What is SOC 1 vs SOC 2?

TL;DR – SOC 1 vs SOC 2: What You Really Need

• SOC 1 is all about financial‑reporting controls—it assures auditors and stakeholders that your internal systems accurately process and report financial data.
• SOC 2, by contrast, evaluates your controls over information security, availability, processing integrity, confidentiality, and privacy based on the AICPA Trust Services Criteria.

Both frameworks offer two types: Type I (a snapshot of your control design at a specific point in time) and Type II (proof of controls operating effectively over several months). Type II provides greater trust and is often required by enterprise customers.

When to choose which?
Use SOC 1 if you affect client financial statements or their SOX compliance. Go with SOC 2 if you’re a tech or SaaS provider handling sensitive customer or operational data. Many companies find they need both to fully satisfy customer and regulatory demands.

SOC stands for “System and Organization Controls”, formerly Service Organization Control reports. SOC covers a suite of reports from AICPA that CPA firms can issue in connection with system controls at an organization. In total, there is SOC 1, SOC 2, SOC 3, and SOC for Cybersecurity reports. The most common are SOC 1 and SOC 2.

The Difference Between SOC 1 and SOC 2

The main difference between a SOC 1 report and a SOC 2 report is that SOC 1 is focused on internal controls related to financial reporting while SOC 2 is focused on information and IT security.

To dig in further, SOC 1 audit’s control objectives cover the controls around processing and securing customer information, spanning both business and IT processes. For example, a company offering outsourced payroll services may have a customer who asks to conduct an audit of payroll processing and data security controls. They can be given a SOC 1 report.

A SOC 2 audit control objectives cover any combination of the five following criteria: security, confidentiality, information policy, processing integrity, and availability. Some service organizations may cover security and availability, while others may require all five criteria. For example, a data center offers its customers a secure data center for their critical infrastructure. Instead of having customers perform on-site inspections, the data center can give them a SOC 2 report.

How to Choose SOC 1 or SOC 2

The choice of which report to pursue depends on your organization. One determining factor is whether your company’s controls would affect your client’s internal control over financial reporting. 

What is a SOC 1 Type 2 Report?

A SOC 1 report is for service organizations that impact or might impact their clients’ financial reporting. A Type 1 report provides a report of procedures and controls an organization has put in place as of a specific time. A Type 2 report has an audit period and provides evidence of how an organization operated its controls over a specific period of time. 

There are no more stringent control requirements, but it describes how a company’s control environment operated over an audit period, usually less than six months. You can have the same controls in a Type 1 report as a Type 2, and the only difference is that they are audited or examined over a period of time and testing results are reported in a SOC 1 report.

Make Sure Your Business is SOC 1 or SOC 2 Compliant

Companies are increasingly reliant on cloud-based services to store data where breaches can occur. From phishing to malware, cybersecurity has caught the attention of companies that need to be vigilant about protecting themselves and their customers.

PacGenesis helps connect your business to a trustworthy partner to help guide you through the various protocols and cybersecurity protection. We’ve partnered with leaders in cybersecurity like strongDM to help with all your company’s cloud-based security needs. With over 300 customers, we listen to pain points, audit your current technology, and suggest and implement the solutions that fit. Contact us today to learn more about PacGenesis and how we can help.

To learn more about PacGenesis, follow @PacGenesis on Facebook, Twitter, and LinkedIn, or visit us at pacgenesis.com.

512-766-8715