Standards and Certifications for Financial Compliance

In today’s world of security and compliance, your organization’s future might rest on how you tackle financial compliance. Trust in industry-accepted certifications has grown exponentially.

The Extraordinary Power of Getting Certified for Operational Compliance

In today’s world of security and compliance, your organization’s future might rest on how you tackle financial compliance. Trust in industry-accepted certifications has grown exponentially. You might even hear clients asking “Are you certified?” at the start of each new engagement.

Certified? I thought that was for publicly traded companies. 

Why is everyone asking for these certifications?

What’s the difference between SOX compliance and SOC compliance?

Moreover, which certification is right for my organization?

For small- to medium-sized businesses and startups, researching financial compliance can command an overwhelming amount of time, money, and other resources. This guide offers the information you need to make efficient and sound decisions about various industry-accepted certifications.

This article tackles the main certifications—SOX, SOC 1, SOC 2, and SOC 3—from a bird’s-eye view. In future articles, we will take a deep dive into each type of certification.

Building trust and transparency for a service organization

There are two main types of certification:

  • The first is SOX compliance. SOX stands for the Sarbanes-Oxley Act of 2002. SOX is a US law meant to protect investors from fraudulent accounting activities by corporations. If you are not a publicly traded company (and you are not planning to go public), you can scratch this one off your list.
  • The second is SOC compliance. SOC stands for “systems and organization controls.” A SOC report is an audit of internal controls. It ensures data security, minimal waste, and shareholder confidence. If your company is a service organization storing or processing consumer data, it likely needs to comply with SOC 1, SOC 2, or SOC 3


In other words, if your company is a service organization that stores, processes, or transmits any kind of information about clients, you will likely need one of the three SOC certifications types to remain competitive in your respective market.


You may also need a SOC if you are part of a strategic partnership. Strategic partnerships allow organizations to continue growth while saving money and gaining efficiencies. These partnerships also require a great deal of trust: the partnerships need to be able to protect your organization, your employees, and your clients. These Partners should not only be sensitive to costs and delivering demonstrable value, but should be willing to collaborate with you to support and develop strategies that support and enhance your solutions and actively protect your networks, systems and data. 


SOC reporting can help drive trust and transparency. Getting certified proactively allows you to address risks across an organization or partnership while helping you tackle market concerns and contractual obligations. 


Choosing the SOC that meets your needs


There are several distinguishing features within SOC certification levels that can help you decide which type of SOC certification is right for your organization. Knowing which type you need will also tell you when, based on your timeline, you need to start the certification process. 


SOC1: Addresses financial reporting


A SOC 1 audit addresses internal controls over financial reporting (ICFR). The control objectives relate to business processes and information technology. There are two categories within SOC 1. 

  • A type 1 report is conducted on a single point in time. It only examines the design effectiveness of the internal controls. 
  • A type 2 report covers a set period of time—typically 12 months. It tests the design as well as the operating effectiveness of the internal controls.  


SOC 1 is also known as an SSAE18, or Statement of Standards for Attestation of Engagements 18.


SOC 2: Addresses operational controls


A SOC 2 audit has nothing to do with financial reporting and instead focuses on operational controls. It looks at the five main “trust services criteria” laid out by the American Institute of CPAs: 

  1. Security
  2. Availability 
  3. Processing integrity
  4. Confidentiality
  5. Privacy


A SOC 2 report is generally for service organizations that hold, store, or process client information when that information is not significant to financial reporting. For instance, a SOC 2 report is useful when client information does not affect the organization’s income statement or balance sheet. 


Like a SOC 1 report, a SOC 2 report can be issued as type 1 or type 2, depending on the needs of the organization. 


SOC 3: Addresses public trust


A SOC 3 report is much less common because it is intended to be shared with the public and therefore contains significantly less information. A SOC 3 report offers the same basic information provided in a SOC 2 report, but it has redacted details. It is used primarily as a marketing tool for service organizations. 


How compliance reports can give your business a boost

Getting certified with a compliance report has the potential to help your organization in multiple ways. Getting certified can:

1. Boost customer demand. Your clients likely think that protecting customer data from unauthorized access and theft is a priority. Without a SOC report clearly showing your dedication to security, you could lose business.

2. Eliminate costly data breaches. In 2021, a single data breach cost, on average, $7.24 million—and that figure rises every year. A SOC 2/SOC 3 audit can help you avoid those costly security breaches, more than making up for the cost of the audit.

3. Offer a competitive advantage. Having a SOC report in hand gives your organization an edge over any competitors who cannot show compliance.

4. Provide peace of mind. Passing a SOC 2 audit can assure you that your systems and networks are secure.

5. Aid in regulatory compliance. Because SOC 2’s requirements dovetail with other regulatory frameworks, including HIPAA and ISO 27001, attaining certification can speed your organization’s overall compliance efforts. Getting started with a SOC audit is especially helpful if you use GRC software or software-as-a-service (SaaS) that provides you with that big-picture view.

6. Build value. A SOC report can provide valuable insights into your organization’s risk and security posture, vendor management, internal controls governance, regulatory oversight, and more.


Getting certified for financial compliance can require analysis and consideration. It takes work to determine if the timing and ROI are right for your organization. However, it may well be a powerful investment in the future of your company. If you need more information about whether getting certified is right for your company, Kunai Consulting is here to help. Get in touch—we’d be happy to talk things through.

Sources: 

AICPA Center for Audit Quality

ISACO Resources

Tom

Sandeep

Sandeep: Tell me a bit about the early part of your career.

Tom: I spent a decade helping to build start-ups focused on application and database software. This was where I learned how to sell and do business development. I was fortunate to be part of one company going public and another being sold to IBM.

Sandeep: What is something you learned during this time that helped you with consulting?

Tom: I began to appreciate how different customers achieved varying levels of success with the same foundational technology. This made me understand just how critical getting your team and process right can be.

Sandeep: This is something I only came to appreciate years into consulting, especially after the sale of my first consultancy to Capital One.I saw teams in different parts of the company trying to solve challenges like real-time messaging. Same corporate culture, same technology, same internal support mechanisms. Night and day outcomes.

Tom: We saw a lot of the same thing after selling our practice to EMC (sold to Dell in 2015). This is probably the thing I'm most proud of when it comes to the teams I've helped to build: the ability to perform well in a variety of contexts, sometimes in ways that inspires the client team to up their game as well.

Sandeep: Yes. It's particularly cool to see your team succeed in individual ways after an acquisition...consulting skills definitely translate into the corporate environment.

Tom: Totally. We have people who've stayed on at Dell and risen up the ranks, while others took the opportunity to become successful executives at other Fortune 100 companies....or to start their own agencies and startups.

Sandeep: We've both been around a while. My first consulting project was a Y2K thing for Cisco back in 1998. You've been around a little longer than that :). How do you think consulting has changed most during the past five years?

Tom: I think because there is so much infrastructure available now, consulting has become more delivery and outcome-oriented. A better blend of strategic and tactical. Public Cloud has also enabled velocity to increase at a pace unfathomable 5 years ago.

Sandeep: What has stayed the same?

Tom: It's still mostly about people. People who thrive on change and are focused on their personal and professional development. I love that this has not and will not change...it's what I love about consulting.

Sandeep: I know you're adjusting your work style to COVID. You're still a dude who clearly prefers to drive an hour for a socially-distanced hike or outdoor meeting over Zoom any day of the week :) But personal styles aside, what is specifically compelling about a remote agency during the era of COVID?

Tom: Kunai has been remote for years, which gives them an inherent advantage. There is something about the communication and management styles that just works in a way that other organizations are still figuring out.

Sandeep: Yeah, I think what a lot of people fail to realize is that remote work isn't just office work over Zoom. it's an entirely new paradigm. There needs to be an understanding for asynchronous efficiency...and this just takes time and effort to develop. How do you approach remote work and family? What are you learning about separating work and personal time?

Tom: No matter what the form of interaction, Focus. Be present. Quality over quantity. The best weeks are the weeks where I proactively schedule work and personal time. Neil (Kunai's Head of Delivery) shared a great quote with me "With discipline comes freedom." When I am proactively addressing the majority of my professional and personal commitments, I find I earn a little flexibility. A little freedom.

Sandeep: Tell us about a business hero of yours that I may not have heard of before.

Tom: Paul O'Neill is someone you may not know. His work in both the public and the private sector created a profound impact

Sandeep: We are both over forty years old :). How have you learned how to work smarter during the past decade or so? What do you wish you knew about consulting when you were 25 that you know now?

Tom: Consultants want to make lasting change. Lasting change is often not the act of a single person. Today I work much harder bringing others along on the journey.

Sandeep: Last question. What are you doing here? :) Why join a small consulting company this late in your career when you could have a cushy job somewhere else?

Tom: I love a good challenge personally and professionally. When I turned 40, I decided I would run a 10K every Thanksgiving weekend and try to have my finishing time be less than my age. With the exception of one year where I did not run due to a health issue, I have met the goal. I also recently completed the Leadville 100 Mountain Bike race. So, I guess I'm here because I'm a glutton for punishment :) Jokes aside, our customers have a job to do and I intend to put Kunai in a position to execute flawlessly on their behalf. I love committing jointly to audacious goals for our customers and our business.

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