SOC 2 vs SOC 1: Key Differences Explained

One of the most common questions we hear from founders and compliance leads landing on our desk for the first time: "Do I need SOC 1 or SOC 2 — or both?" It sounds simple, but we have seen organizations burn months of effort and tens of thousands of dollars pursuing the wrong report type. Here is how we help clients think through it.

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.

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 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:

1. Does your service generate, calculate, or process data that appears in your clients' financial statements?
2. Could an error in your service cause a misstatement in a client's balance sheet, income statement, or cash flow statement?
3. 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 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:

1. Do enterprise customers ask about your security practices during procurement?
2. Do customers share sensitive data with your platform?
3. Does your service require access to customer systems or networks?
4. Have customers or prospects requested a SOC 2 report?

If the answer to any of these is yes, SOC 2 is likely required. Based on what we see across our client base, seventy to eighty-five percent of B2B SaaS companies selling to US enterprise buyers face SOC 2 as a standard procurement requirement.

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

What we tell clients is that the incremental cost of adding SOC 1 when you already have SOC 2 (or vice versa) is typically twenty to forty percent of the standalone cost for the second report, because many controls (access management, change management, monitoring) are evaluated in both engagements.

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Audit Process Comparison

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.

1. 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.
2. 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.
3. Audit testing: The CPA firm tests whether controls are designed effectively (Type I) or designed and operating effectively over a period (Type II).
4. 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.

1. Criteria selection: The organization selects which Trust Service Criteria to include (Security is mandatory; Availability, Processing Integrity, Confidentiality, and Privacy are optional).
2. Control mapping: Controls are mapped to specific Trust Service Criteria points, providing a standardized evaluation framework.
3. Evidence collection: Automated and manual evidence is collected throughout the observation period (for Type II).
4. Audit testing: The CPA firm tests controls against the Trust Service Criteria.
5. 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

Cost Comparison

Cost Factor	SOC 1	SOC 2
Auditor fees (Type I)	$15,000-$50,000	$15,000-$50,000
Auditor fees (Type II)	$20,000-$70,000	$20,000-$80,000
GRC platform support	Limited platform automation	Extensive platform automation
Internal labor	Moderate — financial controls focus	Moderate to high — broader security controls
Consulting	$3,000-$25,000	$3,000-$30,000

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.

Key Takeaways

• Know the core distinction. SOC 1 evaluates controls relevant to financial reporting; SOC 2 evaluates information security and operational trust controls. We recommend starting here when clients ask us which report they need.
• Understand the framework difference. SOC 1 uses custom control objectives defined by the service organization; SOC 2 uses standardized Trust Service Criteria. In our experience, this standardization is one reason SOC 2 is more straightforward for most SaaS companies.
• Apply the financial reporting test. Services that affect clients' financial statements (payroll, payment processing, accounting, fund administration) need SOC 1. We walk every client through this test early in the engagement.
• Apply the security trust test. Services that store, process, or access customer data for enterprise buyers need SOC 2. Based on what we see, this covers the majority of B2B SaaS companies.
• Consider whether you need both. Some organizations — particularly payroll, payment processing, and accounting platforms — need both reports. We help clients evaluate this honestly rather than defaulting to "just get SOC 2."
• Both report types come in Type I and Type II variants. We generally recommend Type II for long-term credibility, but Type I can serve as a faster starting point.
• Plan for tooling differences. GRC platforms primarily support SOC 2 automation; SOC 1 typically requires more manual evidence management. We advise clients to account for this in their planning.
• Consolidate where possible. Running both audits with the same CPA firm reduces the incremental cost by twenty to forty percent through shared evidence and interviews. We always recommend this approach to clients pursuing both reports.

Frequently Asked Questions

Can a SOC 2 report substitute for SOC 1?

What we tell clients is: no, and this is a mistake we see organizations try to make. SOC 1 and SOC 2 address fundamentally different assurance needs. Your clients' external auditors need SOC 1 to evaluate whether your controls adequately address financial reporting risks. A SOC 2 report demonstrates information security maturity but does not address financial reporting control objectives. If your clients' auditors require a SOC 1 report, a SOC 2 report will not satisfy that requirement.

Is SOC 2 more common than SOC 1?

Based on what we see across the market, yes — significantly. SOC 2 has much higher volume because it applies to the entire B2B SaaS market, meaning any company that stores or processes customer data for enterprise buyers. SOC 1 applies specifically to organizations whose services affect financial reporting, which is a narrower set. In our experience, the growth of cloud services and SaaS has driven SOC 2 adoption to grow at twenty to thirty percent annually, far outpacing SOC 1 growth.

Do the same auditors perform both SOC 1 and SOC 2?

What we tell clients is that most CPA firms that perform SOC 2 also perform SOC 1, but the expertise involved differs. SOC 1 auditors focus on internal controls over financial reporting, while SOC 2 auditors focus on information security controls. Larger firms have separate teams for each engagement type. We always recommend that if you need both reports, use the same firm — it creates efficiency through shared knowledge of your control environment.

What about SOC 3?

In our experience, SOC 3 rarely comes up as a primary need. It is a public-facing summary version of a SOC 2 report — same auditor opinion, but without the detailed control descriptions and test results. SOC 3 reports can be shared publicly on your website without NDA restrictions. We see them used occasionally for Trust Center pages where organizations want to demonstrate compliance publicly without sharing the full report, but most enterprise buyers want the detailed SOC 2 report.

How do I explain the difference to my CEO or board?

What we tell clients is to keep it simple: SOC 1 tells your clients' accountants that your service will not mess up their financial statements. SOC 2 tells your clients' security teams that your company protects data and runs securely. A payroll company needs SOC 1 because salary errors affect financial reports. A CRM company needs SOC 2 because customer data must be protected. Some companies need both because they handle financial data and enterprise buyers evaluate their security.