This blog was updated July 2025.
Key Takeaways
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SOC 1 vs. SOC 2: SOC 1 focuses on controls related to financial reporting, while SOC 2 examines broader operational areas like data security, availability, confidentiality, and privacy.
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Who Needs SOC 1: Ideal for service organizations that impact clients’ financial statements—e.g., payroll processors or financial service providers.
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Who Needs SOC 2: Essential for SaaS and cloud providers handling sensitive customer data who want to demonstrate long-term data security and privacy practices.
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Type 1 vs. Type 2 Reports: Type 1 evaluates controls at a single point in time; Type 2 assesses how well controls operate over 6–12 months.
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Choosing the Right SOC Level: The right certification depends on your service type, client expectations, and regulatory requirements.
In the realm of compliance for SaaS (Software as a Service) providers, understanding the nuances between SOC Level 1 and Level 2 certifications is crucial. Achieving compliance is not only a mark of trustworthiness but also a demonstration of commitment to data security and integrity.
Compliance for SaaS is a multifaceted endeavor, with various certifications and standards tailored to ensure the security and reliability of cloud-based services. Among these, SOC (System and Organization Controls) certifications stand out as benchmarks of excellence in data security and operational controls. This blog breaks down the main differences between SOC 1 and SOC 2 certifications — and why they matter to SaaS providers and their customers.
What is SOC 1?
SOC reports evaluate whether your organization meets a set of standards for secure financial reporting. These standards are maintained by the American Institute of Certified Public Accountants (AICPA). SOC 1 is the first of three levels, focusing on internal controls for financial statements and reporting.
Any company that processes financial information may benefit from pursuing SOC 1 certification. It’s a way to show auditors, clients, and prospects that you have the controls you need in place to deliver accurate and secure financial reports.
Some of the most common types of businesses that pursue SOC 1 reports include:
- Payroll processors
- Loan servicers
- Tax preparation firms
- Lawyers and bankruptcy firms
- Cloud providers and SaaS companies
- Other service providers handling financial data
If your business operates in one of these verticals, earning SOC certification can be beneficial for more than one reason. You can use SOC as a marketing tool to win more new clients who are concerned about data integrity. The certification can also help you avoid costly audits and show existing clients that you’re taking their security seriously.
The key question is which SOC level your business should pursue. Level 1 is easier to get than Level 2, but may not be enough to impress every client. Keep reading to learn more about how these levels compare and which may be right for your company.
What is the difference between SOC Level 1 and Level 2?
SOC 1 certification, also known as SSAE 18 (Statement on Standards for Attestation Engagements No. 18), focuses on controls relevant to financial reporting. It is particularly essential for service organizations whose services impact their clients’ financial statements. SOC 1 reports, issued by independent auditors, provide valuable insights into the effectiveness of controls over financial reporting.
What is covered by a SOC1 report
A SOC 1 report outlines the controls implemented by a service organization to ensure the accuracy and reliability of financial reporting. Controls refer to the policies, procedures, and practices put in place to mitigate risks and ensure compliance with relevant standards and regulations. They are designed to safeguard sensitive data, prevent unauthorized access or alterations, and maintain the integrity of financial information.
These controls, including those listed in the SOC 1 controls list, encompass measures related to data integrity, transaction processing, and access controls. For instance, a SaaS provider offering payroll processing services must exhibit robust controls over payroll data to attain SOC 1 certification.
What is an example of a SOC 1
An example of a SOC 1 report might involve a third-party payroll processing company that handles sensitive financial data for multiple clients. The SOC 1 type 2 report would detail the controls in place to safeguard this data and ensure accurate payroll processing. This may encompass controls over data encryption, user authentication, audit trails, and disaster recovery procedures.
What is SOC 2?
SOC levels 1 and 2 differ in the details they look at. SOC 1 reports evaluate your internal controls related to financial reporting. These include transaction processing, financial statement generation, and account reconciliation. That may sound like a lot, but it’s relatively minor compared to SOC 2.
SOC 2 Type 2 assessments are much more comprehensive than SOC 1s. They go beyond internal financial controls to also explore:
- Company-wide security
- Data availability
- Privacy
- Confidentiality
- Information integrity
There’s also a key difference in evaluation timelines between SOC 1 vs. SOC 2. A Level 1 SOC report is like taking a snapshot of your security controls at a specific point in time. Level 2 reports evaluate how controls function over a multi-month period, typically between six and 12 months.
This is why customers often request SOC 2 reports. They provide a long-term analysis of how effectively your company protects sensitive client data. This is a crucial factor for many businesses seeking to hire SaaS providers and similar firms.
Who gets an SOC report?
Unlike some other certifications, SOC reports are only available to organizational entities, not individuals. They’re sought by many kinds of companies, including:
- SaaS providers
- IT managed service providers
- Fintech and payment processors
- Logistics and supply chain companies
- Cybersecurity vendors
- Accounting and payroll providers
- Healthcare tech providers
- Data centers
Once you have an SOC certification report, you may decide to share it with stakeholders like customers, partners, and auditors. For example, a vendor in your supply chain may ask to see your SOC report to verify that you’ll handle their data securely. Or a potential customer may want to review your report before signing a service contract.
Note that there are some rules and expectations about who you can share your SOC reports with. These can contain sensitive information about your security procedures, which you probably don’t want the general public to see. That’s why most businesses only share SOC 1 and 2 reports with customers and prospects under NDAs, assessors, and regulators.
Is SOC 2 Type 2 better than Type 1
SOC 1 Type 2 reports provide a more comprehensive assessment of a service organization’s controls over financial reporting. While SOC 1 Type 1 reports assess controls at a specific point in time, Type 2 reports evaluate the effectiveness of these controls over a period, typically six to twelve months. This longer assessment period provides stakeholders with greater confidence in the ongoing reliability of the service provider’s controls. A SOC 1 Type 2 controls list would enumerate the specific controls implemented and evaluated during this extended period, offering a detailed insight into the organization’s adherence to industry standards and regulatory requirements.
Understanding the difference between SOC Level 1 and Level 2 certifications is vital for SaaS providers navigating the complex landscape of compliance. Whether aiming for SOC 1 or SOC 2 certification, organizations must prioritize robust control measures to safeguard financial data and maintain trust with their clients.
As you embark on your compliance journey, remember that achieving SOC certification is not merely a checkbox exercise but a commitment to excellence in data security and operational integrity. By investing in robust controls and obtaining SOC certification, SaaS providers can differentiate themselves in the market, instill confidence in their clients, and pave the way for sustainable growth.
Ready to showcase your commitment to data security? Contact Trava today to discuss your SOC compliance options.
FAQ
1. What does SOC stand for, and why is it important?
SOC stands for System and Organization Controls. It’s a suite of audit reports used to assess how well an organization manages and secures data—particularly relevant for SaaS, cloud, and financial service providers.
2. Who typically needs a SOC 1 report?
SOC 1 is critical for organizations whose services influence customers’ financial reporting, such as payroll providers, accounting firms, and fintech platforms.
3. Why do customers request SOC 2 reports more often?
SOC 2 reports go beyond financial data and assess security, privacy, availability, and confidentiality, making them more relevant to tech companies handling sensitive user data.
4. Is SOC 2 Type 2 better than Type 1?
Yes. Type 2 provides a longer-term evaluation (over 6–12 months), giving stakeholders more confidence in your ongoing security practices compared to the point-in-time snapshot of a Type 1.
5. Can a company be SOC 1 and SOC 2 certified?
Absolutely. Many companies pursue both certifications to meet different stakeholder requirements—SOC 1 for financial auditors and SOC 2 for clients concerned with data protection.