SOC 1 vs SOC 2: What's the Difference, and Which One Do You Need?

SOC 1 and SOC 2 are both independent audit reports issued under the AICPA's System and Organization Controls framework, but they answer different questions for different people. SOC 1 tells your customers' financial auditors whether your controls affect their books. SOC 2 tells your customers' security teams whether their data is safe with you.

A situation this actually solves: a payroll company processes salary payments for its customers. Two different teams end up asking that company for a SOC report. The customer's financial auditors need to know the payroll numbers feeding into the customer's books are accurate, so they ask for a SOC 1. The customer's security team needs to know employee data is protected, so they ask for a SOC 2. Same vendor, two different questions, two different reports.

What Is a SOC Report?

A SOC report is an independent audit conducted by a licensed CPA firm that evaluates the controls an organization has in place around a specific set of criteria.

SOC stands for System and Organization Controls, formerly known as Service Organization Controls. The reports are issued under standards set by the American Institute of Certified Public Accountants (AICPA) and are designed to give customers and their auditors confidence that a service provider's controls are functioning as intended.

There are currently three main SOC report types, SOC 1, SOC 2, and SOC 3. SOC 1 and SOC 2 are the most widely requested. SOC 3 covers the same criteria as SOC 2 but is a summarized version intended for public distribution.

What Is SOC 1?

SOC 1 is an audit of a service organization's internal controls over financial reporting (ICFR). It evaluates whether the controls relevant to a customer's financial statements are properly designed and operating effectively.

SOC 1 audits follow the SSAE 18 standard, specifically AT-C Section 320. The auditor works with the service organization to define control objectives that reflect the financial reporting risks the organization's services could create for its customers. Those control objectives cover both business process controls and IT process controls.

Who needs a SOC 1 report?

SOC 1 is relevant when your services directly affect your customers' financial statements. Common examples include payroll processing platforms, billing and invoicing software, claims processing systems, loan servicing providers, and benefits administration platforms. If what your system does shows up in your customers' books, a SOC 1 is likely what their financial auditors will ask for.

What Is SOC 2?

SOC 2 is an audit of a service organization's controls as they relate to the AICPA's Trust Services Criteria. It evaluates how an organization manages customer data across five criteria: security, availability, processing integrity, confidentiality, and privacy.

Security is the only mandatory criterion. The remaining four are included based on what's relevant to the services being provided and what customers require.

SOC 2 audits follow SSAE 18 standards, specifically AT-C Section 105 and AT-C Section 205.

Who needs a SOC 2 report?

SOC 2 applies to service organizations that store, process, or transmit customer data but whose services don't directly affect financial reporting. SaaS companies, cloud service providers, data centers, managed IT services, HR platforms, and recruitment technology all commonly pursue SOC 2. For companies selling into enterprise markets, a SOC 2 report is increasingly a baseline requirement before deals can proceed.

What Is the Difference Between SOC 1 and SOC 2?

The core difference is what each report is evaluating and who reads it.

SOC 1 focuses on financial controls and is primarily read by the customer organization's financial auditors. SOC 2 focuses on security and operational controls and is read by the customer organization's IT leaders, security teams, compliance officers, and procurement teams.

Category	SOC 1	SOC 2
Focus	Internal controls over financial reporting	Security, availability, integrity, confidentiality, privacy
Auditing Standard	SSAE 18 AT-C 320	SSAE 18 AT-C 105 and AT-C 205
Controls Basis	Defined control objectives	AICPA Trust Services Criteria
Primary Audience	Financial auditors and CFOs	IT, security, compliance, and procurement teams
Best For	Payroll, billing, financial processing platforms	SaaS, cloud, data centers, managed services
Report Type	Attestation report, not a certificate	Attestation report, not a certificate

What Is the Difference Between Type 1 and Type 2 in a SOC Report?

Both SOC 1 and SOC 2 reports can be issued as either Type 1 or Type 2. The difference applies to both report types.

Type 1 evaluates whether controls are suitably designed at a specific point in time. It confirms that the right safeguards exist on a given date but does not test whether they have been operating consistently over time.

Type 2 evaluates both the design of controls and their operating effectiveness over an agreed period. A common misconception is that this period has a fixed six-month minimum. It doesn't. The AICPA doesn't set a universal minimum reporting period, and first-time reports are sometimes shorter. What matters isn't a specific number of months, it's whether the period is long enough for the auditor to actually observe the controls operating.

Most enterprise customers and vendor assessments require a Type 2 report. A Type 1 is sometimes used as an initial milestone when an organization needs to show evidence of controls quickly while working toward the longer Type 2 observation period.

Can an Organization Need Both SOC 1 and SOC 2?

Yes. Some organizations provide services that span both financial reporting and data security, resulting in different customers requesting different reports. A payroll platform that also stores sensitive employee data, for example, might receive SOC 1 requests from financial auditors and SOC 2 requests from security and procurement teams.

When both reports are needed, running the examinations simultaneously with the same auditor creates efficiencies since many of the underlying controls overlap between the two reports.

How Does the SOC Audit Process Work?

Both SOC 1 and SOC 2 audits follow a similar process regardless of report type: scoping, an optional readiness assessment, the examination itself, reporting, and annual renewal. For SOC 1 this means defining control objectives; for SOC 2 this means selecting which Trust Services Criteria apply.

For the full walkthrough of each stage, see our SOC 2 audit process guide. If you're choosing who runs the audit, see our top SOC 2 auditors comparison, and for budgeting, our guide to what a SOC 2 audit costs.

How to Choose Between SOC 1 and SOC 2

The decision comes down to two questions: does your service affect your customers' financial statements, and who is asking for the report?

If your customers' financial auditors are asking and your platform touches their financial reporting, the answer is SOC 1. If enterprise security, compliance, or procurement teams are asking and your platform stores or processes customer data, the answer is SOC 2. If both audiences are asking, you likely need both.

When in doubt, ask the person or organization requesting the report what their auditors specifically need and which criteria or control objectives are relevant to their evaluation. That conversation will usually clarify which report applies faster than any internal analysis will.

Frequently Asked Questions

Final Thoughts

SOC 1 and SOC 2 are complementary reports that serve different audiences and answer different questions. Understanding which one your customers and auditors actually need saves you from pursuing the wrong report, and gives the people relying on your services the assurance they're actually looking for.

If you're working toward SOC 2 and want a readiness checklist to start from, or a continuous compliance program that keeps your controls audit-ready year-round, Uproot Security's dedicated compliance team can help you get there. Book a demo to see how it works.