SOC 1 vs. SOC 2 and the different types: What’s the difference?

Summary

SOC 1 and SOC 2 reports are independent audits that help businesses demonstrate trust, security, and reliability, but they serve different purposes. SOC 1 focuses on internal controls over financial reporting, while SOC 2 evaluates how well an organization protects data across security, availability, processing integrity, confidentiality, and privacy. Additionally, SOC reports come in two types: Type 1, which reviews control design at a single point in time, and Type 2, which evaluates both design and real-world effectiveness over a 6–12 month period for stronger assurance.

What Is the Difference Between SOC 1 and SOC 2?

SOC 1: The Financial Reporter

SOC 1 is an audit report that examines a service organization's internal controls over financial reporting (ICFR). It assesses the effectiveness of these controls in preventing errors or fraud in financial reporting. Businesses that process or impact financial transactions for clients find this audit particularly relevant.

Industries that typically need SOC 1 reports include:

Payroll processors
Loan servicers
Data centers handling financial data
Financial application providers

SOC 2: The Data Security Champion

SOC 2 is an audit report that evaluates a service organization's controls related to the five Trust Service Criteria. The goal is to assure clients and stakeholders that the organization effectively manages risks related to data security and system performance. The SOC 2 report applies to a broader range of service organizations where data security and system performance are vital.

Industries that typically need SOC 2 reports include:

SaaS providers
Cloud storage companies
IT managed service providers
Data hosting services

What Are the Five Trust Service Criteria in SOC 2?

SOC 2 audits evaluate controls based on five Trust Service Criteria established by the AICPA:

Security: Protection of system resources against unauthorized access
Availability: Accessibility of the system as committed or agreed upon
Processing Integrity: System processing is complete, valid, accurate, timely, and authorized
Confidentiality: Information designated as confidential is protected as committed or agreed
Privacy: Personal information is collected, used, retained, disclosed, and disposed of in conformity with commitments

SOC 1 vs. SOC 2 Comparison

Feature	SOC 1	SOC 2
Focus Area	Internal controls over financial reporting (ICFR)	Security, availability, processing integrity, confidentiality, privacy
Purpose	Ensure accurate financial reporting for clients	Demonstrate effective data security and system management
Industries/Use Cases	Payroll processors, loan servicers, financial application providers	SaaS providers, cloud storage, IT services, data hosting
Trust Service Criteria	Not applicable	Five criteria: Security, Availability, Processing Integrity, Confidentiality, Privacy

Now that we've covered the basics of SOC 1 and SOC 2 audits, let's explore the two types of SOC reports: Type 1 and Type 2.

What Is the Difference Between Type 1 and Type 2 SOC Reports?

Type 1

A Type 1 report is an audit that evaluates an organization's control design at a specific point in time. Auditors examine the controls in place and determine if they are aptly designed to achieve their objectives. This report offers a glimpse of the control environment, highlighting control adequacy but not evaluating its effectiveness over time.

Type 1 reports are often used by organizations that are new to SOC compliance or need to demonstrate control design quickly.

Type 2

A Type 2 report is an audit that examines both the design and operating effectiveness of an organization's controls over a specified period, typically six months to a year. Besides assessing the adequacy of control design, auditors test the controls' effectiveness by gathering evidence of their consistent operation during the review period. A Type 2 report provides a more thorough understanding of the control environment and offers greater assurance to stakeholders about the ongoing reliability and effectiveness of the organization's controls.

Type 1 vs. Type 2 Comparison

Feature	Type 1	Type 2
Evaluation Scope	Control design only	Control design and operating effectiveness
Time Period	Single point in time	6–12 months
Level of Assurance	Lower – snapshot of controls	Higher – demonstrates sustained effectiveness
Best For	New compliance programs, initial assessments	Established organizations, ongoing client assurance

Conclusion

SOC reports are pivotal in securing the safety and reliability of businesses handling sensitive data and financial transactions. Understanding the differences between SOC 1 and SOC 2, as well as Type 1 and Type 2 reports, helps organizations choose the right audit for their compliance needs and provides stakeholders with confidence in data security practices.

At iTrustCapital, we're committed to upholding strict internal controls and safeguarding client assets, ensuring they stay off-balance sheet and separate from our business operations.

Frequently Asked Questions

Which SOC report do I need?

The SOC report your business needs depends on the type of services you provide and what your clients require. If your organization impacts financial reporting, such as processing transactions or managing financial data, a SOC 1 report is typically necessary. If you handle sensitive customer data or operate technology platforms, a SOC 2 report is more appropriate because it focuses on security and system reliability.

How long does a SOC 2 Type 2 audit take?

A SOC 2 Type 2 audit usually takes between 6 to 12 months because it evaluates how controls perform over time, not just at a single moment. This includes an observation period where auditors verify that systems and processes are consistently followed. The extended timeframe provides stronger assurance that security practices are reliable and repeatable. For investors, this longer evaluation period is what makes SOC 2 Type 2 significantly more trustworthy than a one-time review.

What are the five Trust Service Criteria in SOC 2?

Yes, many organizations obtain both SOC 1 and SOC 2 reports because they serve different but complementary purposes. SOC 1 addresses controls related to financial reporting, while SOC 2 focuses on data security and operational integrity. Companies that manage both financial transactions and sensitive customer data often need both to meet client and regulatory expectations. This dual certification helps provide a more complete picture of trust and accountability.

Can a company have both SOC 1 and SOC 2 reports?

Is SOC 2 Type 2 better than Type 1?

SOC 2 Type 2 is generally considered more robust because it evaluates both the design and effectiveness of controls over time. In contrast, Type 1 only assesses whether controls are properly designed at a specific point in time. Because Type 2 includes real-world testing over several months, it provides a higher level of assurance to clients and stakeholders. This is why many investors look for SOC 2 Type 2-certified providers when choosing platforms to store and manage assets.

How often should SOC audits be conducted?

SOC audits are typically conducted on an annual basis to ensure controls remain effective and up to date. For Type 2 reports, each audit covers a rolling 6–12 month period, meaning organizations must continuously maintain their standards. Regular audits help demonstrate ongoing compliance and build long-term trust with clients and partners. Consistency in these audits is especially important in industries handling financial or digital assets.

What happens if a company fails a SOC audit?

If a company fails a SOC audit, the auditor will document any control deficiencies or exceptions in the report. The organization can then take corrective action to fix these issues and improve its internal processes. In many cases, businesses will undergo a follow-up audit to demonstrate that problems have been resolved.

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