SOC 1 vs. SOC 2 vs. SOC 3: A Detailed Comparison

Discover the differences between SOC 1, SOC 2, and SOC 3 reports—their uses across industries and how they help organizations build trust, enhance security, and meet compliance needs.

• SOC 1 Focus: Evaluates controls over financial reporting.

• SOC 2 Focus: Evaluates controls that protect customer data across the Trust Services Criteria.

• SOC 3 Focus: Provides a publicly shareable summary of a SOC 2 audit with no sensitive details.

• Report Types: Both SOC 1 and SOC 2 offer Type 1 (point-in-time) and Type 2 (operating effectiveness over time) audits.

• Use Cases: SaaS companies typically need SOC 2, while financial services need SOC 1.

According to IBM's Cost of a Data Breach Report, the global average cost of a data breach was $4.88 million, a 10% increase from the previous year. This growing security, compliance, and financial impact highlights the critical need for robust security measures.

System and Organization Controls (SOC) frameworks provide a structured way to validate your security, availability, and financial controls. SOC 1 focuses on internal controls over financial reporting, while SOC 2 evaluates controls that protect customer data. Depending on your use case, these reports help prove your robust data-handling practices to clients and stakeholders.

Achieving SOC compliance establishes credibility, mitigates risks, and helps align companies with best business practices. Each SOC report, which is conducted by a certified public accountant (CPA) or CPA firm, is tailored to a specific need and compliance requirement.

Discover the distinct purposes of—and similarities and differences between—SOC 1, SOC 2, and SOC 3.

SOC 1 vs. SOC 2 vs. SOC 3: Key Differences at a Glance

The primary difference between SOC 1, SOC 2, and SOC 3 is their focus and audience. SOC 1 evaluates financial reporting controls for audit teams, SOC 2 assesses data security controls for enterprise customers, and SOC 3 provides a public-facing summary of a SOC 2 audit. Organizations choose the right report based on their industry, customer base, and specific compliance requirements.

What Is a SOC 1 Report?

SOC 1 reports examine the internal controls that a service organization has in place that could affect the financial reporting of its user entities. Governed by the SSAE 18 standard, this includes controls related to transaction processing, data integrity, and security that could lead to material misstatements.

Who Needs a SOC 1 Report?

• Payroll processors: Handling clients' financial data and ensuring reporting is error-free.

• Financial service firms: Managing sensitive client transactions securely.

• Healthcare organizations: Validating processes for medical benefit and claims management.

SOC 1 Type 1 vs. Type 2

SOC 1 Type 1 reports evaluate the construction and implementation of controls at a specific point in time. They answer the question, "Are the necessary controls in place to address the specified criteria today?" SOC 1 Type 2 reports take compliance a step further by assessing the operating effectiveness of controls over a defined period of 6 to 12 months.

What Is a SOC 2 Report?

SOC 2 audits emphasize the protection of sensitive data and system reliability. They are designed for organizations where information security is paramount, including:

• SaaS providers: Protecting customer data in cloud environments.

• Fintech firms: Securing financial transactions and mitigating fraud risks.

• Healthcare organizations: Ensuring HIPAA compliance and patient data confidentiality.

• E-commerce: Safeguarding customer and payment information in online retail environments.

The Five Trust Services Criteria

The TSC framework forms the backbone of SOC compliance by outlining five key principles that companies must adhere to when handling sensitive information.

• Security: Protects systems from unauthorized access using robust controls like firewalls and multi-factor authentication.

• Availability: Ensures systems and services are operational and accessible as promised to users.

• Processing Integrity: Guarantees that systems deliver reliable outcomes without errors, unauthorized alterations, or delays.

• Confidentiality: Protects sensitive information from unauthorized disclosure using encryption and access controls.

• Privacy: Governs how organizations collect, use, store, and share personal information in compliance with applicable regulations.

SOC 2 Type 1 vs. Type 2

SOC 2 Type 1 reports offer a baseline for future audits by evaluating controls at a specific point in time. They are quicker to achieve, making them the preferred option for organizations with tight deadlines. For example, a SaaS startup entering the enterprise market may pursue a Type 1 report to demonstrate initial readiness.

SOC 2 Type 2 reports provide a stronger guarantee by assessing operating effectiveness over 3 to 12 months. A cloud provider serving healthcare clients might pursue a Type 2 report to illustrate consistent adherence to security standards over time.

What Is a SOC 3 Report?

SOC 3 reports are a simplified, public-facing version of SOC 2, designed to build trust with a general audience without disclosing detailed audit findings. A SOC 3 report cannot be obtained on its own—it requires a completed SOC 2 audit. They are ideal for marketing initiatives and broad trust-building.

SOC Type 1 vs. Type 2: What's the Difference?

SOC 1 and 2 reports are divided into two primary types: Type 1 and Type 2. SOC 3 reports are based on a SOC 2 Type 2 audit, but the SOC 3 report itself does not carry the Type 2 designation. Each serves a distinct purpose in assessing an organization's controls.

SOC 1 Type 2 vs. SOC 2 Type 2: Are They the Same?

Both SOC 1 Type 2 and SOC 2 Type 2 assess operating effectiveness over time, but they evaluate different control domains. SOC 1 Type 2 focuses on controls over financial reporting, while SOC 2 Type 2 focuses on controls across the Trust Services Criteria. For a deeper comparison, see Drata's dedicated SOC 2 Type 1 vs Type 2 article.

Which Type of Report Does Your Company Need?

Whether a business chooses a Type 1 or Type 2 report depends on an organization's stage of growth, client expectations, and compliance goals.

Type 1 reports are best for companies new to SOC compliance or those looking to establish initial credibility quickly. For example, a payroll processor preparing for enterprise partnerships will begin with a SOC 1 Type 1 report to demonstrate secure financial reporting processes.

Mature companies and those targeting enterprise clients often prefer Type 2 reports for long-term assurances. A scaling fintech company might pursue a SOC 2 Type 2 report to meet rigorous vendor due diligence requirements and adhere to regulatory standards.

Do You Need Both SOC 1 and SOC 2?

Some organizations need both SOC 1 and SOC 2 audits, particularly companies that process financial transactions and store sensitive customer data. Fintech platforms, payroll SaaS providers, and billing systems with cloud infrastructure often fall into this category.

Fortunately, there is significant control overlap between SOC 1 and SOC 2. Pursuing both audits simultaneously is typically more efficient and cost-effective than conducting them sequentially. Your auditor can design the engagement to test controls that satisfy both frameworks, reducing redundancy.

Most pure SaaS companies, however, need only SOC 2. If your business model doesn't involve processing financial transactions on behalf of clients, SOC 1 is likely unnecessary.

Why SOC 2 Is the Most Requested Compliance Report

SOC 2 compliance is a benchmark for data security and privacy, particularly for SaaS providers and cloud companies. While frameworks like ISO 27001 offer a comprehensive approach, SOC 2 is often favored in the U.S. for its focus on trust service criteria. SOC 2 compliance helps businesses meet regulatory standards, build trust, and gain a competitive edge.

To gain customer trust, companies must transparently protect sensitive data. For SaaS providers, SOC 2 reports illustrate compliance and a commitment to enterprise partners. This validation can be the deciding factor in landing high-value contracts.

Clients and regulatory bodies frequently require proof of robust security practices. By achieving SOC 2 compliance, companies position themselves as reliable and forward-thinking in an era of high cybersecurity concerns.

Is SOC 2 Legally Required?

SOC 2 is not required by law, as it is a voluntary framework developed by the AICPA. However, enterprise customers increasingly require it as a condition of doing business. Unlike HIPAA or PCI DSS, there is no regulatory body that can fine you for lacking SOC 2—the market enforces it instead.

How SOC 2 Aligns With Modern Data Security Demands

Data security threats grow more complex by the day. SOC 2 has evolved to address these challenges.

SOC 2 compliance takes on modern threat concerns by validating an organization's ability to mitigate risks like unauthorized access, data breaches, and system outages. By emphasizing regular control evaluations, it proves that security benchmarks are being met consistently instead of just at a single point in time.

Today's zero-trust security models prioritize strict identity verification and limit system access to minimize risks. SOC 2 compliance complements this by requiring robust access controls and data encryption measures. The reports also confirm that an organization's systems are resilient to future disruptions.

How to Choose Between SOC 1, SOC 2, and SOC 3

Choosing the right SOC report depends on your industry, your customers' requirements, your compliance timeline, and your budget. The scenario-based approach below can help guide your decision.

Industry and Client Requirements

• Financial services and payroll processors: SOC 1 is typically required by clients and regulators to authenticate internal controls that affect reporting.

• SaaS and cloud companies: SOC 2 is the market standard and most frequently requested by enterprise customers to demonstrate extensive security and privacy practices.

• B2C companies with a public-facing brand: SOC 3 can supplement SOC 2 for marketing and public trust-building purposes without giving away the specifics of a company's business.

Compliance Timeline and Budget

SOC 1 and SOC 2 Type 1 reports typically take 3 to 6 months to complete. Type 2 reports require a 3 to 12-month observation period and take 6 to 15 months for first-time audits. Budget and timeline constraints may influence whether you pursue Type 1 first or go directly to Type 2.

Beyond SOC 1, 2, and 3, the AICPA also offers SOC for Cybersecurity and SOC for Supply Chain for organizations with broader risk management or manufacturing use cases.

Drata's Compliance Automation platform helps organizations achieve and maintain SOC 1 and SOC 2 compliance year-round through continuous control monitoring and automated evidence collection. Rather than scrambling to gather evidence during audit season, you'll have real-time visibility into your control posture and be ready for your auditor's assessment at any time.

Frequently Asked Questions