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

Companies are placing more data in general and more sensitive data in particularin 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.

But which SOC report do you need? And once you've determined whether you need SOC 1 or SOC 2, how do you choose between Type 1 and Type 2 attestations?

This blog post compares SOC 1 to SOC 2 and explains the differences between Type 1 and Type 2 reports. We'll cover which industries need which reports, common mistakes that delay audit timelines, and practical criteria to help you determine which combination applies to your organization before you engage an auditor. For a deeper dive, check out our beginner’s guide to SOC 2 compliance.

TL;DR: 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 Service Criteria: security, availability, processing integrity, confidentiality, and privacy. Get this if you transmit customer data.
• Type 1 is a point-in-time snapshot of your controls' design and suitability. Faster to complete (weeks), but less comprehensive.
• Type 2 evaluates both design and operational effectiveness over 6-12 months. 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 need SOC 2 Type 2.

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.

The AICPA released updated SOC 1 guidance in 2023, with further revisions in early 2025. These updates clarified requirements around subservice organization monitoring, information security disclosure, and control objectives.

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 systems 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. 

The AICPA released significant SOC 2 guidance updates in late 2022 and 2023, with additional clarifications throughout 2024. These updates introduced "Points of Focus" — interpretive guidance that helps auditors apply Trust Service Criteria more consistently across different types of service organizations.

SOC 2 reports support customers’ vendor risk management processes. 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.

Type 2 has become the expected standard for B2B SaaS companies targeting enterprise customers — typically organizations with 500+ employees or dedicated security and compliance teams that conduct formal vendor risk assessments. 

Type 1 can satisfy immediate needs in specific scenarios, such as closing a pilot program with a single customer, meeting a prospect's tight timeline for a proof-of-concept deployment, or demonstrating control maturity while you're still building toward Type 2. These situations typically involve limited data exposure or short-term engagements where the customer accepts point-in-time validation.

However, most security and compliance teams require Type 2 by default for full-scale deployments, production environments, or any engagement involving sensitive customer data at scale. Type 2 demonstrates that your controls didn't just exist but actually operated effectively over time — the assurance level enterprise security teams need before authorizing company-wide software rollouts or multi-year contracts.

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.

Examples of when you might need SOC 1:

• Your service performs payroll calculations or processes employee compensation.
• You handle billing, invoicing, or revenue recognition for customers.
• You process financial transactions (payments, transfers, settlements).
• You manage investment portfolios or calculate fund performance.
• You process insurance claims or manage policy premiums.
• Customers' external auditors specifically request SOC 1 for financial statement audits.
• You need to help customers comply with Sarbanes-Oxley requirements.

Examples of when you might need SOC 2:

• You provide SaaS applications that store customer business data.
• You offer cloud infrastructure or hosting services.
• You process customer data through analytics or business intelligence platforms.
• You manage customer IT systems as a managed service provider.
• You handle personal information subject to privacy regulations.
• Customers request security validation during vendor risk assessments.
• You need to demonstrate security controls to win enterprise deals.

When you need both: Some organizations require both SOC 1 and SOC 2 reports because they provide services with both financial and data security components.

If you determine you need both reports, coordinate with your auditor to conduct examinations simultaneously. Many controls overlap between SOC 1 and SOC 2 — access controls, change management, system monitoring, and backup procedures often satisfy requirements for both frameworks. Running parallel audits reduces disruption and can lower overall audit costs compared to separate engagements.

Industry-Specific Guidance

Different industries have established patterns for which vendors are expected to provide which SOC reports. Understanding these norms helps you meet customer expectations.

Financial Services Technology Examples

• Payroll processors → SOC 1 (required) + SOC 2 (increasingly expected)
• Payment gateways → SOC 1 for transaction processing + SOC 2 for merchant data protection
• Banking software → SOC 1 for core banking functions + SOC 2 for customer data security
• Wealth management platforms → SOC 1 for portfolio accounting + SOC 2 for client information
• Accounting software → SOC 2 (unless directly integrated into customer financial close processes)

Healthcare Technology Examples

• Electronic health records → SOC 2 (HIPAA compliance doesn't replace SOC 2)
• Telemedicine platforms → SOC 2 with privacy criterion
• Healthcare analytics → SOC 2 with confidentiality and privacy criteria
• Medical billing systems → SOC 1 if impacting provider financial reporting, otherwise SOC 2

Healthcare organizations should note that HIPAA compliance and SOC 2 serve different purposes. HIPAA establishes regulatory requirements for covered entities and business associates, but SOC 2 provides independent validation of security controls.

B2B SaaS and Cloud Services Examples

• CRM platforms → SOC 2
• Project management tools → SOC 2
• Marketing automation → SOC 2
• HR management systems → SOC 2 (with privacy criterion for employee data)
• Cloud infrastructure (IaaS/PaaS) → SOC 2 (often with all five Trust Service Criteria)
• Data warehouses and analytics → SOC 2 with confidentiality criterion

For B2B SaaS companies, obtaining SOC 2 compliance is the industry standard. Enterprise customers expect SOC 2 Type 2 reports during security assessments, and the absence of SOC 2 can eliminate you from consideration for large deals.

Professional Services and MSPs Examples

• IT managed services → SOC 2
• Security operations centers → SOC 2 with security and availability criterion
• Cloud migration services → SOC 2
• DevOps and CI/CD platforms → SOC 2
• Disaster recovery services → SOC 2 with availability criterion

Managed service providers need SOC 2 because they access customer systems and handle sensitive operational data. The availability criterion is particularly important for MSPs whose customers depend on continuous service delivery.

Data Processing and Analytics Examples

• Business intelligence platforms → SOC 2 with confidentiality criterion
• Data integration tools → SOC 2
• Customer data platforms → SOC 2 with privacy criterion
• Survey and research platforms → SOC 2 with privacy criterion
• Data enrichment services → SOC 2 with processing integrity criterion

Data-focused companies should carefully consider which Trust Service Criteria apply to their specific service. Processing integrity matters when data accuracy is critical. Privacy applies when handling personal information. Confidentiality addresses contractual obligations to protect proprietary customer data.

Common Mistakes When Choosing Between SOC 1 and SOC 2

Organizations pursuing SOC compliance for the first time often make preventable mistakes that delay audits, waste resources, or result in the wrong report type.

Pursuing SOC 1 When You Actually Need SOC 2

Companies assume they need SOC 1 because they handle customer financial data. But SOC 1 only applies when your controls could directly impact the customer's financial statements.

An expense management platform that stores credit card transactions doesn't need SOC 1 since it doesn't perform accounting functions or generate entries that flow into customer financial statements. Ask whether a control failure would cause a material misstatement in a customer's audited financials. If the answer is "we'd expose their data" rather than "we'd misstate their financials," you need SOC 2.

Choosing Type 1 to Save Time, Then Needing Type 2 Six Months Later

Organizations pursue Type 1 to satisfy an immediate customer request, only to discover that subsequent customers require Type 2. This results in conducting two separate audits within a year — doubling costs and audit fatigue.

If your sales team expects to pursue enterprise customers, start with Type 2. The longer timeline is worth avoiding a second audit cycle. Type 1 is a temporary solution, not a substitute for Type 2.

Underestimating the Observation Period Requirement

Type 2 requires controls to operate for at least six months before the audit examination period begins. For your first Type 2 audit, plan for 6-12 months of control operation plus 2-3 months for the audit itself. If you implement controls in January, your earliest Type 2 report date is typically September or October.

Neglecting to Determine Which Trust Service Criteria Apply

SOC 2 reports must address security, but can optionally include availability, processing integrity, confidentiality, and privacy. Organizations sometimes select the wrong Trust Service Criteria. Including unnecessary criteria increases audit costs without adding customer value. Omitting relevant criteria is worse — it creates problems during customer reviews when prospects expect validation of controls you didn't include in your report.

Work with your auditor and review customer security questionnaires to determine which criteria apply. Consider your service commitments — what have you promised customers in SLAs and contracts? Those promises should align with the Trust Service Criteria you select.

Assuming HIPAA or Other Compliance Replaces SOC 2

Industry-specific compliance frameworks (HIPAA, PCI DSS, FedRAMP) don't eliminate the need for SOC 2. Industry regulations establish minimum security requirements. SOC 2 provides independent validation that your controls actually work as designed. Many customers require both.

Starting the Audit Without Understanding Readiness Requirements

Organizations sometimes engage auditors before their controls are mature enough to pass examination. Conduct a gap assessment before engaging your auditor. Address significant gaps before the formal audit begins. Otherwise, you risk receiving a qualified opinion with exceptions that undermine the report's value to customers, or worse, needing to delay the audit entirely while you remediate controls — wasting both time and audit fees.

Failing to Maintain Controls Between Audit Cycles

SOC 2 compliance must be continuous, not cyclical. Most organizations conduct SOC 2 audits annually to keep their reports current. Some relax control discipline after the audit concludes, creating gaps when the next audit cycle begins — resulting in control exceptions or qualified opinions in subsequent reports. Continuous monitoring and automated compliance platforms help maintain audit readiness year-round.

Ignoring Subservice Organization Dependencies

Identify all subservice organizations (cloud providers, authentication services, payment processors) during audit planning. Obtain their SOC 2 reports, document how you monitor their control effectiveness, and ensure your controls complement vendor controls. The 2023 SOC guidance updates placed increased emphasis on subservice organization monitoring.

Audit Readiness Through Continuous SOC 2 Compliance

Choosing the right SOC report is the first step. Maintaining audit readiness is the ongoing challenge.

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

Prospects want current assurance. A SOC 2 report produced six months ago may not satisfy their security requirements. Manual compliance creates continuous burden — collecting evidence, documenting controls, and managing audit requests becomes unsustainable as you scale.

Compliance automation ensures audit readiness at all times. Drata automates evidence collection, monitors your control environment in real time, and alerts you when controls drift out of compliance. When audit time arrives, what typically takes weeks of manual preparation becomes hours of review.

With automated monitoring, alert notifications, and real-time reporting, Drata streamlines your SOC 2 compliance programs to make your company more responsive to auditors and customers.

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

SOC 1 and SOC 2 FAQs

Can I have both SOC 1 and SOC 2 reports?

Yes, organizations with both financial reporting implications and data security requirements should pursue both. Coordinate with your auditor to conduct simultaneous examinations, as many controls (access management, change control, backup procedures) satisfy requirements for both frameworks.

How long does it take to get SOC 2 Type 2 certified?

SOC 2 isn't a certification — it's an attestation. You don't "get certified" for SOC 2; an independent auditor examines your controls and issues a report attesting to their effectiveness over a specific period. Type 2 requires controls operating for 6-12 months (the observation period) plus 2-3 months for the audit examination. First-time Type 2 reports typically take 9-15 months from initial control implementation to final report delivery. Type 1 reports take 4-8 weeks but provide only point-in-time validation.

Do I need SOC 2 if I already have ISO 27001?

Possibly. ISO 27001 and SOC 2 serve different purposes and aren't interchangeable. ISO 27001 certifies your information security management system. SOC 2 provides attestation against AICPA Trust Service Criteria. Many U.S. customers require SOC 2 regardless of other certifications, particularly during vendor risk assessments.

How much does a SOC 2 audit cost?

Type 1 audits typically cost $15,000-$40,000. Type 2 audits range from $25,000-$100,000+ for the initial report, with annual renewals costing less. Costs increase with multiple locations, complex technology environments, many integrated systems, and inclusion of all five Trust Service Criteria.

Can I switch from SOC 1 to SOC 2 or vice versa?

Yes, but you can't convert an existing report — you'll need a new audit for the different framework. Some control documentation may transfer between frameworks, but each requires its own examination. Organizations that need both should conduct simultaneous audits rather than sequential ones.

Do I need a new SOC 2 report every year?

Most organizations update their SOC 2 Type 2 reports annually. Your report covers a specific observation period. Once that period ends, the report becomes historical. Customers increasingly request reports issued within the past 6-12 months, making annual reporting essential for ongoing sales.

How do I choose between a 6-month and 12-month observation period?

Most first-time SOC 2 Type 2 reports use a 6-month observation period. Annual renewals typically extend to 12 months. Some customers specifically request 12-month reports as they provide stronger assurance. Consider your customer requirements, sales timeline, and whether you can maintain control discipline over the longer period.

Can I share my SOC 2 report publicly?

No. SOC 2 reports are restricted documents meant for customers and prospects under NDA. They contain detailed control and infrastructure information. Posting them publicly violates AICPA standards and exposes security details. If you want public validation, request a SOC 3 report that you can share openly.