SOC 2 audit exceptions are not inevitable but they happen more frequently than you might think. That’s fine! Audit exceptions are often an acceptable part of the audit process. They don’t necessarily mean a failed audit.
Let’s take a closer look at what audit exceptions are, why it’s not the end of the world if they occur, and how to best prevent them in the first place.
What are SOC 2 test exceptions?
SOC 2 test exceptions are noted by the auditor in the course of testing a company’s SOC 2 compliance. In short, an exception is some instance of non-conformance to the SOC 2 requirements. That’s a fairly broad description, but we can drill down into the precise forms which test exceptions take.
But before we look at the technical details, let’s remind ourselves of how SOC 2 compliance works. SOC 2 isn’t simply a checklist of requirements. When a company chooses to become SOC 2 compliant, it carefully assesses which Trust Service Principles are relevant to its operations and develops controls to meet those criteria.
Measuring the space between goal and achievement
In practice, a SOC 2 audit is a test to determine whether those controls actually do what they’re designed to do. Any gap between that goal and how well the controls perform will count as an exception.
With that background in mind, let’s consider the kinds of test exceptions in more detail.
Types of test exceptions
There are three categories of test exceptions.
Any discrepancy between your description of how your systems or services work and how they actually function will be marked as systems description exceptions.
The crux of SOC 2 compliance is to design controls to meet specified SOC 2 requirements and then to successfully implement those controls. If the controls have not actually been adequately designed to meet those goals, then the auditor will note a control design exception.
Note that any well-planned SOC 2 audit will commence with careful design of the appropriate controls, often in close cooperation with your auditors or SOC 2 consultants. Control design exceptions are therefore uncommon and are often evidence of a poorly planned SOC 2 process.
While system description and control design test exceptions can’t be eliminated, their likelihood can be greatly reduced with careful planning. And, of course, successful SOC 2 depends on thorough preparation.
However, even exceptionally well-designed controls may still be imperfectly implemented. That’s perfectly understandable. Real-world implementation is complex and depends on numerous factors.
That brings us to the third kind of test exception: control effectiveness exceptions. These happen when one or more controls, even exceptionally designed controls, don’t operate as planned. Unlike the previous exception, control effectiveness exceptions don’t necessarily indicate poor planning and slipshod implementation. And they certainly don’t necessarily imply a failed audit.
Of course, implementing SOC 2 should always involve careful planning and rigorous preparation. And it is advisable to implement SOC 2 automation to minimize the possibility of errors or oversight. At the same time, it’s equally important to adapt and learn when exceptions occur.
Do exceptions mean a ‘failed’ report?
Every SaaS company aspires to an unqualified SOC 2 compliance report. If your auditor detects an exception, it may issue a qualified report. However, there are two important reasons for optimism.
First, a qualified report is not necessarily a calamity. Remember, your auditor will produce a description of your controls, and it may be that minor exceptions don’t perturb your clients too much. Indeed, in a complex operation, the odd anomaly may be perfectly fine, depending on the overall quality of your controls.
Second, an exception will not always result in a qualified audit. If a control fails to fully succeed in meeting its objective, but a secondary or overlapping control manages that same risk, then the auditor may still issue an unqualified audit.
In short, while businesses should take care to mitigate the possibility of any kind of audit exception, in the real world, anomalies happen and they’re often tolerable. Therefore, there is definitely no need for panic if an exception occurs.
How to address test exceptions: Section 5 of the SOC 2 report
In fact, the real test of a company’s innovation, dedication, and abilities may not be that it manages to eliminate absolutely all exceptions under all circumstances. Rather, the real test may be how a business responds to those challenges.
That’s where Section 5 of the SOC 2 report comes into play. Section 5 is the company’s opportunity to explain your response to exceptions. The business has a number of options. They can describe why the exceptions pose a relatively limited systemic risk if that is their assessment of the audit. Alternatively (or in addition) they can describe the measures they’ve taken to manage any risks posed by the exceptions.
In either case, the business should remember that Section 5 is not about meeting abstract compliance criteria but making a persuasive case to potential clients. As such, the description should be realistic and accurate.
The business may even choose to remediate some or all exceptions detected by the auditor. While the auditor will not attest to the remediation until the next audit period, the company can take advantage of Section 5 of the audit report to lay out the measures it took to remediate problems.
A chance to adapt and learn…
We learn more from our mistakes than from our successes. You’ve probably heard some variation of this expression many times. Frankly, it can be a little annoying. Wouldn’t it be better not to make mistakes in the first place? But there’s really a lot of truth to the idea. Mistakes can drive innovation. A system or process can seem to be working well, but is it functioning optimally? How will it fare under real-world pressures? Minor real-world errors can help you adapt and transform to produce even stronger, more resilient systems. If you are willing to pay close attention and … well, learn from your mistakes.
And undoubtedly, this is the case with the SOC 2 audit process. If you’ve rigorously designed your control and the auditor nonetheless detects anomalies, this is evidence of a good auditor in action. After all, you want the audit process to reveal any weaknesses or shortcomings in your information security and data processes. In the long term, you can only develop watertight security processes – and guarantee ongoing security and reliability – if your auditor is sufficiently thorough.
… but prevention is better than cure.
Developing and implementing effective SOC 2 controls is an ambitious undertaking. It’s not easy, but the competitive advantage SOC 2 offers is worth it if you want to compete at the highest level.
While it may not be possible to eliminate the possibility of exceptions, you can take successful steps to maximize your chances of implementing a completely successful SOC 2 process and secure an unqualified audit.
Critically, you need to exhaustively prepare for your SOC 2 audit. You need to ensure leadership is fully on board and that all stakeholders are empowered to play a role. And, crucially, you need to automate as much of the compliance process as possible. Automation is a game-changer. SOC 2 software makes compliance simpler, faster, and more cost-effective. But critically, it also eliminates human error and helps you test your processes and adapt to problems as quickly and effectively as possible, reducing the chances of those audit exceptions to occur.