COSO Principle 7: The entity identifies risks to the achievement of its objectives and analyzes risks

For SOC 2, auditors look for more than a list of threats. They need to see that your organization can (1) define what it is trying to achieve, (2) identify what could prevent success, and (3) analyze those risks well enough to decide what controls belong in scope and why. COSO Principle 7 is the backbone of that story: risks must be identified and analyzed against objectives, and the analysis must connect to action.

This requirement page focuses on requirement-level execution: what to implement, how to run it in a way that stands up in an examination, and what evidence a serious operator retains. If you already have risk activities (security reviews, incident postmortems, vendor risk reviews), Principle 7 is where you standardize them into one coherent risk assessment mechanism with governance, scoring, and traceability.

The main failure mode is not “no risk register.” It’s a register that’s disconnected from objectives, outdated, or unable to show decisions (accept/mitigate/transfer/avoid) and follow-through. Build a process you can run repeatedly, and make the artifacts audit-ready by default.

Regulatory text

Requirement (SOC 2 / Trust Services Criteria): “COSO Principle 7: The entity identifies risks to the achievement of its objectives and analyzes risks” ¹.

What the operator must do:
You must maintain a systematic process to:

1. state relevant objectives (business, operational, reporting, compliance, and SOC 2 service commitments),
2. identify risks that could prevent meeting those objectives, and
3. analyze those risks (typically likelihood and impact) so leadership can select and prioritize responses and related controls.
   Auditors will expect your risk assessment to be repeatable, performed by accountable owners, and evidenced with dated artifacts that show it actually ran ¹.

Plain-English interpretation (what Principle 7 means in practice)

• “Objectives” means the outcomes you commit to: secure system operation, availability targets you promise customers, confidentiality expectations, processing integrity, privacy obligations (if applicable), and internal compliance commitments.
• “Identifies risks” means you proactively enumerate plausible events or conditions that could cause failure (security incidents, access control breakdowns, third-party outages, flawed change management, data handling mistakes, staffing gaps).
• “Analyzes risks” means you evaluate risks consistently enough to make decisions. You do not need perfect quantification. You do need a defensible method that a reviewer can follow from objective → risk → score → response → control linkage ¹.

Who it applies to (entity and operational context)

This applies to service organizations pursuing or maintaining a SOC 2 report under the AICPA Trust Services Criteria ¹. In operational terms, it applies to:

• Your SOC 2 in-scope system (people, process, technology, and facilities supporting the services described in the SOC 2 description).
• Control owners across functions: Security, IT, Engineering, DevOps/SRE, Product, Privacy/Legal (if applicable), HR (for onboarding/termination risks), Finance/Procurement (third-party risks).
• Leadership oversight: Someone must own the risk assessment process (often the CCO, Head of GRC, or CISO) and obtain management review/approval of results.

If you rely on third parties for core service delivery (cloud hosting, monitoring, customer support tooling, payment processors), Principle 7 expects those dependencies to show up as risks tied to objectives (e.g., availability, confidentiality, incident response).

What you actually need to do (step-by-step)

Step 1: Define the objectives that matter for SOC 2 scope

Create a short, explicit objectives set for the in-scope system. Keep it concrete:

• Security objective (e.g., prevent unauthorized access to production systems and data).
• Availability objective (e.g., maintain service continuity consistent with commitments).
• Confidentiality objective (e.g., protect customer confidential data per contracts).
• Processing integrity objective (if applicable to your service).
• Privacy objective (if you include the Privacy category).

Evidence tip: Keep objectives versioned and approved. Auditors often ask, “Where did these objectives come from, and who agreed they’re the right ones?”

Step 2: Establish a repeatable risk assessment method

Document the method in a Risk Assessment Procedure. Minimum elements:

• Scope definition (systems/services, time period, exclusions)
• Risk taxonomy (recommended: strategic, operational, security, compliance, third-party)
• Scoring approach (likelihood, impact, and an overall rating)
• Risk appetite guidance (what “acceptable” vs “needs treatment” means)
• Cadence and triggers (scheduled review plus change-driven reviews)
• Required participants and approvers

Keep the scoring model simple enough that teams will use it consistently.

Step 3: Identify risks to each objective (structured discovery)

Run a working session (or series) to identify risks. Use multiple inputs so it’s not just opinions:

• Prior incidents and postmortems
• Customer escalations and uptime events
• Vulnerability trends and pen test findings (if available)
• Roadmap changes and major architecture shifts
• Third-party dependency map and recent third-party issues
• Access model changes (new admin tools, new CI/CD pathways)

Practical technique: For each objective, ask “What would cause us to fail this objective?” and “What changed since last review?”

Step 4: Analyze risks (score, document rationale, assign ownership)

For each risk, capture:

• Description (event + consequence)
• Impacted objective(s)
• Inherent risk score (before controls)
• Existing controls (what already reduces likelihood/impact)
• Residual risk score (after controls)
• Risk owner (a person, not a team)
• Treatment decision and due date (mitigate/accept/transfer/avoid)

Audit reality: Scores without rationale read as arbitrary. Add 1–2 sentences explaining why likelihood/impact were chosen.

Step 5: Define risk responses and map them to controls and work

This is where SOC 2 alignment becomes clear:

• If response is mitigate, specify: new control, control improvement, monitoring, or engineering work item.
• If response is accept, record the approver and why acceptance aligns with risk appetite.
• If response is transfer, document the mechanism (contractual terms, insurance, third-party commitments).
• If response is avoid, document the decision (feature not built, market not entered, data not collected).

Link each mitigation to:

• A control in your SOC 2 control set, and/or
• A ticket/epic with an owner and target date

Step 6: Obtain management review and approval

Management should review:

• Top residual risks
• Exceptions/acceptances
• Resource implications
• Major changes since last assessment

Capture approval in meeting minutes or an approval workflow.

Step 7: Operate the process continuously (not annually on paper)

Run the risk assessment on your defined cadence and after material changes (major releases, new third parties supporting in-scope services, security incidents, new data types). Track updates to the risk register so you can show a history of operation.

Where Daydream fits naturally: If your bottleneck is operational proof (risk register versions, approvals, mapping risks to controls and evidence), Daydream can centralize the workflow so risk decisions, control mappings, and operating evidence stay connected and exportable for SOC 2 examinations.

Required evidence and artifacts to retain

Auditors typically need evidence for design (the process exists) and operating effectiveness (it ran, and outputs drove action). Retain:

• Risk Assessment Policy/Procedure (version-controlled, approved)
• Defined objectives for the SOC 2 in-scope system (approved)
• Risk register (dated, with scoring rationale, owners, treatment decisions)
• Records of risk assessment sessions (agenda, attendee list, notes)
• Management review evidence (minutes, sign-off, approval tickets)
• Treatment tracking (project tickets, remediation plans, control implementation records)
• Change triggers (evidence of ad hoc risk review after major change/incident)
• Crosswalk: risk → control mapping (shows that risk analysis informs control selection)

Common exam/audit questions and hangups (what reviewers push on)

1. “Show me the objective-to-risk traceability.” If objectives are vague, risks look generic.
2. “How do you decide what is high risk?” They want a consistent method and documented rationale.
3. “What changed since last time?” A static risk register suggests the process isn’t real.
4. “What did you do about the top risks?” If mitigations are missing or not tracked, Principle 7 collapses.
5. “Who approved risk acceptance?” Acceptance without accountable sign-off is a common deficiency.

Frequent implementation mistakes (and how to avoid them)

• Mistake: A risk register that is a security threat list.
  Fix: Start from objectives, then identify risks to those objectives, including operational and third-party risks.
• Mistake: No residual risk concept.
  Fix: Record existing controls and score residual risk so decisions reflect control reality.
• Mistake: Risk owners are teams or aliases.
  Fix: Assign a named individual who can accept or drive mitigation.
• Mistake: No evidence of cadence.
  Fix: Calendar the review, preserve invites/minutes, and keep version history of the register.
• Mistake: Risk acceptance is informal (“we’re fine with it”).
  Fix: Require documented approval for acceptance above a defined threshold.

Enforcement context and risk implications

No public enforcement cases were provided in the source catalog for this requirement. For SOC 2, the practical implication is examination risk: weak Principle 7 execution often results in control gaps, mis-scoped controls, or inability to justify why controls address relevant risks ¹. That can drive SOC 2 exceptions, management letter findings, or increased testing scrutiny in future periods.

Practical 30/60/90-day execution plan

Days 0–30: Stand up the minimum viable risk assessment

• Confirm SOC 2 scope boundaries (in-scope services and supporting systems).
• Draft objectives for the in-scope system and get management approval.
• Publish a Risk Assessment Procedure with scoring and cadence.
• Build the initial risk register with owners, inherent/residual scoring, and treatment decisions.
• Set up a simple risk-to-controls mapping (spreadsheet is acceptable if controlled).

Deliverables: approved objectives, approved procedure, initial risk register, first management sign-off.

Days 31–60: Make it operational and evidence-ready

• Run a second working session focused on changes, incidents, and third-party dependencies.
• Convert mitigations into tracked work items (tickets/epics) and link them back to risks.
• Define risk acceptance thresholds and approval workflow.
• Create an audit-ready evidence folder structure (procedure, registers, minutes, approvals).

Deliverables: updated risk register (with version history), treatment tracking, acceptance workflow, evidence pack structure.

Days 61–90: Prove repeatability and control alignment

• Perform a formal management review of top residual risks and acceptances.
• Validate that high risks have either mitigations underway or documented acceptance.
• Test traceability: sample a few risks and confirm you can show objective → risk → analysis → response → control → evidence.
• If tooling is fragmented, migrate to a system (such as Daydream) that can maintain risk-control-evidence linkage without manual reconciliation.

Deliverables: management review minutes, traceability samples, improved control mapping, audit-ready evidence exports.

Frequently Asked Questions

Do we need a formal enterprise risk management (ERM) program to satisfy this SOC 2 requirement?

No. You need a documented, repeatable risk assessment for the SOC 2 in-scope system that identifies and analyzes risks to objectives, with evidence it operates ¹.

How detailed does the risk scoring model need to be?

Keep it consistent and explainable. Auditors care more about documented rationale, ownership, and resulting actions than complex math ¹.

Can we treat our security risk register as the SOC 2 risk assessment?

Yes, if it is explicitly tied to SOC 2 objectives, includes relevant operational and third-party risks, and drives control decisions with retained evidence of review and approval ¹.

What counts as acceptable evidence that the risk assessment “operates”?

Dated risk register updates, meeting artifacts, participant lists, management approvals, and tickets or controls created/updated as a result of the assessment are the standard proof points.

How do we handle risk acceptance without creating bureaucracy?

Define a threshold that requires approval and keep the acceptance record short: risk statement, residual score, rationale, approver, and revisit trigger.

Our product changes weekly. How do we avoid constant risk assessments?

Keep a scheduled cadence and add change triggers only for material changes (new data types, major architecture shifts, new critical third parties, significant incidents). Document what qualifies as “material” in your procedure.

Related compliance topics

• 2025 SEC Marketing Rule Examination Focus Areas
• Access and identity controls
• Access Control (AC)
• Access control and identity discipline
• Access control management

Footnotes

1. AICPA TSC 2017