SOC 1 vs SOC 2: Which One Does Your Organization Need?

SOC 1 and SOC 2 are both audit reports issued under the AICPA's System and Organization Controls framework, but they serve different purposes and apply to different types of organizations.

Getting asked for "a SOC report" without further context is common. This guide breaks down what each report covers, and what to show your customers and auditors when they ask for a compliance report.

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. More on this later.

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.

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 a defined period, typically a minimum of six months. It demonstrates that controls have been working as intended consistently, which carries significantly more weight with customers and auditors than a Type 1.

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.

How Does the SOC Audit Process Work?

Both SOC 1 and SOC 2 audits follow a similar process regardless of report type.

The process consists of 5 steps.

Scoping is the first step. The service organization and auditor agree on which systems, services, and controls fall within the scope of the examination. For SOC 1 this means defining the control objectives. For SOC 2 this means selecting which Trust Services Criteria apply.

Readiness assessment is an optional but strongly recommended pre-audit step where the auditor reviews existing controls and identifies gaps before the formal examination begins. Addressing gaps before the audit reduces the risk of exceptions appearing in the final report.

The examination involves the auditor testing controls to evaluate design and, for Type 2, operating effectiveness over the observation period. This includes document review, interviews, and technical testing.

Reporting produces the final SOC report, which includes the auditor's opinion on controls, a description of the system, and detailed test results. Type 2 reports also include the auditor's findings on whether controls operated effectively throughout the observation period.

Annual renewal is expected for both report types. SOC reports are point-in-time or period-specific documents. Customers and prospects will expect a current report, which means the examination process repeats on an annual basis.

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 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.

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 certification and gives the people relying on your services the assurance they're actually looking for.

If you're working toward SOC 2 compliance and want 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.