Do You Really Need a SOC 2 Report?

January 23, 2024

Like so many SaaS companies out there today, you might be asking yourself, “do I really need a SOC 2 report?” Well, let’s take a step back and ask another question first: what is the purpose of a SOC 2 report? The simple answer is that SOC 2 lets you demonstrate that your organization has effective controls in place, and that your service, therefore, is dependable, effective and reliable. That’s not just ‘a nice to have’. Many clients will demand SOC 2 compliance, and so yeah, you really do need a SOC 2 report if you want their business. 

Simple. Case closed?

Not so fast. As so often, the simple answer raises more questions than answers. In order to understand whether your business really needs a SOC 2 report, we have to look at some of the complexities of SOC 2 compliance. Understanding SOC 2 reporting in more detail will help us appreciate why SOC 2 is such an effective and comprehensive reporting mechanism. It will also help us appreciate that the very things that make the report so useful – its detail and rigor – can also make SOC 2 compliance a highly intensive process.

Unpacking the essence of the SOC 2 reporting framework

Service and Organization Controls (SOC) is a detailed reporting framework for service organizations. SOC 2 is a specific framework ensuring that information security systems are demonstrating the five Criteria of customer data and is established by the American Institute of Certified Public Accountants.  The AICPA defines SOC 2 reporting as a “Report on Controls at a Service Organization Relevant to Security, Availability, Processing Integrity, Confidentiality or Privacy”. Each of these five ‘trust principles’ contains an exhaustive set of sub-criteria. For example, the requirements for Confidentiality include appropriate access controls and encryption, amongst other points.   

What do SOC 2 reports actually do?

The primary purpose of a SOC 2 report is to instill confidence in both existing and potential customers. It serves as a means to demonstrate that your organization has established effective controls and practices in place to protect customer data. 

SOC 2 reports are not just a checkbox requirement; they are a powerful tool for establishing trust and credibility in the highly competitive world of SaaS. By undergoing a SOC 2 audit and demonstrating compliance to your customers, you can transparently showcase your commitment to data security and dedication to adhering to industry best practices.

Key points to keep in mind during SOC 2 reporting are:

  • Detailed – SOC 2 reporting involves analyzing and compiling a large amount of data corresponding to numerous elements of your organization.
  • Comprehensive & appropriate – By providing an expert framework for InfoSec reporting, SOC 2 enables you to cover all these bases that are relevant to your organization.
  • Verified – Your SOC 2 report is verified by an independent CPA audit firm. That means you can provide independent, objective evidence that you have complied with the rigorous SOC 2 criteria. 

However, while SOC 2 reports are detailed and rigorous, they are not rigid. Rather than an off-the-shelf take-it-or-leave-it examination, SOC2 is a flexible reporting framework that enables you to produce reporting that’s appropriate to your organization.  

Of course, this extremely useful flexibility also introduces another point of complexity. Deciding which criteria are relevant to your SOC 2 reporting is itself an important strategic consideration. 

Why share your SOC 2 compliance report?

  • Builds Trust – SOC 2 report sharing demonstrates your commitment to data security and transparency, instantly building trust with customers who value the safety of their sensitive information.
  • Competitive Advantage – It sets you apart from competitors who may not have undergone SOC 2 compliance, giving you a competitive edge in the market.
  • Simplifies Decision-Making – Prospective customers can make informed decisions more easily when they see evidence of your compliance, potentially shortening the sales cycle.
  • Meets Customer Demands – Many prospects require SOC 2 compliance from their 3rd party vendors, so sharing the report ensures you meet their demands and eligibility criteria.
  • Enhanced Customer Relationships – Sharing the report fosters open communication and transparency, leading to stronger and more positive customer relationships.

But first, are SOC 2 reports right for your business?

Now, let’s revisit our simple answer. 

If you provide a platform through which your clients’ data is managed, then, yes, a SOC 2 report is an important and effective way to reassure your customers that their data is safe with your organization. This also means that you will prevent any form of data breaches and its consequences. 

However, we can also see that meeting the demands of a SOC 2 report involves care, detail and precision. So is it worth the effort?

There are a number of reasons why you might think it is not. Firstly, if you have no intention of entering new markets. While SOC 2 compliance provides a critical edge when competing in the US market, for example, you may be satisfied with your current domestic market share. 

Secondly, you may be hyper-focused on streamlining your operations, and don’t want the distraction of additional compliance issues. 

These are reasonable points, but they’re shortsighted. 

Here’s why. Many companies have requirements built into their procurement processes requiring all vendors to comply with SOC 2 or an equivalent reporting standard. What happens when a client requires SOC 2 compliance? Or when you lose market share to competitors demonstrating stronger business practices with more robust compliance protocols? 

At that point, either you won’t be able to compete or you’ll need to scramble, divert resources, and potentially produce huge short-term inefficiencies – and even then you might not even get your reporting right in time.

That’s fine in theory, but what about the real world?

But in the real business world, you have to choose where to invest your limited energy and resources. SOC 2 reports sound great, but there’s other stuff to worry about and there are only so many hours in the day. 

That’s where SOC 2 compliance automation comes in and makes the whole process exponentially faster, simpler and more efficient, fundamentally changing the cost-benefit calculation of SOC 2 reporting. 

But since SOC 2 reports involve such complex strategic decisions, sometimes having an expert guide to help navigate the process complements the technology side of things beautifully. And this is why so many SaaS companies enjoy integrated technology-driven compliance advisory services that help optimize their SOC 2 reporting in a way that aligns with their business goals.