SOC 1 vs SOC 2 Type II
A detailed comparison to help you understand the differences, similarities, and when you need each framework.
Quick Overview
SOC 1
SOC 1 (formerly SAS 70) is an attestation standard under SSAE 18 that evaluates internal controls over financial reporting (ICFR) at a service organization. It is designed for organizations whose services impact their clients' financial statements — such as payroll processors, loan servicers, and SaaS platforms that handle billing, revenue recognition, or financial transactions. The audit is performed by a licensed CPA firm and the resulting report (Type I or Type II) is used by client auditors to assess the risk that outsourced services introduce to financial reporting.
SOC 2 Type II
SOC 2 is an attestation standard developed by the AICPA that evaluates the operational effectiveness of controls based on five Trust Services Criteria: Security, Availability, Processing Integrity, Confidentiality, and Privacy. It is the de facto security certification for SaaS and technology companies in North America, with the resulting report shared under NDA with enterprise customers during procurement to validate that the service organization manages data securely.
What They Have in Common
- Both are AICPA attestation standards performed by licensed CPA firms following SSAE 18 guidelines
- Both offer Type I (point-in-time design) and Type II (operational effectiveness over a period) report options
- Both require management to define the system description and the scope of controls being examined
- Both require independent auditor testing of controls with documented evidence of operating effectiveness
- Both reports are restricted-use documents typically shared under NDA with customers and their auditors
- Both require annual re-examination to maintain a current, unbroken chain of audit reports
Key Differences
| Aspect | SOC 1 | SOC 2 Type II |
|---|---|---|
| Purpose | Evaluates controls relevant to clients' internal control over financial reporting (ICFR) | Evaluates controls over security, availability, processing integrity, confidentiality, and/or privacy |
| Applicable standard | Follows SSAE 18 AT-C Section 320 using control objectives defined by management | Follows SSAE 18 AT-C Section 205 using the AICPA Trust Services Criteria |
| Audience | Used by client financial auditors to support opinions on clients' financial statements | Used by enterprise buyers, security teams, and procurement to evaluate vendor security posture |
| Control criteria | Control objectives are custom-defined by management specific to the financial processes outsourced | Control criteria are standardized across the five Trust Services Criteria defined by AICPA |
| Industry applicability | Required for payroll processors, loan servicers, claims processors, and any service affecting financial reporting | Required for SaaS companies, cloud providers, managed service providers, and data center operators |
| Who requests it | Requested by client CFOs and external financial auditors (Big 4, mid-market CPA firms) | Requested by CISOs, security teams, and procurement departments during vendor evaluation |
| Regulatory driver | Driven by Sarbanes-Oxley (SOX) compliance requirements for publicly traded clients | Driven by enterprise security requirements and increasing customer expectations for vendor security |
| Cost | $30,000-$80,000 depending on complexity of financial processes in scope | $30,000-$100,000 depending on the number of Trust Services Criteria selected and system complexity |
Who Needs What?
If your service directly affects your clients' financial statements — for example, you process payroll, handle billing, manage accounts receivable, or perform transaction processing — you need SOC 1. If your clients are publicly traded and subject to SOX, their auditors will almost certainly require your SOC 1 report. If you provide SaaS, cloud infrastructure, or managed IT services where enterprise customers need assurance about your security controls, you need SOC 2. Some organizations, particularly fintech companies and financial SaaS platforms, need both because their service affects financial reporting AND handles sensitive data.
Our Recommendation
SOC 1 and SOC 2 serve fundamentally different audiences with different concerns. SOC 1 satisfies financial auditors worried about your impact on their clients' financial statements, while SOC 2 satisfies security teams evaluating your data protection practices. If you only need one, choose based on what your customers actually ask for. Many fintech and financial SaaS companies pursue both simultaneously, leveraging the shared audit infrastructure and CPA firm relationship to reduce total cost by 20-30% compared to running them independently.
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