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Audit Management

A Guide to Completing an Internal Audit for Compliance Management

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Learn the best way to complete an internal audit for your compliance management program.

The Basics of Internal Audits

Internal audits are an exercise a company undertakes itself to assess the company’s internal controls. These controls include its governance, compliance, security, and accounting processes. Internal audits provide management and the board’s audit committee with objective assurance about the design and operation of the organization’s governance, risk, and compliance (GRC) program and whether that program functions effectively throughout the enterprise.

Internal audits are useful because they identify problems before those issues are discovered during an external audit, when the problems can be much more expensive to fix. Regular internal audits help your organization to evaluate and improve the effectiveness of risk management, control, and governance processes.
By establishing a disciplined, integrated approach to regulations, policies, risks, controls, and issues, your organization can demonstrate that it has a firm grasp on its regulatory compliance obligations and can provide transparency into overall business risks.

What Is the Purpose of an Internal Audit?

Internal auditing gives insight into an organization’s culture, policies, and processes, while assisting board and management supervision by checking internal controls such as operational effectiveness, risk mitigation mechanisms, and compliance with relevant laws or regulations.

Through a systematic risk assessment, an internal audit program aids management and other stakeholders in identifying and prioritizing risks. In addition, a risk assessment can assist in identifying any gaps in the environment and allow for the implementation of a repair strategy.

Your internal audit program will assist you in tracking and documenting any changes to your environment and mitigating the risks you discover.

Internal audits can also enhance the organization’s control environment by analyzing efficiency and operational effectiveness. For example, are your controls serving their intended purpose? Are they effective in risk reduction?

You can assure compliance with all relevant rules and regulations by conducting internal audits regularly (annually, for example). Audits also provide you peace of mind that you are ready for your next external audit. Internal auditing is an important and valuable activity for your firm since it helps you gain client trust and prevent costly fines connected with non-compliance.

How Do Internal and External Audits Differ?

Internal and external auditors both assist organizations to assure that the company’s financial reporting and other operational processes are consistent with accounting principles, that internal controls are functioning correctly, and that the company complies with applicable laws and regulations. That said, the two audits happen in different ways.

Internal auditors, as the name suggests, operate as employees within a business; external auditors are independent of the organizations they examine. Internal audit is a voluntary role within a company, while external audits are often required.
For example, annual audits of publicly traded companies are mandated by law. In addition, lenders and other stakeholders may request audited financial accounts as a condition of continuing financial assistance.

Top Considerations When Conducting an Internal Audit

An internal audit might be warranted under several circumstances. For example, your business might need to devise a solution to a known problem area; or verify that a critical business process is working as it should. In addition, you should understand how and why an activity happens or operates.

The benefits of an internal audit are many. First, you can define the scope of the audit yourself rather than have an outside party dictate the scope for you. Internal audit reports also go directly to management rather than to regulators or outside parties. An internal audit functions as an early warning system: it recommends steps to improve the efficiency or effectiveness of procedures before an external audit is conducted.

Most large organizations conduct internal audits regularly. Many private or small businesses also establish internal audits as a core organizational governance capability, although they aren’t required to do so.

Any organization with a compliance management program should regularly conduct internal audits to assure that the business operates its compliance program efficiently and comprehensively.

Internal Audits and Compliance

Compliance is typically described as adhering to obligations derived from applicable laws, regulations, industry and organizational standards, contractual commitments, corporate commitments, values, sanctions, ethics, and corporate policies and procedures.

Large organizations often have a dedicated compliance function to assure that employees follow the company’s regulatory obligations; so an internal audit might look at the effectiveness of that compliance team. Other organizations might not have a dedicated compliance function. In those cases, internal audits can assess how well other business functions (legal, HR, finance, operations) adhere to the company’s regulatory obligations.

While the compliance function exists to assure that your organization complies with all those requirements, the internal audit function is meant to monitor and evaluate your company’s internal control environment and examine its adequacy, efficiency, and effectiveness – to achieve compliance, or any other business objectives.
For example, an internal audit might assess how well the company follows the PCI DSS standard for protecting credit card data; or whether the company’s compliance team can manage multiple obligations at once, such as PCI DSS and HIPAA, the standard for protecting personal health information.

Compliance and internal audit teams can work together to help the organization’s senior leaders understand how much the business is or isn’t meeting compliance expectations. That understanding can then drive the wiser use of resources, reduce undesirable outcomes, and give the company a greater ability to hit business objectives.

Compliance and internal audit are more effective when used together. That includes joint planning and coordination of risk assessment efforts, coordinated reporting to management and the board, and shared involvement in compliance-related committees, task forces, and other working groups.
The compliance function usually relies on internal audits to conduct regulatory audits. Compliance risks, however, are just one category of risk that internal auditors monitor to evaluate the effectiveness of your organization’s risk management process.

Although your compliance officer might make recommendations for an internal audit plan, compliance is a management function that must be audited by someone else – typically by internal auditors.

Each function plays a crucial role in the risk management activities of your organization, and for maximum advantage, internal audit and compliance should work together. Both functions must be guided by overarching principles and executed through repeatable processes. In addition, they need to take governance issues into account to be a part of your organization’s governance structure.

Types of Internal Audits

There are several types of internal audits your organization can conduct. Your choice will largely depend on the specific goals and objectives you hope to meet.

  • Operational audit. This audit evaluates the performance of a particular function or department to assess its efficiency and effectiveness. The primary sources of evidence will include the active policies and achievements related to organizational objectives. Operational audits may evaluate controls and efficiency, and they consist of organizational structure, processes and procedures, data accuracy, management and security of assets, staffing, and productivity.
  • Compliance audit. This audit evaluates an organization’s adherence to established laws, standards, regulations, policies, or procedures. Typically, a compliance audit is conducted because of a policy or statutory requirement. The objective of a compliance audit is to ensure adequate control over an essential internal process.
  • Financial audit. This audit is an independent evaluation of financial data’s fairness, accuracy, and reliability across a fixed period (usually a fiscal quarter or fiscal year). The objective of a financial audit is to assure that the financial activity of the department, unit, or whole enterprise is completely and accurately reflected in the appropriate financial reports.
  • Follow-up audit. These audits are usually conducted approximately six months after an internal or external audit report has been issued; they are intended to evaluate whether corrective action has been taken on previous audit issues. A follow-up audit revisits the past auditor’s recommendations, management’s actions to implement those recommendations, and whether those recommendations actually work. Follow-up audits also assess whether the situation has changed enough to warrant different activities.
  • Investigative audit. This audit only occurs due to a report of unusual or suspicious activity. It focuses on specific aspects of the work of a department or individual. Investigative audits are conducted to determine the extent of a loss, assess weaknesses in controls, and make recommendations for corrective actions.
  • Information technology (IT) audit. IT audits evaluate the controls related to your organization’s information processing systems. IT audits make recommendations to management regarding the adequacy of internal controls and security inherent in your organization’s information systems and the effectiveness of the associated risk management. These audits aim to assure that IT systems safeguard assets, maintain data integrity, and operate efficiently to achieve business objectives.
  • Management audit. Also called performance audits, these audits provide independent and objective insight into the efficiency of business processes. Because internal auditing is an activity that is independent of management, internal auditors can (ideally) review a business process, organization, or strategy without worrying about backlash from the administration. A standard management audit reviews the organizational structure, examining how administrative work is divided throughout your organization and whether opportunities exist for increased efficiency.
  • Integrated audit. This audit combines two types of audit into one project: an IT audit and an operational audit, or a financial audit and an IT audit focused on internal controls over financial reporting.

What Are the 5 Cs of an Internal Audit?

Regardless of the type of internal audit your organization might conduct, there are five core aspects that every internal audit covers, namely:

  1. Criteria: What were the reasons behind mandating an audit? Which stakeholders were behind the audit request?
  2. Condition: What were the prevailing organizational conditions that necessitated an audit?
  3. Cause: What caused these conditions to arise that triggered the need for an audit?
  4. Consequence: What might these conditions lead to and what is the potential aftermath, if these conditions were not audited?
  5. Corrective action: How can the organization take charge and fix the condition, with the help of the audit findings?

Who Performs an Internal Audit?

No matter what type of internal audit your organization conducts, it will need to be done by an internal auditor.

Unlike compliance officers, who come from various educational backgrounds, internal auditors are professionals trained according to established standards of the Institute of Internal Auditors.

Internal auditors are hired by your organization’s management, although they should report directly to the audit committee of the board of directors. Ultimately, internal auditors are employed to show the board, management, and staff how the organization can function more effectively.

8 Steps of the Internal Audit Process

The basic steps to conduct an internal audit are as follows:

  1. Identify areas that need auditing. Begin by identifying the operating departments using policies and procedures written by your organization or regulatory agencies. These can include activities as complex as manufacturing processes or as simple as accounting procedures. Make a list of each activity and the functions that require review.
  2. Determine how often auditing and field work needs to be done. While some areas only need to be audited every few years, other departments may require audits annually or even more often. For example, the HR function may only require an annual audit of records and processes, while a manufacturing process may require daily field work audits for quality control purposes.
  3. Create an audit calendar. A structured and systematic approach to the auditing process will help assure that the function lives up to its full potential. Audits should be integrated into corporate objectives, like any other business goal. Scheduling audits on your business calendar will assure that they are done consistently.
  4. Alert departments of scheduled audits. Give departments notice of an audit so they can prepare the necessary documents and materials for the auditor. A surprise audit should only be conducted if you suspect unethical or illegal activity, and department managers should not feel threatened by an auditor.
  5. Interview employees.The auditor should interview employees and ask them to explain their work process compared to written policy. This step will help to establish an understanding of employee competence and identify employees who need additional training.
  6. Perform field work. Audits may need more than interviews with personnel. As necessary, perform tests of controls or business processes to see how well they conform to expectations. Thoughtfully design your audit procedures in advance, so that they address the issue you are trying to assess.
  7. Document results. Record the results and any differences in practice to how policies are written, as well as when guidelines are followed and when they are not. This may also include other information that is gathered from the interview process. The goal is to identify gaps in compliance and find a way to bridge those gaps.
  8. Report findings. Create an easy-to-understand final report to be reviewed with senior management. In addition, you should develop an action plan for improvement areas with any gaps in compliance.

Here are some other considerations when conducting an internal audit:

  • When reviewing policies and procedures, consider whether written policies meet the needs of “customers” (your employees) and add value to the organization.
  • Focus your policies and procedures on continuous improvement regarding how work is performed.
  • Ask whether the team environment is healthy and supports compliance with policies and procedures. A dysfunctional team has the potential to harm procedural compliance.
  • Review your policies and procedures annually to assure they reflect the changing business environment.

After the Audit: Improving Your Compliance

Once you complete an internal audit, you should remediate any gaps identified during the process. In addition, conducting a follow-up audit after the initial audit will increase the likelihood that an external audit will go well.
There are numerous risks that your organization may identify during an internal audit, including:

  • Reputation risk
  • Operational risk
  • Transactional risk
  • Credit risk
  • Compliance risk
  • Strategic risk
  • Country risk
  • Legal risk
  • Vendor concentration risk
  • IT/Cybersecurity risk

Identifying these risks during an internal audit is the first step. Creating a plan to remediate any risks will assure that your organization is ready for an external audit.

Take Charge of Compliance Management With ZenGRC

If your organization uses spreadsheets to conduct internal audits, expect a time-consuming, frustrating ride. Fortunately, there’s a GRC solution that can help.
Relying on multiple systems with multiple deployments can cause conflicting versions of truth, and you won’t know which data is complete and accurate to include in your audit. A standardized solution can resolve these problems and establish a single source of truth for your entire enterprise.

Discover the best solution for you with the ZenGRC. ZenGRC provides greater efficiency, improves collaboration, and reduces the time and resource costs associated with compliance processes.

ZenGRC breaks down the walls between internal audit and compliance groups. It is a comprehensive software solution that eliminates information silos and redundant data entry and improves information transparency and communication.

Pre-loaded with compliance framework content supporting more than 30 standards and regulations, ZenGRC saves time by identifying gaps and overlaps of running multiple programs simultaneously. ZenGRC delivers a flexible, centralized solution to meet all your compliance requirements, eliminating tedious manual processes and the associated time and resources.

With continuous compliance monitoring, you can create positive audit outcomes by automating the compilation of evidence for internal and external auditors and quickly assessing the acceptability of risk controls.

Pre-built compliance dashboards provide visibility into completed tasks, open items, and more to reveal the health of your company’s compliance and IT information security programs and a simple way to manage your compliance program.
Learn how ZenGRC can fit into your business and schedule a demo today to help us guide your organization to confidence in infosec risk and compliance.

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

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SOC audits assure the effectiveness of internal controls at service providers such as advisory firms, technology vendors, and other businesses. SOC reports (the acronym for “Systems and Organization Controls”) come in several forms, notably SOC 1 and SOC 2.

While the names may sound similar, SOC 1 and SOC 2 reports are distinct, and the steps a vendor must undertake to comply with each one vary significantly.

Both SOC 1 and SOC 2 reports are based on auditing standards developed by the American Institute of Certified Public Accountants (AICPA), known as the Statement on Standards for Attestation Engagements 18 (SSAE-18, previously known as SSAE-16). Both reports also address service providers rather than publicly traded companies, and both can generate Type I and Type II reports.

Beyond those similarities, however, SOC 1 and SOC 2 reports have distinct focuses and involve different procedures. Which type of SOC report your business should obtain depends on the nature of your organization, its needs, and the assurance you want. Often, companies will find value in pursuing both types of reports.

What Is SOC 1?

A SOC 1 report assesses the effectiveness of an organization’s internal control over financial reporting (ICFR). A certified public accountant performs a SOC 1 audit, reviewing the organization’s controls that affect the enterprise’s financial statements. The report answers questions such as: Are the internal controls well designed? Do they work, helping the organization to meet its financial goals?

These reports focus on entity-level controls (including data protection) over the service provider’s financial statement assertions to confirm that it meets regulatory requirements for financial reporting.

Publicly held companies must comply with the Sarbanes-Oxley Act, which requires them to maintain effective ICFR. SOC 1 reports assure that if the company relies on third parties for its financial reporting processes, those organizations have secure ICFR and won’t pose risk to the company.

What Is SOC 2?

SOC 2 reports assess the effectiveness of an organization’s controls over data security, availability, processing integrity, confidentiality, or privacy. These elements are known as the five “Trust Services Criteria” or “trust services principles.”

These reports address cybersecurity controls, including organizational oversight, vendor management, internal corporate governance and risk management, and regulatory oversight.

Service providers such as Software-as-a-Service (SAAS) providers, data center providers, and cloud computing hosts may provide SOC 2 reports to senior management, boards of directors, customers, regulators, business partners, and suppliers. The goal is to demonstrate that customers can trust your business with their confidential data.

Differences Between SOC 1 and SOC 2

Here are some of the significant differences between SOC 1 and SOC 2 reports:

Difference SOC 1 SOC 2
Purpose Focuses on financial controls Covers security, availability, processing integrity, confidentiality, and privacy
Scope Covers controls relevant to financial reporting Broader focus on controls related to the Trust Services Principles
Criteria Prepared according to SSAE 18 attestation standards Adheres to the AICPA Trust Services Criteria
Audience Primarily for auditors of user entities and stakeholders concerned with financial data More customer-facing to demonstrate trust and transparency over customer data and information security
Testing Testing procedures focus on financial transactions and balances Includes IT general controls testing and validation of non-financial reporting controls related to data security and privacy

Similarities Between SOC 1 and SOC 2

SOC 1 and 2 reports have only a few things in common:

Similarity Description
Auditing Standards Both SOC 1 and SOC 2 reports are based on the Statement on Standards for Attestation Engagements 18 (SSAE-18, previously known as SSAE-16) developed by the American Institute of Certified Public Accountants (AICPA). These standards provide guidelines for conducting audits and reporting on controls at service organizations.
Target Organizations Both reports address service organizations rather than publicly traded companies. Service organizations can be cloud service providers, data centers, and business process outsourcing firms.
Report Types SOC 1 and SOC 2 engagements can generate Type I and Type II reports. A Type I report provides an opinion on the design of controls at a specific point in time. A Type II report includes an opinion on the operational effectiveness of controls over some time (typically 6 to 12 months).
Third-Party Assurance Both SOC 1 and SOC 2 reports are intended to provide third-party assurance to the service organization’s customers (user entities) about the effectiveness of its controls.

Types of SOC Reports

SOC 1 and SOC 2 reports can be either Type 1 or Type 2.

Type 1 reports only review whether the organization’s controls are designed appropriately and that management’s description of internal control is accurate. Essentially, Type 1 reports only examine an organization’s internal controls at a single moment in time.

Type 2 reports incorporate all the same information as Type 1 reports and then go further, assessing whether the internal controls actually work as intended. In other words, they examine the performance of internal controls over an extended time, typically six months to one year.

What is the Difference Between a Type I and a Type II in a SOC Report?

The main difference between a Type 1 and Type 2 SOC report lies in the testing procedures:

  • Type I: The auditor expresses an opinion on whether the organization’s description of its system fairly presents the system as designed and whether the controls are suitably designed to achieve the specified control objectives. There is no test of operational effectiveness.
  • Type II: This report includes everything in a Type I report plus detailed testing of the operating effectiveness of the organization’s controls over a specified period. It tests both design and operational effectiveness.

Type II reports provide more assurance since the auditor tests how well the controls work throughout the review period. Type I reports, however, can still offer value by verifying that the organization’s controls are designed appropriately.

Additional SOC 2 Reports

The AICPA has developed several more SOC 2 reports addressing other subjects and criteria. In collaboration with the Cloud Security Alliance (CSA), the AICPA established an assessment of cloud providers known as the CSA Security Trust and Assurance Registry (STAR) Attestation.

The “SOC 2 Report with the Criteria in the Cloud Security Alliance (CSA) Cloud Controls Matrix (CCM)” guides auditors when assessing the design and operating effectiveness of internal controls aligned to traditional SOC 2 reports while also incorporating the criteria of the CSA CCM.

Yet another SOC 2 report focuses on controls specific to organizations that must comply with the Health Insurance Portability and Accountability Act (HIPAA). The AICPA collaborated with the Health Information Trust Alliance (HITRUST) to incorporate the HITRUST Common Security Framework (CSF) and map those criteria to the trust services criteria.

SOC 2 compliance does not guarantee that you will comply with the International Organization for Standardization’s ISO 27001 standard. ISO 27001 also focuses on security controls but is more rigorous than SOC 2.

SOC 1 vs SOC 2: Which One Should You Choose For Your Business

Deciding between SOC 1 and SOC 2 depends primarily on your business focus and intended report users. SOC 1 is ideal if you must demonstrate adequate financial controls to auditors, investors, regulators, and other user entities. It’s commonly used by financial institutions, payroll processors, and so forth.

SOC 2 makes sense if you want to showcase controls relevant to security, privacy, and availability to current and prospective customers. It’s essential for SaaS, cloud services, data centers, and the like.

In some cases, for service organizations with integrated financial and information systems, both SOC 1 and SOC 2 reports may be recommended to address all control domains fully. Work with experienced risk management advisers to conduct a gap analysis and determine which type of SOC report is right for your objectives.

FAQs About SOC 1 and SOC 2

How Long Does It Take to Prepare for a Soc 1 Report?

The length of time needed to prepare for a SOC 1 audit engagement depends on the maturity of the organization’s existing controls. On average, expect several months of preparation to implement necessary controls, write policies and procedures, and gather required documentation.

How Long Does It Take to Prepare for a Soc 2 Report?

For SOC 2, organizations should budget four to nine months for pre-audit preparation. More preparation time is usually needed for an initial SOC 2 engagement versus renewal audits.

Does Every Organization Need a Soc 1 Report?

No. SOC 1 reports are only required for organizations that need to report on controls relevant to financial statement audits. Not all businesses need one. Professional guidance can determine whether SOC 2 or other SOC reports better fit your needs.

Can a Company be Both SOC 1 and SOC 2 Compliant?

Yes, an organization can comply with both SOC 1 and SOC 2 standards. Some companies, particularly those that provide services relevant to both financial reporting and data security or privacy, may pursue both reports to meet the needs of different stakeholders.

Is SOC 2 Type 2 better than Type 1?

Some industries consider a SOC 2 Type 2 report more valuable than a SOC 2 Type 1 report because it both evaluates the design of controls (like Type 1) and tests the operational effectiveness of those controls over time. That said, Type 2 reports will be more expensive than Type 1 — so think carefully about whether that greater cost will be worth it.

Which Industries Typically Require a SOC 1 or SOC 2 Report?

Industries that handle sensitive data or provide critical services to other organizations require SOC reports. It includes cloud service providers, data centers, managed service providers, Software-as-a-Service (SaaS) companies, and healthcare, finance, and e-commerce organizations that must meet data security standards such as PCI DSS or the predecessor SAS 70.

How Do SOC 1 and SOC 2 Audits Differ From ISO 27001 Certification?

While SOC audits and ISO 27001 certification relate to information security, they have different scopes and purposes. SOC reports evaluate an organization’s system of controls and processes, while ISO 27001 is an internationally recognized standard for implementing and maintaining an information security management system (ISMS). Organizations may pursue SOC reports and ISO 27001 certification for comprehensive security assurance and suitability to meet the Trust Services Criteria (TSC).

SOC Compliance Management With RiskOptics ZenGRC

Any kind of SOC audit is challenging. It requires vendors to undergo laborious processes for assessing risk, documenting business processes, testing controls, remediating weaknesses, and then reporting their final control posture.

Doing all this work manually with spreadsheets is folly; details will be overlooked or recorded incorrectly. Organizations need a dedicated software tool to automate as much of the work as possible and to guide them through the process. This is where RiskOptics ZenGRC from RiskOptics can help.

ZenGRC’s dashboard allows you to see your progress on compliance with SOC reports or numerous other regulatory burdens, such as HIPAA, GDPR, or SOX. It helps you identify holes in your documentation and procedures and guides you in addressing them.

Schedule a demo to see how the ZenGRC Platform can help your company with its compliance initiatives.

SOC 2 vs ISO 27001: Key Differences Between the Standards

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Cyberattacks are a constant threat, which means that robust cybersecurity measures are a necessity for organizations of all sizes. Companies typically implement those measures by following one or more cybersecurity frameworks, and the frameworks you choose can have far-reaching implications for your security posture.

Two of the most popular frameworks are the SOC 2 and ISO 27001 standards. Understanding the differences between them is crucial for making an informed decision that aligns with your organization’s unique needs and goals. 

SOC 2 vs. ISO 27001: Choosing the Right One

What Is ISO 27001?

Developed by the International Standards Organization (ISO), ISO 27001 defines a set of standards for an information security management system (ISMS). The standard includes “Annex A,” which offers a long list of security controls a CISO can choose from, while the ISO 27001 statement of applicability is where the CISO describes the controls he or she has decided to implement, based on the unique needs of your organization.

What Is an ISMS?

As the name implies, an ISMS is the system you use to manage information security. This includes data management, cybersecurity, and employee behavior. 
While ISO 27001 requires the creation of an ISMS, it only suggests possible actions; it does not require specific security controls. These possible actions include internal audits, continual monitoring, and corrective or preventive measures. How an organization implements these suggestions is at the organization’s discretion.

What Is SOC 2?

SOC 2 is a standard developed by the American Institute of Certified Public Accountants (AICPA) to assess the security of technology providers and other “service organizations.”

SOC 2 relies on five “Trust Services Criteria” (TSC) to assess the provider’s IT controls, and a SOC audit results in a SOC 2 report about the strength of the provider’s cybersecurity. Businesses can then use those SOC 2 audit reports to evaluate whether the provider can be trusted with their confidential data.

These reports can assure your upstream and downstream customers that you have security standards to protect the data they entrust to you.

SOC 2 reports can be either Type 1 or Type 2 reports. A Type 1 report focuses on management’s description of the provider’s internal controls and effectiveness at one point.

Type 2 report examines the effectiveness of internal controls over an extended period of time. Management must provide documentation proving the effectiveness of controls throughout the audit period. This longer-term assurance gives customers additional details when assessing your data security measures, but it is more time-consuming and costly.

For more detailed information on SOC 2, check out this comprehensive SOC 2 guide.

How Does ISO 27001 Lead to a Successful SOC 2 Report?

As part of the SOC reporting process, your organization must show that it meets the documentation requirements established by the AICPA, as spelled out in Statement on Standards for Attestation Engagements (SSAE) 18.

SSAE 18 requires a review of your vendors and your controls to show how your ISMS helps protect your organization and your data. Assessing both external and internal risks requires a holistic focus on information security.

Using ISO 27001 ISMS as the foundation for your security management means that you have already performed many activities necessary for a successful SOC 2 audit under the SSAE 18 attestations.

What ISO 27001 Says About Vendor Management

Part of the vendor management process under ISO 27001 is assuring that you establish appropriate service level agreements (SLA) with vendors to protect all data within your ecosystem. These clauses help you prove that not only your data, but also your customers’ data, is safe.

Next, assure that your vendors maintain safe data environments as promised in the SLAs. This requires you to monitor your vendors’ activities continuously. In many ways, you’re auditing your vendors to verify that they live up to their promises.

Your control over your information is the most crucial element of any vendor relationship. Despite contracts and monitoring, your company needs to establish and monitor access controls as part of your daily operations. Vendors should have the necessary access to your data environment to do their jobs successfully — but no access beyond that.

How ISO 27001 and SOC 2 Work Together

ISO 27001 focuses on your control over your data and vendors. Just as you use SOC 2 reports to review your vendors, your clients review your compliance with the SOC 2 reports you provide.

In addition, ISO 27001 offers risk-based guidance for data protection. By focusing on your company’s most relevant assets, you develop internal controls tailored to your business. ISO 27001 establishes a roadmap so your auditor can meet the requirements of the Statement on Standards for Attestation Engagements 18 (SSAE 18).

All this tracking, monitoring, and auditing does serve an essential purpose, but it also requires voluminous documentation. Manage those documentation tasks inefficiently, and they will soon feel like an avalanche. 

How Does the Audit Process Compare for ISO 27001 and SOC 2?

ISO and SOC 2 audits are different in several ways.

ISO 27001 audits the design (Stage 1) and operating effectiveness (Stage 2) of your information security management system at a point in time. In contrast, the SOC 2 audit process verifies the design of controls at a point in time (Type 1) or controls’ design and operating effectiveness over time (Type 2).

The audits themselves are also performed by different types of people. To be certified as ISO 27001-compliance, the audit must be done by someone accredited by an approved ISO certification body. Meanwhile, only a certified public accountant can only complete a SOC 2 attestation report.

Additionally, there is a slight change in the appearance of certification. The ISO 27001 audit results in an organization’s certificate of conformity; the SOC 2 audit results in a formal attestation of compliance.

Should You Get ISO 27001 Certification or SOC 2?

If your business works with data, IT, or cloud services, then you should consider obtaining either an ISO 27001 or a SOC 2 certificate. Which one? That can sometimes depend on your geographic location and the location of your clients. For example, SOC 2 is more prevalent in North America, while ISO 27001 is more often recognized abroad.

Although considerable fees are involved, not getting a certification may scare off potential clients. Contact multiple auditing firms to obtain some rough estimates. Remember, there are ongoing recertification costs, too: annually for SOC 2 and every three years for ISO 27001.

Additionally, you’ll need to schedule time for your staff members to participate in annual audits. It could be more sensible to use ISO 27001 if your costs for both will be roughly equal, since ISO 27001 only needs to be re-certified every three years rather than SOC 2’s annual requirement.

Given that the security requirements are essentially the same, it is best to consider your customers’ expectations and expenses over time. Then choose which one is the most appropriate for you.

How Often are SOC 2 and ISO 27001 Certifications Renewed?

SOC 2 and ISO 27001 certifications are renewed at different intervals:

Certification Renewal Frequency Auditing Process
SOC 2 Type 1 Annually Evaluate the design of an organization’s controls at a specific time.
SOC 2 Type 2 Annually Evaluate the operating effectiveness of controls over a period of time (typically 6 to 12 months).
ISO 27001 Every 3 years Requires annual surveillance audits by an accredited certification body during the three-year cycle to maintain certification. After three years, a full recertification audit is required to renew the certification.

Can an Organization be Both SOC 2 and ISO 27001 Compliant?

Yes, an organization can be both SOC 2 and ISO 27001 compliant. Many organizations pursue both standards to demonstrate their commitment to robust security practices and processing integrity, which can help build trust with stakeholders and clients.

While both standards aim to enhance an organization’s security and data privacy, the main difference lies in their scope and approach. SOC 2 focuses on the systems and controls of a service organization, often targeting specific areas such as cloud services, SaaS providers, or data centers. In contrast, ISO 27001 is a comprehensive standard that any organization can use, regardless of size or industry.

Compliance with both standards can benefit organizations operating in regulated industries, such as healthcare (HIPAA) or those handling personal data (GDPR for companies operating in Europe). It demonstrates a strong commitment to security practices, data privacy, and business continuity, which can provide a competitive edge and instill confidence in clients and partners.

Automate ISO 27001 and SOC 2 Compliance with ZenGRC

Managing ISO and SOC compliance can be overwhelming when tracking all requirements on spreadsheets.

ZenGRC is a compliance and audit management solution that delivers a faster and easier path to compliance. It’s a turnkey solution pre-loaded with various compliance and security framework requirements, including the ISO 27001 standard and SOC 2.

Templates for risk assessments and automated workflows eliminate tedious manual processes. The document repository is a single source of truth, so that your audit evidence is quickly available for the following external audit and meeting SSAE 18 attestation requirements. Insightful reporting and dashboards provide visibility to regulatory gaps and security risks

Schedule a demo to see how ZenGRC can help you achieve and maintain compliance.

6 Benefits of Internal Auditing

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Regular, comprehensive audits keep organizations on track. Audits come in all shapes and sizes, too: internal and external audits; audits of finance, audits of data, audits of operations.

As a business owner, whether for a large enterprise or a small business, you want to assure that your stakeholders can trust your business operations and that your finances are in order. Internal audits are a great way to reinforce that trust and credibility. They also reduce the costs of external audits, on your door, and lessen your exposure to fraudulent practices and reputational risks.

Before we dive into the benefits of specific audit activities, let’s understand the different types of audits.

Types of Auditing

As mentioned above, different types of audits can happen within your organization every year. Understanding how each type benefits your business operations is helpful to appreciate an audit’s purpose and contribution to your company’s success.

Internal audit

Internal audits are audits undertaken by the company itself, either by an in-house internal audit team or a specially hired audit firm that answers to your management team alone. Internal audits are presented to management or the board for review and further action.

External audit

An independent external auditor performs audit activities to check compliance and financial reporting accuracy for statutory or public reporting purposes. For example, healthcare providers undergo audits from the U.S. Department of Health and Human Services; and all publicly traded companies undergo annual external audits, the findings of which are published for review by investors.

IT or information systems audit

These audits, performed by either internal or external audit teams, assess the readiness and resilience of an organization’s IT system infrastructure and controls that are in place to manage critical information and data assets.

Why are so many different types of audits required? The following section should help you understand the need for additional audit types, especially internal audits.

Purpose of Auditing

Audits, especially internal audits, are a tool to help management understand the organization’s performance, so that the company can improve its business processes and controls. Audits work by collecting evidence and data points about specific business functions, to compare that information against expected performance standards.

The Institute of Internal Auditors (IIA) defines the internal audit process this way:

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

Audit functions act as watchdogs over your organization’s integrity and accountability. By scrutinizing your financial reporting, security, and business operations, and then providing objective assurance about progress toward your business goals, audits help management and other stakeholders understand how well the business is performing.

Who Benefits from Auditing?

Audits benefit both internal and external stakeholders. For example, in the case of financial audits, investors benefit from more assurance that a company’s financial audits can be relied upon; management and the board benefit from knowing where their vulnerabilities to fraud or financial misstatement might be, so they can address those problems before an incident leads unhappy shareholders to sue them.

Or, if an organization works in specific sectors such as payments processing or healthcare, that business is subject to certain industry compliance obligations such as PCI DSS or HIPAA standards for data security – standards that include regular audits of data security programs. When businesses pass those audits, that gives them more protection from regulatory fines and sanctions if the company suffers a data breach; and consumers get more assurance that they can trust that business with their personal data.

Since internal audits are a standard requirement, let’s understand the detailed benefits of internal audits in the next section.

6 Benefits of Internal Auditing

  1. Strong internal controls

    Internal audits evaluate your internal controls, which comprise actions, systems, and processes (including monitoring) to assure that those controls are well designed and implemented and that they work as intended, no matter who serves in which role.

  2. Efficiency

    Internal audits spot redundancies in your business practices, procedure, and governance processes; and develop recommendations for streamlining, saving time and money.

  3. Security

    Internal audits scrutinize your cybersecurity environment – for example, identifying all your digital devices, and examining whether those assets are secured per your policies. These audits also look for vulnerabilities in your digital systems and networks and advice on closing gaps.

  4. Integrity

    Internal audits provide assurance of process integrity – that is, that systems work the way they were intended to work, and the way that management promises those systems work. These audits can identify risks of human error or other system failures, such as complicated software that might crash at critical moments.

  5. Reduced risk

    Internal audits consider all the identified risks to your enterprise and analyze whether your risk mitigation measures are working as they should. Where those measures aren’t, audit reports will tell you what you can do to resolve the issue.

  6. Improved compliance

    Internal audits check the laws, regulations, and industry standards with which your organization needs to comply, and then assess whether you are, in fact, compliant. Where you miss the mark, auditors recommend how to remediate the problem.

How Automation Improves Internal Auditing

Regulations change; businesses do too, as they expand or contract or acquire new operations. Cybercriminals devise new methods of breaching systems, networks, and devices. As a result, fraudulent practices can slip under the radar.

Internal audits will catch these and other issues, but the time between audits is when these issues arise. Continuous monitoring is imperative, but your auditor can’t be everywhere. To help, you need automation.

Take Control of Internal Audits with ZenGRC

The ZenGRC offers unlimited internal audits with just a few mouse clicks. It displays results on user-friendly, color-coded dashboards so you can see where gaps are and how to fix them. Its workflow features allow you to assign, track, and manage your governance, risk management, and compliance tasks.

ZenGRC also continuously monitors your controls from systems in between audit runs, so your networks and applications are effective and up-to-date between audits. The ZenGRC’s “single source of truth” repository collects and organizes your audit trail. As a result, you are ready when it’s time for those dreaded external audits necessary to demonstrate compliance and attain the required certifications.

With internal audits taking care of themselves, you can focus on other matters like boosting your business and bottom line. To understand how to conduct worry-free internal audits, book a demo with ZenGRC today.

Audit Checklist for SOC 2

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If your company is a service organization and your customers trust you with their data, you may need to pass a SOC 2 (System and Organization Controls 2) audit.
Compliance and certification are the goals of a SOC 2 audit. Because the integrity, confidentiality, and privacy of your customers’ data are on the line, they’ll want you to prove that you have internal controls to protect that data. The SOC 2 compliance audit gives them that assurance.

What is SOC 2?

SOC 2 is a set of standards developed by the American Institute of CPAs (AICPA) for managing client data based on five “trust service principles”: security, availability, processing integrity, confidentiality, and privacy.

SOC 2 reports are unique to each company, unlike the Payment Card Industry Data Security Standard (PCI DSS), which has strict criteria. Instead, each builds its controls to comply with one or more trust principles following its business practices.

These internal reports tell you (alongside regulators, business associates, suppliers, and others) how your service provider maintains data.

Is SOC 2 Required For My Industry?

SOC applies to the majority of service companies. The SOC is also incorrectly referred to as “Service Organization Controls.” The most prevalent types of service organizations to which the SOC applies include, but are not limited to:

  • Software as a Service (SaaS) businesses that offer software, applications, and websites
  • Providers of corporate intelligence, analytics, and management services
  • Companies that manage, assist, or consult on money or accounting processes
  • Companies that provide customer service and other client-facing services
  • Managed IT and security service providers, including those who help with SOC 2 compliance

If your business falls under any of these classifications or is similar to one of these service organizations in general, you may be required to comply with SOC. While these service companies are SOC’s core focus, additional regulatory requirements provided by AICPA inside the SOC framework extend its safeguards throughout the supply chain.

What Are the Benefits of SOC 2?

The benefits of SOC 2 compliance include the following:

  • Organizational oversight
  • Vendor management programs
  • Risk management processes and internal corporate governance
  • Regulatory oversight

If a customer demands an audit report or industry regulations require that you conduct one, you’ll likely have to provide proof of SOC 2 compliance to demonstrate that you’ve properly secured your clients’ data.

Your service organization can benefit from a SOC 2 audit report in other ways.
SOC 2 reports can uncover information that can help you operate more efficiently and securely. In addition, SOC 2 compliance can help your service organization bolster its financial statements, stability, and reputation by documenting, evaluating, and improving your internal controls.

SOC 2 Compliance Checklist

This SOC 2 audit checklist will help you prepare for your next SOC 2 audit.

Develop a SOC 2 Audit Framework

The first thing you need to do is determine what you will test for and why. Next, you should establish a framework to meet your customers’ needs and guarantee them that you meet the necessary SOC 2 requirements.

Be sure your framework allows your SOC 2 auditor(s) to accurately assess that you meet the requirements for SOC 2 compliance.

Define the Objectives of Your SOC 2 Audit

Determine what your clients want to learn from your SOC 2 audit. However, if they’re going to know something specific about your internal financial controls, you’ll likely need a SOC 1 audit. If your clients are worried about cybersecurity, you must prepare materials for a SOC cybersecurity audit.

Determine the Scope of Your SOC 2 Audit

SOC 2 is designed for service organizations that store customer data in the cloud, including software-as-a-service providers. Before 2014, cloud storage providers only had to meet SOC 1 (previously known as Statement on Standards for Attestation Engagements no. 16 or SSAE 16) compliance requirements.

The scope of your SOC 2 audit typically addresses infrastructure, software, data, risk management, procedures, and people.

Two SOC 2 audits are SOC 2 Type 1 and SOC 2 Type 2 (SOC 2 Type II). A service organization that undergoes a SOC 2 audit tells the auditor whether to perform a SOC 2 Type 1 or SOC 2 Type 2 audit.

The type of SOC 2 report you need will depend on your specific objectives and requirements.

A SOC 2 Type 1 report attests to the design and documentation of a service organization’s internal controls and procedures as of a specific date. However, the SOC 2 Type 1 report doesn’t include the actual operation of the controls.

A SOC 2 Type 2 report also provides evidence of how a company operates its controls over a certain period (usually between six months and a year).

A SOC 2 Type 1 report is a fast, efficient method to assess the design of your controls. However, a SOC 2 Type 2 report can offer greater assurance by more rigorously examining your internal controls for extended periods.

Select the Trust Services Criteria/Principles to Include

The scope of your SOC 2 audit may revolve around infrastructure, software, procedures, people, or data while covering the trust services principles (security, availability, confidentiality, processing integrity, and privacy).

So you’ll have to determine which trust services criteria, also referred to as trust services principles, you want to test for. Any trust services criteria you include will increase the scope of your audit. Therefore, select the trust services criteria that are appropriate and applicable to your services.

During a SOC 2 audit, your auditor will review the internal controls your service organization has implemented that are relevant to the following five trust services principles as defined by the AICPA:

  • Security: Information and systems are protected against unauthorized access, unauthorized disclosure of information, and damage that could compromise the availability, integrity, confidentiality, and privacy of that information or those systems.
  • Availability: Information and systems are available for operation and use to meet your service organization’s objectives.
  • Processing integrity: System processing is complete, valid, accurate, timely, and authorized to meet your organization’s objectives.
  • Confidentiality: Information designated as confidential is protected to meet your service organization’s objectives.
  • Privacy: Personal information is collected, used, retained, disclosed, and disposed of correctly to meet your organization’s objectives.

Above all, these categories share a common set of standard criteria.

  • Control environment
  • Communication and information
  • Risk assessment
  • Monitoring activities
  • Control activities – which are further broken out by:
    • Logical and physical access
    • System operational effectiveness
    • Change management
    • Risk mitigation

The only criterion the AICPA requires for SOC 2 audits is security. The other four are optional, so when preparing for a SOC 2 audit, you can decide which criteria to apply and how.

You should talk with your customers to identify which trust services criteria to test for in addition to security. Then, consider the trust services principles about your client’s requirements.

For example, availability might apply if you store your customers’ data but don’t process it while processing integrity would not apply. But if you manage your clients’ transactions, processing integrity is likely necessary.

Perform a Readiness Assessment

Preparing for a SOC 2 audit can be daunting, especially if it’s your first SOC 2 audit. Performing a readiness assessment, however, can enhance the effectiveness of your SOC 2 report because it enables you to find problems in your control framework.

A readiness assessment can help determine your preparedness for your SOC 2 audit. You can perform a readiness assessment independently or hire an auditing firm to fulfill your assessment. In addition, a readiness assessment allows you to identify any issues before you complete your official SOC 2 audit.

Perform a SOC 2 Gap Analysis

You should perform a gap analysis once you’ve completed your audit preparation. This process typically takes about two months and will help you identify problems and risky areas in your cybersecurity practices.

While performing your SOC 2 gap analysis, you must select an audit firm to conduct your SOC 2. Then, during the SOC 2 audit, your auditor will test your organization’s internal controls by running several activities, including an in-depth review of your policies and procedures and interviews with your employees. After the testing, your auditor will review key findings and record any exceptions. Then, your auditor will issue the SOC 2 report.

Before you start, reviewing this SOC 2 audit checklist will help prove your client’s data is secure.

Developed by the American Institute of Certified Public Accountants (AICPA), SOC 2 defines criteria for managing customer data based on five “trust services principles”:

  • Security
  • Availability
  • Processing integrity
  • Confidentiality
  • Privacy

The AICPA created SOC 2 to establish an audit standard that addresses the ongoing trends of cloud computing and software as a service.

Compliance with SOC 2 tests a service organization’s internal controls. These internal controls aim to help measure how well service organizations protect customers’ data and ensure clients that they can be trusted to keep their data secure.

A SOC audit aims to achieve a SOC certification or SOC attestation. To accomplish a SOC attestation, you must be audited by an independent certified public accountant (or CPA firm) who determines if you have implemented the appropriate safeguards and procedures.

A SOC 2 report is one of the SOC reports created by the AICPA. A SOC 2 report describes the internal controls that a company uses to process data. The SOC report also details the security and privacy of that data.

The AICPA developed SOC 2 reports to meet end-users needs, including regulators, business partners, and customers who require detailed information and assurances about the internal controls deployed by their service organizations.

Common Challenges of Implementing SOC 2

  • Lack of resources and expertise: SOC 2 implementation requires dedicated staff and expertise in information security controls, which many organizations need to gain.
  • The complexity of requirements: The criteria for SOC 2 are complex and evolving, making it difficult for organizations to interpret and implement security controls over a long period of time.
  • Cost:  SOC 2 audits and ongoing compliance maintenance costs can be expensive, especially for smaller organizations without adequate resources.
  • Over-reliance on auditors: Organizations often need more than auditors to guide their TSC compliance efforts rather than taking ownership of the compliance program.
  • Fixing issues post-audit: Many organizations scramble to fix control issues after the audit rather than proactively managing the compliance program. This leads to audit failures.

Best Practices for a Successful SOC 2 Audit

Achieving SOC 2 compliance and passing your SOC 2 audit requires careful planning, robust security controls, and ongoing vigilance. To set your compliance program up for success, focus on these critical best practices:

  • Start early and maintain compliance continuously: Implement access control before the audit. Manage the compliance program proactively.
  • Involve leadership and get buy-in: Executives and management need to be engaged in the audit process for it to succeed.
  • Review and update policies frequently: Policies and procedures should align with TSC criteria and be updated regularly.
  • Train employees continuously: Educate staff on the importance of compliance through training to embed a culture of data security.
  • Maintain thorough documentation: Document controls extensively to demonstrate compliance. Organize documents effectively.
  • Work closely with your auditor: Maintain open communication with your auditor for a smooth audit process. Be responsive to their requests.

How Do I Check My SOC 2 Compliance?

Validating SOC 2 compliance requires continuous monitoring and evidence collection from multiple sources. By thoroughly examining your policies, systems, controls, and processes using internal and external assessment techniques, you can identify and remediate gaps to maintain compliance.

  • Review your policies, processes, and controls against TSC criteria using questionnaires and checklists. Identify any gaps.
  • Interview personnel to ensure they understand and follow security controls consistently over time.
  • Examine system logs, access records, and change management docs to validate controls.
  • Perform internal audits and vulnerability assessments to test the effectiveness of security controls.
  • Hire an external auditor to assess your compliance with SOC 2 independently.
  • Request attestation reports from vendors to ensure their compliance with SOC 2.
  • Continuously monitor internal systems and processes to ensure ongoing compliance.
  • Conduct tabletop exercises to validate incident response and other processes.

ZenGRC Offers Integrated Risk Management Software for SOC 2 Compliance

ZenGRC, a compliance and audit management system, provides a faster, smoother, and brighter road to compliance by reducing time-consuming manual procedures, expediting onboarding, and keeping you informed about the status and efficacy of your programs.

You may begin your first audit using ZenGRC in less than 30 minutes. A prescriptive workflow walks you through picking frameworks and scoping requirements and controls step by step. You may prevent audit fatigue while maintaining an efficient and uniform process by employing a “ask once and comply with many” approach to sharing and reusing rules across frameworks.

ZenGRC provides the visibility you need to analyze the progress and success of your compliance activities and their influence on risk reduction. Schedule a demo today and start complying with SOC 2 in a breeze.