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Guide to ISAE 3402 and SOC 2

Beginnerโ€™s Guide to ISAE 3402 and SOC 2 โ€” what they are, how theyโ€™re used, who needs them, and how to prepare for them.


๐Ÿ” 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

๐Ÿง  The Difference Between ISAE 3402 and SOC 2

FeatureISAE 3402 (SOC 1)SOC 2
FocusFinancial reporting controlsIT & security controls
AudienceAuditors, regulatorsCustomers, partners
StandardInternationalU.S.-centric
FrameworkISAE 3402AICPA Trust Services Criteria
Report TypesType I and IIType I and II

๐Ÿ› ๏ธ Use Cases / Why You Might Need It

ScenarioISAE 3402 (SOC 1)SOC 2
You run a payroll or payment processing service used by clients in auditsโœ…โŒ
Youโ€™re a SaaS company storing sensitive customer dataโŒโœ…
Your clientโ€™s external auditor asks for audit supportโœ…โŒ
Your customer (especially in the U.S.) wants to see your security practicesโŒโœ…

๐Ÿ“„ Type I vs Type II Reports

TypeDescription
Type IA point-in-time snapshot of controls: โ€œDo controls exist and are they designed properly?โ€
Type IIA detailed review over time (e.g., 6โ€“12 months): โ€œAre controls operating effectively over time?โ€

๐Ÿงฑ Step-by-Step: How a Company Gets SOC 2 or ISAE 3402 Certification

๐Ÿ”Ž 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?
    • โœ… โ†’ ISAE 3402 (SOC 1)
  • Are you handling customer data, building SaaS platforms, or managing cloud environments?
    • โœ… 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
  • 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:

AreaTypical Control
Access ControlRole-based access; MFA
Data ProtectionEncryption at rest/in transit
AvailabilityBackup & DR procedures
LoggingCentralized logging with review
Risk ManagementRegular risk assessments
Change ManagementDocumented 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., 6โ€“12 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

๐Ÿ“ˆ Tools & Frameworks Often Used

Tool/ServicePurpose
Vanta, DrataAutomate SOC 2 prep
AWS ArtifactSOC 2-ready AWS documentation
JIRA, ConfluenceTrack policies and issues
Slack, EmailRecord of communications
SIEM ToolsLogs and monitoring evidence

๐Ÿงฉ Real Examples

CompanyStandard UsedWhy
ADPISAE 3402Payroll processing (finance-linked)
ZoomSOC 2Data privacy & availability
ShopifyBothMultiple services with financial and SaaS components

๐Ÿ“˜ Summary Table

TopicISAE 3402SOC 2
IndustryFinance, BPO, hostingSaaS, Cloud, Security
Control TypeFinancial ReportingInformation Security
Use CasesAudit supportCustomer trust
RegionGlobalU.S. dominant
Report DurationPoint-in-time or over 6โ€“12 months
Audit FirmsCPA FirmsCPA Firms

โœ… 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

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