SOC 1 vs SOC 2: Complete Comparison Guide

Complete comparison guide to help you understand the key differences between SOC 1 and SOC 2 audits and choose the right compliance framework for your organization.

SOC 1 vs SOC 2 Overview

Both SOC 1 and SOC 2 are audit frameworks developed by the American Institute of Certified Public Accountants (AICPA), but they serve different purposes and address different aspects of service organization controls.

SOC 1 - Service Organization Control Type 1

Primary Focus: Financial reporting controls

Target Audience: User entities' financial auditors

Main Purpose: Evaluate controls that could impact client financial statements

Key Characteristics:

• SSAE 18 standard
• Financial controls focus
• Restricted use reports
• User entity auditor review

SOC 2 - Service Organization Control Type 2

Primary Focus: Security, availability, and privacy controls

Target Audience: Management, customers, and stakeholders

Main Purpose: Evaluate controls related to Trust Service Criteria

Key Characteristics:

• AT-C 105 standard
• Trust Service Criteria
• Restricted or general use
• Broader stakeholder focus

Quick Decision Guide: Choose SOC 1 if your services could impact client financial reporting. Choose SOC 2 if you handle customer data and need to demonstrate security and operational controls.

Key Differences

Purpose & Scope

• SOC 1: Financial reporting controls that could impact user entities' financial statements
• SOC 2: Security, availability, processing integrity, confidentiality, and privacy controls

Target Audience

• SOC 1: External auditors of user entities and their management
• SOC 2: Management, customers, regulators, and other stakeholders

Report Distribution

• SOC 1: Restricted use - only for user entities and their auditors
• SOC 2: Restricted or general use depending on report type

Standards Framework

• SOC 1: SSAE 18 (Statement on Standards for Attestation Engagements)
• SOC 2: AT-C 105 and TSC (Trust Service Criteria)

Audit Period

• SOC 1: Type I: Point in time | Type II: 6-12 months
• SOC 2: Type I: Point in time | Type II: 3-12 months

Typical Cost Range

• SOC 1: $15,000 - $50,000 (Medium Cost)
• SOC 2: $20,000 - $100,000+ (Higher Cost)

SOC 1 Deep Dive

Understanding SOC 1 Audits

SOC 1 reports focus on controls at a service organization that are relevant to user entities' internal control over financial reporting (ICFR). These reports are essential when service organizations perform functions that could materially impact their clients' financial statements.

What SOC 1 Covers

Financial Transaction Processing:

• Controls over transaction initiation, authorization, recording, and processing

Data Integrity:

• Controls ensuring completeness and accuracy of financial data

System Access:

• Controls over logical access to systems handling financial data

Change Management:

• Controls over changes to systems processing financial transactions

Backup and Recovery:

• Controls ensuring availability and recoverability of financial data

Typical SOC 1 Service Organizations

• Payroll Service Providers: Companies processing payroll for client organizations
• Claims Processing: Insurance claims processing services
• Investment Management: Firms managing client investment portfolios
• Loan Servicing: Companies servicing mortgage or other loans
• Benefits Administration: Third-party benefits administrators
• Trust Services: Corporate trust and fiduciary services

SOC 1 Control Objectives

Transaction Processing Controls:

• Controls over transaction authorization
• Controls over transaction completeness
• Controls over transaction accuracy
• Controls over cut-off procedures

Information Technology Controls:

• Logical access controls
• Program change controls
• Computer operations controls
• Data backup and recovery controls

SOC 2 Deep Dive

Understanding SOC 2 Audits

SOC 2 reports focus on controls relevant to security, availability, processing integrity, confidentiality, and privacy. These reports are designed for a broad range of stakeholders who need assurance about the service organization's systems and controls.

Trust Service Criteria (TSC)

Security (Mandatory): The system is protected against unauthorized access (both physical and logical).

Availability (Optional): The system is available for operation and use as committed or agreed.

Processing Integrity (Optional): System processing is complete, valid, accurate, timely, and authorized.

Confidentiality (Optional): Information designated as confidential is protected as committed or agreed.

Privacy (Optional): Personal information is collected, used, retained, disclosed, and disposed of in accordance with the entity's privacy notice.

Typical SOC 2 Service Organizations

• Cloud Service Providers: SaaS, PaaS, and IaaS providers
• Data Centers: Colocation and hosting facilities
• Software Companies: Application service providers
• Healthcare Technology: Electronic health record providers
• Financial Technology: Payment processors and fintech companies
• Cybersecurity Firms: Security service providers
• Telecommunications: Communication service providers
• Managed Service Providers: IT outsourcing companies
• Data Analytics: Business intelligence and analytics platforms
• HR Technology: Human resources management systems

Side-by-Side Comparison

Decision Framework

Do you provide services that could impact your clients' financial statements?

Examples: Payroll processing, investment management, loan servicing, benefits administration, transaction processing

YES - Consider SOC 1

You likely need SOC 1 if:

• Your services affect client financial reporting
• Client auditors need to assess your controls
• You handle financial transactions or data
• Clients are subject to SOX requirements

NO - Consider SOC 2

You likely need SOC 2 if:

• You handle customer data or personal information
• You provide technology services
• Customers ask about your security practices
• You want competitive differentiation

Can You Have Both?

Yes! Some organizations maintain both SOC 1 and SOC 2 reports. SOC 1 for clients who need financial reporting assurance, and SOC 2 for broader stakeholder confidence in security and operational controls.

Industry Use Cases

Industries That Typically Need SOC 1

Common Industries: Payroll Services, Investment Management, Loan Servicing, Benefits Administration, Claims Processing, Transfer Agents, Trust Services, Clearing Houses

Real-World Examples:

• ADP (Payroll): Processes payroll for thousands of companies, directly impacting their financial statements
• State Street (Custody): Provides custody services for institutional investors
• Computershare (Transfer Agent): Manages shareholder records and dividend payments
• Aon Hewitt (Benefits): Administers employee benefit plans

Industries That Typically Need SOC 2

Common Industries: SaaS Providers, Cloud Services, Data Centers, Healthcare IT, Fintech, Cybersecurity, MSPs, EdTech

Real-World Examples:

• Salesforce (SaaS): CRM platform handling customer data
• AWS (Cloud): Infrastructure services requiring security assurance
• Zoom (Communications): Video conferencing platform with privacy concerns
• Epic (Healthcare): Electronic health record system

Cost Comparison

SOC 1 Costs

Cost Factors:

• Scope of services covered
• Complexity of control environment
• Number of control objectives
• Geographic locations
• Auditor experience and reputation

SOC 2 Costs

Cost Factors:

• Number of Trust Service Criteria selected
• Organizational size and complexity
• Technology infrastructure scope
• Current security maturity level
• Need for security tool implementations

Return on Investment: While SOC 2 typically costs more upfront, it often provides greater ROI through competitive advantage, customer acquisition, and premium pricing opportunities. SOC 1 is usually driven by client requirements rather than competitive positioning.

Implementation Timeline

SOC 1 Implementation Timeline (10 months)

Month 1 - Planning Phase:

• Define scope and service commitments
• Select auditor and establish timeline
• Conduct initial risk assessment

Months 2-3 - Control Design:

• Document control objectives and activities
• Design and implement new controls
• Create control documentation

Months 4-9 - Testing Period:

• Allow controls to operate for testing period
• Collect evidence of control operation
• Conduct management testing

Month 10 - Audit Phase:

• Auditor performs testing procedures
• Address any identified deficiencies
• Complete audit and issue report

SOC 2 Implementation Timeline (13 months)

Months 1-2 - Planning Phase:

• Select Trust Service Criteria
• Conduct comprehensive risk assessment
• Define system boundaries and scope

Months 3-6 - Control Implementation:

• Implement security and operational controls
• Deploy monitoring and logging systems
• Establish policies and procedures

Months 7-12 - Testing Period:

• Allow controls to operate for audit period
• Conduct internal assessments
• Gather evidence and documentation

Month 13 - Audit Phase:

• External auditor testing and validation
• Remediate any control deficiencies
• Finalize audit and receive report

Expert Recommendations

1. Start with Business Need

Don't choose an audit type based on industry alone. Evaluate your specific business model, customer requirements, and strategic objectives.

Action Items:

• Survey your customers about their requirements
• Review contracts for audit clauses
• Assess competitive landscape
• Consider regulatory requirements

2. Consider Future Growth

Think about where your business will be in 2-3 years. What started as a SOC 1 need might evolve into SOC 2 requirements as you grow.

Action Items:

• Evaluate planned service expansions
• Consider target customer segments
• Assess technology roadmap
• Plan for international expansion

3. Maximize ROI

Choose the audit that provides the greatest return on investment through customer satisfaction, competitive advantage, and risk mitigation.

Action Items:

• Calculate potential revenue impact
• Assess risk reduction benefits
• Consider operational improvements
• Evaluate marketing and sales value

Pro Tip: Dual Approach

For organizations that serve both financial and technology markets, consider maintaining both SOC 1 and SOC 2 reports. This provides comprehensive coverage and positions you for maximum market opportunities.

Example: A payroll company might need SOC 1 for its core payroll services but SOC 2 for its employee self-service portal and mobile applications.

Conclusion

Still unsure which audit is right for you? Our compliance experts can help you evaluate your specific needs and choose the right SOC audit approach for your organization.