What is SOC 2 Compliance? A Beginner's Guide

SOC 2 compliance is a measure of a company’s adherence to security practices. Learn how to achieve SOC 2 compliance and why it’s a competitive advantage.

SOC 2 is a security and privacy framework developed by the American Institute of Certified Public Accountants (AICPA). It evaluates how well a service organization protects customer data based on five Trust Services Criteria: Security, Availability, Processing Integrity, Confidentiality, and Privacy.

Achieving SOC 2 compliance means undergoing an independent audit to prove your systems and processes meet these standards. While not legally required, SOC 2 is often contractually required by enterprise buyers and partners.

This beginner’s guide contains all the information you absolutely need to know about SOC 2 compliance.

What Does SOC 2 Stand For?

SOC 2 stands for System and Organization Controls 2. It is a framework developed by the AICPA to evaluate how well a service organization manages and protects customer data. A SOC 2 report proves your business has the right controls in place to keep sensitive information secure.

This framework is especially critical for companies handling sensitive data, including:

• Cloud service providers

• SaaS vendors

• Managed IT service providers

What Is SOC 2 Compliance?

SOC 2 compliance means demonstrating that your organization protects customer data according to trusted, independent standards through a third-party attestation. It is built around five core principles known as the Trust Services Criteria (TSC).

Unlike prescriptive frameworks, SOC 2 compliance is unique to each company. You can achieve it using custom policies and processes tailored to your specific business operations.

What Are the SOC 2 Trust Services Criteria?

The AICPA defines five Trust Services Criteria (TSC) that auditors use to evaluate your system’s security and privacy controls. Security is the only mandatory criterion, while the others are optional depending on your business commitments.

• Security (The Common Criterion): Required for all SOC 2 audits, this evaluates if systems are protected against unauthorized access using controls like firewalls and MFA.

• Availability: Ensures your systems are operational and accessible as promised in your service level agreements (SLAs).

• Processing Integrity: Confirms that your systems process data accurately, completely, and on time.

• Confidentiality: Focuses on protecting sensitive business or client information from unauthorized disclosure using encryption and access controls.

• Privacy: Governs how personal data (PII) is collected, used, stored, and shared in alignment with your privacy policy and applicable laws.

What is a SOC 2 Audit?

A SOC 2 audit is an independent assessment of your company’s security controls conducted by a certified public accountant (CPA). The process typically involves scoping, readiness assessment, evidence collection, the formal audit, and report issuance. Passing results in an official attestation report to share with customers.

SOC 2 Type 1 vs. SOC 2 Type 2 Reports

There are two types of SOC 2 reports: Type 1 and Type 2. Here is how they compare:

Typically, either SOC 2 report will contain five sections:

• An opinion letter/auditor report

• Management assertion

• Detailed description of the system or service being evaluated

• Details specific to each of the Trust Services Criteria being evaluated

• Test results from testing done on the controls evaluated

When hiring a CPA to handle your SOC 2 audit, be prepared to provide security questionnaires, documentation of your policies, practices, and security controls, and evidence that those policies, practices, and security controls are being consistently followed within the organization.

Who Can Perform a SOC 2 Audit?

A SOC 2 audit must be performed by an independent, licensed Certified Public Accountant (CPA) or a CPA firm accredited by the AICPA. While compliance automation platforms can help you prepare for the audit and gather evidence, the final attestation must come from a qualified auditor.

SOC 1 vs. SOC 2 vs. SOC 3: What’s the Difference?

All three SOC reports evaluate controls, but they serve different purposes. If a prospect asks for a security report, they almost always mean SOC 2.

• SOC 1: Focuses on financial reporting controls for companies handling payroll, billing, or benefits.

• SOC 2: Covers broad data security controls to protect customer information, proprietary systems, and privacy.

• SOC 3: A public-facing summary of your SOC 2 audit that can be shared freely on your website to build trust.

What Are the SOC 2 Compliance Requirements?

SOC 2 compliance requirements are directly tied to the Trust Services Criteria you choose to include in your audit. While there is no rigid checklist of mandatory tools, you are required to implement and maintain specific operational controls to meet the criteria.

Common SOC 2 requirements include:

• Access Controls: Implementing logical and physical access controls, such as role-based access and multi-factor authentication (MFA), to prevent unauthorized access.

• Change Management: Documenting and testing all changes to IT systems and software to prevent vulnerabilities.

• Risk Assessments: Regularly identifying and mitigating potential internal and external risks.

• Incident Response: Establishing procedures to detect, respond to, and recover from security incidents.

• Vendor Management: Assessing and monitoring the security posture of third-party vendors and partners.

• Continuous Monitoring: Using automated tools to continuously monitor systems for anomalies and compliance drift.

Who Needs SOC 2 Compliance?

SOC 2 compliance will help businesses that deal with client data to prove their commitment to security and other TSC criteria. Because SOC 2 reports include details of your security systems, most companies that seek compliance are B2B service providers.

An attestation will be useful for:

• Healthcare providers: Hospital systems, electronic medical record providers, and telemedicine providers, among others, have a large amount of patient data on hand. These companies are all required to comply with HIPAA, but SOC 2 adds another layer of surety that individuals’ sensitive medical data will stay protected.

• Financial institutions: Banks, payment processors, insurance companies, and the like are responsible for personal data that can cause catastrophic problems if leaked.

• Managed service providers: Security services, IT support, and business intelligence services all have access to sensitive company data and systems. A breach at any of these companies could allow the hackers to compromise other companies or undermine their operations.

• Cloud service providers and data centers: These companies might store data ranging from a D2C business’s customer information to a government contractor’s personnel data. A breach of a cloud provider could therefore be hugely damaging to its clients and open them up to further exploitation by bad actors.

• B2B or B2B2C SaaS companies: SaaS providers typically hold proprietary data, whether that’s a company’s sales pipeline or creative assets and IP that are covered by an NDA. If this information were made public, it would provide a serious advantage to that company’s competitors and potentially scuttle upcoming campaigns or growth plans.

• Education providers: Companies that augment our school system, like asynchronous learning platforms, online exam tools, and class management software, are all covered by regulations including FERPA and PPRA. SOC 2 compliance can help prove their adherence to these policies and protect the data of minor students.

Along with the above categories, any company that operates in a heavily regulated space or stores sensitive PII will benefit from being able to prove SOC 2 compliance. Additionally, compliance may become a bigger concern at certain points in a business’s lifecycle. Your company may naturally evolve a need for SOC 2 attestation as it continues to grow and develop.

• Scaling operations: As companies move from startup to scale-up, it’s common to finalize and document practices that have become unofficial operating procedures. This is a natural point to seek SOC 2 compliance—you don’t want your growth to come at the price of security.

• Entering new markets: Companies looking to break into markets or industries that are more heavily regulated will do well to provide their SOC 2 compliance before they launch marketing or sales initiatives. While lesser security measures may seem sufficient for businesses that don’t handle sensitive information, they won’t translate well to any industry that is responsible for confidential business or customer data.

• Meeting customer demands: As your customers scale and expand, they may also realize the need for better security measures and pass those requirements on to you. SOC 2 compliance may become a necessity for keeping existing clients or landing new ones.

How Much Does SOC 2 Compliance Cost?

The cost of your SOC 2 audit will depend on the size of your company, the scope of your audit, and whether you’re after a Type 1 or Type 2 attestation. Because an audit must be performed by a licensed CPA, you’ll be paying for your auditor’s time and expertise. The more complex your company and the broader your needs, the more you can expect your audit to cost.

• Type 1 audits are cheaper because they only require a snapshot view of your security controls. Small to midsized companies may pay between $7,500 and $15,000 for an audit, while larger businesses may find themselves paying between $20,000 and $60,000.

• Type 2 audits are much more in-depth because they certify that your security controls operate as expected over an extended period. Small to midsized companies can expect to pay $12,000 to $25,000 for such an audit, while larger companies should budget between $30,000 and $100,000.

Some companies will need to budget for costs outside of the audit itself. If you’ve never undergone a SOC 2 audit, your first step will be your internal assessment. This will require your employees to spend time and resources evaluating and building out your systems and practices.

You may also want to hire an outside consultant to conduct penetration testing. The cost of software to strengthen your security posture or automate your compliance efforts can add up as well.

How Long Does SOC 2 Compliance Take?

The timeline for your SOC 2 audit depends heavily on whether you choose a Type 1 or Type 2 report. Because Type 2 takes longer, many companies first seek a Type 1 report to provide immediate assurance to prospects.

A 2023 Drata study found that companies spend an average of 4,300 hours yearly achieving or maintaining SOC 2 compliance. If you are starting from scratch, plan for about six months of internal pre-audit preparation. Organizations with a mature security posture will likely need less time.

The audit observation periods also vary significantly. A Type 1 audit evaluates a single point in time and can be completed in under two months. A Type 2 audit typically requires a six-to-twelve-month observation period, plus an additional two to six weeks for the auditor to write the final report.

Why SOC 2 Compliance Matters

SOC 2 is external proof of your commitment to security. As cybersecurity risks rise, organizations are increasingly dedicated to improving their security posture.

Compliance is an ongoing process that you must prove over time. Experts recommend making it a priority before a major prospect requests a report.

SOC 2 Helps Protect Against Security Risks

Digital attacks like ransomware are ballooning in volume. A recent survey found that 98% of IT leaders became aware of an attempted cyberattack in the past year. Worse, 33% of respondents said their leadership lacked confidence in the business’s ability to recover data after an attack.

Attacks are costly, with the average data breach costing $4.88 million in 2024. Proactively implementing SOC 2 controls helps mitigate these expensive and damaging threats.

SOC 2 Shows Prospects You Take Security Seriously

It is no longer enough to simply claim you have good security practices. A growing number of enterprise companies require vendors to prove it with a SOC 2 report.

This applies to any service provider storing or processing customer data in the cloud. Delaying compliance often leads to stalled sales cycles and lost revenue. Because Type 2 audits require months of continuous evidence, falling behind can give your competitors a major advantage.

SOC 2 Accelerates Sales Cycles and Growth

SOC 2 compliance is a powerful selling point for cloud-based businesses. Enterprise companies and government contractors require strict data control procedures from their vendors.

Having a SOC 2 report makes it much easier to prove your security credentials during the sales process. Instead of completing endless security questionnaires, your sales team can simply share your SOC 2 report to build immediate trust.