SOC 1 vs SOC 2: which do you need
SOC 1 is required if your services impact a client's internal control over financial reporting (ICFR). SOC 2 is required when clients need assurance regarding the security, availability, and confidentiality of their data within your systems.
What it means
The distinction between these two reports lies in the objective: financial accuracy versus operational security. A SOC 1 report (governed by SSAE 18) focuses on controls that affect a user entity's financial statements. If you provide payroll processing, investment management, or billing services, your clients' auditors will require a SOC 1 to ensure their financial data is reliable.
SOC 2 is designed for technology and cloud service providers. It evaluates the "Trust Services Criteria" (Security, Availability, Processing Integrity, Confidentiality, and Privacy). While SOC 1 asks, "Are the numbers correct?", SOC 2 asks, "Is the system secure and resilient?" Most SaaS companies prioritize SOC 2 because their clients are more concerned with data breaches than financial reporting.
How to meet it
- Conduct a service mapping exercise to determine if your output flows into a client's general ledger or financial statements; if yes, prioritize SOC 1.
- Review customer contracts and security questionnaires to identify which report is specifically demanded by the market or existing clients.
- For SOC 1, define specific control objectives that prevent or detect material misstatements in financial reporting.
- For SOC 2, select the relevant Trust Services Criteria (Security is mandatory; Availability, Confidentiality, Processing Integrity, and Privacy are optional based on your service).
- Implement a consistent set of operational controls, such as multi-factor authentication (MFA), encrypted backups, and formal change management processes.
- Establish a recurring cadence for control testing to ensure they function consistently over the audit period.
Evidence an auditor asks for
- A detailed Scope Document that defines the systems, people, and processes included in the report.
- User Access Review logs proving that permissions are audited and revoked for terminated employees on a regular basis.
- Change Management records (tickets) showing evidence of peer review, testing, and management approval before code is deployed to production.
- Evidence of periodic vulnerability scans or third-party penetration tests with documented remediation plans.
Common pitfalls
- Implementing SOC 2 controls but attempting to use them for a SOC 1 audit without mapping those controls back to financial reporting risks.
- Confusing Type I and Type II reports; providing a "point in time" snapshot (Type I) when the client requires proof of operational effectiveness over several months (Type II).
- Over-scoping the audit by including non-essential systems, which increases the cost and complexity of evidence collection without adding value to the client.