SOC 1 vs SOC 2 vs SOC 3: Differences Explained

The American Institute of Certified Public Accountants (AICPA) developed the System and Organisation Controls (SOC) reporting framework to give service organisations a structured way to demonstrate the effectiveness of their internal controls to customers, regulators, and other stakeholders. The framework comprises three distinct report types — SOC 1, SOC 2, and SOC 3 — each designed for a different purpose, audience, and use case.

Understanding which report your organisation needs (and whether you need more than one) is essential for allocating compliance resources effectively. This guide examines each report type in depth, compares them side by side, and provides a decision framework to help you determine the right path.

The SOC reporting suite at a glance

All three SOC report types share a common foundation: they are attestation reports issued by an independent CPA firm following standards set by the AICPA. The auditor examines an organisation’s controls, tests them against defined criteria, and issues a formal opinion. The reports differ in what controls they evaluate, who the intended audience is, and how widely the report can be distributed.

SOC 1: controls over financial reporting

What SOC 1 covers

A SOC 1 report evaluates the internal controls at a service organisation that are relevant to its user entities’ financial reporting. The governing attestation standard is SSAE 18 (specifically AT-C Section 320), which is the US standard. Internationally, the equivalent is ISAE 3402.

The key concept behind SOC 1 is that when a company outsources a business process — payroll processing, claims administration, loan servicing, payment handling — the outsourced service organisation’s controls become part of the user entity’s overall internal control environment. The user entity’s auditors need assurance that those controls are properly designed and operating effectively.

What the auditor evaluates

In a SOC 1 engagement, the auditor examines controls that could affect the accuracy, completeness, and validity of financial transactions processed by the service organisation. These typically include:

• Transaction processing controls (authorisation, input validation, reconciliation)
• Logical access controls over financially significant systems
• Change management controls for applications that process financial data
• Data integrity controls, including backup and recovery procedures
• Segregation of duties within financial processing workflows

The control objectives in a SOC 1 report are defined by the service organisation itself (with input from its user entities), not by a standardised criteria framework like the Trust Service Criteria used in SOC 2.

Who needs SOC 1

SOC 1 reports are essential for service organisations whose operations directly affect their clients’ financial statements. Common examples include:

• Payroll service providers — process employee compensation, tax withholdings, and benefits that feed directly into clients’ financial records
• Payment processors — handle transaction authorisation, settlement, and reporting that clients rely on for revenue recognition
• Fund administrators and custodians — maintain net asset value calculations, investor records, and trade settlement data
• Insurance claims processors — manage claims data that determines reserves and liabilities on clients’ balance sheets
• Loan servicing companies — process payments, calculate interest, and maintain portfolio records that clients report in financial statements

If your clients’ external auditors are asking about your controls in the context of their financial statement audit, a SOC 1 report is what they need.

SOC 1 Type 1 vs Type 2

Like SOC 2, SOC 1 reports come in two types:

• SOC 1 Type 1 evaluates the design of controls at a single point in time. The auditor confirms that controls exist and are suitably designed but does not test whether they operated effectively over a period.
• SOC 1 Type 2 evaluates both the design and operating effectiveness of controls over a defined observation period — typically six to twelve months. This is the report that user entity auditors almost always require.

SOC 2: controls over data security and operations

What SOC 2 covers

A SOC 2 report evaluates controls related to the AICPA’s five Trust Service Criteria (TSC):

1. Security (mandatory) — protection against unauthorised access, both physical and logical
2. Availability — system uptime and accessibility as committed in service-level agreements
3. Processing integrity — accuracy, completeness, and timeliness of data processing
4. Confidentiality — protection of information designated as confidential
5. Privacy — collection, use, retention, and disposal of personal information in accordance with commitments

Security is always in scope. The remaining four criteria are selected based on the nature of the services provided and the expectations of customers. Most SaaS companies include Security and Availability at a minimum; those handling personal data frequently add Confidentiality and Privacy.

What the auditor evaluates

SOC 2 control objectives are derived from the Trust Service Criteria, which are themselves mapped to the COSO 2013 internal control framework. The auditor evaluates controls across areas such as:

• Access management (authentication, authorisation, privileged access)
• Network security (firewalls, intrusion detection, encryption in transit)
• Data protection (encryption at rest, key management, data classification)
• Incident response (detection, escalation, communication, remediation)
• Change management (code review, testing, deployment controls)
• Vendor management (third-party risk assessment, contractual requirements)
• Human resources security (background checks, security training, termination procedures)
• Physical security (data centre access controls, environmental protections)
• Monitoring and logging (audit trails, alerting, log retention)

Who needs SOC 2

SOC 2 has become the de facto trust credential for technology companies operating in the B2B space. Organisations that typically require SOC 2 include:

• SaaS providers — any company that stores, processes, or transmits customer data in the cloud
• Cloud infrastructure and platform providers — companies whose security posture directly impacts their customers’ compliance
• Data analytics and AI/ML companies — organisations that ingest and process client data sets
• Managed service providers — companies with privileged access to client environments
• Healthcare technology companies — often pursued alongside HIPAA compliance, as the Trust Service Criteria overlap meaningfully with the HIPAA Security Rule
• Financial technology companies — frequently needed in addition to SOC 1

SOC 2 Type 1 vs Type 2

• SOC 2 Type 1 evaluates the design and implementation of controls at a specific point in time. It answers the question: “Are your controls properly designed as of this date?”
• SOC 2 Type 2 evaluates both the design and operating effectiveness of controls over an observation period of three to twelve months. It answers the question: “Have your controls been working as intended throughout this period?”

Most enterprise buyers require a current SOC 2 Type 2 report. Type 1 reports are sometimes accepted from early-stage companies as a stepping stone, provided the organisation can demonstrate a clear timeline for achieving Type 2.

SOC 3: general-use trust report

What SOC 3 covers

A SOC 3 report covers exactly the same Trust Service Criteria as a SOC 2 report and is based on the same underlying audit engagement. The critical difference is not in the scope of the examination but in the format and distribution rights of the resulting report.

Where SOC 2 produces a detailed, restricted-use report intended for specific stakeholders under NDA, SOC 3 produces a condensed, general-use report that can be freely distributed to anyone — including on your website, in marketing materials, and in public-facing communications.

What the report contains

A SOC 3 report is deliberately brief. It includes:

• Management’s assertion — a statement that controls are suitably designed and operating effectively
• Auditor’s opinion — the CPA firm’s independent opinion on the controls
• System description — a high-level overview, far less detailed than the SOC 2 system description

A SOC 3 report does not include the detailed control listings, test procedures, test results, or exceptions that make SOC 2 reports valuable for due diligence. It is a pass/fail attestation, not a detailed examination report.

The SOC 3 seal

Organisations that receive an unqualified (clean) SOC 3 opinion can display the AICPA’s SOC 3 seal on their website. This seal serves as a public trust signal — a visible indicator that the organisation has undergone an independent audit of its controls. While it does not carry the same weight as a full SOC 2 report in procurement discussions, it provides a baseline level of assurance for prospects who are not yet in a formal evaluation process.

Who needs SOC 3

SOC 3 reports are most useful for organisations that:

• Want a public-facing trust credential to display on their website
• Need to demonstrate compliance to a broad audience without sharing sensitive control details
• Already have a SOC 2 report and want to extend its value into marketing and public communications
• Operate in consumer-facing markets where enterprise-style NDA-bound report sharing is impractical

In practice, SOC 3 reports are rarely pursued in isolation. Most organisations obtain a SOC 3 as an add-on to their SOC 2 audit engagement at a modest incremental cost.

Detailed comparison: SOC 1 vs SOC 2 vs SOC 3

Type 1 vs Type 2 across all SOC reports

The Type 1 and Type 2 distinction applies to both SOC 1 and SOC 2 reports (SOC 3 is always based on a Type 2 examination). The concept is consistent across both report types:

For both SOC 1 and SOC 2, Type 2 is the standard that most stakeholders ultimately require. Type 1 serves as a useful starting point but is not a long-term substitute.

When you need multiple SOC reports

Some organisations require more than one SOC report type. The most common scenarios include:

Financial technology companies. If your platform processes payments or handles financial data that feeds into your clients’ financial statements, you likely need SOC 1 to satisfy your clients’ auditors. If you also store sensitive customer data — user credentials, personal information, transaction histories — you need SOC 2 to satisfy your clients’ security and procurement teams. The two reports cover different control domains and serve different stakeholders.

Payroll and HR technology providers. Payroll data directly affects financial reporting (SOC 1 territory), but these platforms also store large volumes of personal data including national insurance numbers, bank details, and health information. A SOC 2 report with Privacy and Confidentiality criteria addresses the data protection dimension that SOC 1 does not cover.

Fund administration and wealth management platforms. These organisations manage financial calculations and reporting (SOC 1) while also handling sensitive investor data and maintaining platform availability (SOC 2). Their institutional clients often require both reports as part of vendor due diligence.

Organisations seeking public trust signals. Any company with a SOC 2 report may add a SOC 3 report to the engagement for public-facing assurance. This is particularly common among organisations that sell to both enterprise buyers (who receive the SOC 2) and smaller customers or individual users (who benefit from the SOC 3 seal on the website).

When pursuing multiple reports, organisations can often realise efficiencies by coordinating audit timelines and working with a single CPA firm that can examine overlapping control areas once rather than duplicating effort.

Deciding which SOC report you need

The decision hinges on three questions: what your service does, who is asking for assurance, and how you intend to share the report.

Start with your service’s impact on clients. If your service directly affects your clients’ financial statements — if you process transactions, calculate figures, or maintain records that your clients report in their financial filings — you need SOC 1. If your service handles customer data but does not directly affect financial reporting, SOC 2 is the appropriate report. If your service does both, you need both.

Identify who is asking. If the request comes from your clients’ external auditors or financial controllers, they are almost certainly looking for SOC 1. If the request comes from security teams, procurement departments, or compliance officers evaluating your data handling practices, they want SOC 2. If you want to provide assurance to the general public or use compliance as a marketing asset, SOC 3 fills that role.

Consider your distribution needs. If you need to share detailed control information with specific stakeholders under NDA, SOC 1 or SOC 2 is appropriate. If you want to make a compliance statement publicly available without revealing sensitive operational details, SOC 3 is designed for that purpose.

Evaluate your industry norms. Look at what your competitors and peers publish. If every comparable company in your market holds a SOC 2 Type 2 report, not having one puts you at a competitive disadvantage. Similarly, if your clients’ auditors routinely request SOC 1 reports from service providers in your category, the expectation is established regardless of whether it is formally mandated.

Common misconceptions

“SOC 2 is better than SOC 1.” Neither report is superior — they serve entirely different purposes. SOC 1 addresses financial reporting controls; SOC 2 addresses data security and operational controls. An organisation that needs SOC 1 cannot substitute a SOC 2 report, and vice versa. The “better” report is whichever one your stakeholders actually require.

“SOC 3 is a cheaper alternative to SOC 2.” A SOC 3 report cannot replace a SOC 2 report for enterprise procurement purposes. It lacks the detailed control descriptions and test results that security and compliance teams need for due diligence. SOC 3 is a complement to SOC 2, not a substitute for it.

“SOC compliance means you are secure.” A SOC report is an attestation that specific controls were designed and operating effectively during a defined period. It does not guarantee that the organisation is immune to breaches, nor does it cover every aspect of security. SOC compliance is a meaningful indicator of operational discipline, but it is not a comprehensive security certification.

“You must start with Type 1 before getting Type 2.” There is no requirement to obtain a Type 1 report before pursuing Type 2 for either SOC 1 or SOC 2. Some organisations go directly to Type 2, particularly if they already have a mature control environment. Type 1 is a useful stepping stone, not a prerequisite.

“SOC reports are only relevant in the United States.” While the SOC framework originates from the AICPA, it is widely recognised and requested internationally. Organisations based in the United Kingdom, Europe, and other regions routinely pursue SOC 2 reports because their US-based customers require them. The international equivalent of SOC 1 is the ISAE 3402 report, which follows the same principles under international auditing standards.

“Once you have a SOC report, you are done.” SOC reports reflect a point in time (Type 1) or a specific observation period (Type 2). They must be renewed annually to remain current. Stakeholders expect continuous compliance, not a one-time exercise. Letting a report lapse signals to customers that your commitment to controls may have weakened.

How Prova helps with SOC compliance

Managing SOC compliance — whether SOC 1, SOC 2, or both — involves continuous evidence collection, control monitoring, and audit coordination. Prova automates these processes across frameworks, allowing organisations to maintain compliance with multiple SOC report types from a single platform. Cross-mapping between SOC 1 and SOC 2 control domains eliminates duplicate effort, while automated evidence collection ensures that audit-ready documentation is always current.