SOC 1 vs SOC 2: Key Differences Explained

Organisations working with third-party vendors or service providers often need to show they can protect data and maintain control over financial reporting and systems.

This is where SOC 1 and SOC 2 reports come in. Both are issued by independent auditors and follow standards set by the AICPA, but they serve different purposes.

This guide explains the difference between SOC 1 and SOC 2, helping you decide which one your business needs.

What Is a SOC 1 Report?

A SOC 1 report is focused on internal controls that affect a client’s financial reporting. It’s most relevant for service organisations that directly impact a customer’s financial statements, such as payroll processors, accounting platforms, or investment service providers.

These reports are based on the Statement on Standards for Attestation Engagements (SSAE) 18 and assess how well an organisation’s controls support accurate financial data.

SOC 1 reports are typically requested by auditors of your clients, especially when they need assurance that outsourced services don’t introduce financial reporting risks.

What Is a SOC 2 Report?

SOC 2, on the other hand, focuses on a broader set of control areas. It assesses how well a service organisation manages data in terms of security, availability, processing integrity, confidentiality, and privacy. These areas are known as the Trust Services Criteria.

SOC 2 reports are commonly required by businesses working with cloud providers, SaaS platforms, and technology vendors that handle sensitive data.

Having a SOC 2 certification shows that your systems and processes meet industry-recognised standards for data protection. This report is often used to build trust with clients, especially in sectors where cybersecurity and privacy are top concerns.

SOC 1 vs SOC 2: The Key Differences

To understand the difference between SOC 1 and SOC 2, consider what each report is designed to cover.

Purpose:

SOC 1 deals with financial controls, while SOC 2 addresses data security and operations.

Audience:

SOC 1 is primarily for financial auditors. SOC 2 is often requested by clients and partners concerned with data protection.

Scope:

SOC 1 focuses on controls that impact financial reporting. SOC 2 focuses on the full system environment, including IT infrastructure, security protocols, and privacy safeguards.

Framework:

SOC 1 uses the SSAE 18 standards. SOC 2 is based on the Trust Services Criteria.

Understanding the difference between SOC 1 and SOC 2 helps determine which report will meet your client’s or regulatory needs. In some cases, companies may need both.

You can also read more about the SOC 2 audit process to see how these controls are evaluated.

When Do You Need a SOC 1 Report?

If your services can directly impact your clients’ financial records or general ledger systems, then a SOC 1 report is typically required. This includes companies involved in:

• Payroll processing
• Loan servicing
• Claims processing
• Fund administration

Your clients’ financial auditors will often rely on your SOC 1 report to verify the integrity of their financial statements.

When Do You Need a SOC 2 Report?

If your services involve storing or managing sensitive data, especially in the cloud or through software, then a SOC 2 report will likely be expected. Common industries include:

• Technology and SaaS platforms
• Cloud infrastructure providers
• Managed service providers
• Healthcare and fintech platforms

Having a SOC 2 report is a strong indicator that you meet client expectations around security and privacy. It also supports long-term business growth by improving client trust.

To understand the potential cost and effort involved, explore how SOC 2 pricing varies depending on the type and scope of the audit.

Do SOC 1 and SOC 2 Have Types I and II?

Yes — both SOC 1 and SOC 2 reports come in two types:

• Type I assesses the design of controls at a specific point in time
• Type II evaluates how effective those controls are over a period (typically 6–12 months)

A SOC 2 Type 2 audit provides a deeper level of assurance, as it shows that controls not only exist but also operate reliably over time. This is particularly useful when clients require proof of consistent and ongoing protection.

If you’re planning to complete a SOC 2 Type 2 audit, make sure your documentation is in place. For support, consider tools that simplify SOC 2 documentation for your compliance journey.

Which One Should You Choose: SOC 1 or SOC 2?

Choosing between SOC 1 and SOC 2 depends on your service model and what your clients expect from you.

• Choose SOC 1 if your service affects your clients’ financial reporting
• Choose SOC 2 if your service handles, processes, or stores client data

Some businesses, especially those with varied service offerings, may need both to cover all risk areas.

If you’re aiming to reduce manual tasks, explore compliance automation tools to help streamline assessments, monitoring, and reporting for either SOC frameworks.

Key Takeaways

The key difference between SOC 1 and SOC 2 lies in their focus areas: SOC 1 evaluates financial controls, while SOC 2 focuses on data protection and security practices.

SOC 1 is focused on financial controls, while SOC 2 deals with how you protect and manage data. Understanding which report aligns with your operations is key to meeting client expectations and securing new business opportunities.

If you’re preparing for an audit or planning to invest in certification, choose the path that matches your industry, service type, and growth goals.