Aceing Risk Assessment Ahead of Your SOC 2 Audit
Apr 14, 2023
In the cult movie Wall Street, Gordon Gekko unapologetically proclaims, “I don’t throw darts at a board. I bet on sure things.” Don’t worry. This isn’t an article in adoration of his shameless villainy. We want to point your focus to what he was quite good at – hedging his risks before making a play. He always assessed and managed his risks. SOC 2 risk assessment, if we take a leaf from Gordon’s playbook, is rather similar.
It is about knowing what you’re going to do for the many potential and prevalent risks to your business, hedging them by putting in SOC 2 controls, and building a cheat sheet on what should be done if and when a risky eventuality does occur.
In this article, we will talk about the steps in risk assessment, control gaps, strategies you can use, and many other informational tips you can use in the process.
What is SOC 2 risk assessment?
SOC 2 risk assessment identifies the risks to your information assets, assesses their impact, assigns a likelihood of their occurrence, and deploys suitable mitigation measures (SOC 2 controls).
It is critical in your SOC 2 compliance journey, but it is easier said than done. As you would soon realize, the entire exercise is subjective; no two companies would have identical risks. Wondering what the requirements for risk assessment for SOC 2 are?
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SOC 2 risk assessment in 5 Steps
SOC 2 risk assessment is a critical step in your SOC 2 compliance journey. In a nutshell, it requires you to identify and assess the impact of the many risks on your business, assign a likelihood of occurrence and impact, and deploy suitable mitigation measures (SOC 2 controls).
It’s easier said than done, however. As you would soon realize, the entire exercise is subjective; no two companies would have identical risks. Wondering what the requirements for risk assessment for SOC 2 are?
Here are the 5 steps to perform SOC 2 Risk Assessment:
- Define your Business Objectives
- Identify In-Scope Systems
- Perform Risk Analysis
- Document Risk Responses
- Stay Consistent
Step 1: Define your business objectives
The first step is to define what your business objectives are clearly. Your business objectives would be what you have promised to deliver as a service to your customers and prospects. These could be business contracts, Service Level Agreements, or even what you have published on your website, brochures, and social media.
You should also consider your chosen Trust Service Criteria (TSC) and focus on the commitments made specific to them. For instance, if an organization maintains sensitive data covered by a non-disclosure agreement, or if it promises to delete client data on service completion, its point of focus for risk assessment should be maintaining the confidentiality and security of client data.
As an side note, such a company would have added confidentiality in the scope of its SOC 2.
And since the common criteria of security are mandatory, it will be a must-have business objective when you perform risk assessment for your organization.
Set up controls based on your business objectives. Take our expert’s advice
Step 2: Identify critical systems
The next step is identifying the critical systems that enable your organization to serve its customers. You can sift through the critical elements in various verticals such as infrastructure, software, data, people, and procedures, to name a few. For instance, if you sell software-as-a-service, your production system would be critical, and non-production systems not as much.
Make an inventory of the critical systems that dovetail with the scope (TSCs) you have defined for your SOC 2 audit. This step is essential to removing the unnecessary bloat from your SOC 2 audit.
The systems you identify as ‘in-scope’ now would be tested for the design and operating effectiveness of the controls you deploy to mitigate risks during your SOC 2 audit. But more on that later.
Also check out: How much does a SOC 2 audit cost
Step 3: Perform risk analysis
In the first two steps, we cut down on the flab. We identified the critical systems (aligned to the business objectives and TSCs) that pose a risk to your organization. We will now line up the many business-specific and inherent risks that could disrupt your business.
At this step, you will assess the risks for your business from vendors and business partners, from misuse of the access to information by employees, sudden changes in the leadership team, and regulations, as well as changes in economic, physical, and technological landscapes, to name a few.
For instance, if your organization processes payroll for clients in North America, any sudden and unfavourable change in the relevant regulatory landscape in the United States of America can affect your business.
That said, cloud-hosted organizations, irrespective of the nature of their business, face fraud risks (risk associated with financial fraud within the organization), data risk (data in transit over open, public networks could be compromised), and vendor risk, to name a few.
Did you know that SOC 2 fraud risk assessment is also intently looked at during the audit? Fraud risk assessment requires you to identify risks associated with financial fraud within the organization, from conflict of interest, bribery of government officials, and employees accepting gifts from vendors and contractors.
Some of the categories in your risk universe could be vendor risk, fraud risk, security incidents, production infrastructure, physical security, data risk, endpoint risks, and people & staff, to name a few. Vendor risk management is a critical must-do.
Once you have identified your risk universe, the next step is to rank them. Again, remember, you needn’t rank all the identified risks – only those that are business critical. A logical way to go about it is to list the following: your risk categories and their specific risks, and add an impact of the risk against each of those (impact of the risk to your commitment of security and other chosen TSC of customers’ data).
You could rank them from 1-10 (10 being the highest impact) based on the likelihood of their occurrence. The impact could be legal, regulatory, financial, and on your reputation, to name a few.
While rating the impact, you must also consider factors such as how fast the impact will be felt and the likelihood of its occurrence.
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Step 4: Document risk responses
Now that you have assessed the risks and assigned an impact, the next step is to incorporate risk mitigating plans and responses. For SOC 2 compliance, you must map the controls (based on chosen TSCs) to your various identified risks. The controls should help bring the risk impact down, and lay out your risk response plan too.
Documentation is the devil here. So, remember to document the risk treatment plan. While you won’t be able to eliminate risks, your documentation on what should be done in the event of any such eventuality will hold you in good stead during the audit.
Documentation should also include the evaluation periodicity of the controls and who would do it. You could do an internal audit of your controls, a dry run, so to speak, to look for any glaring gaps in the process.
Step 5: Stay consistent
Risk assessment is not a one-time event. You must undertake risk assessment once a year, in the event of a significant event that modifies your risk quotient or when new risks are identified. Remember SOC 2 audits are an annual event, and you will be asked to share evidence of how you identify, assess, monitor, analyze and avoid potential impact from your identified risk universe in every audit.
SOC 2 risk assessment and criteria
As we mentioned, your risk assessment process is predicated on your chosen SOC 2 criteria. Popularly known as Trust Service Principle or Trust Service Criteria, the five criteria here are what your organization will be evaluated upon during your SOC 2 audit.
Security, Availability, Confidentiality, Processing Integrity and Privacy – each focuses on a specific area, describing a set of compliance objectives your business must meet with the help of controls.
Selecting the relevant TSCs is one of the first steps in your SOC 2 compliance journey. With a clearly stated objective and scope of the audit, your risk assessment will be much more focused and relevant.
For instance, if your organization only chooses security in its scope for the audit, your risk assessment must focus on the line items that add to your security risks alone. You don’t need to rank all the identified risks in your universe.
Your risk assessments should be able to grow with your business. For instance, you may have implemented SOC 2 controls in the seed stage for common criteria alone. But as you grow, there is a high likelihood of you adding more TSCs to your scope. Your risk assessment should be able to accommodate such changes wholly by establishing mature controls, performing regular monitoring activities, and holding quarterly risk meetings.
Also check out: SOC 2 controls
What are control gaps?
Controls gaps are the deficiencies in the design and operating effectiveness of the controls that have been deployed to meet SOC 2 requirements. You can identify control gaps while you carry out the detailed risk assessment, or when you conduct gap assessment and remediation at a later stage.
As a best practice, you should base your remediation plan on your current situation and how you want to grow with the SOC 2 requirements.
What strategies can help evaluate risk?
As we mentioned earlier, no two companies will have identical risks. And therefore, there are no surefire strategies. Besides, risk assessment is a subjective exercise. Hence, it’s advisable to involve your organization’s top management.
Your risk strategy will be based on your management’s decision to do either of the following:
Your risk strategy will be based on your management’s decision to do either of the following:
Creating a mitigation plan
A risk mitigation plan is the logical conclusion of a detailed risk assessment exercise. Once you have identified and assessed the risks, you must assign a degree of likelihood to each and rank them based on impact. Based on the control gap and your risk strategy, you must devise a plan to reduce the risk. CC 3 series under the security criteria details the entire risk assessment process.
For instance, consider the risks associated with a scenario where your organization’s live database is unavailable or corrupted. Your mitigation plan could include mapping the proper SOC 2 controls to reduce the risk to an acceptable level. You could establish a data backup policy describing how often the backup occurs. And considering the high impact, the backup should happen at least once daily.
Your risk mitigation plan, therefore, would be an intelligent juxtaposition of your critical risks with SOC 2 controls such that the residual risk comes to an acceptable position. Business continuity is the end goal.
The difference between SOC 2 Risk Assessment and Risk Management
Risk management is the overarching umbrella when it comes to risk. It helps you address loss exposures and monitor your risk controls. Risk evaluation is a critical subset of this. It helps you identify, evaluate and report on any risk-related concerns.
For instance, risk evaluation will highlight the risk of the unavailability of your organization’s live database. Risk management will help you actively manage and design an action plan such as daily data backups, hosting in multiple zones, using redundant network architecture and vigorously monitoring system performance.
SOC2 risk assessment with Sprinto
Sprinto now offers a fully integrated risk assessment feature on its platform. It intelligently maps your risks, allowing you to choose the kind of SOC 2 risk assessment template you want. Your risks get added automatically thereafter. You only need to modify the values of each risk based on what holds true for your organization. Sprinto also suggests the average risk parameters for your industry for each identified risk.
Sprinto makes it easy to create a management review of the risk assessment, alerting the executive team for its timely review and approval. It then tabulates it all on the Auditor’s Dashboard, giving your auditor an overview of your risk universe, risk profile, and your risk mitigation plans with evidence.
Speak to our experts for a lowdown on how you can benefit from this smart feature. Book a demo today!
Srividhya Karthik, is a Content Lead at Sprinto, she artfully transforms the complex world of compliance into accessible and intriguing reads. Srividhya has half a decade of experience under her belt in the compliance world across frameworks such as SOC 2, ISO 27001, GDPR and more. She is a formidable authority in the domain and guides readers with expertise and clarity.
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