SOC 1 vs SOC 2: Key Differences, Who Needs Each, and How to Choose
SOC 1 covers financial reporting controls; SOC 2 covers security, availability, and privacy. Learn the key differences, costs, timelines, and which report your organization needs.
SOC 1 vs SOC 2: Key Differences, Who Needs Each, and How to Choose
SOC 1 and SOC 2 are both attestation reports produced under the SSAE 18 standard, issued by independent CPA firms — but they serve fundamentally different purposes. Getting this distinction wrong is one of the most common procurement missteps for growing B2B companies.
SOC 1 is about financial reporting controls. SOC 2 is about security. Both have Type 1 and Type 2 variants. Many organizations need both. But the right path depends on who your customers are, what your services do, and what your enterprise buyers' auditors and security teams are asking for.
This guide covers everything: what each report covers, who needs each one, how the costs compare, and how to avoid the most common audit failures.
Key Takeaways
- SOC 1 (governed by SSAE 18 AT-C 320) evaluates internal controls over financial reporting. It is required when your services directly affect clients' financial statements — payroll, transaction processing, accounting platforms, and financial data hosting.
- SOC 2 (governed by SSAE 18 AT-C 105 and AT-C 205) evaluates security, availability, processing integrity, confidentiality, and privacy controls. It is the standard security attestation for SaaS, cloud infrastructure, and managed service providers.
- Both have two types: Type 1 assesses control design at a point in time; Type 2 assesses both design and operating effectiveness over 6-12 months. Enterprise buyers routinely require Type 2.
- SOC 2 Type 2 audit fees range from USD 15,000 to 60,000. Total first-year compliance costs (prep, tooling, audit) typically run USD 30,000-150,000 [1].
- SOC 2 and ISO 27001 share significant control overlap — reported overlaps range from 43% to over 90% depending on scope and methodology, making dual compliance significantly more efficient than starting each from scratch [2].
- The most common cause of SOC 2 audit exceptions is missing or incomplete evidence for specific months in the audit window — a problem automation platforms solve structurally [3].
What Is SOC 1?
SOC 1 (System and Organization Controls 1) is an attestation report focused on internal controls over financial reporting (ICFR). It is the successor to the SSAE 16 standard (which itself replaced SAS 70) and is currently governed by SSAE 18 AT-C 320.
A SOC 1 report is relevant when a service organization provides services that could materially affect the financial statements of its client organizations — and when those clients' external auditors need evidence that the service organization's controls are working properly.
What SOC 1 Evaluates
SOC 1 does not prescribe specific controls that must be in place. Instead, the service organization defines its own control objectives — the goals its controls are designed to achieve — and the auditor tests whether those controls meet those objectives.
Control objectives in a SOC 1 engagement typically cover:
- Transaction processing accuracy — Are financial transactions processed completely and accurately?
- Data integrity — Is data protected from unauthorized modification?
- Access controls — Are only authorized users able to initiate, approve, or record transactions?
- Change management — Are changes to systems that process financial data controlled and authorized?
- Backup and recovery — Can the organization restore financial data in the event of a disruption?
The scope of a SOC 1 report is tightly defined around the specific services that affect clients' financial reporting. Systems and processes outside that scope are excluded.
Who Issues SOC 1 Reports?
SOC 1 reports are issued by independent CPA (Certified Public Accountant) firms licensed to perform attestation engagements. The auditor expresses an opinion on whether your controls are suitably designed (Type 1) or suitably designed and operating effectively (Type 2).
Who Needs SOC 1?
SOC 1 reports are required by organizations whose services directly affect their clients' ICFR, including:
- Payroll processors — Calculating, withholding, and disbursing employee compensation affects clients' payroll accounting
- Financial data processors — Platforms that process, record, or transmit financial transactions
- Fund administrators — Investment accounting, NAV calculation, and trade settlement services
- Healthcare claims processors — When claims processing affects revenue recognition for healthcare providers
- Managed IT providers — When IT services include hosting or managing financial applications
The demand for SOC 1 reports often comes from clients' external auditors (typically Big Four or mid-market accounting firms) who require evidence of service organization controls as part of their own audit of the client's financial statements.
What Is SOC 2?
SOC 2 (System and Organization Controls 2) is an attestation report evaluating a service organization's controls against the AICPA Trust Services Criteria. It is governed by SSAE 18 AT-C 105 and AT-C 205.
Unlike SOC 1, SOC 2 is not focused on financial reporting. It is focused on how your organization protects customer data and ensures reliable service delivery.
The Five Trust Services Criteria
SOC 2 reports are structured around five criteria. Security is mandatory; the others are optional and selected based on what your service commitments require.
| Criteria | What It Evaluates | Typical Applicability |
|---|---|---|
| Security (Common Criteria) | Logical and physical access, change management, risk assessment, monitoring | Required for all SOC 2 reports |
| Availability | System uptime, performance, disaster recovery | SaaS platforms with SLA commitments |
| Processing Integrity | Completeness, accuracy, validity, timeliness of processing | Transaction and data processing platforms |
| Confidentiality | Protection of confidential information | Platforms handling confidential business data |
| Privacy | Collection, use, retention, and disposal of personal data | Platforms handling personal information |
Most SaaS companies include Security and Availability as a minimum. Organizations handling personal data often add Privacy. The selection should be driven by your service commitments to customers and what your enterprise buyers expect.
Who Needs SOC 2?
SOC 2 has become the standard security attestation for B2B software companies, particularly:
- SaaS companies selling to US enterprises or security-conscious European enterprises
- Cloud infrastructure providers and managed service providers
- Data processing companies handling customer data
- Any B2B software company where enterprise buyers conduct formal vendor security assessments
The commercial driver is procurement. Enterprise buyers — typically those with 500+ employees and dedicated security teams — include SOC 2 as a requirement in vendor selection processes. Without a SOC 2 report, a deal may stall or require extensive manual security reviews on each sale.
SOC 1 vs SOC 2: Complete Comparison
| Aspect | SOC 1 | SOC 2 |
|---|---|---|
| Purpose | Internal controls over financial reporting (ICFR) | Security, availability, and data protection controls |
| Governing Standard | SSAE 18 AT-C 320 | SSAE 18 AT-C 105 and AT-C 205 |
| Criteria Framework | No set criteria — organization defines control objectives | AICPA Trust Services Criteria (Security mandatory, others optional) |
| Issued By | Independent licensed CPA firm | Independent licensed CPA firm |
| Primary Audience | Clients' external financial auditors | Clients' security, procurement, and compliance teams |
| Report Types | Type 1 (design) and Type 2 (design + effectiveness) | Type 1 (design) and Type 2 (design + effectiveness) |
| Typical Industries | Payroll, financial data processing, fund administration | SaaS, cloud services, managed IT, data processing |
| Observation Period (Type 2) | Typically 6-12 months | Typically 6-12 months; first-time engagements may use shorter periods |
| Cost (Type 2 audit) | USD 15,000-50,000 [4] | USD 15,000-60,000 [1] |
| European Relevance | Low — primarily a US/UK market requirement | Moderate — US buyers require it; European buyers often prefer ISO 27001 |
| ISO 27001 Overlap | Minimal | Significant overlap (reported 43%–90%+ by scope) |
Type 1 vs Type 2: What's the Difference?
Both SOC 1 and SOC 2 come in two types. The same logic applies to both:
Type 1 — Point-in-Time Design Assessment
- Evaluates whether controls are suitably designed at a specific date
- Answers: "Are the right controls in place?"
- Auditor does not test whether controls have been operating over time
- Faster to obtain — 2-6 weeks of audit work once you are ready
- Lower cost — typically USD 5,000-25,000 for SOC 2
- Less valuable to buyers — it shows intention, not sustained execution
- Good as a starting point while building toward Type 2
Type 2 — Operating Effectiveness Over Time
- Evaluates whether controls are suitably designed AND operating effectively over a review period (typically 6-12 months)
- Answers: "Do the controls actually work, consistently, over time?"
- Requires controls to be in operation and documented throughout the observation period
- Audit fieldwork: 2-6 weeks following the observation period
- Higher cost — USD 15,000-60,000 audit fee, USD 30,000-150,000 total first-year cost for SOC 2
- The standard enterprise buyers expect — most procurement checklists require Type 2
The practical implication: do not start the observation period until your controls are genuinely in place. Every exception that surfaces during the observation period can end up in the final report. Auditors note control failures — they cannot be hidden.
SOC 1 and SOC 2 Side by Side: Use Case Examples
Understanding which report you need becomes clearer through examples:
Need SOC 1:
- A payroll SaaS that calculates wages, withholds taxes, and disburses payments — your errors directly affect your clients' ICFR
- A financial data platform that aggregates and reports financial transactions for enterprise clients
- A fund administrator providing NAV calculations, investor reporting, and trade reconciliation
Need SOC 2:
- A project management SaaS storing sensitive client data
- A cloud storage provider handling enterprise documents
- A CRM platform that processes large volumes of customer personal data
- A B2B SaaS expanding into US enterprise accounts where procurement requires a security attestation
Need Both:
- A payroll SaaS that also stores employee personal data and requires security attestation for enterprise HR buyers
- A financial data platform that both processes transactions (SOC 1) and holds enterprise data under security commitments (SOC 2)
- Any company that handles financial processing AND is asked for security attestation by procurement teams
The two reports are not mutually exclusive. They serve different audiences and different compliance requirements — and many mature organizations maintain both annually.
Cost Comparison: SOC 1 vs SOC 2 in 2026
Both reports involve similar cost structures: readiness preparation, audit fees, and ongoing maintenance. Here is a realistic cost breakdown:
| Cost Component | SOC 1 Type 2 | SOC 2 Type 2 |
|---|---|---|
| Readiness assessment / gap analysis | USD 5,000-20,000 | USD 5,000-20,000 |
| Remediation and implementation | USD 10,000-30,000 | USD 10,000-30,000 |
| Compliance automation platform (annual) | USD 10,000-50,000 | USD 10,000-50,000 |
| Audit fees (initial Type 2) | USD 15,000-50,000 [4] | USD 15,000-60,000 [1] |
| Total first-year estimate | USD 40,000-150,000 | USD 40,000-160,000 |
| Annual recurring (after first year) | USD 25,000-80,000 | USD 25,000-80,000 |
Costs vary significantly based on:
- Organization size — more systems and people mean more controls to document and test
- Scope — more Trust Services Criteria (SOC 2) or broader service definition (SOC 1) increases complexity
- Readiness — organizations with mature security practices spend less on remediation
- Auditor choice — boutique firms specializing in tech audits often offer more competitive pricing than Big Four
- Automation — platforms that automate evidence collection can reduce internal preparation effort by 40-60%
SOC 2 vs ISO 27001: What European Companies Need to Know
If you are a European company, the SOC 2 vs ISO 27001 question matters as much as SOC 1 vs SOC 2.
| Aspect | SOC 2 | ISO 27001 |
|---|---|---|
| Primary Market | United States | International, particularly Europe |
| Output | Attestation report (CPA firm) | Certification (accredited body: DAkkS/TÜV/DEKRA in DE, COFRAC in FR, RvA in NL) |
| Validity | Report covers a 12-month period | Certificate valid 3 years with annual surveillance audits |
| EU Regulatory Alignment | Limited — does not satisfy NIS2 or DORA requirements | Strong — NIS2 and DORA reference ISO 27001 controls directly |
| Control Approach | Criteria-based (Trust Services Criteria) | Risk-based (Annex A, 93 controls) |
| Control Overlap | — | Significant overlap (reported 43%–90%+ depending on scope) |
For European B2B companies: start with ISO 27001 certification to satisfy European buyers, NIS2, and DORA requirements. Add SOC 2 when you need to address the US enterprise market.
The overlap between the frameworks means the marginal cost of adding the second certification is far lower than building each from scratch.
Why SOC 2 Audits Fail — And How to Avoid It
SOC 2 exceptions can disqualify a deal or, worse, surface in a report that buyers read carefully. The most common audit failures, based on auditor analysis [3][5]:
1. Missing Evidence for Specific Months
The #1 cause of SOC 2 Type 2 exceptions. Evidence collection is often inconsistent — controls operate correctly but the evidence (screenshots, logs, policy acknowledgements) is not captured at the right times.
Solution: Use a compliance automation platform that collects evidence continuously and maps it to controls. You cannot retroactively reconstruct a month of missing access reviews.
2. Access Control Drift
Former employees still have active accounts. MFA is not enabled on every production system. Quarterly access reviews are skipped. These are the audit exceptions that appear most frequently in qualified opinions.
Solution: Automate access reviews and connect your compliance platform to your identity provider so access state is continuously monitored.
3. Vendor Risk Not Documented
Most SaaS platforms rely on dozens of sub-processors. Auditors check whether you have assessed those vendors' security and have appropriate contractual protections. Gaps here are common.
Solution: Maintain a vendor inventory with current security assessments. Your vendor risk management processes should be documented and regularly updated.
4. Incident Response Never Tested
Having an incident response plan is required. Having evidence that you test it (tabletop exercises, simulations) is what separates a clean opinion from an exception.
Solution: Schedule and document at least one incident response exercise per year. Keep the records — auditors will ask.
5. Scope Creep Mid-Audit
Changing what systems are in scope after the observation period begins creates documentation gaps that are difficult to resolve.
Solution: Define and lock scope before the observation period starts. Changes require careful documentation and may extend timelines.
How Orbiq Supports SOC 1 and SOC 2 Compliance
Orbiq's compliance automation platform reduces the preparation burden for both SOC 1 and SOC 2 audits:
- Continuous Evidence Collection: Automated evidence gathering from cloud infrastructure, identity providers, and security tools — mapped to SOC 2 Trust Services Criteria and SOC 1 control objectives
- Control Monitoring: Real-time visibility into control status so exceptions are caught before auditors see them
- Trust Center: Publish your SOC 2 report availability, scope, and security controls for buyer due diligence — answer the same procurement questions once, not individually for each deal
- AI-Powered Questionnaires: Respond to buyer security questionnaires using evidence already collected from your compliance programme
- Multi-Framework Support: Map your controls across SOC 2, ISO 27001, NIS2, and DORA simultaneously — so evidence collected for one framework satisfies others
Further Reading
- SOC 2 Compliance — Complete Guide — Deep dive on Trust Services Criteria, audit process, and common controls
- ISO 27001 Certification — The Complete Guide — How ISO 27001 compares to SOC 2 and why European companies start here
- What Is an ISMS? — The management system that underpins both ISO 27001 and SOC 2
- Compliance Automation — How to automate evidence collection for ongoing SOC 2 compliance
Sources & References
- Sprinto / Bright Defense. "SOC 2 Audit Costs in 2026." https://www.brightdefense.com/resources/soc-2-audit-costs/ — SOC 2 Type 2 audit fees USD 15,000-60,000; total first-year costs USD 30,000-150,000.
- Linford & Co / Vanta. "SOC 1 vs SOC 2: Differences & Choosing the Report You Need." https://linfordco.com/blog/soc-1-vs-soc-2-audit-reports/ — Framework overlap analysis.
- Invimatic / DEV Community. "Why Many Companies Fail SOC 2 Type II." https://dev.to/narendra_sahoo_a2aeff1193/why-many-companies-fail-soc-2-type-ii-and-how-to-avoid-the-same-mistakes-4nci — Evidence collection gaps as primary audit failure cause.
- Linford & Co. "SOC 1 & SOC 2 Audit Costs: An Auditor's Price Breakdown." https://linfordco.com/blog/soc-audit-cost/ — SOC 1 Type 2 audit fees USD 15,000-50,000.
- Drata. "The Top 9 Mistakes Companies Make With SOC 2 Compliance." https://drata.com/blog/the-top-9-mistakes-companies-make-with-soc-2-compliance — Access control drift and vendor management gaps.
- SOC Reports. "What is SOC 1 SSAE 18? Introduction and Overview." https://socreports.com/audit-overview/what-is-soc-1-ssae-18 — SSAE 18 AT-C 320 scope and definition.
- Sprinto. "SOC 1 vs SOC 2: Key Differences, Scope & Which You Need in 2026." https://sprinto.com/blog/soc-1-vs-soc-2/ — Who needs each report, use case analysis.
This guide is maintained by the Orbiq team. Last updated: March 2026.