SOC 1 vs SOC 2: Key Differences and Which Report You Need
What Is the Difference Between SOC 1 and SOC 2?
SOC 1 and SOC 2 are both independent audit reports designed to provide assurance over service organisations' internal controls—but they serve distinctly different purposes and audiences.
SOC 1 (Service Organisation Control 1) evaluates controls relevant to a client's internal control over financial reporting (ICFR). It is designed for service organisations whose operations directly impact their customers' financial statements. Examples include payroll processors, custodians, loan servicers, and billing platforms. The report is intended for user auditors who need to understand whether a third-party provider's controls could affect the accuracy of their client's financial reporting. SOC 1 audits are performed under SSAE 18 (Statement on Standards for Attestation Engagements No. 18) or AT-C Section 320 attestation standards issued by the American Institute of Certified Public Accountants (AICPA).
SOC 2 (Service Organisation Control 2) focuses on controls over data security, availability, processing integrity, confidentiality, and privacy—collectively known as the Trust Services Criteria (TSC). SOC 2 is primarily relevant for technology and SaaS companies that store, process, or transmit customer data. Unlike SOC 1, which has a financial reporting lens, SOC 2 addresses operational and security risks. The intended audience includes customers, prospects, regulators, and business partners who want assurance that a service provider can protect sensitive information and maintain system reliability.
The core distinction is scope: SOC 1 is financial; SOC 2 is operational and security-focused. If your services could materially impact a client's financial statements (for example, payroll processing that feeds into their general ledger), you need SOC 1. If you handle customer data and need to demonstrate robust information security practices, SOC 2 is the appropriate framework.
Understanding SOC 1: Financial Reporting Controls
A SOC 1 report provides independent assurance over controls that affect user entities' financial reporting processes. It is specifically scoped around internal control over financial reporting (ICFR)—the policies and procedures that ensure accurate, complete, and authorised financial data.
Who Needs SOC 1?
Organisations that provide services directly feeding into their clients' financial statements are the primary candidates for SOC 1, including:
Payroll service providers processing salary, tax withholding, and benefits data.
Claims processors handling insurance or healthcare payment transactions.
Loan servicers managing repayment schedules, interest accruals, and account balances.
Custodial and trustee services holding financial assets on behalf of clients.
SaaS platforms managing financial transactions, billing, or revenue recognition.
The report is typically requested by the client's external auditors to satisfy audit requirements under the Sarbanes-Oxley Act (SOX) or similar financial compliance regulations.
How SOC 1 Audits Work
SOC 1 audits are conducted by independent Certified Public Accountants (CPAs) following SSAE 18 or AT-C 320 standards. The auditor evaluates control design and operating effectiveness against management's control objectives. Management must provide a written assertion describing the system, control objectives, and controls in place. The auditor then issues an opinion on whether controls are suitably designed and, in the case of a Type 2 report, operating effectively over a defined period.
Key areas assessed in SOC 1 typically include access controls, change management, data processing accuracy, error handling and reconciliation, segregation of duties, and monitoring and oversight procedures.
Understanding SOC 2: Trust Services Criteria
SOC 2 is the go-to assurance framework for service organisations—especially SaaS, cloud hosting, and managed IT providers—that need to demonstrate strong operational and security controls to their customers. The audit evaluates controls against the Trust Services Criteria (TSC), a set of principles defined by the AICPA.
The Five Trust Services Criteria
SOC 2 reports can cover one or more of the following criteria, though security is always required:
Security (mandatory): Protects system resources against unauthorised access, disclosure, and damage. This includes logical and physical access controls, network security, system monitoring, and incident response.
Availability (optional): Ensures systems are available for operation and use as agreed in service level agreements (SLAs). Controls cover uptime monitoring, disaster recovery, business continuity, and capacity planning.
Processing Integrity (optional): Ensures system processing is complete, valid, accurate, timely, and authorised. Relevant for organisations processing data on behalf of clients.
Confidentiality (optional): Protects information designated as confidential (e.g., trade secrets, intellectual property, or proprietary client data). Controls include data classification, encryption, secure disposal, and confidentiality agreements.
Privacy (optional): Addresses the collection, use, retention, disclosure, and disposal of personal information (PII) in accordance with privacy laws and the organisation's stated privacy notice.
Most SaaS and technology companies focus on Security and Availability, whilst those handling sensitive personal or proprietary data often add Confidentiality and Privacy.
Who Needs SOC 2?
SOC 2 audits are particularly valuable for:
SaaS platforms and cloud service providers storing or processing customer data.
Data centres and hosting providers managing critical infrastructure.
Managed service providers (MSPs) offering IT, security, or cloud management.
Fintech and payment platforms handling sensitive financial data.
Healthcare technology providers managing protected health information (PHI).
Clients, prospects, and procurement teams increasingly request SOC 2 reports as part of vendor risk assessments. A SOC 2 Type 2 report demonstrates ongoing commitment to security and operational excellence, building customer trust and enabling faster enterprise sales cycles.
Type 1 vs Type 2: Understanding Report Types
Both SOC 1 and SOC 2 reports are available in two formats, known as Type 1 and Type 2. The distinction is critical to understanding the level of assurance provided.
SOC Type 1: Design at a Point in Time
A Type 1 report evaluates whether controls are suitably designed and implemented at a specific date. The auditor assesses control descriptions and tests whether they exist and are configured correctly, but does not evaluate whether they have been operating effectively over time. Type 1 is faster and less costly, typically completed in a matter of weeks. It provides an initial baseline of assurance and is often used by startups or organisations new to compliance as a stepping stone toward Type 2.
SOC Type 2: Operating Effectiveness Over Time
A Type 2 report goes further, testing both the design and operating effectiveness of controls over a defined period—typically six to twelve months. The auditor reviews evidence demonstrating that controls have been consistently applied throughout the audit period. This requires detailed testing, such as sampling log reviews, access requests, change management tickets, and monitoring reports. Type 2 provides higher assurance and is generally preferred by customers and stakeholders because it demonstrates sustained commitment to security and compliance.
Which Type Should You Choose?
Many organisations begin with a Type 1 report to identify gaps and establish a compliance baseline, then transition to Type 2 once controls have matured and are being consistently applied. Enterprise customers and procurement teams typically expect a Type 2 report as part of vendor due diligence. If speed to market is critical and you need assurance quickly, Type 1 can satisfy initial compliance needs whilst you prepare for a Type 2 audit.
SOC 1 vs SOC 2: Side-by-Side Comparison
| Feature | SOC 1 | SOC 2 |
|---|---|---|
| Primary Focus | Internal controls over financial reporting (ICFR) | Security, availability, confidentiality, processing integrity, privacy (Trust Services Criteria) |
| Target Audience | User auditors and finance teams of client organisations | Customers, prospects, stakeholders, regulators |
| Audit Standard | SSAE 18 / AT-C 320 | SSAE 18 / AT-C 105, 205, 305 (TSP section 100) |
| Common Use Cases | Payroll processors, loan servicers, billing platforms, custodians | SaaS platforms, cloud providers, MSPs, fintech, data centres |
| Control Criteria | Organisation-defined controls relevant to financial reporting | AICPA Trust Services Criteria (five principles) |
| Typical Timeline | Type 1: 4–8 weeks; Type 2: 6–12 months | Type 1: 4–8 weeks; Type 2: 6–12 months |
| Report Distribution | Restricted use (client auditors and management) | Restricted use (customers and stakeholders under NDA) |
Which Report Do You Need?
Choosing between SOC 1 and SOC 2 depends on the nature of your services and the assurance requirements of your customers.
Choose SOC 1 if:
Your services directly impact the accuracy or integrity of client financial statements.
Your clients' external auditors require assurance over controls affecting their financial reporting.
You provide payroll, billing, claims processing, loan servicing, or custodial services.
Compliance with financial regulations (e.g., SOX) is a driving factor.
Choose SOC 2 if:
You are a SaaS, cloud, or technology provider handling customer data.
Your customers require evidence of robust security and operational controls.
You need to satisfy vendor risk assessments and procurement requirements.
You want to demonstrate commitment to data protection, availability, and privacy.
Can you have both? Yes. Some organisations—particularly those with both financial and data security obligations (e.g., benefits platforms, financial SaaS)—pursue dual SOC 1 and SOC 2 reports to satisfy both sets of stakeholder requirements.
Practical Steps to Prepare for a SOC Audit
Whether you are pursuing SOC 1 or SOC 2, preparation is essential to a smooth audit process.
1. Define Scope and Control Objectives
Clearly identify the systems, processes, and services in scope. For SOC 1, map controls to financial reporting objectives. For SOC 2, select the appropriate Trust Services Criteria (Security is mandatory; Availability, Confidentiality, Processing Integrity, and Privacy are optional).
2. Conduct a Readiness Assessment
Perform a gap analysis or readiness assessment to identify control deficiencies before the formal audit. This can be done internally or with the support of an independent consultant. Readiness assessments simulate auditor testing and highlight areas requiring remediation.
3. Implement and Document Controls
Ensure all required controls are designed, implemented, and documented. This includes policies, procedures, system configurations, access reviews, change logs, monitoring dashboards, and incident response records. For Type 2, evidence must demonstrate consistent application over the audit period.
4. Select an Auditor
Engage a qualified CPA firm experienced in SOC audits. Look for auditors who understand your industry, tech stack, and business model. Tempo Audits offers SOC 2 audit services tailored to fast-growing SaaS and technology companies, with a collaborative, plain-English approach designed to reduce friction and accelerate certification.
5. Execute the Audit and Remediate Findings
Work closely with your auditor during fieldwork. Respond promptly to requests for evidence and be prepared to explain control design and operation. If the auditor identifies exceptions or deficiencies, implement corrective actions and document remediation efforts.
Final Thoughts
SOC 1 and SOC 2 serve fundamentally different purposes: SOC 1 provides assurance over financial reporting controls, whilst SOC 2 demonstrates operational security and trust. Understanding the distinction is essential for choosing the right report, satisfying stakeholder requirements, and building a compliance roadmap that aligns with your business objectives.
For technology companies and SaaS providers, SOC 2 is typically the priority framework for building customer trust and enabling enterprise sales. For organisations whose services feed into client financial statements, SOC 1 is non-negotiable. Both reports offer Type 1 (design) and Type 2 (operating effectiveness) options, with Type 2 providing greater assurance and market credibility.
If you are preparing for a SOC audit and want a smoother, faster process with auditors who understand the realities of modern tech companies, Tempo Audits can help you achieve compliance without unnecessary friction.