Quick Answer
SOC 1 is for companies that affect their clients' financial statements (like payroll processors). SOC 2 is for companies that store, process, or transmit customer data (like SaaS companies).
Most technology companies need SOC 2. If you're building software, providing cloud services, or handling customer data, SOC 2 is almost certainly the right choice.
SOC 1 vs SOC 2: Detailed Comparison
Understanding the key differences
| Aspect | SOC 1 | SOC 2 |
|---|---|---|
| Primary Focus | Financial reporting controls | Security, availability, processing integrity, confidentiality, privacy |
| Who Needs It | Companies that impact client financial statements (payroll, payment processors) | SaaS companies, cloud providers, any company handling customer data |
| Audit Standard | SSAE 18 (AT-C 320) | SSAE 18 (AT-C 205) + Trust Services Criteria |
| Report Recipients | User entities and their auditors (restricted distribution) | Customers, prospects, stakeholders (broader distribution) |
| Common Industries | Payroll, accounting, financial services, data centers | SaaS, cloud, technology, healthcare, any B2B software |
| Regulatory Driver | Sarbanes-Oxley (SOX) compliance for clients | Customer requirements, enterprise sales, security posture |
When to Choose Each
Common use cases for SOC 1 and SOC 2
- Payroll processing companies
- Payment processing services
- Loan servicing companies
- Data center hosting (financial data)
- Claims processing services
- Investment management platforms
- SaaS and cloud applications
- Managed IT services
- Customer data management
- Healthcare technology
- HR and recruiting software
- Any B2B technology company
Type I vs Type II (Both SOC 1 and SOC 2)
Both SOC 1 and SOC 2 have Type I and Type II versions
- Point-in-time assessment
- Tests design of controls only
- Faster to achieve
- Good first step for new companies
- Period-of-time assessment (3-12 months)
- Tests design AND operating effectiveness
- Required by most enterprise customers
- More comprehensive assurance
Can You Need Both SOC 1 and SOC 2?
Yes, some organizations need both
Some companies need both SOC 1 and SOC 2 reports. For example, a payroll company that also offers HR software might need:
- SOC 1 for their payroll processing services (affects client financial statements)
- SOC 2 for their HR software platform (handles sensitive employee data)
If you're unsure which you need, talk to your customers. Their requirements will guide you.
FAQ
Common questions about SOC 1 vs SOC 2
Not necessarily. The difficulty depends on your existing controls. SOC 2 has more security-focused criteria, while SOC 1 focuses on financial controls. For most technology companies, SOC 2 is more relevant to their existing practices.
No. They serve different purposes. SOC 1 is specifically for controls relevant to financial reporting. If your clients' auditors require a SOC 1 report, a SOC 2 report won't satisfy that requirement.
SOC 2 is more commonly requested by technology buyers. Enterprise customers typically require SOC 2 during vendor security reviews. SOC 1 is primarily requested by companies with SOX compliance requirements.
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