Building Trust in the Cloud: How SOC Reports Benefit CSPs

Cloud computing has become an essential aspect of modern business operations, offering scalability, flexibility, and cost-efficiency. However, with the increased reliance on cloud services comes the growing need for security and compliance assurances. As such, Cloud Service Providers (CSPs) now face the challenge of proving they can securely handle customer data while maintaining reliable operations. 

One of the most effective ways to demonstrate these capabilities is through a System and Organization Controls (SOC) report. But what exactly is a SOC report, and how does it benefit CSPs?  

SOC reports provide an independent assessment of a company's internal controls, helping CSPs build credibility with customers and regulatory bodies. In this article, we’ll explore the different types of SOC reports, their relevance to CSPs, and which SOC report best suits their needs. 

What is a Cloud Service Provider? 

A CSP offers cloud-based computing resources such as storage, computing power, and applications to customers via the Internet. Prominent CSPs include Amazon Web Services (AWS), Microsoft Azure, and Google Cloud, but many businesses also operate as niche or specialized CSPs. Because CSPs manage infrastructure, platform, or software services, they must ensure comprehensive security measures are in place to protect customer data and maintain compliance with industry regulations.  

CSPs typically deliver one of three types of services: 

1. Infrastructure as a Service (IaaS): Provides virtualized computing resources such as servers, storage, and networking. Businesses use IaaS to scale their IT infrastructure without investing in physical hardware. 
   
   
2. Platform as a Service (PaaS): Offers development environments and tools that enable developers to build, deploy, and manage applications without handling underlying infrastructure. PaaS solutions simplify software development by providing managed databases, operating systems, and runtime environments. 
   
   
3. Software as a Service (SaaS): Delivers fully managed applications over the Internet, eliminating the need for users to install or maintain software locally. Businesses use SaaS for a variety of purposes, including productivity, collaboration, payroll, and customer relationship management (CRM). 

What is a System and Organization Controls (SOC) Report? 

The American Institute of Certified Public Accountants (AICPA) developed the SOC reporting framework in response to the growing demand for attestation reports from service providers (or service organizations).  

A SOC report is an independent third-party attestation that evaluates the design and operating effectiveness of an organization’s internal controls. These reports are issued by Certified Public Accountants (CPAs) and serve as an important tool for organizations to build trust with clients, partners, and stakeholders. They help to ensure that a company is managing data securely and in compliance with industry standards. 

Service provider customers (or user entities), potential customers, and regulators have an increased need to understand the internal controls of their service providers, for various reasons, depending on the services provided by the service organization.  

There are three SOC report options that help stakeholders understand those internal controls: 

• SOC 1: Focuses on internal controls over financial reporting (ICFR). This report is primarily relevant to service organizations that handle data which impacts their clients’ financial statements.
  
  
• SOC 2: Evaluates an organization’s controls related to security, availability, processing integrity, confidentiality, and privacy based on the AICPA’s Trust Services Criteria (TSC).  

• Types: SOC 1 and SOC 2 reports come in two types: 

• • Type 1: Assesses the design of controls at a specific point in time.
  • Type 2: Examines the effectiveness of controls over a specified period (e.g., six months to a year). 

• SOC 3: A public-facing version of your SOC 2 report that provides a high-level summary of the system and its controls without detailed findings. SOC 3 Reports are useful for marketing and general transparency. 

Benefits of SOC Reports for CSPs 

These cloud services (IaaS, PaaS, or SaaS) are built on an important factor: trust. Data breaches can and have cost millions in damages and as a result, customer trust in service providers’ security standards and practices is paramount. One of the best ways for a CSP to obtain and maintain customers’ trust is by having an attestation report performed by an independent third-party provider. It is even more impactful when the attestation report is based on a trusted and established security framework. 

SOC reports offer numerous advantages to CSPs, including: 

• Enhanced Trust and Credibility 
  SOC reports provide independent validation that a CSP maintains strong security controls and operational effectiveness. This builds trust with clients and partners, reassuring them that their data is in safe hands. 
  
  
• Regulatory and Compliance Alignment 
  Many industries, including healthcare (HIPAA), financial (PCI DSS), and government sectors (FedRAMP), require strict security and compliance measures. A SOC report is a step in the right direction towards demonstrating alignment with these standards. 
  
  
• Competitive Advantage 
  Organizations prefer vendors with verified security measures. Having a SOC report can differentiate a CSP from competitors who lack third-party validation. 
  
  
• Risk Mitigation 
  By undergoing a SOC examination, CSPs can identify and address potential vulnerabilities before they become major security threats. 
  
  
• Customer Acquisition and Retention 
  Many enterprise clients require SOC reports as part of vendor due diligence. Having a SOC report helps CSPs close deals faster and more regularly and easily retain existing customers. 

Which SOC Report is Most Fitting for a Cloud Service Provider? 

For a CSP, obtaining a combination of SOC 1, SOC 2, and SOC 3 reports is highly beneficial and most recommended, as each serves a distinct purpose in demonstrating the provider’s commitment to security and compliance. 

SOC 1 is ideal for CSPs handling financial data, ensuring that their ICFR meet regulatory standards. Moreover, the financial auditor of a CSP’s customer may require the service provider to supply a SOC 1 report to gain comfort over ICFR as part of the overall financial audit engagement. 

SOC 2, on the other hand, is essential for CSPs that manage sensitive customer data. It provides assurance that a provider's controls are designed and operating effectively to protect customer information.  

A SOC 2 report highlights: 

• Security-Centric: SOC 2 evaluates the security, availability, confidentiality, processing integrity, and privacy of systems— which are all key areas of concern for cloud customers. 
• Ongoing Monitoring: A Type 2 report assesses controls over time, demonstrating sustained compliance and operational effectiveness. 
• Industry Standard: Many organizations, particularly in SaaS and cloud services, expect vendors to have a SOC 2 report as part of their compliance and security posture. 

Meanwhile, SOC 3 provides a public, high-level overview of your SOC 2 report, allowing CSPs to share their commitment to security practices without revealing sensitive operational details. SOC 3 reports serve as valuable marketing and sales assets.  

Together, these reports offer a comprehensive picture of a CSP’s internal controls, aligning with different client needs and regulatory requirements. 

Additional Considerations for Pursuing SOC Reports 

• Choosing the Right Auditor: It’s crucial to work with a reputable CPA firm with experience in SOC examinations for CSPs specifically. 
  
• Preparing for the Audit: Establishing strong internal controls, policies, and security measures before the SOC examination will streamline the audit process. Alternatively, consider performing a Readiness Assessment prior to undergoing a Type 1 or Type 2 engagement. 
  
• Continuous Improvement: SOC reports should not be seen as a one-time achievement, but rather as part of an ongoing commitment to security and compliance. 
  
• Customer Education: CSPs should actively and regularly communicate the value of their SOC report to customers and stakeholders to maximize its impact. 

How Schellman Can Help with Your SOC Report Journey 

SOC reports play a vital role in the cloud computing industry by enhancing trust, compliance, and security. As the demand for cloud services continues to grow, having a SOC report is becoming less of a luxury and more of a necessity.  

These reports not only differentiate providers from their competitors by showcasing adherence to industry standards, but also help mitigate risks, reduce the likelihood of data breaches, and ensure regulatory compliance.  

If you’re ready to begin your SOC compliance journey, or you have further questions about the types of SOC reports, the requirements, or the audit process in general, contact a Schellman specialist today and we’ll get back to you shortly. 

In the meantime, discover other helpful SOC report insights and audit tips in these additional resources: 

• 5 Steps to Prepare for SOC 2 Examination Success 
• SOC 1 vs. SOC 2: Which SOC Report Do Data Centers Need? 
• How to Determine Your SOC Reporting Period & Report Validity 
• How to Bridge From SOC 1 to SOC 2