Difference between soc1 and soc2 reports: A Practical Comparison Guide

The fundamental difference between SOC 1 and SOC 2 reports boils down to one simple question: what are you trying to prove? SOC 1 focuses on controls that could impact your client’s financial reporting, while SOC 2 assesses your controls around data security and privacy.

Your choice depends entirely on whether your customers need assurance about financial integrity or operational security.

Understanding SOC 1 and SOC 2 Reports

Navigating the compliance world can feel overwhelming, but figuring out SOC 1 vs. SOC 2 is the essential first step for any service organization. Both are audit reports created by the American Institute of Certified Public Accountants (AICPA) to give your clients confidence, but they serve completely different masters.

Here’s the simplest way to think about it: a payroll processor needs a SOC 1 to prove they handle financial data correctly. A cloud storage provider, on the other hand, needs a SOC 2 to prove they can protect customer data from a breach.

For businesses in SaaS, FinTech, and cloud computing, this distinction is critical. One report validates your financial processes; the other validates your entire security posture.

Core Purpose of Each Report

A SOC 1 report is all about your Internal Control over Financial Reporting (ICFR). It’s designed to give your clients’ financial auditors peace of mind that your services won’t introduce errors into their financial statements. These reports, which fall under the SSAE 18 standard, are non-negotiable for any company whose systems touch client financials.

In stark contrast, a SOC 2 report evaluates your systems against a set of security principles known as the Trust Services Criteria (TSC). These are:

• Security: Are systems and data protected from unauthorized access?
• Availability: Is your service accessible and operational as promised?
• Processing Integrity: Does your system do what it’s supposed to, without errors?
• Confidentiality: Can you protect data that’s been designated as confidential?
• Privacy: How do you handle personal information (PII)?

This table breaks down the core differences at a glance. For a deeper dive, you can learn more about the specifics of what is SOC 2 compliance in our detailed guide.

Attribute	SOC 1 Report	SOC 2 Report
Primary Focus	Internal Controls over Financial Reporting (ICFR)	Data Security, Availability, and Privacy
Guiding Standard	SSAE 18	Trust Services Criteria (TSC)
Primary Audience	Client’s CFO, Controller, and financial auditors	Client’s CISO, security teams, and GRC managers
Typical Use Case	Payroll processors, loan servicing companies	SaaS providers, data centers, cloud hosting

Comparing Core Attributes of SOC 1 vs SOC 2

To really get the difference between SOC 1 and SOC 2, you have to look past the surface-level definitions and see how they function in the real world. The choice isn’t random; it’s a direct reflection of the promises you make to your customers and the specific risks your service introduces to their business.

The most fundamental split is their purpose. A SOC 1 report is all about financial integrity. A SOC 2 report is built around operational security and how you steward data. This core distinction sends ripples through every other part of the audit, from the controls you test to the people who will actually read the final report.

Here’s a simple analogy: imagine your service is a bank vault. A SOC 1 audit is like checking the vault’s transaction logs to make sure every dollar is accounted for correctly. A SOC 2 audit inspects the vault’s locks, alarms, and security guard protocols to make sure the money is safe from being stolen in the first place.

The Guiding Principles Behind Each Report

The scope of each audit is dictated by a completely different set of principles. This is the single biggest technical difference and determines exactly what an auditor will spend their time examining.

A SOC 1 audit has a laser focus on Internal Control over Financial Reporting (ICFR). The auditor’s entire job is to evaluate the controls you have in place that could prevent or catch a material error in your client’s financial statements. Every control, every test, is viewed through this financial lens.

A SOC 2 audit, on the other hand, is governed by a much broader framework called the Trust Services Criteria (TSC). This framework is made up of five distinct principles:

• Security: The mandatory foundation for every SOC 2 report. It covers the controls that protect information and systems from unauthorized access, unauthorized disclosure of information, and damage that could compromise other criteria.
• Availability: Focuses on whether your systems are available for operation and use just as you promised in your contracts or SLAs.
• Processing Integrity: Assesses if your system processing is complete, valid, accurate, timely, and authorized to meet your objectives.
• Confidentiality: Examines the controls you use to protect information that is designated as confidential.
• Privacy: Pertains specifically to controls over the collection, use, retention, disclosure, and disposal of personal information.

Security is always part of the deal, but you get to pick and choose the other criteria based on the specific services you offer and what your customers care about. For a deep dive into each one, check out our guide to the SOC 2 Trust Services Criteria.

To make this even clearer, here’s a quick side-by-side summary.

At-a-Glance Comparison of SOC 1 and SOC 2

This table breaks down the fundamental differences between the two reports across the most important attributes. It’s a quick reference for understanding which report aligns with your business needs.

Attribute	SOC 1 Report	SOC 2 Report
Primary Focus	Internal controls over financial reporting (ICFR).	Controls over security, availability, processing integrity, confidentiality, and privacy.
Guiding Standard	Statement on Standards for Attestation Engagements (SSAE) 18.	The AICPA’s Trust Services Criteria (TSC).
Key Question	”Does your service impact my company’s financial statements?"	"Can I trust you to securely manage my company’s operational data?”
Intended Audience	Client’s financial auditors, CFOs, controllers.	Client’s security, compliance, legal, and vendor management teams.
Core Purpose	To provide assurance to a client’s financial statement auditors.	To provide assurance about the security and operational integrity of a system.
Common Use Cases	Payroll processors, claims administrators, SaaS billing platforms.	Cloud hosting, data centers, SaaS providers, managed IT services.

Ultimately, the table shows two distinct paths for assurance, each designed for a very specific type of business risk.

Intended Audience and Use Case

Who reads these reports tells you everything you need to know about their real-world application. They are built to answer very different questions for completely different teams within your customer’s organization.

A SOC 1 report is written for your client’s financial auditors, CFOs, and controllers. Its main job is to make their financial statement audit easier. By relying on your SOC 1, they can reduce the amount of direct testing they need to perform on the services you provide them, saving them time and money.

Key Takeaway: Choose SOC 1 to prove your service won’t mess up a client’s financial statements. Choose SOC 2 to prove you can securely handle their operational data.

A SOC 2 report is for a much wider, more technical audience. We’re talking CISOs, security and compliance teams, vendor management specialists, and legal departments. These folks aren’t worried about financial transaction accuracy; they’re obsessed with risk management, data security, and operational uptime. They use the SOC 2 to get comfortable that you have the right controls in place to protect their sensitive data and keep your service online. This difference in audience changes the entire compliance conversation.

When to Choose a SOC 1 or SOC 2 Report

Deciding between a SOC 1 and SOC 2 report isn’t about which one is “better”—it’s about which one is relevant to your customers. The entire choice boils down to a single question: how does your service impact your client’s business?

If your service directly touches their financial data and could find its way onto their financial statements, you’re on the path to a SOC 1. But if you’re managing or storing their operational data, then security, availability, and privacy are the main concerns, making SOC 2 the clear choice.

Think of it like this: your customer’s auditors need assurance. What are they worried about? Financial misstatements or a data breach? Your answer determines your report.

Ultimately, this decision isn’t driven by your internal preferences. It’s dictated entirely by your customer’s risk. Financial reporting integrity demands a SOC 1. Data security assurance demands a SOC 2.

Scenarios Demanding a SOC 1 Report

You need a SOC 1 report when your services essentially become an extension of your client’s own financial controls. Their auditors have to sign off on their financial statements, and they can’t do that without knowing your system won’t introduce material errors.

Here are the classic use cases where a SOC 1 is non-negotiable:

• Payroll Processing Companies: You directly calculate wages, taxes, and deductions. These are major line items on your client’s income statement and balance sheet. A failure on your end creates a direct financial reporting risk for them.
• Revenue Management Platforms: If your service automates billing, invoicing, and revenue recognition for a SaaS company, you are directly impacting how they report their earnings to investors and the market.
• Loan Servicing Organizations: For a bank, the way you manage loan payments, interest calculations, and collections is absolutely integral to their financial reporting accuracy.

In every one of these situations, a bug or process failure in your system could cause a material misstatement in your client’s financials. The SOC 1 report is the only way to give their auditors the peace of mind that your internal controls over financial reporting (ICFR) are designed well and working as expected.

When a SOC 2 Report is the Right Choice

A SOC 2 report has become the industry benchmark for proving your company takes data security and operational reliability seriously. This isn’t about financial numbers; it’s about being a trustworthy steward of the systems and sensitive data your clients hand over to you. A SOC 2 becomes mandatory as soon as your service is a critical part of their tech stack.

These are the prime examples where SOC 2 is the top priority:

• Cloud Hosting Providers: Companies like AWS or DigitalOcean are the foundation for thousands of other businesses. They absolutely must prove their infrastructure is secure, available, and resilient.
• SaaS CRM Platforms: A CRM is the lifeblood of a sales organization, holding sensitive customer lists, deal pipelines, and confidential business strategies. A SOC 2 assures clients that this critical data is locked down.
• Data Analytics Platforms: These services ingest and process huge volumes of client data to produce business insights. Proving the security, confidentiality, and integrity of that data processing is fundamental to earning and keeping customer trust.

Key Takeaway: If a data breach at your company would trigger a major incident for your client, or if your downtime would grind their operations to a halt, you need a SOC 2.

The Growing Need for Both Reports

The lines between financial and technology services are getting blurrier every year. This has created a common scenario where a single company needs both reports to satisfy different stakeholders. FinTech is the perfect example.

A payments platform, for instance, must have a SOC 1 report. Its customers’ financial auditors will demand it to verify transaction integrity.

At the same time, because that platform stores sensitive customer PII and transaction histories in the cloud, it also needs a SOC 2 report to assure clients and regulators that its security posture is strong. This dual-report strategy is powerful because it addresses the distinct concerns of both the CFO and the CISO at a client organization, providing complete, end-to-end assurance.

Understanding Type I vs Type II Reports

Once you’ve landed on SOC 1 or SOC 2, you have another critical decision to make: Type I or Type II. This choice applies to both audit types and signals a completely different level of assurance to your customers. It’s not a minor detail—it goes to the heart of the report’s credibility.

A Type I report is a snapshot, a point-in-time review of your controls. The auditor shows up on a specific day and verifies that your controls are designed appropriately to meet the objectives. Think of it like an expert reviewing the architectural blueprints for a new office building. On paper, everything looks sound and well-planned.

A Type II report, on the other hand, is a video recording. It tests the operating effectiveness of those controls over a period of time, usually six to twelve months. This is like having that same expert actually live in the building for a year, stress-testing the HVAC, security systems, and structural integrity through every season to prove it works in the real world.

Design vs Operating Effectiveness

The core difference boils down to testing the design versus testing the operation. A Type I audit asks, “Did you design good controls?” A Type II audit asks the much more important question: “Are your well-designed controls actually working, consistently, day in and day out?”

This is exactly why your customers and partners will almost always ask for—and often contractually demand—a Type II report. A Type I can be a great first step if you’re new to compliance, but it offers pretty limited assurance. It shows you have a plan, but it doesn’t prove you can execute on it when it matters.

For a deeper dive into this critical distinction, check out our complete guide on the differences between SOC 2 Type 1 vs Type 2 reports.

Key Takeaway: A Type I report proves you have a plan. A Type II report proves your plan actually works in practice, offering the high level of assurance that stakeholders can truly rely on.

Strategic Use Cases for Each Type

So, when does it make sense to choose one over the other? The decision usually comes down to your company’s maturity, customer demands, and your timeline.

• Choose a Type I when:

  • You’re going through your very first SOC audit and a customer needs a report now.
  • You want to establish a baseline of controls before committing to the longer observation period of a Type II. It’s a way to test the waters.
  • You’ve just rolled out significant new systems and don’t have enough historical data to cover a full Type II observation period.

• Choose a Type II when:

  • Your enterprise customers require it. This is the market standard, period.
  • You need to demonstrate a mature, stable control environment that has been proven effective over time.
  • You want to build the highest level of trust and drastically cut down on the number of security questionnaires you have to fill out.

Ultimately, most companies see a Type I report as a stepping stone. The end goal is almost always a Type II. It’s the continuous assurance provided by a Type II that truly builds and maintains customer trust in a crowded market.

Navigating the SOC Audit Process

Getting a SOC audit isn’t just a one-and-done task; it’s a full-blown project that turns a vague compliance goal into a real asset you can show to customers. It forces you to get your house in order, giving you a clear roadmap from initial planning all the way to the final report. While every company’s journey is a bit different, the main stages are pretty much the same.

The process almost always kicks off with a readiness assessment. This is absolutely critical. You and your auditor basically do a pre-audit, comparing your current controls against the SOC 1 or SOC 2 requirements you’re aiming for. Think of it as a gap analysis that shows you where you’re strong and, more importantly, where you’re weak before the clock starts ticking on the real audit. Getting this right can save you thousands of dollars and months of headaches by preventing a bad audit opinion down the line.

Cost and Timeline Benchmarks

Let’s talk real numbers. You need to know what you’re signing up for, both in terms of time and money. SOC audit costs can swing wildly based on a few key things:

• Scope Complexity: A simple SOC 1 focused on a handful of financial controls is going to be cheaper than a SOC 2 that covers Security, Availability, and Confidentiality. Every Trust Services Criterion you add means more controls to test, which adds to the bill.
• Company Size: It’s simple math. A 500-person company with multiple offices and dozens of systems requires a lot more testing than a 20-person startup.
• Control Maturity: If your controls are already well-documented and humming along, the audit will be much smoother and faster. If you’re starting from scratch, you have to build in the time and cost to fix everything before the audit even begins.

Here are some ballpark figures to help you budget:

Audit Type	Average Cost Range	Average Timeline (Start to Report)
SOC 1 Type I	$15,000 - $35,000	2 - 4 months
SOC 1 Type II	$20,000 - $60,000+	8 - 14 months (incl. 6-12 month observation)
SOC 2 Type I	$18,000 - $45,000	2 - 5 months
SOC 2 Type II	$25,000 - $80,000+	8 - 15 months (incl. 6-12 month observation)

These numbers show why the choice between SOC 1 and SOC 2 goes way beyond just the report’s purpose—a multi-criteria SOC 2 is a serious investment.

Key Insight: Don’t just budget for the auditor’s invoice. You have to account for the internal cost of your team’s time. For a first-time audit, plan for 40-80 hours of internal work for gathering evidence, fixing issues, and managing the project.

Selecting the Right CPA Firm

Picking your auditor is probably the most important decision you’ll make in this entire process. A great partner will guide you through it, but the wrong one can cause massive delays, surprise costs, and a final report that your customers won’t even accept. You have to look beyond the price tag.

Find a firm that lives and breathes your industry. An auditor who specializes in SaaS will get your cloud-native environment instantly, while a firm that mostly audits manufacturing plants will be learning on your dime. It’s the same for FinTech or healthcare—you need a CPA firm that already knows the regulatory minefield you operate in. Before you sign anything, ask for case studies and references from companies that look just like yours.

SOC Report FAQs

Even after laying out the core differences, some common questions always pop up. Let’s tackle the most frequent ones to clear up any lingering confusion.

Can a Company Have Both SOC 1 and SOC 2 Reports?

Yes, and it’s more common than you’d think. Getting both reports is standard practice for companies, especially in FinTech, whose services touch both financial operations and data security.

Take a payment processing platform, for instance. Their service directly impacts a client’s financial statements, which makes a SOC 1 report essential for that client’s own auditors. But since the platform also stores and handles sensitive customer data, a SOC 2 is non-negotiable to prove its security and privacy controls are solid. This dual-report strategy covers all the bases, satisfying the distinct demands of both finance and security teams.

How Long Is a SOC Report Valid?

Technically, a SOC report never “expires,” but its business relevance has a very short shelf life. Most clients, partners, and prospects won’t even look at a report that is more than 12 months old.

This is why SOC audits are an annual affair. It’s all about providing continuous assurance that your controls are not just designed well but are consistently working as intended. A fresh report every year isn’t just a good idea—it has become the market standard for maintaining trust and meeting your contractual promises.

Key Insight: While not legally mandated, SOC 2 has become a market-driven necessity. Many enterprise clients now require a SOC 2 report as a non-negotiable part of their vendor due diligence process, making it a critical tool for sales enablement.

Is SOC 2 Compliance Mandatory By Law?

No, SOC 2 is not a law or regulation like HIPAA or GDPR. It’s a voluntary compliance standard created by the AICPA. However, over the years, it has transformed into a powerful market requirement.

Enterprise customers, in particular, will often demand a SOC 2 report as a basic prerequisite for doing business with you. It’s their proof that you can be trusted to manage their data securely. So, while you won’t get fined by the government for not having one, you might lose your biggest deals without it.

What Are the Five Trust Services Criteria?

The entire SOC 2 framework is built on five core principles known as the Trust Services Criteria (TSCs). These criteria define what your audit will cover.

• Security: This is the non-negotiable foundation of every single SOC 2 report. It covers the protection of systems and data against unauthorized access.
• Availability: This focuses on whether your systems are online and operational as you’ve promised your customers. It’s critical if you have SLAs for uptime.
• Processing Integrity: This one’s all about ensuring system processing is complete, valid, accurate, and authorized. Think financial transactions or critical data calculations.
• Confidentiality: This covers the specific controls you have in place to protect information that has been designated as confidential.
• Privacy: This criterion deals with the secure collection, use, retention, disclosure, and disposal of personal information (PII).

Every company must include Security. You can then add any of the other four TSCs to the scope of your audit based on the promises you make to your customers and what they demand from you.

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