SOC 2 vs SOC 1: Which Report Does Your Buyer Need?
SOC 1 addresses controls relevant to user entities’ financial reporting; SOC 2 addresses controls evaluated against applicable Trust Services Criteria. Choose the report based on the risk your service creates for customers. A financial reporting requirement does not disappear because a vendor already has a security-focused assurance report.
Key Takeaways
- •SOC 1 addresses controls relevant to user entities’ financial reporting; SOC 2 addresses controls evaluated against applicable Trust Services Criteria.
- •SOC 1 and SOC 2 are both audit frameworks governed by the AICPA, but they evaluate completely different things.
- •For the next operating decision, compare SOC 3 definition with SOC 1 definition.
SOC 1 and SOC 2 are both audit frameworks governed by the AICPA, but they evaluate completely different things. SOC 1 (formally known as a SOC 1 report under SSAE 18) evaluates controls at a service organization that are relevant to user entities' financial reporting — it answers whether your service could affect your customer's financial statements.
SOC 2 evaluates controls related to information security, availability, processing integrity, confidentiality, and privacy based on the Trust Service Criteria — it answers whether your organization protects data and operates securely. A payroll processor handling salary calculations that flow into a client's financial statements needs SOC 1. A SaaS analytics platform storing customer data needs SOC 2. Some organizations need both.
This guide explains the differences between SOC 1 and SOC 2, when each report type is appropriate, which industries and use cases require which report, whether your organization might need both, and how the audit processes compare. We wrote it for compliance teams, finance leaders, and founders who need to determine the correct report type for their organization.
For the next operating decision, compare SOC 3 definition with SOC 1 definition. Confirm the work included, the evidence you need, and who will own implementation before committing to a provider.
What are the fundamental differences?
| Dimension | SOC 1 | SOC 2 |
|---|---|---|
| Full name | SOC 1 Report (Report on Controls at a Service Organization Relevant to User Entities' Internal Control over Financial Reporting) | SOC 2 Report (Report on Controls at a Service Organization Relevant to Security, Availability, Processing Integrity, Confidentiality, or Privacy) |
| Standard | SSAE 18 (Statement on Standards for Attestation Engagements No. 18) | SSAE 18 with Trust Service Criteria (TSC) |
| What it evaluates | Controls relevant to financial reporting | Controls relevant to information security and operational trust |
| Who requests it | Client auditors, financial controllers, CFOs | Security teams, procurement teams, CISOs, CTOs |
| Primary audience | Auditors performing financial statement audits of your clients | Enterprise buyers evaluating vendor security posture |
| Control framework | Custom — controls are defined by the service organization based on financial reporting relevance | Trust Service Criteria — standardized framework with five criteria defined by the AICPA |
| Report types | Type I (design) and Type II (design + operating effectiveness) | Type I (design) and Type II (design + operating effectiveness) |
| Distribution | Restricted — shared under NDA with clients and their auditors | Restricted — shared under NDA with customers and prospects |
When do you need SOC 1?
SOC 1 is required when your service directly affects your clients' financial reporting. In our experience, the test is straightforward: if an error in your service would cause a misstatement in your client's financial statements, you likely need SOC 1.
Common SOC 1 Use Cases
| Service Type | Why SOC 1 Applies | Example |
|---|---|---|
| Payroll processing | Salary calculations and tax withholdings flow directly into client financial statements | ADP, Paychex, Gusto |
| Payment processing | Transaction processing affects client revenue recognition and cash balances | Payment gateways, merchant services |
| Loan servicing | Loan balance calculations, interest accruals, and payment processing affect client financial reporting | Mortgage servicers, student loan platforms |
| Claims processing | Insurance claim valuations and reserves directly affect insurer financial statements | Insurance TPA services |
| Fund administration | NAV calculations, investor allocations, and capital calls affect fund financial statements | Hedge fund administrators |
| Trust and custody | Asset valuations and transaction processing affect client financial statements | Custodian banks, trust companies |
| Accounting SaaS | General ledger, accounts payable, and accounts receivable data directly constitute financial reports | Accounting platforms |
The Financial Reporting Test
We recommend asking these questions to determine if SOC 1 applies:
- Does your service generate, calculate, or process data that appears in your clients' financial statements?
- Could an error in your service cause a misstatement in a client's balance sheet, income statement, or cash flow statement?
- Do your clients' external auditors need assurance about the controls at your organization as part of their financial statement audit?
If the answer to any of these is yes, SOC 1 is likely required.
When do you need SOC 2?
SOC 2 is required when enterprise customers or partners need assurance that your organization operates with sound security practices — regardless of whether your service affects financial reporting. In our experience, this is the report type the vast majority of B2B SaaS companies need first.
Common SOC 2 Use Cases
| Service Type | Why SOC 2 Applies | Example |
|---|---|---|
| B2B SaaS platforms | Customers need assurance that their data is protected | CRM, project management, HR platforms |
| Cloud infrastructure | Customers depend on your infrastructure security for their own compliance | AWS, hosting providers, IaaS/PaaS |
| Data analytics | Customers share sensitive data for processing and analysis | Business intelligence, data warehousing |
| Healthcare SaaS | Healthcare organizations require vendor security attestation alongside HIPAA | EHR, telehealth, patient management |
| Fintech | Financial institutions require security attestation from technology vendors | Banking-as-a-service, lending platforms |
| Developer tools | Developer organizations evaluate security of tools in their pipeline | CI/CD, code analysis, monitoring |
| Cybersecurity services | Customers need assurance about their security vendor's own security | SIEM, MDR, vulnerability management |
The Security Trust Test
We recommend asking these questions to determine if SOC 2 applies:
- Do enterprise customers ask about your security practices during procurement?
- Do customers share sensitive data with your platform?
- Does your service require access to customer systems or networks?
- Have customers or prospects requested a SOC 2 report?
If the answer to any of these is yes, SOC 2 is likely required. Confirm the report requirements with the intended buyer instead of assuming a market-wide procurement rate.
Do You Need Both?
Some organizations need both SOC 1 and SOC 2 because their service affects financial reporting (SOC 1) and enterprise buyers require security attestation (SOC 2). We walk clients through this decision regularly, and the answer is usually more clear-cut than people expect.
When Both Reports Are Needed
| Scenario | SOC 1 Needed? | SOC 2 Needed? |
|---|---|---|
| Payroll SaaS selling to enterprise | Yes — payroll data affects financial statements | Yes — enterprise buyers require security attestation |
| Payment processor with enterprise merchants | Yes — transaction data affects merchant financials | Yes — enterprise merchants evaluate vendor security |
| Accounting platform for enterprise clients | Yes — accounting data constitutes financial statements | Yes — enterprise clients require security review |
| HR platform with payroll module | Depends — if payroll module is in scope, yes | Yes — enterprise HR buyers require security attestation |
| SaaS platform with no financial reporting impact | No | Yes |
| Fund administrator | Yes — NAV calculations affect fund financial statements | Possibly — depends on investor requirements |
Running Both Audits
Organizations that need both reports can achieve efficiency by:
- Using the same CPA firm for both engagements
- Aligning audit observation periods so evidence is collected concurrently
- Mapping controls that serve both reports to reduce duplicate testing
- Scheduling fieldwork for both audits in adjacent weeks
Ask the auditor to identify evidence that can be reused and to quote the incremental engagement. Shared control areas do not establish a fixed discount or make the reports interchangeable.
How do the audit processes differ?
SOC 1 Audit Process
The SOC 1 audit evaluates controls that the service organization has designed and implemented to address risks relevant to user entities' financial reporting.
- Control identification: The service organization identifies which controls are relevant to its clients' financial reporting. Unlike SOC 2 (which uses standardized Trust Service Criteria), SOC 1 controls are customized to each service organization.
- Control objective definition: Each control is mapped to a control objective — a statement about what the control is designed to achieve regarding financial reporting accuracy.
- Audit testing: The CPA firm tests whether controls are designed effectively (Type I) or designed and operating effectively over a period (Type II).
- Report issuance: The report includes the auditor's opinion, management assertion, system description, and detailed testing results.
SOC 2 Audit Process
The SOC 2 audit evaluates controls against the standardized Trust Service Criteria defined by the AICPA.
- Criteria selection: The organization selects which Trust Service Criteria to include (Security is mandatory; Availability, Processing Integrity, Confidentiality, and Privacy are optional).
- Control mapping: Controls are mapped to specific Trust Service Criteria points, providing a standardized evaluation framework.
- Evidence collection: Automated and manual evidence is collected throughout the observation period (for Type II).
- Audit testing: The CPA firm tests controls against the Trust Service Criteria.
- Report issuance: The report follows a standardized structure with sections for the auditor's opinion, management assertion, system description, and detailed testing results.
Key Process Differences
| Process Element | SOC 1 | SOC 2 |
|---|---|---|
| Control framework | Custom — defined by the service organization | Standardized — Trust Service Criteria |
| Control objectives | Financial reporting-specific | Information security and operational trust |
| Evidence focus | Transaction processing accuracy, financial data handling | Security configurations, access management, monitoring, encryption |
| Auditor expertise | Financial audit and internal controls | Information security and technology controls |
| GRC platform support | Limited — most platforms focus on SOC 2 | Extensive — all major GRC platforms support SOC 2 natively |
How do the cost components compare?
| Cost Factor | SOC 1 | SOC 2 |
|---|---|---|
| Auditor fees | Comparable to SOC 2; varies by firm and complexity | Varies by auditor tier and scope; contact firms for pricing |
| GRC platform support | Limited platform automation | Extensive platform automation |
| Internal labor | Moderate — financial controls focus | Moderate to high — broader security controls |
| Consulting | Varies based on gap remediation needs | Varies based on gap remediation needs |
Auditor fees for SOC 1 and SOC 2 are comparable. In our experience, the total cost of a SOC 2 program is typically higher because it encompasses a broader set of controls and benefits from GRC platform investment.
Frequently Asked Questions
What are the main differences between SOC 2 and SOC 1?
Do You Need Both?
When do you need SOC 1?
When do you need SOC 2?
How do you know which SOC report you need?
Tyler Carbone
Managing Director and Cofounder
Tyler Carbone is a Managing Director and Cofounder of Agency and one of the industry's leading voices on governance, risk, and compliance. He holds degrees from Harvard and a JD/MBA from the University of Virginia, and previously worked in cybersecurity at Deloitte. Tyler has helped hundreds of companies operate SOC 2, ISO 27001, HIPAA, and GDPR programs.
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