SOC 1 Vs SOC 2: Compliance Framework Differences Explained

SOC 1 evaluates financial reporting controls; SOC 2 assesses security and data protection. Learn when to request each report type and how to evaluate vendor compliance.

What is SOC 1 and SOC 2?

Third-party vendors now cause 62% of data breaches according to the 2024 Verizon Data Breach Investigations Report, with the average third-party breach costing $4.76 million according to IBM's 2024 Cost of a Data Breach Report. When a vendor asks which SOC report you need, your answer shapes the entire vendor risk assessment process.

SOC 1 and SOC 2 are independent audit reports that licensed CPAs issue under SSAE No. 18 attestation standards. Both evaluate a service organization's internal controls, but they serve different purposes. According to the AICPA, SOC 1 examines "controls at a service organization that are likely to be relevant to user entities' internal control over financial reporting." These reports focus exclusively on whether vendor controls could materially affect the accuracy of your financial statements under GAAP.

SOC 2 addresses security and operational controls. The AICPA defines SOC 2 as "a report on controls at a service organization relevant to security, availability, processing integrity, confidentiality, or privacy." You need SOC 2 reports when evaluating vendors who store, process, or transmit sensitive customer data.

Understanding SOC 1 and SOC 2: Type I vs Type II Distinctions

Beyond choosing between SOC 1 and SOC 2, you must also specify which report type you need. Both SOC 1 and SOC 2 come in two varieties. Type I reports assess control design at a specific point in time. Type II reports evaluate both design suitability and operating effectiveness over 6 to 12 months.

When conducting vendor risk assessments for critical suppliers, Type II reports provide substantially greater assurance because they demonstrate sustained control operation rather than merely theoretical adequacy. Enterprise customers increasingly require vendors to demonstrate adequate data privacy and security measures before procurement approval, making Type II attestation effectively mandatory for SaaS and technology vendors serving enterprise markets.

When You Need SOC 1 Reports

Now that you understand report types, the next question is which framework applies to your vendor relationship. Request SOC 1 Type II reports when vendors process transactions affecting your financial statements. According to the AICPA, SOC 1 examinations evaluate controls "likely to be relevant to user entities' internal control over financial reporting."

Common scenarios requiring SOC 1 Type II attestation include:

• Payroll processors creating general ledger entries
• Revenue recognition platforms performing ASC 606 compliance calculations
• Billing systems affecting revenue line items
• Loan servicing platforms managing interest calculations
• Benefits administrators processing deferred compensation

Your external auditors need these reports to validate that outsourced financial processes maintain adequate controls for Sarbanes-Oxley compliance throughout the audit period.

When You Need SOC 2 Reports

While SOC 1 addresses financial reporting controls, most vendor risk assessments focus on data security. You need SOC 2 when evaluating service organizations handling customer data. Cloud providers, SaaS applications, payment processors, security services, and vendors processing sensitive customer data all require SOC 2 evaluation.

Enterprise organizations should request SOC 2 Type II reports when vendors handle confidential information, when security incidents could create reputational or regulatory risk, or when privacy compliance (GDPR, CCPA, HIPAA) depends on vendor controls. SOC 2 compliance has become a baseline expectation for technology vendors serving enterprise customers.

SOC 1 vs SOC 2: Key Differences for Security Teams

With an understanding of what each framework evaluates, security teams can make informed decisions about which reports to request and how to interpret them.

Scope and Purpose

SOC 1 serves your external auditors and supports your financial statement audit process. External auditors need assurance that outsourced financial processes maintain adequate controls relevant to financial reporting. SOC 1 reports address this specific need with control objectives focused on financial data integrity, transaction accuracy, and general ledger impact.

SOC 2 serves you directly when evaluating whether vendors can protect customer data. The report addresses security, availability, processing integrity, confidentiality, and privacy, providing detailed information about the controls at a service organization relevant to these five Trust Services Criteria.

Distribution and Stakeholder Audiences

The AICPA specifies that SOC 1 reports meet the needs of "entities that use service organizations and the CPAs that audit the user entities' financial statements." Distribution restricts to existing clients, prospective customers, and their auditors.

SOC 2 reports address broader stakeholder groups: security teams, risk management functions, procurement departments, compliance officers, and customers needing detailed information about data protection controls. While still restricted-use reports requiring NDAs, SOC 2 distribution encompasses anyone with legitimate security evaluation needs.

Control Framework Differences

SOC 1 evaluates controls relevant to financial reporting objectives using a financial reporting control framework. This includes transaction authorization, financial data completeness and accuracy, segregation of duties, reconciliation procedures, and general IT controls supporting financial applications.

SOC 2 exclusively uses Trust Services Criteria with standardized control objectives across Security, Availability, Processing Integrity, Confidentiality, and Privacy. This standardization enables direct comparison between vendors and alignment with your existing security control frameworks.

Integration with your Security Program

According to LinfordCo's framework analysis, the NIST Cybersecurity Framework maps directly to SOC 2 criteria: NIST Identify aligns with CC3 Risk Assessment, NIST Protect maps to CC6 Access Controls and Confidentiality/Privacy criteria, NIST Detect corresponds to CC4 Monitoring and CC7 System Operations, NIST Respond integrates with CC9 incident response capabilities, and NIST Recover connects to the Availability criterion. This alignment means vendor SOC 2 reports provide standardized evidence for the same control categories you implement internally.

SOC 1 vs SOC 2: Comparison

The following table summarizes the key differences between SOC 1 and SOC 2 reports to help security teams determine which attestation applies to specific vendor relationships.

Criteria	SOC 1	SOC 2
Primary Purpose	Evaluates controls affecting user entities' internal control over financial reporting (ICFR)	Evaluates controls relevant to security, availability, processing integrity, confidentiality, and privacy
Governing Standard	SSAE No. 18, AT-C Section 320 (Reporting on an Examination of Controls)	SSAE No. 18, AT-C Section 205 (using Trust Services Criteria developed by AICPA)
Control Framework	Custom control objectives defined by the service organization based on financial reporting impact	Standardized Trust Services Criteria (TSC) with five categories; Security is mandatory, four others optional
Primary Audience	External auditors conducting financial statement audits and finance teams responsible for SOX compliance	Security teams, vendor risk management, procurement, compliance officers, and enterprise customers
Typical Requester	CFO, controller, or external audit team during annual financial statement audit cycle	CISO, third-party risk management team, or procurement during vendor onboarding and annual reviews
Regulatory Driver	Sarbanes-Oxley (SOX) Section 404 compliance for public companies; supports GAAP financial reporting	SOC 2 compliance supports GDPR, CCPA, HIPAA, and other data protection regulations; increasingly required in enterprise contracts
Common Vendor Types	Payroll processors, benefits administrators, loan servicers, revenue recognition platforms, billing systems	Cloud providers, SaaS applications, data centers, managed security services, payment processors
Control Testing Focus	Transaction authorization, financial data accuracy, segregation of duties, reconciliation procedures, IT general controls	Access controls, encryption, incident response, change management, availability, data retention, privacy practices
Report Scope Definition	Scope defined by controls relevant to specific financial processes and transactions the vendor handles	Scope defined by system boundaries, infrastructure components, and which of the five Trust Services Criteria apply
Standardization Level	Control objectives vary significantly between vendors based on their specific financial services	Standardized criteria enable direct comparison between vendors and alignment with frameworks like NIST CSF
Bridge Letter Availability	Bridge letters extend assurance between audit periods for financial reporting continuity	Bridge letters less common; continuous monitoring and updated reports preferred for security assurance
Typical Audit Cost Range	$20,000 to $60,000+ depending on complexity of financial processes and transaction volume	$12,000 to $100,000+ depending on scope, number of Trust Services Criteria, and organization size

Understanding these distinctions ensures you request the appropriate report type and focus your review on controls relevant to your specific risk concerns.

Strengthening Vendor Risk Assessment with SentinelOne

SOC 2 reports document whether vendors implement multi-factor authentication, role-based access controls, and privileged access management as specified in CC6. Singularity Platform extends this visibility by providing real-time behavioral analysis across your environment, including activity from vendor accounts and third-party integrations.

Purple AI delivers up to 80% faster threat investigations according to early adopters. The platform's behavioral AI identifies anomalous behavior that deviates from expected patterns, flagging potential security concerns for investigation. With 88% fewer alerts in MITRE ATT&CK evaluations, SOC analysts can focus investigation time on genuine threats rather than processing false positives.

Continuous Compliance Evidence

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Key Takeaways

SOC 1 evaluates financial reporting controls for external auditors, while SOC 2 assesses security, availability, processing integrity, confidentiality, and privacy for vendor risk management. Type II reports demonstrating 6 to 12 month operational effectiveness provide substantially greater assurance than Type I point-in-time assessments, making them the preferred choice for enterprise vendor evaluations.

SOC 2 compliance requires 12+ months for first-time attestation with careful planning around observation periods, vendor dependencies, and evidence collection. Continuous monitoring supplements annual SOC attestations with real-time control tracking, and complementary user entity controls (CUECs) remain your responsibility even when vendors maintain clean SOC opinions.

FAQs

What is SOC 1 and SOC 2?

SOC 1 and SOC 2 are independent audit reports issued by licensed CPAs under SSAE No. 18 attestation standards. SOC 1 examines controls relevant to user entities' internal control over financial reporting, focusing on vendors whose services affect financial statement accuracy. 

SOC 2 evaluates controls relevant to security, availability, processing integrity, confidentiality, and privacy for service organizations handling sensitive data. Both report types come in Type I (point-in-time) and Type II (operational effectiveness over 6-12 months) versions.

What is the main difference between SOC 1 and SOC 2?

SOC 1 focuses on controls affecting financial reporting, serving external auditors who need assurance about outsourced financial processes. SOC 2 focuses on security and data protection controls, serving security teams and risk managers evaluating vendor data handling practices. 

Request SOC 1 when vendors process transactions impacting your financial statements. Request SOC 2 compliance evidence when vendors store, process, or transmit sensitive customer data.

What are common red flags to look for in a SOC report?

Key red flags include qualified auditor opinions indicating control deficiencies, narrow scope definitions that exclude critical services you use, numerous control exceptions without documented remediation, observation periods shorter than six months, and significant changes to control descriptions between reporting periods. 

Also examine whether subservice organizations are carved out, requiring you to separately evaluate those dependencies.

How SOC reports address cybersecurity risk?

SOC reports provide valuable assurance, but they have limitations that security teams must understand. The SOC framework directly addresses your third-party risk management challenges, yet recent breaches reveal gaps in relying solely on annual attestations. The 2020 SolarWinds breach demonstrated how vendor risk assessments relying solely on annual SOC 2 attestations missed ongoing compromise affecting 18,000+ organizations. Attackers inserted malicious code into software updates, bypassing security controls and remaining hidden for months. 

The 2023 MOVEit file transfer vulnerability exposed 2,500+ organizations and 66 million individuals when attackers exploited a trusted vendor's software. These incidents underscore why understanding exactly what SOC 2 evaluates, and what it does not, is essential for effective vendor risk management.

Can a vendor have both SOC 1 and SOC 2 reports?

Yes. Organizations providing services with both financial and data security components often pursue dual certification. A benefits administration platform may need SOC 1 for financial reporting controls over payroll deductions and SOC 2 for privacy controls protecting employee health information. 

The auditor conducts separate examinations using different control frameworks, though evidence collection may overlap for IT general controls.

What does a qualified SOC opinion mean for vendor risk?

A qualified opinion indicates the auditor identified control deficiencies that prevented issuing an unqualified (clean) opinion. In Type II reports, Section 4 documents testing results and exceptions, providing transparency into specific control deviations during the audit observation period. 

You must evaluate whether documented deficiencies affect data you are entrusting to the vendor and whether compensating controls in your environment address the gaps. Qualified opinions require deeper risk assessment before vendor approval.

How do carved-out subservice organizations affect risk assessment?

SOC reports may present subservice organizations using either a carved-out method (subservice organization controls excluded from scope) or an inclusive method (subservice organization controls included). 

When a vendor uses the carved-out approach, their SOC report excludes controls at critical subservice organizations like AWS infrastructure or payment processing networks. Enterprise organizations must identify excluded layers and request separate SOC 2 reports from critical subservice organizations handling sensitive data.

What are complementary user entity controls and why do they matter?

Complementary user entity controls (CUECs) are controls that the service organization assumes the customer will implement to achieve control objectives. Common CUECs include user access reviews, segregation of duties, review of service organization reports, customer-side configuration, and monitoring of processing results. 

A vendor's clean SOC opinion does not eliminate customer control responsibilities. Section 1 of the report lists all CUECs requiring your implementation.

How often should we request updated SOC reports from vendors?

Annual SOC 2 reports remain valid for 12 months from issuance date. Organizations should track vendor SOC report expiration dates to maintain continuous compliance visibility. 

For high-risk vendors processing sensitive data, implement continuous monitoring throughout the year to track vendor security incidents, SLA compliance, and ownership changes between formal audit cycles.