SOC 1 vs. SOC 2: What Are the Differences Between These Reports?

Choosing between SOC 1 vs. SOC 2 audits depends on what customer information your SaaS product protects. Here’s everything you need to know.
Media - Anthony Gagliardi

by Tony Gagliardi

January 23, 2023
SOC 1 vs SOC 2

Companies are placing more data—and more sensitive data—in the hands of third-party SaaS providers. That creates a lot of risk. How do you convince them that your SaaS business has what it takes to protect their business-critical information?

To help you answer that question, the American Institute of CPAs (AICPA) created a suite of audits that evaluate a cloud-based service provider’s security controls. The resulting System and Organization Controls (SOC) report inspires trust in your ability to keep customer data safe.

This article will compare SOC 1 to SOC 2 and help you decide which one your company needs. For a deeper dive, check out our beginner’s guide to SOC 2 compliance.

SOC 1 vs. SOC 2: The Short Answer

SOC 1 applies to the controls a company has over financial reporting, while SOC 2 applies to controls a company has related to Security, Confidentiality, Availability, Processing Integrity, or Privacy. 

What is a SOC 1 Report? 

SOC 1 is a report from independent auditors describing a cloud service provider’s internal controls over its customers’ financial information. Companies that would get a SOC 1 report include cloud-based billing services, payroll services, and employer retirement plans.

A SOC 1 audit covers any technical or procedural control whose failure could impact the customer’s financial statements. Often, customers request SOC 1 reports from cloud providers to meet their internal auditing and compliance requirements.

When providers ask auditors to review their controls for SOC 1 compliance, their final report can take one of two formats.

Type 1 

If the provider wants to give customers a snapshot of their controls protecting financial reporting, they can request a SOC 1 Type 1 report. 

Auditors evaluate how the provider describes its systems and controls. They also evaluate the suitability of the controls’ designs in meeting control objectives.

A SOC 1 Type 1 report only assesses the suitability of a provider’s controls at a specific point in time. Auditors don’t evaluate the operational performance of these controls over time.

Type 1 reports make sense when providers need to give customers an independent overview of their controls without a long wait.

Type 2 

To give customers a detailed review of their controls, providers need a SOC 1 Type 2 report. On top of the assessments for the Type 1 report, auditors evaluate the operational effectiveness of controls over a specific period of time, commonly referred to as the Observation Period

Typically, these audits last six or 12 months. Depending on the chosen audit period, the provider will request audits once or twice a year to keep their compliance status current. 

What is a SOC 2 Report? 

Cloud-based service providers that store, process, or manage data can request a SOC 2 report. SOC 2 audits provide independent assessments of the provider’s ability to protect and secure customer data.

Auditors evaluate the providers’ information and IT security controls using an AICPA framework called the Trust Services Criteria:

  • Security: Controls protect against unauthorized access, disclosure, and system damage that could compromise customer information.

  • Availability: Controls ensure that IT systems and customer information are available to deliver the provider’s services and for access by the customer.

  • Processing integrity: Systems process customer information promptly, accurately, and completely using valid methods.

  • Confidentiality: The service provider’s controls ensure any information the customer designates as confidential is protected.

  • Privacy: Controls protect the privacy of any personal information.

Although all SOC 2 reports assess the Security Criteria, service providers decide which of the remaining Criteria their auditors should examine. 

SOC 2 reports support customers’ vendor and risk management programs. They also help service providers manage their own corporate governance and compliance programs. 

SOC 2 Type 1 and Type 2 

Like the SOC 1 reports, SOC 2 reports come in two versions. Type 1 reports are snapshots that assess a provider’s description of its systems and controls at a particular point in time. Type 2 reports also evaluate the operating effectiveness of the provider’s controls over 6 or 12-month periods.

Which Report Should I Go For? 

When debating SOC 1 vs. SOC 2, your choice comes down to whether you’re trying to demonstrate controls over financial reporting (SOC 1) or controls over protecting customer data (SOC 2).

Customers may tell you which report they expect you to get. They may want you to produce a SOC 1 report to help them comply with their financial audits or comply with regulations like the Sarbanes-Oxley Act.

Auditors can also produce a simplified version of SOC 2 called a SOC 3 report. Some customers do not need, or won’t know what to do with, the details in a SOC 2 report. A SOC 3 report provides a high-level overview of your security controls suitable for prospective customers.

If your business offers both financial and non-financial services, you may need both SOC 1 and SOC 2 reports In some cases, SOC 1 and SOC 2 reports will cover many of the same controls. Simultaneously conducting both audits will cause less disruption to your organization than bringing auditors in at different times.

Audit Readiness Through Continuous SOC 2 compliance

A service provider’s SOC reports inspire customer confidence. However, these are historical documents. They say nothing about how well your controls work now. 

New customers may not accept a SOC 2 report produced four months ago. They will be delighted if your SaaS company is audit-ready on their timeline.

Compliance automation can ensure audit readiness at all times—especially when monitoring SOC 2 compliance manually is taking a toll on your team and resources. 

That’s why we created Drata. With automated monitoring, alert notifications, and real-time reporting, Drata streamlines your SOC 2 compliance programs to make your company more responsive to auditors.

Book a demo to learn how Drata can make your business SOC 2 audit-ready faster.

Trusted Newsletter
Resources for you
New Launches From Drataverse

New Launches From Drataverse: Chart Your Course

Highlights From Drataverse: Chart Your Course

Highlights From Drataverse: Chart Your Course

Image - SOC 2 penetration test list

Penetration Tests and SOC 2: Preference, Tradition, or Requirement?

Media - Anthony Gagliardi
Tony Gagliardi
Tony Gagliardi's area of expertise focuses on on building sound cybersecurity risk management programs that meet security compliance requirements. Tony is a Certified Information Systems Security Professional (CISSP) specializing in GRC, SOC 2, ISO 27001, GDPR, CCPA/CPRA, HIPAA, various NIST frameworks and enterprise risk management.
Related Resources
Image - SOC 2 penetration test list

Penetration Tests and SOC 2: Preference, Tradition, or Requirement?

SOC 2 Points of Focus

Everything You Need to Know About the Revised Points of Focus for the SOC 2 Trust Services Criteria

SOC 2 Compliance Checklist hero image

SOC 2 Compliance Checklist: 9 Key Steps To Take

SOC 2 Type 1 vs Type 2 hero

SOC 2 Type 1 vs. Type 2: How They Differ