SOC 1 vs SOC 2: Key Differences, Scope, and Which One Your Business Needs

When businesses work with third-party vendors, trust and compliance become very important. This is where SOC reports play a major role. Many organizations often get confused between SOC 1 and SOC 2, as both are compliance reports developed by the American Institute of Certified Public Accountants (AICPA). However, their purpose and use cases are very different.

In this article, we will clearly explain SOC 1 vs SOC 2, their differences, scope, and how to choose the right one for your business.

What Is SOC 1?

SOC 1 (System and Organization Controls 1) is mainly focused on financial reporting controls. It is designed for service organizations that affect their clients’ financial statements.

SOC 1 reports are commonly required when a company provides services that directly impact financial data, such as payroll processing, billing services, loan servicing, or accounting platforms.

Key Focus of SOC 1

• Internal controls over financial reporting (ICFR)
• Accuracy and integrity of financial transactions
• Compliance with financial audit requirements

SOC 1 is mostly requested by auditors, finance teams, and regulatory bodies, not by end customers.

What Is SOC 2?

SOC 2 focuses on data security and privacy controls. It evaluates how well an organization protects customer data and systems based on the Trust Services Criteria (TSC).

SOC 2 is especially important for SaaS companies, cloud service providers, IT service firms, and cybersecurity companies.

Trust Services Criteria in SOC 2

• Security
• Availability
• Processing Integrity
• Confidentiality
• Privacy

Unlike SOC 1, SOC 2 is widely used as a sales and trust-building document for customers and partners.

SOC 1 vs SOC 2: Core Differences

Here is a clear comparison to help you understand the difference between SOC 1 and SOC 2:

1. Purpose

• SOC 1: Evaluates controls related to financial reporting
• SOC 2: Evaluates controls related to data security and privacy

2. Target Audience

• SOC 1: Auditors and finance teams
• SOC 2: Customers, prospects, partners, and regulators

3. Industry Usage

• SOC 1: Payroll companies, financial processors, accounting services
• SOC 2: SaaS, cloud providers, IT services, cybersecurity firms

4. Compliance Scope

• SOC 1: Financial systems and transaction accuracy
• SOC 2: IT systems, security controls, data handling processes

5. Business Impact

• SOC 1: Required for financial audits
• SOC 2: Builds customer trust and supports sales growth

SOC 1 Type 1 vs Type 2

SOC 1 reports come in two types:

• Type 1: Evaluates the design of controls at a specific point in time
• Type 2: Evaluates the design and operating effectiveness of controls over a period (usually 6–12 months)

Most enterprises prefer SOC 1 Type 2 as it provides stronger assurance.

SOC 2 Type 1 vs Type 2

SOC 2 also has two types:

• SOC 2 Type 1: Reviews control design at a single date
• SOC 2 Type 2: Reviews how well controls operate over time

From a business and sales perspective, SOC 2 Type 2 is considered the gold standard.

Which One Should You Choose: SOC 1 or SOC 2?

The choice between SOC 1 and SOC 2 depends on your business model.

Choose SOC 1 if:

• Your services impact client financial statements
• Your clients’ auditors require financial assurance
• You handle payroll, billing, or financial processing

Choose SOC 2 if:

• You store, process, or transmit customer data
• You are a SaaS or technology-driven company
• Customers ask about data security and compliance

Some organizations may need both SOC 1 and SOC 2, especially if they handle financial data and sensitive customer information.

Final Thoughts

Understanding SOC 1 vs SOC 2 is essential for choosing the right compliance path. While SOC 1 focuses on financial reporting controls, SOC 2 is centered around security, privacy, and system reliability.

Before starting any SOC audit, it is always recommended to assess your business operations, customer requirements, and regulatory needs. Choosing the right SOC report not only ensures compliance but also strengthens your company’s reputation and growth potential.