SOC 2 vs SOC 1: Which Compliance Framework Do You Actually Need?

At least once a month, a business owner or executive tells us they need to “get SOC 2 compliant” and then describes a situation where they actually need a SOC 1. Or vice versa. Sometimes they don’t need either, and sometimes they need both. The confusion is understandable because the names are almost identical, and most of the content written about them online is either too technical or too vague to be useful.

Let’s clear it up.

The Fundamental Difference

Both SOC 1 and SOC 2 are audit frameworks developed by the AICPA (American Institute of Certified Public Accountants). They both result in an auditor’s report about your organization’s controls. But they cover completely different things.

SOC 1 is about financial reporting controls. If your business provides a service that affects your clients’ financial statements, a SOC 1 report tells those clients (and their auditors) that your controls over financial data are sound.

SOC 2 is about security, availability, processing integrity, confidentiality, and privacy controls. If your business handles client data and your clients want assurance that you’re protecting it properly, SOC 2 is the report that demonstrates that.

Think of it this way: SOC 1 asks “Can we trust this company with our financial data for accounting purposes?” SOC 2 asks “Can we trust this company to keep our data secure and available?”

Who Needs a SOC 1?

SOC 1 reports are relevant when your services directly impact your clients’ financial reporting. Common examples:

• Payroll processing companies. You’re calculating wages, withholding taxes, and generating financial records that flow into your clients’ books.
• Claims processing firms. Insurance claims processors handle financial transactions that end up in their clients’ financial statements.
• Accounting and bookkeeping service providers. If you manage accounting functions for other businesses, your controls directly affect their financial reporting.
• Trust and custody service providers. Companies that hold or manage financial assets on behalf of clients.
• Payment processing companies. Transaction data flows directly into clients’ revenue recognition and financial reporting.

The key question is: does your service create, process, or materially affect financial transactions or data that shows up in your clients’ financial statements? If yes, you likely need a SOC 1.

Your clients’ external auditors are usually the ones driving the request. When they’re auditing your client’s financial statements, they need to understand the controls at service organizations like yours. A SOC 1 report gives them that assurance without having to audit your operations directly.

Who Needs a SOC 2?

SOC 2 is broader and has become the de facto standard for demonstrating that you take data security seriously. You likely need a SOC 2 if:

• You’re a SaaS (Software as a Service) provider. Your clients’ data lives on your infrastructure. They want proof you’re protecting it.
• You provide managed IT, hosting, or cloud services. You have access to client systems and data. SOC 2 proves your controls are adequate.
• You process, store, or transmit client data. Broadly, if clients trust you with their information and they care about security (and increasingly, all of them do), SOC 2 is what they’ll ask for.
• Your clients are in regulated industries. Healthcare companies, financial services firms, and government contractors are increasingly requiring SOC 2 reports from all their vendors. (Defense contractors have their own framework too. If you work with the DoD, see our CMMC compliance guide.)
• You want to win enterprise deals. For many mid-market and enterprise buyers, “Do you have a SOC 2?” is a qualifying question. No report means you don’t make it past procurement.

SOC 2 is organized around five Trust Services Criteria:

1. Security (required for every SOC 2). Protection against unauthorized access.
2. Availability. Systems are available for operation as committed.
3. Processing Integrity. System processing is complete, valid, accurate, and timely.
4. Confidentiality. Information designated as confidential is protected.
5. Privacy. Personal information is collected, used, retained, and disclosed appropriately.

You don’t have to include all five. Security is mandatory, and then you choose additional criteria based on what’s relevant to your business and what your clients care about. Most businesses start with Security and Availability.

Type I vs Type II

Both SOC 1 and SOC 2 come in two types, and this trips people up:

Type I is a point-in-time assessment. The auditor evaluates whether your controls are properly designed as of a specific date. It’s a snapshot. “As of March 1, 2026, these controls were in place and designed appropriately.”

Type II covers a period of time, typically 6 to 12 months. The auditor not only evaluates the design of your controls but also tests whether they operated effectively throughout the entire period. “From March 1, 2025 through February 28, 2026, these controls were in place and working.”

Type II is significantly more valuable because it proves consistency, not just intent. Most clients and prospects who are serious about vendor security will want a Type II report. A Type I is sometimes used as a stepping stone when a company is getting its first SOC report, but plan to move to Type II as quickly as possible.

What the Audit Process Looks Like

Here’s what to expect, whether you’re going through SOC 1 or SOC 2:

Phase 1: Readiness Assessment (2-4 weeks). Before the formal audit, you (or your IT partner) should do a readiness assessment. This means mapping your current controls against the SOC criteria, identifying gaps, and fixing them. Going into an audit without a readiness assessment is like taking a test without studying. You might pass, but you probably won’t.

Phase 2: Remediation (4-12 weeks, varies widely). Address the gaps found in the readiness assessment. This might mean implementing new security tools, writing policies, setting up monitoring, or changing processes. The timeline depends entirely on how many gaps you have.

Phase 3: Observation Period (Type II only, 6-12 months). For a Type II report, the auditor needs to see your controls operating over time. This means you need to maintain consistent, documented adherence to your controls for the full audit period. No shortcuts.

Phase 4: Formal Audit (4-8 weeks). A CPA firm that specializes in SOC audits performs the examination. They’ll request evidence, interview staff, review documentation, and test controls. For Type II, they’ll sample evidence from across the entire observation period.

Phase 5: Report Issuance. The auditor delivers the final report. If there are exceptions (controls that weren’t operating effectively), they’ll be noted. Some exceptions are manageable, but too many, or critical ones, will undermine the value of the report.

How Your MSP Should Support You

This is where we see a big gap in the market. A lot of businesses go into a SOC audit and realize their IT provider hasn’t been setting them up for success. (If you’re evaluating providers, our guide on how to evaluate an IT provider covers the right questions to ask.) Here’s what your managed IT partner should be doing:

Implementing and managing the technical controls. Access management, encryption, monitoring, endpoint protection, backup and recovery, vulnerability management, patch management. These are the technical controls auditors will evaluate, and your MSP should be managing them consistently.

Maintaining evidence and documentation. Auditors want proof. That means logs, reports, screenshots, and records showing controls operated effectively over time. Your MSP should be generating and retaining this evidence as part of normal operations, not scrambling to produce it when the auditor comes knocking.

Supporting the readiness assessment. Your MSP should be able to map your technical environment against SOC criteria and identify gaps proactively. If your IT provider can’t tell you where you stand relative to SOC requirements, that’s a problem.

Participating in the audit. During the formal examination, auditors will have questions about your technical environment. Your MSP should be available to answer those questions, provide evidence, and demonstrate that controls are functioning.

Continuous compliance. SOC compliance isn’t a one-time event. Your controls need to operate effectively every day, not just during audit season. Your MSP should be treating every month as if the auditor could walk in tomorrow.

Common Mistakes to Avoid

Confusing the two frameworks. We covered this, but it bears repeating. Make sure you’re pursuing the right report. Talk to your clients and their auditors to confirm what they’re actually asking for.

Starting too late. A SOC 2 Type II takes a minimum of 6 months for the observation period alone, plus readiness and remediation time before that. If a prospect tells you they need a SOC 2 before signing a contract, and you haven’t started, you’re 9 to 15 months away. Plan ahead.

Treating it as a checkbox. The businesses that get the most value from SOC compliance are the ones that internalize the controls as part of how they operate, not as a burden they endure once a year. The same controls that satisfy an auditor also make your business genuinely more secure and resilient.

Going it alone on the technical side. If your IT environment isn’t built and managed with auditability in mind, the audit process will be painful and expensive. Partner with a cybersecurity-focused MSP that has experience supporting SOC audits.

What Should You Do Next?

First, figure out which report you need. Talk to your clients, their auditors, and your prospects. Understand what they’re asking for and why.

Then get a readiness assessment. Whether you’re pursuing SOC 1 or SOC 2, you need to know where you stand before you engage an audit firm. We offer a compliance assessment that maps your environment against the relevant criteria and gives you a clear, prioritized remediation plan.

The businesses that invest in compliance infrastructure early are the ones that close bigger deals, retain demanding clients, and sleep better at night knowing their operations can withstand scrutiny. The ones that treat it as an afterthought end up overpaying for rushed audits and explaining exceptions to their clients.

Start early. Get the right help. Build it into how you operate. That’s the playbook.