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Enterprise procurement teams increasingly require independent audit evidence before signing new vendor contracts. Security questionnaires now routinely ask for a SOC 1 report, a SOC 2 report, or both. Many SaaS and technology companies do not know which one actually applies to their business. Choosing incorrectly wastes months of audit fees and delays deals that depend on proof of strong controls.
What Is a SOC 1 Report?
A System and Organization Controls 1 (SOC 1) report evaluates controls at a service organization that affect a customer's financial statements. The American Institute of Certified Public Accountants (AICPA) governs these audits under Statement on Standards for Attestation Engagements No. 18 (SSAE 18). SOC 1 audits focus on Internal Control over Financial Reporting (ICFR).
These controls keep transaction processing, billing, and financial data accurate. Payroll processors, payment platforms, and financial software vendors typically pursue SOC 1 reports because their services touch client financial statements directly.
A client's own external auditor relies on a vendor's SOC 1 report to plan and scope its audit of that client's financial statements. When a service organization's controls are sound, the client's auditor can often reduce additional testing at the client's own operations.
What Is a SOC 2 Report?
A SOC 2 report examines controls against the AICPA's Trust Services Criteria (TSC) rather than financial reporting. The framework organizes controls into five criteria:
- Security
- Availability
- Processing integrity
- Confidentiality
- Privacy
Security applies to every SOC 2 audit. A service organization scopes in the remaining four criteria based on the commitments it makes to customers. Cloud platforms, software-as-a-service (SaaS) providers, and data processors pursue SOC 2 reports to demonstrate strong data security and operational controls to prospects and partners.
SOC 1 vs SOC 2: Key Differences in Scope
SOC 1 vs SOC 2 comparisons come down to one core question: does the report matter for financial statements or for information security? SOC 1 covers financial reporting controls only. SOC 2 covers the broader Trust Services Criteria. These include security, availability, and data protection unrelated to financial statements.
A company that stores customer data, hosts an application, or processes health records needs a SOC 2 report. This holds true even if its services never touch a client's general ledger. A company that runs payroll, processes claims, or manages fund transfers on behalf of clients typically needs a SOC 1 report. These services directly affect a client's financial reporting.
Customer and Auditor Expectations for Each Report
The intended reader shapes which report matters. A client's financial statement auditor reads a SOC 1 report as part of that client's own annual audit. The report rarely reaches sales prospects or security teams, since its purpose is narrow and technical.
A SOC 2 report serves a different audience entirely. Prospective customers, security reviewers, and procurement teams request it directly during vendor due diligence. This happens well before any contract is signed.
Control objectives reflect this difference. The service organization defines its SOC 1 control objectives in coordination with its auditor. These objectives tie to specific financial processes, such as billing accuracy or transaction completeness.
SOC 2 control objectives map to the Trust Services Criteria and cover broader operational practices. These include access management; change control; incident response; and vendor risk oversight. A prospect reviewing a SOC 2 report expects evidence of these operational safeguards, not financial process detail.
A well-scoped SOC 2 engagement typically starts with a readiness assessment. That process maps existing controls to the applicable Trust Services Criteria before the formal audit begins. A strong readiness assessment shortens the audit and reduces the number of findings an auditor raises during fieldwork.
Type I vs Type II Reports for Both Standards
Both SOC 1 and SOC 2 reports come in two versions: Type I and Type II. A Type I report evaluates the design of controls as of a specific date. A SOC Type 2 report covers a review period, typically three to twelve months, evaluating whether those controls actually operated effectively over time. Most enterprise customers and procurement teams request Type II reports because a point-in-time snapshot does not prove consistent execution.
A SOC audit limited to Type I still holds value early in a compliance program. This applies especially to a first-time audit before a company has enough operating history for a Type II review period.
Report distribution also differs from a standard marketing document. A vendor shares both SOC 1 and SOC 2 reports as restricted-use documents under a non-disclosure agreement, not as public documents. A vendor typically shares the report directly with a prospect's security or procurement team once a mutual agreement is in place. This restricted distribution protects sensitive control detail while still giving buyers the assurance they need to move forward.
Which Report Do SaaS and Technology Companies Actually Need?
Most SaaS and technology companies pursue SOC 2 rather than SOC 1. Their services affect data security and operations, not a client's financial statements. Enterprise buyers evaluating a vendor typically request evidence of SOC2 compliance during procurement.
Many procurement teams refer to this informally as SOC 2 certification. The AICPA technically issues an attestation report rather than a certification, but the vendor questionnaire language rarely reflects that distinction.
Some technology vendors do need a SOC 1 report in addition to SOC 2. This applies particularly when a platform processes billing, invoicing, or payment data. That data often flows into a client's general ledger. A company that misjudges the correct report risks stalling a deal during the security review stage of a sales cycle.
How to Determine Which Audit Fits
Three questions help a leadership team identify the right path:
- Does the service affect a client's financial statements? Examples include payroll processing, billing, and fund transfers. A yes points toward SOC 1.
- Does the service involve hosting, processing, or storing customer data? A yes points toward SOC 2.
- What do current prospects and contracts actually request? Sales and legal teams often already have the answer inside signed vendor questionnaires or security addenda.
Reviewing a handful of recent deals clarifies audience expectations faster than guessing from the framework alone. Third-party risk teams at larger prospects often specify the exact report type in a master services agreement or security addendum, which removes the guesswork entirely.
SOC 1 and SOC 2 serve different purposes, and confusing the two costs time during a sales cycle or a compliance program. Financial reporting risk calls for SOC 1. Data security and operational trust call for SOC 2.
Matching the audit to actual customer expectations, rather than pursuing the wrong report first, keeps a compliance program efficient and keeps deals moving. A compliance advisor experienced in audit readiness and Trust Services Criteria scoping can shorten that decision considerably for a growing company.
