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

Learn the differences between SOC 1 vs. SOC 2 and Type 1 vs. Type 2 reports. Get clear guidance on which SOC audit your company needs.

SOC 1 vs. SOC 2, Type 1 vs. Type 2

• SOC 1 evaluates controls over financial reporting. You need this if you handle customer financial data (payroll, billing, transactions).

• SOC 2 evaluates controls protecting customer data across five Trust Services Criteria: security, availability, processing integrity, confidentiality, and privacy. Get this if you transmit or process customer data.

• Type 1 is a point-in-time snapshot of your controls’ design and suitability. It’s faster to complete (weeks) but less comprehensive.

• Type 2 evaluates both design and operational effectiveness over 6–12 months. It takes longer, but provides stronger assurance to customers.

Quick decision guide:

• Financial services, payroll, billing systems → SOC 1

• SaaS platforms, cloud storage, data processing → SOC 2

• Need proof quickly for a deal → Type 1

• Building long-term customer trust → Type 2

Most B2B SaaS companies ultimately pursue a SOC 2 Type 2 report.

SOC 1 vs. SOC 2: The Short Answer

A SOC 1 report evaluates a company’s controls over financial reporting, while a SOC 2 report evaluates controls related to data security and privacy. Your choice depends on whether your service impacts your customer’s financials or if you handle their sensitive data.

• SOC 1 is for financial impact. Choose this if your service could affect your customers’ financial statements (for example, payroll processing or billing services).

• SOC 2 is for data security. Choose this if you store, process, or transmit customer data (for example, SaaS platforms or cloud hosting).

What Is a SOC 1 Report?

SOC 1 is a report from independent auditors describing a service organization’s internal controls over its customers’ financial information. Companies that typically obtain a SOC 1 report include 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. Customers often request SOC 1 reports from providers to meet their internal auditing and compliance requirements.

The AICPA periodically updates SOC 1 guidance and related attestation standards; your audit firm can help you interpret the latest requirements for your environment.

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

SOC 1 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 whether the controls are suitably designed to meet control objectives.

A SOC 1 Type 1 report only assesses the suitability of a provider’s controls at a specific point in time. Auditors do not 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.

SOC 1 Type 2

To give customers a more detailed review of their controls, providers need a SOC 1 Type 2 report. In addition to the assessments performed for a 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 twelve 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 SOC 2 Compliance?

SOC 2 is a voluntary compliance framework from the American Institute of CPAs (AICPA) for service organizations. It specifies how companies should manage customer data based on five Trust Services Criteria. Its purpose is to provide assurance that you have the proper controls in place to protect customer data.

Key takeaway: Unlike SOC 1’s financial focus, SOC 2 focuses on security, availability, confidentiality, processing integrity, and privacy.

SOC 2 reports come in two forms: Type 1 (a point-in-time snapshot) and Type 2 (an evaluation over time). For most B2B SaaS companies, a SOC 2 Type 2 report is the gold standard for demonstrating a strong security posture.

Understanding the Five Trust Services Criteria

A SOC 2 audit is performed against one or more of the five Trust Services Criteria (TSCs). Security is mandatory, while the other four are optional and chosen based on your service commitments.

Security (Required for All SOC 2 Reports)

The Security criterion, also known as the Common Criteria, is the foundation of every SOC 2 report. It refers to the protection of information and systems against unauthorized access and system damage.

Key takeaway: This criterion covers foundational security controls like access management, firewalls, endpoint protection, logging, and intrusion detection.

Availability

The Availability criterion addresses whether systems are available for operation and use as committed or agreed. It is especially relevant for companies whose services are critical to customer operations, such as cloud hosting providers.

Key takeaway: This criterion validates your uptime promises, capacity planning, and disaster recovery capabilities.

Processing Integrity

The Processing Integrity criterion addresses whether systems process data completely, validly, accurately, and on time. This is important for services that perform transactions or critical calculations for customers.

Key takeaway: This criterion ensures that your system does what it is supposed to do without errors, omissions, or unauthorized manipulation.

Confidentiality

The Confidentiality criterion addresses the protection of information designated as confidential by agreement. This applies to services handling sensitive data protected by contracts or NDAs.

Key takeaway: This criterion covers controls like encryption, access restrictions, data classification, and secure data disposal to protect proprietary and sensitive information.

Privacy

The Privacy criterion addresses the handling of personal information based on an organization’s privacy notice. It is distinct from Confidentiality and applies specifically to personally identifiable information (PII).

Key takeaway: This criterion is crucial for companies handling data subject to regulations like GDPR or CCPA, and focuses on how you collect, use, retain, disclose, and dispose of personal data.

What Is a SOC 2 Type 1 Report?

A SOC 2 Type 1 report is a point-in-time audit that evaluates the design of a service organization’s security and related controls. The auditor determines if the controls are suitably designed to meet the relevant Trust Services Criteria as of a specific date. It is a snapshot showing you have the right controls in place, but not how they have performed over time.

When Is SOC 2 Type 1 Appropriate?

A Type 1 report is a good fit when you need to demonstrate compliance quickly to close a deal or satisfy an urgent customer request. It often serves as a foundational step toward building a mature compliance program. The entire process is relatively quick, often taking 4–8 weeks.

Benefits and Limitations of SOC 2 Type 1

• Benefit: Faster and less expensive than Type 2, providing a quick way to show commitment to security.

• Limitation: Provides less assurance because it does not test operational effectiveness, and many customers will ultimately require a Type 2 report.

What Is a SOC 2 Type 2 Report?

A SOC 2 Type 2 report evaluates the operational effectiveness of your controls over a period of time, typically 6 to 12 months. The auditor tests your controls to confirm they have been operating as intended throughout this observation period. This provides a much higher level of assurance and is considered the gold standard for security compliance.

When Is SOC 2 Type 2 Required?

A Type 2 report is required when customers—especially enterprise clients—need strong assurance that their data is protected over the long term. It is the default expectation for mature SaaS companies. The entire process, including the observation period, can take 9–15 months for a first-time report.

Benefits and Limitations of SOC 2 Type 2

• Benefit: Provides the highest level of assurance, builds significant customer trust, and satisfies most enterprise requirements.

• Limitation: A time-consuming and more expensive process that cannot be completed quickly because of the long observation period.

SOC 2 Type 1 vs. Type 2: Key Differences

Understanding the differences between Type 1 and Type 2 is key to choosing the right path for your organization. The primary distinction is between design and operational effectiveness.

Transitioning from Type 1 to Type 2

Many companies follow a natural progression from Type 1 to Type 2. A Type 1 audit can formalize your control environment and satisfy immediate needs. You can then enter the observation period for your Type 2 audit, using the Type 1 as a foundational step.

How to Choose Between SOC 1 and SOC 2

The decision between SOC 1 and SOC 2 depends on the service you provide. The core question is whether your service impacts your customers’ financial reporting or their data security and privacy.

• Choose SOC 1 if your service is part of your customer’s financial reporting supply chain, where a failure could cause a material misstatement in their financial statements.

• Choose SOC 2 if you handle customer data and they need assurance about your security, availability, or other data protection controls.

Some companies, such as a fintech platform that processes payments (SOC 1) and stores PII (SOC 2), may need both. In these cases, conducting the audits simultaneously is often the most efficient approach.

Industry-Specific Guidance

Industry norms can help you meet customer expectations. Here are a few common examples:

• Financial technology: Payroll processors typically require SOC 1, while payment gateways often need both SOC 1 for transactions and SOC 2 for data protection.

• Healthcare technology: Electronic health record (EHR) platforms usually need SOC 2, as HIPAA compliance alone is not a substitute for control validation.

• B2B SaaS: Nearly all B2B SaaS platforms, from CRMs to project management tools, are expected to have a SOC 2 report.

How to Choose Between SOC 2 Type 1 and Type 2

Once you determine you need a SOC 2 report, the next decision is whether to start with Type 1 or go straight to Type 2. This choice depends on your company’s maturity, customer demands, and strategic goals.

Factors to Consider

• Speed: Do you have an urgent need to show compliance for a specific deal? Type 1 is much faster.

• Cost: Are you working with a limited budget? Type 1 is less expensive upfront but may lead to higher long-term costs.

• Customer requirements: What are your target customers asking for? Enterprise clients almost always require Type 2.

Decision Framework by Company Stage

• Early-stage startups often start with Type 1 to get a foot in the door with early customers.

• Growth-stage companies should consider going straight to Type 2 to accelerate enterprise sales cycles.

• Mature enterprises are expected to maintain an annual SOC 2 Type 2 report as a standard practice.

SOC 2 Audit Costs: Type 1 vs. Type 2

The cost of a SOC 2 audit varies based on scope, complexity, and report type. It is important to consider not just the auditor’s fee but the total cost of compliance.

Audit Fees

A SOC 2 Type 1 audit typically costs between $15,000 and $40,000. A SOC 2 Type 2 audit is more expensive, with initial reports ranging from $25,000 to $100,000+.

Total Cost of Compliance

Beyond audit fees, you should also budget for other expenses. These indirect costs are a significant part of your overall investment.

• Readiness assessment: Often costs $10,000–$20,000 if performed by a third party.

• Compliance automation platform: A platform like Drata streamlines evidence collection and reduces long-term manual effort.

• Employee time: Your teams will spend significant time implementing controls and managing the audit.

SOC 2 Audit Timeline: What to Expect

Understanding the timeline for a SOC 2 audit is crucial for planning. The duration varies significantly between Type 1 and Type 2 reports.

Key takeaway: A Type 1 report takes weeks, while a first-time Type 2 report takes nearly a year.

SOC 2 Type 1 Timeline

A Type 1 audit is a point-in-time assessment, which makes it much faster. The typical timeline is 4–8 weeks from the start of the engagement to the final report delivery.

SOC 2 Type 2 Timeline

A Type 2 audit is a longer process because of the observation period. For a first-time report, you should plan for 9–15 months in total, including readiness, a 6–12 month observation period, and the audit itself.

How to Prepare for Your SOC 2 Audit

Starting a SOC 2 audit without proper preparation can lead to delays or even a failed audit. A structured preparation process is key to success.

Key takeaway: The most critical first step is a readiness assessment to identify and fix gaps before the audit begins.

1. Conduct a Readiness Assessment

Before engaging an auditor, perform a gap analysis to compare your current controls against SOC 2 requirements. This helps you identify and remediate gaps early. You can complete this internally or with a consultant.

2. Document Policies and Procedures

Auditors require extensive documentation. You will need to create and formalize policies for key areas such as information security, change management, and incident response.

3. Assemble Your Compliance Team

Designate a point person to lead the audit process. This individual will coordinate with the auditor and delegate tasks to internal teams such as engineering, HR, and IT.

Streamline SOC 2 Compliance with Drata

Achieving SOC 2 compliance is a milestone. Maintaining it year-round is the real challenge. Manual evidence collection and control monitoring can drain resources from your engineering and security teams.

Drata’s platform replaces much of this manual, repetitive work with continuous control monitoring so you stay audit-ready. It automates evidence collection, continuously tests mapped controls, and standardizes ownership across teams, helping you maintain ongoing compliance rather than scrambling at audit time.

With Drata, you can:

• Accelerate readiness: Use pre-built policy templates and automated checks to help you prepare for an audit in weeks, not months.

• Maintain compliance: Automate ongoing evidence collection for your observation period and receive alerts when a monitored control fails, so you can remediate issues early.

• Scale your program: Map your existing SOC 2 controls to other frameworks like ISO 27001, HIPAA, or PCI DSS to expand your compliance posture efficiently.

Frequently Asked Questions About SOC 1 vs. SOC 2