Comparisons4 June 2026 6 min read

SOC 1 vs SOC 2: Which Report Do You Actually Need?

SOC 1 covers financial controls; SOC 2 covers security and availability. Most SaaS companies need SOC 2. Learn how to tell which report your customer is asking for.

Key Takeaways

SOC 1 covers controls relevant to financial reporting (ICFR); SOC 2 covers security, availability, and data protection.
Most SaaS companies need SOC 2, not SOC 1 — unless their service directly impacts customer financial statements.
Payroll processors, accounting SaaS, and ERP vendors typically need both SOC 1 and SOC 2.
SOC 1 is governed by SSAE 18; SOC 2 is governed by AT-C Section 205 — both require AICPA-licensed CPA auditors.
Enterprise buyers can request either or both — know which one applies to your service before starting.

In this guide

Overview
SOC 1 Explained
SOC 2 Explained
Key Differences
Who Needs Which Report?
When You Need Both
Common Mistakes

Overview

The SOC (System and Organisation Controls) report family includes SOC 1, SOC 2, and SOC 3. All are issued by AICPA-licensed CPA firms, but they cover fundamentally different subject matter. Confusing SOC 1 with SOC 2 in a customer conversation can create unnecessary work — or a delayed deal.

SOC 1 Explained

SOC 1 (Statement on Standards for Attestation Engagements No. 18, or SSAE 18) reports on controls at a service organisation that are relevant to user entities' internal control over financial reporting (ICFR). Specifically, it addresses: do the service organisation's controls prevent material misstatements in the financial statements of its customers?

SOC 1 Type I: controls are suitably designed at a point in time. SOC 1 Type II: controls operated effectively over a period (same Type I/II structure as SOC 2). The report is used by customer auditors (financial statement auditors) during their ICFR assessments.

SOC 2 Explained

SOC 2 reports on controls related to Trust Services Criteria: Security, Availability, Processing Integrity, Confidentiality, and Privacy. It addresses: does the service organisation have adequate controls to protect customer data and systems?

SOC 2 is requested by IT security teams, procurement, and compliance functions — not by financial statement auditors. The audience and purpose is entirely different from SOC 1.

Key Differences

Purpose: SOC 1 is for financial auditors evaluating ICFR risk from service organisations. SOC 2 is for security teams evaluating data security and operational risk.

Governing standard: SOC 1 is governed by SSAE 18 (AT-C Section 320). SOC 2 is governed by AT-C Section 205. Both require AICPA-licensed CPA auditors.

Scope: SOC 1 scope is determined by which of the service organisation's controls affect customer financial reporting. SOC 2 scope is determined by which systems and processes are in scope for the Trust Services Criteria.

Who Needs Which Report?

You need SOC 1 if: your service directly affects how customers record financial transactions, process payroll, manage accounts payable/receivable, or otherwise impacts customer financial statements. Examples: payroll processors (ADP, Gusto), accounting SaaS (Xero, QuickBooks), ERP systems, POS processors, loan origination systems.

You need SOC 2 if: you provide a SaaS service where customers are concerned about data security, availability, and confidentiality. This covers the vast majority of B2B SaaS — HR platforms, project management tools, CRMs, analytics platforms, developer tools, security tools.

The quick test: would your service failure or error cause your customer's financial statements to be materially misstated? If yes, you likely need SOC 1. If the concern is data security and system availability, you need SOC 2.

When You Need Both

Some service organisations need both SOC 1 and SOC 2. A payroll processor, for example, affects financial reporting (SOC 1 needed) and stores sensitive employee personal data (SOC 2 needed). The two reports have different scope and different auditors may work on each, though many firms conduct both engagements together.

Fintech companies processing payments, billing platforms, and revenue recognition SaaS are common examples of companies that receive requests for both reports from their enterprise customers.

Common Mistakes

Mistake 1: Assuming all SOC reports are the same. When a customer procurement team asks for a "SOC report," clarify whether they want SOC 1 or SOC 2 before engaging an auditor.

Mistake 2: Getting SOC 1 when SOC 2 is what your customers need. A developer tools company getting SOC 1 because someone misread a procurement request — and then needing to redo the engagement for SOC 2 — wastes $20,000+ in audit fees.

Mistake 3: Thinking SOC 2 is sufficient when customers specifically need SOC 1 for ICFR audits. If a Big 4 financial auditor is requesting the report, they almost certainly need SOC 1.

Frequently Asked Questions

Can SOC 2 replace SOC 1?

No. They serve different purposes for different audiences. A financial statement auditor asking for a SOC 1 report for ICFR assessment cannot substitute SOC 2 for that purpose. If you receive requests for both, you likely need both reports.

Is SOC 2 more expensive than SOC 1?

They are comparable in cost for Type II engagements — typically $15,000–$40,000 each depending on scope and auditor. Dual SOC 1 and SOC 2 engagements at the same firm often benefit from shared preparation work, reducing the combined cost.

What does "SSAE 18" mean on a SOC report?

SSAE 18 (Statement on Standards for Attestation Engagements No. 18) is the AICPA standard that governs SOC 1 engagements. If a report references SSAE 18 or AT-C Section 320, it is a SOC 1 report. If it references AT-C Section 205, it is a SOC 2 (or SOC 3) report.

Do Indian SaaS companies need SOC 1?

Only if their service directly affects their customers' financial reporting. Most Indian SaaS companies need SOC 2. Indian payroll processors (Darwinbox, Keka), billing platforms, and any service that processes financial transactions on behalf of customers should evaluate whether SOC 1 is also required.

Who requests SOC 1 reports?

SOC 1 reports are primarily requested by the user entity's external auditors (financial statement auditors) as part of their ICFR risk assessment. You typically receive the request via procurement, but the underlying requirement comes from the customer's Big 4 or other external audit firm.