SOC 1 vs SOC 2: What Are The Differences and Which One Do You Need?
As more organizations move to the cloud and partner with third-party service providers, trust has become a critical factor in business decisions. Even the strongest product, smoothest demo and most compelling sales pitch cannot replace one essential requirement: proving that you protect customer data and operate with integrity. This is why SOC reports have become an expectation for mid-market and enterprise buyers.
Yet for many companies, especially SaaS businesses pursuing their first enterprise customers, the world of SOC reports can feel confusing. Should you get a SOC 1 or SOC 2? What exactly is the difference? Who asks for these reports, and what do they show about your security?
This article breaks down SOC 1 and SOC 2 in simple terms, comparing what they cover, who needs them, who reviews them, and how organizations obtain them.
What Are SOC Reports?
SOC reports (short for Service Organization Controls) were developed by the American Institute of Certified Public Accountants (AICPA). SOC reports are performed by licensed CPA firms and evaluate how well a service provider implements financial or security controls, so partners and customers can trust a vendor with sensitive financial data or personal information.
Among the SOC report family, SOC 1 and SOC 2 are the most common and are regularly requested in North America when companies work with SaaS vendors, data processors, cloud service providers, or any organization that handles sensitive information.
What Is a SOC 1 Report?
A SOC 1 report focuses entirely on controls relevant to financial reporting. It is designed to assure customers that the financial information processed by a service provider is accurate, complete, and protected from errors or manipulation.
SOC 1 is most commonly needed when a company performs outsourced financial operations on behalf of clients. This may include processing payroll, managing benefits, handling loan servicing, running billing systems, or housing data that directly impacts a customer's financial statements.
What SOC 1 Covers
A SOC 1 audit examines internal controls over financial reporting, including:
Accuracy of transaction processing
Completeness of financial outputs
Controls that prevent unauthorized changes
Safeguards around financial data integrity
SOC 1 specifically does not audit your financial statements, but evaluates the controls that support them.
What Is a SOC 2 Report?
A SOC 2 report evaluates a company's information security practices, focusing on how well the organization protects customer data. SOC 2 is rooted in the Trust Services Criteria, a framework that defines the types of controls required to safeguard systems and information.
Unlike SOC 1, SOC 2 is not about financial reporting and is not limited to companies dealing with financial transactions. Instead, SOC 2 applies to any organization that stores, processes, or transmits customer or user data-particularly cloud providers and SaaS platforms.
Read more: SOC 2: What Is It and Who Would Need It?
What SOC 2 Covers
SOC 2 reports evaluate controls across the five Trust Services Criteria:
Security (mandatory): Protection against unauthorized access and threats
Availability: System uptime and reliability
Processing Integrity: Accurate, timely, authorized data processing
Confidentiality: Appropriate handling of confidential information
Privacy: Proper collection, use, retention, and disposal of personal data
Every SOC 2 includes Security, while the other criteria are included only if they apply to your business.
SOC 1 vs SOC 2: The Core Difference
The primary distinction is simple:
SOC 1 focuses on financial reporting.
SOC 2 focuses on information security.
If your service impacts a customer's financial statements, you will likely be asked for a SOC 1.
If your service handles customer data, you will likely be asked for a SOC 2.
In practice, SOC 2 is the report requested most often by SaaS buyers, especially in the enterprise space.
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Who Needs SOC 1 vs SOC 2?
You need a SOC 1 if your service impacts your customer's financial reporting.
Typical SOC 1-required organizations include:
Payroll processors
Benefits administrators
Billing and invoicing platforms
Medical claims processors
Loan servicers
Data centers that host financial transaction systems
SaaS platforms that directly influence financial outputs
Even small errors in these processes can expose clients to regulatory or legal risk, including misstatements or fraud allegations. A SOC 1 provides assurance that your financial-related controls are stable and reliable.
You need a SOC 2 if your service handles customer or user data.
SOC 2 is essential for:
SaaS companies
Cloud storage providers
Cybersecurity solutions
Data hosting and processing companies
Infrastructure and platform providers
Any organization with access to personal, confidential, or operational data
SOC 2 is increasingly mandatory for closing deals with mid-market or enterprise clients.
What Clients Would Request SOC 1 vs SOC 2 Reports?
Who sees a SOC 1 report?
SOC 1 reports are usually requested by:
Client finance teams
Client auditors
Controller's offices
Regulatory compliance teams
They are sensitive reports and shared only under NDA.
Who sees a SOC 2 report?
SOC 2 reports are reviewed by:
Customer security teams
Procurement teams
IT and risk management teams
Business stakeholders evaluating a vendor
Like SOC 1, SOC 2 reports are also confidential and usually require an NDA before being shared.
SOC Type 1 vs SOC Type 2
Both SOC 1 and SOC 2 can be delivered as Type 1 or Type 2 audits.
SOC Type 1
Evaluates your controls at a single point in time. It verifies that controls are designed properly, but does not validate real-world effectiveness.
SOC Type 2
Evaluates how your controls operate over a period of time, typically six to twelve months. It is the version most enterprise buyers request because it proves that your controls work consistently, not just on paper.
How to Determine Whether Your Company Need SOC 1 or SOC 2
Ask yourself the following question:
Does my service impact my customers' financial reporting?
If yes, you likely need SOC 1.
Do I store, process, or transmit customer or user data?
If yes, you likely need SOC 2.
Most SaaS companies ultimately need SOC 2, while only companies tied to financial reporting need SOC 1. In some cases, companies obtain both if they provide financial services while also handling sensitive data.
SOC 1 vs SOC 2 Comparison Table
| Category | SOC 1 | SOC 2 |
|---|---|---|
| Primary Purpose | Evaluates controls that impact financial reporting (ICFR). | Evaluates information security, availability, confidentiality, processing integrity, and privacy. |
| Use Case | For companies whose services could affect customers' financial statements. | For companies storing, processing, or transmitting customer data. |
| What It Covers | Internal controls over financial reporting, transaction accuracy, data integrity. | Security controls based on the Trust Services Criteria (TSC). |
| Trust Services Criteria | Not included. | Security (mandatory), plus Availability, Confidentiality, Processing Integrity, and Privacy. |
| Typical Organizations That Need It | Payroll processors, billing platforms, loan servicers, insurance/claims processors, fintech infrastructure. | SaaS companies, cloud services, data hosting, IT outsourcing, cybersecurity vendors, infrastructure platforms. |
| Who Requests It | Client auditors, CFOs, financial reporting teams. | Security teams, IT risk teams, procurement teams, enterprise buyers. |
| Who Reads the Report | Auditors and financial controllers under NDA. | Security/compliance teams under NDA. |
| Report Format | Confidential, detailed audit report. | Confidential, detailed audit report. |
| Type I Available? | Yes — reviews design of controls at a point in time. | Yes — reviews design of controls at a point in time. |
| Type II Available? | Yes — tests operating effectiveness over 6–12 months. | Yes — tests operating effectiveness over 6–12 months. |
| When It's Needed | When a service impacts customer financial reporting or SOX compliance. | When a service handles customer/user data or stores information in the cloud. |
| Core Question It Answers | "Can we rely on this vendor's financial reporting controls?" | "Can we trust this vendor to protect our data?" |
| Confidential? | Yes | Yes |
| Audience | Technical and financial auditors. | Technical, security, and procurement stakeholders. |
How to Get a SOC 1 or SOC 2 Report
The path to obtaining a SOC report typically includes:
Scoping: Defining what systems, processes, and services are included in the audit.
Readiness Assessment: Identifying gaps in current controls, policies, or documentation.
Implementation and Remediation: Addressing control failures, updating policies, improving infrastructure, and documenting evidence.
Audit Fieldwork: The CPA firm tests your controls to issue a Type 1 or Type 2 report.
Report Issuance: The auditor provides a formal SOC report that can be shared with clients under NDA.
This process can take months when done manually. Many companies use compliance automation platforms to streamline evidence collection, continuous monitoring, and control implementation.
Conclusion
SOC 1 and SOC 2 reports both play a vital role in building trust with customers, partners, and regulators. The right report depends on the nature of your service: SOC 1 provides assurance over financial reporting, while SOC 2 demonstrates your commitment to strong security and data protection. For most SaaS and cloud service providers, SOC 2 is the key requirement to unlock mid-market and enterprise deals.
Understanding these differences and preparing early can save months of effort, prevent stalled sales cycles, and set your organization up for long-term trust and credibility.