulated by the AICPA. For more details on who can perform SOC type 1 and SOC type 2 audits, click here.

What is a SOC 2 report?

After the audit, your company will receive a SOC 2 report, which details your controls and their effectiveness in meeting SOC 2 compliance requirements. It outlines your security policies and practices, demonstrating how you ensure data is handled securely.

SOC 2 Type 1 vs. SOC 2 Type 2 reports

There are two types of SOC 2 reports:

• SOC 2 Type 1 Report: This report covers the design of your company’s controls at a specific point in time, assessing whether they meet SOC 2 criteria.
• SOC 2 Type 2 Report: This report covers both the design and ongoing effectiveness of your controls over a defined period, typically between three to twelve months.

Aspect	SOC 2 Type 1	SOC 2 Type 2
Audit Window	At a single point in time	Over a period of time (typically 3-12 months)
Control Evaluation	Assesses control design against SOC 2 standards	Evaluates the design and operational effectiveness of controls over time
Audit Timeline	Typically faster	Takes longer due to the extended review period
Cost	Generally cheaper	Usually more expensive due to the extended scope and timeline
Security Insights	Provides an overview of security controls	Offers a deeper, ongoing analysis of security posture

Your SOC 2 report is a vital tool for demonstrating to customers (and potential customers) that your business takes security seriously. For SaaS companies, a SOC 2 report example may include sections on data encryption, access controls, incident response plans, and audit logging. 

💡 Type 1 is ideal for companies early in their compliance journey, while Type 2 is the gold standard for those ready to showcase long-term security effectiveness.

SOC 1 vs. SOC 2 vs. SOC 3

While SOC 2 is the most commonly discussed audit for businesses handling sensitive data, it’s not the only SOC audit available. There are also SOC 1 and SOC 3 reports.

SOC 1 evaluates financial reporting procedures, SOC 2 focuses on information security, and SOC 3 reviews security controls meant for public sharing. While SOC 2 is aimed at stakeholders like customers and partners, SOC 3 is designed for public display, such as on your website, with less detailed information.

Below is a comparison of the different SOC reports:

	SOC 1	SOC 2	SOC 3
Purpose	Audits financial reporting practices	Audits information security practices to protect customer data	Audits the same controls as SOC 2, but designed for public sharing
Who Needs It	Organizations impacting financial reporting	Data service organizations	Data service organizations
What It Reports On	Controls for maintaining accurate financial records	Security posture and controls for data protection	The same controls as SOC 2 but presented with much less detail
Who Requests It	Customers	Customers	No one – Primarily used for marketing purposes

How long does it take to get SOC 2 compliant?

Achieving SOC 2 compliance isn’t an overnight process, but the payoff in terms of trust, security, and business growth is well worth the effort. On average, a SOC 2 audit takes between six months to a year to complete, though this can vary depending on how prepared your company is. The timeline typically consists of several phases, from initial preparation to receiving the final audit report.

The good news? With SOC 2 compliance automation software, you can get compliant up to 90% faster, saving you time and resources while gaining a serious competitive edge.

The SOC 2 compliance process in 7 easy steps

The key steps involved in becoming and maintaining SOC 2 compliance include:

1. Choosing a SOC 2 partner for audit preparation

For startups and companies without in-house security specialists, expert guidance is crucial during audit preparation. You’ll need to understand SOC 2 requirements, identify compliance gaps, and much more to achieve compliance efficiently.

2. Identifying the SOC 2 scope

Organizations must decide which of the five Trust Services Criteria (TSC) to include in the audit. The controls monitored will depend on these TSC, and a customized list of controls should address risks specific to your business. For SOC 2 Type 2 reports, organizations also need to decide on the reporting period.

3. Selecting an auditor

A licensed, independent CPA firm specializing in IT audits is required for a SOC 2 audit. The firm must follow AICPA guidelines and updates. It’s vital to choose an auditor familiar with your industry and the size of your organization. Audit costs and timeframes will vary based on the chosen audit firm.

4. Conducting a SOC 2 readiness assessment

The readiness assessment checks whether your organization is prepared for the official audit. A gap analysis  identifies if your security posture meets SOC 2 standards and pinpoints any necessary remediation.

5. The SOC 2 audit

After the observation period (for SOC 2 Type 2 reports), the official audit takes place. The auditor evaluates whether your controls are operating as stated by management and if they meet SOC 2 criteria. The auditor then issues your SOC 2 Type 1 or Type 2 report with the test results.

6. Understanding SOC 2 report results

A SOC 2 report is an attestation, not a pass/fail exam. It provides the auditor’s professional opinion on whether your internal controls meet the relevant TSC.

7. Monitor and repeat

SOC 2 reports must be renewed annually to remain valid. The golden rule is to schedule your audit every 12 months, continuously monitor controls throughout the year, and keep policies and procedures updated. 

💡 Pro tip: Have a SOC 2 compliance checklist in place!

Streamline SOC 2 compliance with Scytale 

With endless tasks already on your plate, getting and staying SOC 2 compliant can feel like a massive hurdle — we get it. But it doesn’t have to be.

With Scytale’s AI-powered compliance automation platform, you can ditch the nightmare of security compliance and embrace seamless, automated, and continuous SOC 2 compliance. Smart features like customized controls, automated evidence collection, user access reviews, multi-framework cross-mapping, vendor risk management, agile audit management, a customizable Trust Center, and more mean we handle the heavy lifting, streamlining your entire SOC 2 journey from start to finish. Additionally, Scytale’s dedicated team of GRC experts guides you every step of the way, ensuring you never have to go at it alone.

This allows your team to focus on what truly matters: growing your business. Plus, you’ll actually get some sleep at night, knowing compliance is fully under control. 

🎙️How startups are making SOC 2 compliance fun – tune in to the podcast!

Want to hear how startups are shaking up SOC 2 compliance? Check out this podcast episode to learn how creative, modern teams are ditching the dull and making compliance engaging — dare we say, even fun.

FAQs

What does SOC 2 mean?

SOC 2 (System and Organization Controls 2) is a widely recognized security compliance framework designed to ensure that companies meet strict standards for managing sensitive customer data. It focuses on five key Trust Services Criteria: security, availability, processing integrity, confidentiality, and privacy.

Is SOC 2 mandatory?

SOC 2 is not legally required, but it’s often essential for any business that handles sensitive data – especially those operating in the U.S. It helps build trust with customers, partners, and key stakeholders, and demonstrates a sincere commitment to data security, giving businesses a significant competitive advantage.

Who needs SOC 2 certification?

SOC 2 is typically required for SaaS businesses, cloud service providers, fintech companies, and any organization that handles customer data and seeks to strengthen its security posture while building trust in its data security practices.

Who performs a SOC 2 audit?

SOC 2 audits are performed by third-party auditors, typically certified public accounting (CPA) firms or specialized security audit firms.

Can you fail a SOC 2 audit?

Yes, you can fail a SOC 2 audit if your company doesn’t meet the necessary controls or if your security practices are insufficient to protect customer data, based on your auditor’s professional opinion. However, most companies will be given the opportunity to address issues and undergo a follow-up audit.