SOC 1 vs SOC 2: A Plain English Guide to Choosing the Right Report

Confused by SOC reports? You're not the only one. Plenty of companies struggle to tell the difference between SOC 1 and SOC 2—and picking the wrong one can waste time, budget, and trust. Worse, it can leave you with a report your clients don’t care about.

Here’s the simple version.

SOC 1 is narrow and financial. It focuses on internal controls that impact your clients’ financial reporting—things like payroll systems, invoicing platforms, or any service that touches their accounting. If what you do ends up in someone’s audit, SOC 1 is probably what you need.

SOC 2 is broader and deeper. It assesses how well you protect customer data, based on five Trust Services Criteria: security, availability, processing integrity, confidentiality, and privacy. If you're a SaaS provider or handle sensitive information, this is the report your customers are likely expecting.

In short:
SOC 1 = financial control.
SOC 2 = data trust.

This guide unpacks both reports—what they cover, when they apply, and how to choose the right one based on how your business actually operates. No fluff. No jargon. Just clarity that saves time—and headaches.

SOC 1 and SOC 2: What They Actually Mean

SOC reports are third-party audits that validate how well your internal controls are working. But not all SOC reports are created equal. SOC 1 and SOC 2 serve very different purposes—and knowing which one you need could save you time, money, and compliance headaches.

SOC 1: For When Money Hits the Books

SOC 1 is all about financial controls. It focuses on how your service impacts your clients’ financial reporting—like payroll systems, billing platforms, or anything that affects the numbers in their audit.

These reports follow the SSAE 18 AT-C 320 standard. If you've heard terms like SAS 70 or SSAE 16, those were earlier versions.

You probably need a SOC 1 if:

• Your service directly affects a client’s financial operations
• You handle data that ends up in their financial statements
• You offer tools like payroll, billing, or reporting software

Think infrastructure providers, payroll firms, or loan processors—any business where your systems touch the financials.

At its core, SOC 1 answers:
Do your financial controls actually work—and are they built right?

SOC 2: For Earning Data Trust

SOC 2 focuses on how well you protect information, not how you handle finances. It audits your controls around five areas: Security, Availability, Processing Integrity, Confidentiality, and Privacy.

If you’re a SaaS provider, cloud platform, or manage customer data—you’re squarely in SOC 2 territory.

You’ll likely need SOC 2 if you run:

• A cloud or infrastructure platform
• A SaaS app or managed service
• A data center or HR/payroll tech product
• Any business that touches sensitive user data

SOC 2 is more than a compliance checkbox—it’s a trust signal for customers who care about uptime, data safety, and responsible service delivery. The framework comes from the AICPA and is widely used by companies with U.S.-based clients.

Difference Between SOC 1 and SOC 2

Here’s the core difference:

• SOC 1 is about financial reporting
• SOC 2 is about data protection

SOC 1 checks whether your service can impact a client’s financial statements. SOC 2 reviews how your systems handle customer data and how strong your security really is.

And when it comes to SOC 2 Type 1 vs. Type 2, the real difference is how much proof your clients expect—not just good design, but consistent performance over time.

So which one should you get?

• If your service affects audits or accounting, start with SOC 1
• If you handle sensitive data or run online services, go with SOC 2

Choose based on what you impact—money or information. Simple as that.

SOC 1 vs SOC 2: Financial Controls vs Data Trust Frameworks

SOC reports follow specific frameworks to decide what gets audited—and this is where SOC 1 and SOC 2 take very different paths.

The short version?
SOC 1 uses customised control objectives.
SOC 2 uses a standardised framework called the Trust Services Criteria (TSC).

Let’s break that down.

SOC 1: Tailored to Financial Impact

SOC 1 zeroes in on financial controls. It’s built around control objectives—custom-defined based on how your service might impact a client’s financial reporting.

Most SOC 1 objectives revolve around:

• Making sure transactions are recorded properly
• Ensuring completeness and accuracy of financial data
• Keeping financial systems running smoothly and on time

These controls can span business operations and IT systems. Since the scope varies by service provider, control objectives are flexible, not one-size-fits-all.

But one thing is consistent:
IT General Controls (ITGCs) always play a big role. That includes access controls, backups, change management, and system operations—all critical to supporting financial accuracy.

SOC 2: Built on the Trust Services Criteria

SOC 2 takes a different approach. It follows the AICPA’s Trust Services Criteria (TSC)—a fixed set of standards focused on data security and system reliability.

The five TSC categories are:

• Security (Required): Protects systems from unauthorized access

• Availability: Ensures systems and services are reliably accessible

• Processing Integrity: Confirms data is processed correctly and completely

• Confidentiality: Safeguards sensitive business information

• Privacy: Protects personal data in line with privacy laws and expectations

Only Security is mandatory. The rest are optional based on your services and your customers’ needs.

The result? A consistent, structured way to prove you handle data responsibly—and securely.

Different Focus, Different Proof

Here’s the key difference in how these frameworks think:

SOC 1 is built for financial accuracy.
It asks: Do your controls protect the numbers?

• Focus: Internal controls over financial reporting (ICFR)
• Flexible objectives tied to financial systems
• Customized to your service and industry

SOC 2 is built for operational trust.
It asks: Do your controls protect the data?

• Focus: Information security and system integrity
• Standardized criteria across industries
• Centered on uptime, privacy, and responsible data handling

Financial service providers often go for SOC 1 Type 2 reports to show consistent control performance.
Tech companies usually lean toward SOC 2 Type 2 to prove they’re secure over time—not just in theory.

SOC Type 1 vs Type 2: What’s the Difference?

Once you’ve chosen between SOC 1 and SOC 2, there’s one more decision to make: Type 1 or Type 2?
Both SOC 1 and SOC 2 reports come in these two flavors. The difference? It’s all about timing and depth.

Type 1: A Snapshot in Time

SOC Type 1 reports evaluate whether your controls are properly designed—but only at a single point in time. Think of it as a snapshot. It confirms that your systems are built the right way, but it doesn’t prove they hold up over time.

These reports are faster, lighter, and often used by companies just starting their compliance journey.

Type 2: Proof Over Time

SOC Type 2 reports go further. Instead of just checking design, they test how well your controls perform over 6–12 months.

That means collecting real evidence—logs, reports, audit trails—to show your controls aren’t just well-designed, but consistently effective.

Type 2 is the gold standard for both SOC 1 and SOC 2. It answers the question your clients really care about: “Do your controls actually work—and keep working?”

SOC 1 vs SOC 2: Type 1 and Type 2 in Action

• SOC 1 Type 1: Confirms your financial controls are properly designed

• SOC 1 Type 2: Shows those financial controls worked over time

• SOC 2 Type 1: Validates the design of your security and data protection controls

• SOC 2 Type 2: Proves those controls performed reliably over months

In both cases, Type 2 provides stronger assurance—and more value for customers, auditors, and prospects.

When to Start with Type 1

Many companies begin with Type 1 reports. It’s a smart first step:

• Less prep work and faster turnaround
• Establishes a compliance baseline
• Validates your control design before diving into the longer Type 2 audit

Once your systems have been in place and running smoothly for several months, you can move to a Type 2. It’s a natural progression—start with quick validation, then scale up to full proof.

Understanding the difference between Type 1 and Type 2 helps you choose the right path—whether you're showing financial control (SOC 1) or building data trust (SOC 2).

Who Needs SOC 1, SOC 2, or Both?

Whether you need SOC 1, SOC 2, or both depends on one thing: how your service impacts your clients.

Let’s break it down by use case.

When SOC 1 Makes Sense

SOC 1 is for businesses that impact their clients’ financial reporting. If your service feeds into a client’s accounting or audit, you likely need a SOC 1 Type 2 report.

Typical SOC 1 use cases:

• Payroll processors managing wages, taxes, and benefits
• Billing platforms handling customer transactions
• Financial reporting software affecting ledger data
• Loan servicers or trust companies managing financial assets

These companies need to show their controls support accurate, secure financial reporting—also known as ICFR (Internal Control over Financial Reporting).

When SOC 2 Is the Better Fit

SOC 2 is for companies that handle sensitive, non-financial data—and want to prove they keep it secure.

SOC 2 fits:

• SaaS companies delivering cloud-based tools
• Cloud providers storing customer data
• Data centers hosting infrastructure
• HR tech platforms managing employee info
• MSPs supporting client operations

While not mandatory, SOC 2 is an industry must-have in tech. It’s how companies prove they meet security, availability, and privacy expectations—without forcing clients to come on-site and inspect systems themselves.

When You Might Need Both

Some companies fall into both worlds.
You might need SOC 1 and SOC 2 if:

• You run a FinTech platform handling both money and data
• You’re a cloud provider hosting financial apps
• Your client base includes both regulated industries and tech buyers

The right report—or combo—depends on your service’s impact. Financial risk? Go SOC 1. Data trust? Go SOC 2. Both? Do both SOC 1 and SOC 2.

How to Choose the Right SOC Report for Your Business

Choosing between SOC 1 and SOC 2 isn’t just a compliance checkbox—it’s a strategic call. The right report helps you win deals, meet client demands, and avoid wasting time on the wrong audit.

Here’s how to figure out which one fits.

1. Start with What Your Clients Expect

Your clients’ audit needs should guide your first move.

Before onboarding, many companies ask vendors for a SOC 1 or SOC 2 report to vet their control environment. Some contracts may even call out SOC 1, SSAE 18, or similar standards by name.

If you’re constantly getting vendor questionnaires, that’s a sign: it’s time to invest in a SOC report.

2. Match the Report to Your Service’s Impact

Ask yourself: What risk do we introduce for our clients?

• If you impact financial reporting, go for a SOC 1 Type 2.
• If you store or process sensitive data, start with SOC 2.
• If you do both, you may need both.

It’s not just about what you do—it’s about how your clients rely on you.

3. Know What Your Industry Expects

Some industries lean one way or the other.

• Financial services, payroll, and insurance? SOC 1 is the norm.
• SaaS, cloud, and tech? SOC 2 is the default trust signal.

Many SaaS companies don’t ask “SOC 1 or SOC 2?”—they ask “Type 1 or Type 2?” because SOC 2 is already a given.

4. Don’t Skip the Readiness Assessment

Before any formal audit, do a SOC readiness assessment. It helps you:

• Spot gaps in your controls
• Fix issues before the auditor walks in
• Document your processes and policies
• Avoid surprises, delays, or costly findings

Start 3–6 months ahead. A little prep now saves time, money, and pain later.

Need help deciding between SOC 1, SOC 2, or both? Start with your service impact—and your clients’ expectations. Everything else flows from there.

SOC 1 vs SOC 2: Quick Comparison Guide

Build Trust Where It Counts: Choose the Right SOC Path

SOC 1 or SOC 2? The right call depends on how your service affects your clients.

If you impact financial reporting—like payroll, billing, or accounting systems—SOC 1 is the report that proves your controls are up to standard. If you handle customer data or run cloud-based infrastructure, SOC 2 is the trust signal your clients expect.

Next comes the type:

• Type 1 is a snapshot in time.
• Type 2 shows how well your controls perform over 6–12 months.

Many companies start with Type 1 to check the compliance box fast—then step up to Type 2 when they’re ready to prove consistency.

Some businesses, like FinTech platforms, need both. If your service spans financial workflows and sensitive data, covering both bases isn’t overkill—it’s smart assurance.
Before diving into an audit, run a readiness assessment. It flags control gaps early and helps you avoid surprises.

A SOC report isn’t just paperwork—it’s proof. Done right, it shows your commitment to good controls and builds long-term trust with clients who rely on you.