Beginnerโs Guide to ISAE 3402 and SOC 2 โ what they are, how theyโre used, who needs them, and how to prepare for them.
๐ What is ISAE 3402 and SOC 2? โ Basic Definitions
1. ISAE 3402 (International Standard on Assurance Engagements 3402)
- Issued by: International Auditing and Assurance Standards Board (IAASB)
- Purpose: To provide assurance on internal controls over financial reporting of outsourced service providers (e.g., data centers, payroll processors, cloud providers).
- Audience: Usually requested by external auditors of client companies to support their financial statement audits.
Key Points:
- Focus is on controls relevant to financial reporting
- Used internationally
- Produces a Service Organization Control (SOC 1) report (Type I or Type II)
2. SOC 2 (System and Organization Controls 2)
- Issued by: American Institute of Certified Public Accountants (AICPA)
- Purpose: To evaluate a service organization’s controls related to security, availability, processing integrity, confidentiality, and privacy.
- Audience: Customers and partners of service organizations, especially tech companies, SaaS providers, cloud services, etc.
Key Points:
- Focus is on data protection and security controls
- Based on Trust Services Criteria (TSC)
- Produces SOC 2 Report (Type I or Type II)
- Popular in the U.S. tech sector
๐ง The Difference Between ISAE 3402 and SOC 2
Feature | ISAE 3402 (SOC 1) | SOC 2 |
Focus | Financial reporting controls | IT & security controls |
Audience | Auditors, regulators | Customers, partners |
Standard | International | U.S.-centric |
Framework | ISAE 3402 | AICPA Trust Services Criteria |
Report Types | Type I and II | Type I and II |
๐ ๏ธ Use Cases / Why You Might Need It
Scenario | ISAE 3402 (SOC 1) | SOC 2 |
You run a payroll or payment processing service used by clients in audits | โ | โ |
Youโre a SaaS company storing sensitive customer data | โ | โ |
Your clientโs external auditor asks for audit support | โ | โ |
Your customer (especially in the U.S.) wants to see your security practices | โ | โ |
๐ Type I vs Type II Reports
Type | Description |
Type I | A point-in-time snapshot of controls: โDo controls exist and are they designed properly?โ |
Type II | A detailed review over time (e.g., 6โ12 months): โAre controls operating effectively over time?โ |
๐งฑ Step-by-Step: How a Company Gets SOC 2 or ISAE 3402 Certification
๐ Question before we proceed:
Do you want this guide to focus on SOC 2, ISAE 3402, or both? The steps differ slightly depending on your use case.
Assuming both for now:
Step 1: Determine Applicability
- Are you providing financial services or dealing with financial reporting data for others?
- โ โ ISAE 3402 (SOC 1)
- Are you handling customer data, building SaaS platforms, or managing cloud environments?
- โ โ SOC 2
Step 2: Define the Scope
- Choose what systems and processes are to be evaluated.
- For SOC 2:
- Decide which Trust Service Criteria apply:
- Security (mandatory)
- Availability
- Processing Integrity
- Confidentiality
- Privacy
- Decide which Trust Service Criteria apply:
- For ISAE 3402:
- Focus on controls that relate to clientsโ financial reporting
Step 3: Gap Assessment (Pre-Audit Readiness)
- Internal review (or hire a consultant) to:
- Identify missing controls
- Fix weak documentation
- Set up logging, monitoring, access controls
- SOC 2 will usually include:
- Incident response plans
- User access controls
- Encryption policies
- Monitoring and alerting
Step 4: Implement Controls
Examples:
Area | Typical Control |
Access Control | Role-based access; MFA |
Data Protection | Encryption at rest/in transit |
Availability | Backup & DR procedures |
Logging | Centralized logging with review |
Risk Management | Regular risk assessments |
Change Management | Documented deployment & rollback |
Step 5: Documentation & Evidence Collection
- Create and organize evidence:
- Policy documents
- System screenshots
- Training records
- Audit logs
- Use tools like:
- Drata, Vanta, Tugboat Logic (for SOC 2 readiness automation)
Step 6: Engage an Auditor
- Must be a licensed CPA firm for both ISAE 3402 and SOC 2
- Type I: Takes weeks
- Type II: Takes months (e.g., 6โ12 months evidence review)
Step 7: Get the Report
- Once complete:
- Type I report validates control design
- Type II validates design + effectiveness
- Share this with clients, partners, auditors
Step 8: Annual Re-Certification
- SOC 2 and ISAE 3402 require yearly audits
- You must demonstrate ongoing control compliance
๐ Tools & Frameworks Often Used
Tool/Service | Purpose |
Vanta, Drata | Automate SOC 2 prep |
AWS Artifact | SOC 2-ready AWS documentation |
JIRA, Confluence | Track policies and issues |
Slack, Email | Record of communications |
SIEM Tools | Logs and monitoring evidence |
๐งฉ Real Examples
Company | Standard Used | Why |
ADP | ISAE 3402 | Payroll processing (finance-linked) |
Zoom | SOC 2 | Data privacy & availability |
Shopify | Both | Multiple services with financial and SaaS components |
๐ Summary Table
Topic | ISAE 3402 | SOC 2 |
Industry | Finance, BPO, hosting | SaaS, Cloud, Security |
Control Type | Financial Reporting | Information Security |
Use Cases | Audit support | Customer trust |
Region | Global | U.S. dominant |
Report Duration | Point-in-time or over 6โ12 months | |
Audit Firms | CPA Firms | CPA Firms |
โ Checklist for Readiness
- Decide if you need ISAE 3402 or SOC 2
- Map your systems, processes, and data flows
- Select a Trust Services Criteria set (for SOC 2)
- Conduct a gap assessment
- Implement missing controls
- Collect evidence
- Hire an auditor
- Get certified and share report with clients