SOC 1 vs. SOC 2 Reports: Understanding the Key Differences and Why They Matter

In today's highly regulated and security-conscious environment, service organizations are expected to demonstrate that they manage data with integrity, confidentiality, and reliability. Two of the most important standards that help build that trust are SOC 1 and SOC 2 reports.

Though often confused, SOC 1 and SOC 2 serve different purposes and are intended for different audiences. In this blog, we'll break down the key differences between the two, their purpose, benefits, and which one might be right for your organization.

What is a SOC Report?

SOC (System and Organization Controls) reports are a series of internal control reports developed by the AICPA (American Institute of Certified Public Accountants). These reports help service organizations demonstrate that they are handling data securely and operating effectively.

There are three types of SOC reports: SOC 1, SOC 2, and SOC 3. In this blog, we'll focus on SOC 1 and SOC 2, which are the most commonly requested.

What is a SOC 1 Report?

A SOC 1 Report focuses on the controls relevant to financial reporting. It's primarily intended for auditors and financial controllers who need assurance about how a service provider handles data that could affect a client's financial statements.

Key points about SOC 1:

• Based on Internal Control over Financial Reporting (ICFR)

• Typically used by payroll processors, financial service providers, and SaaS vendors with financial reporting systems

• Ensures that your clients' auditors can rely on your controls during their own financial audits

Types of SOC 1 Reports:

• Type I: Evaluates the design of controls at a specific point in time

• Type II: Evaluates the operational effectiveness of controls over a defined period (typically 6–12 months)

What is a SOC 2 Report?

A SOC 2 Report focuses on how a service organization protects customer data, especially in the context of security, availability, processing integrity, confidentiality, and privacy—known as the Trust Services Criteria (TSC).

Key points about SOC 2:

• Relevant to technology, cloud, SaaS, and data-hosting providers

• Demonstrates commitment to data security and operational integrity

• Builds trust with clients, especially in industries like healthcare, fintech, and e-commerce

Types of SOC 2 Reports:

• Type I: Assesses design of controls at a point in time

• Type II: Assesses effectiveness of controls over a period of time

SOC 1 vs. SOC 2: Key Differences

Do You Need SOC 1, SOC 2, or Both?

• Choose SOC 1 if your services affect your clients' financial reporting.

• Choose SOC 2 if your organization stores, processes, or transmits customer data and needs to demonstrate robust security and compliance practices.

• Some organizations (especially in fintech and SaaS) may require both SOC 1 and SOC 2, depending on the services they offer.

Benefits of SOC 1 and SOC 2 Reports

✅ Builds Trust

Clients and stakeholders gain confidence in your systems and processes.

✅ Compliance Ready

Helps meet requirements for regulations like SOX, HIPAA, and GDPR.

✅ Competitive Advantage

Having SOC reports differentiates your organization in a crowded marketplace.

✅ Operational Improvement

Encourages better internal controls and risk management.

Conclusion

SOC 1 and SOC 2 reports play a critical role in building transparency, trust, and assurance for service organizations. Whether your clients care about financial reporting or data security, these reports prove that your organization operates with integrity and compliance.

Understanding the difference between SOC 1 and SOC 2 is the first step toward choosing the right assurance strategy for your business—and gaining a powerful edge in today's security-conscious market.