INSIGHT

SOC 1® vs SOC 2® reports: Which fits your business needs?

Paul Bansal • September 25, 2025

Services: System and Organization Controls Reporting

Choosing the wrong SOC report can cost your organization months of wasted effort and thousands in audit fees. While both SOC 1 and SOC 2 reports demonstrate your commitment to strong internal controls, they serve fundamentally different purposes and audiences.

SOC 1 assesses how your financial data processing affects your clients’ financial statements.
SOC 2 addresses broader operational concerns like data security and system availability, addressing questions your clients have about how you protect their data.

Understanding these distinctions is crucial for selecting the right attestation and reporting framework—one that not only meets your stakeholder requirements but also positions your organization for sustainable growth in an increasingly security-conscious marketplace.

Take a look at our System and Organization Controls Reporting Services

Breaking down SOC 1 vs SOC 2 reports

Any SOC (System and Organization Controls) report provides independent attestation of your organization’s internal controls, but each type serves different purposes and audiences. These reports help your customers demonstrate to their own auditors and stakeholders that the services you provide maintain appropriate controls and safeguards.

SOC 1 reports

If your services could affect how your clients report their financials, SOC 1 is likely what you need. A SOC 1 report has a financial focus and evaluates the controls implemented by a service organization that could impact the accuracy and reliability of its clients’ financial statements.

Think payroll processing, billing services, or claims administration—anywhere your work integrates with your clients’ accounting systems. These reports help your clients’ auditors and management teams gain confidence that your services are operating effectively and won’t introduce risks to their financial reporting.

SOC 2 reports

SOC 2 reports take a broader operational approach, evaluating the effectiveness of an organization’s controls for safeguarding data and ensuring reliable operations—areas generally overseen by IT and other operational teams. Based on the AICPA’s Trust Services Criteria, SOC 2 examines:

Security (mandatory)
Availability
Processing integrity
Confidentiality
Privacy.

Your organization can choose which criteria apply to your services, though security is always required.

Selecting the time period covered by the report

Both report types offer Type 1 and Type 2 options. These options provide you with a flexible way to scale up or down the amount of time being evaluated.

Type 1 reports evaluate the design of controls as of a specific date that you select. This tells you whether the controls in place are suitably designed at a point in time. It does not tell you if these controls are operating effectively over time.
Type 2 takes more time and resources, but it’s also more valuable to your customers. Enterprise companies or certain industries like finance often prefer to work with companies that have a SOC 2 Type 2 report because it let’s them know that the controls you have designed are operating effectively over a specified period.

When SOC 1 reports are the right choice for your organization

A SOC 1 report is designed for service organizations whose operations may impact their customers’ financial reporting. This is important because clients rely on your services to produce accurate financial data. If errors occur due to control deficiencies in your processes, it could lead to material misstatements in their financial statements, which may expose them to fraud and lawsuits. Your organization may need a SOC 1 report if you:

Provide financial transaction processing

Companies offering payroll processing, claims administration, billing services, or loan servicing typically require SOC 1 reports. When you process financial data that flows into your clients’ accounting systems or financial statements, their auditors need reasonable assurance that your controls maintain data accuracy and completeness.

Face regulatory pressure

Regulatory and contractual requirements often drive SOC 1 needs. Many financial services organizations face regulations requiring them to obtain reasonable assurance over outsourced financial processes.

Additionally, public companies subject to Sarbanes-Oxley requirements must ensure that all service organizations handling financial data maintain adequate internal controls. Your clients’ external auditors will specifically request SOC 1 reports to fulfill their audit obligations.

Want customized control objectives

Unlike other frameworks with predefined control requirements, a SOC 1 engagement allows you to develop custom control objectives that reflect the services you provide and their potential impact on your clients’ internal control over financial reporting (ICFR).

You and your auditor work together to define these objectives, then identify the specific controls that achieve them. The auditor tests those controls and reports on whether they were suitably designed and operating effectively during the examination period.

When SOC 2 reports are the right choice for your organization

SOC 2 reports are especially valuable if your business handles customer data or delivers technology-enabled services where security, availability, and operational reliability are critical.

Many enterprises include SOC 2 reports as part of their vendor due diligence—industry studies show that over 80% of enterprise buyers expect a SOC 2 report before onboarding new vendors, making it a key differentiator when pursuing enterprise deals. Your organization need a SOC 2 report if you:

Handle sensitive customer data

Any business that stores, processes, or transmits customer information—whether that’s personal data, payment details, or proprietary business information—typically needs a SOC 2 report.

The strength of SOC 2 lies in its flexibility: while the Security category (protecting systems from unauthorized access) is always required, you can select the other Trust Services Criteria (TSC)—Availability, Processing Integrity, Confidentiality, and Privacy—based on what’s relevant to your services.

Within those chosen criteria, you define and implement your own controls that demonstrate how your organization meets the applicable criteria, and the auditor evaluates whether those controls were suitably designed and operating effectively during the review period.

Serve enterprise customers

Enterprise buyers increasingly view SOC 2 reports as table stakes for vendor relationships. These organizations need assurance that their service providers maintain adequate controls over data security and system availability. Without a SOC 2 report, you may find yourself automatically disqualified from RFPs or spending countless hours filling out individual security questionnaires for each prospect.

Want competitive differentiation

A SOC 2 report can become a powerful sales tool, especially in competitive markets where security concerns influence buying decisions. For one thing, it helps support customer trust. A SOC 2 report reassures prospects and clients that their data is secure, often becoming a dealbreaker in sales cycles. It may even help support premium pricing.

Ongoing SOC reporting considerations

The regulatory environment around data protection and cybersecurity keeps evolving, with new requirements emerging regularly. Organizations must stay current with changes that affect their SOC reporting needs.

Some companies are expanding beyond traditional SOC 2 to include SOC for Cybersecurity or enhanced SOC 2+ reports that address specific industry frameworks like NIST, HITRUST, or GDPR requirements.

Multi-national organizations face additional complexity when determining SOC scope and criteria. Different regions have varying data protection requirements—such as GDPR in Europe or CCPA in California—that may influence which Trust Services Criteria you need to include in your SOC 2 report. Working with experienced auditors who understand these regional differences becomes crucial for organizations serving global markets.

Tips to select the right reporting structure for your business

Choosing between SOC 1 and SOC 2 isn’t always straightforward, especially if you’re new to compliance reporting. The good news? You can use a simple framework to evaluate your needs and make the right decision for your business.

Start with your business model

Begin by looking at who your customers and stakeholders are, and what type of services you provide to them.

If your services could affect your customers’ internal control over financial reporting (ICFR)—for example, handling financial transactions, payroll, or accounting data—a SOC 1 report is usually the right fit.

If your services involve hosting, storing, processing, or securing customer data, and your customers are more concerned about security, availability, or confidentiality, a SOC 2 report is typically more appropriate.

Listen to your customers and prospects

Your clients will often tell you exactly what kind of SOC report they expect. When in doubt, think about which type of risk your services create for them:

Do your services affect their financial reporting? (→ SOC 1)
Do your services handle or protect their data and systems? (→ SOC 2)

Most customers will expect you to demonstrate strong controls, especially around data security, access management, and operational reliability if you’re pursuing SOC 2, or controls impacting financial reporting if SOC 1 is more relevant.

Pay attention to:

Security questionnaires you’re receiving
RFP requirements that mention specific SOC reports
Contractual language about compliance expectations
Industry standards in your sector

Consider your timeline and resources

SOC 1 and SOC 2 Type 1 reports can be completed relatively quickly—often within 2-4 months. Type 2 reports require at least six months of control operation before the examination, plus additional time for testing.

Evaluate cost versus benefit

Don’t just think about audit costs—consider the opportunity cost of not having the right report. Missing out on enterprise deals because you lack SOC 2 can far exceed the cost of compliance.

Similarly, if your clients’ auditors specifically need SOC 1 for their financial statement audits, having only SOC 2 won’t solve their problem.

Plan for the future

Based on the industry you operate in, you may want to further add certifications such as

Health Insurance Portability and Accountability Act (HIPAA),
Federal Risk and Authorization Management Program (FedRAMP),
Cyber Security Maturity Model (CMMC)
Health Information Trust Alliance (HITRUST)

Think about where your business is heading. Are you planning to expand into new markets or serve larger clients? Starting with the right SOC foundation makes it easier to add additional compliance frameworks later.

Take the next step in your SOC compliance strategy

The choice between SOC 1 and SOC 2 ultimately comes down to understanding your business model, client needs, and growth trajectory.

Remember that these aren’t mutually exclusive options. Many service organizations benefit from both reports, using SOC 1 for financial processes and SOC 2 for technology services. The key is starting with the most critical needs and building your compliance program over time.

BPM’s IT assurance professionals bring deep industry expertise and a commitment to quality that helps you build stakeholder trust. Whether you need SOC 1, SOC 2, or guidance on which path makes sense for your organization, contact our Risk Assurance team to explore personalized compliance solutions that support your business growth.