SOC Report Types: SOC 1 vs. SOC 2 vs. SOC 3 Explained

SOC 1, SOC 2, and SOC 3 are three distinct types of SOC reports, each serving a different audience and a different purpose. SOC 1 covers controls that affect your clients’ financial statements; SOC 2 covers controls over security, availability, and data protection; and SOC 3 is a streamlined, publicly distributable version of a SOC 2. The numbers do not indicate a hierarchy, and you do not need one before pursuing another.

The right SOC report depends on what your clients and their auditors are asking for, the nature of your services, and how broadly you want to share the results.

What Is a SOC Report?

A SOC report (System and Organization Controls report) is an independent attestation performed by a licensed CPA firm. It evaluates the controls at a service organization and gives that organization’s customers, and their auditors, documented evidence that those controls are in place and working. SOC reports exist because when a company outsources a business function, say payroll, IT hosting, or claims processing, its external auditors still need to understand the controls at the vendor. A SOC report is the formal mechanism for getting that evidence.

The AICPA governs the SOC framework. All three report types flow from the same authoritative standard: SSAE 18, the Statement on Standards for Attestation Engagements issued by the AICPA Auditing Standards Board.

The SOC Framework at a Glance

Report	Standard	Audience	Distribution
SOC 1	SSAE 18, AT-C Section 320	User entities and their auditors	Restricted
SOC 2	SSAE 18, AT-C Section 205	Customers, prospects, business partners	Restricted
SOC 3	SSAE 18, AT-C Section 205	General public	Unrestricted

SOC 1: Controls Over Financial Reporting

A SOC 1 report focuses on a service organization’s controls that are relevant to its clients’ internal control over financial reporting (ICFR). If what your organization does could affect the accuracy of a client’s financial statements, a SOC 1 is the report their auditors will request.

Who Needs a SOC 1 Report

The clearest indicator is whether your service touches transactions, balances, or disclosures that flow into a client’s financial statements. Common SOC 1 candidates include:

• Payroll processing providers
• Benefits administration and claims processors
• Loan servicing companies
• Data centers hosting financial applications
• Transfer agents and fund administrators
• Revenue cycle management firms for healthcare billing

A payroll provider like ADP, for example, processes wage data and tax withholdings that directly affect client financial statements. Without a SOC 1, each of ADP’s thousands of clients would need to audit those controls independently. The SOC 1 report consolidates that evidence.

SOC 1 Type 1 vs. Type 2

Like SOC 2, SOC 1 reports come in two types:

Type 1 evaluates whether controls are suitably designed as of a specific date. It is a point-in-time assessment.

Type 2 evaluates whether controls are both suitably designed and operating effectively over an audit period, typically between 3 and 12 months. User auditors almost always require a Type 2 because it demonstrates that controls actually functioned, not just that they existed on paper.

SOC 2: Controls Over Security and Data

A SOC 2 report evaluates a service organization’s controls against the AICPA’s Trust Services Criteria (TSC). These criteria cover five categories: security, availability, processing integrity, confidentiality, and privacy. Security is mandatory in every SOC 2 engagement; the other four are selected based on the nature of the services provided.

The Trust Services Criteria were established in 2017 and updated in 2022 with revised points of focus to reflect changes in technology and business environments. The 2022 revisions did not change the criteria themselves but added and updated guidance to help practitioners apply them in modern cloud and SaaS environments.

Who Needs a SOC 2 Report

SOC 2 has become the de facto security assurance standard for technology-enabled service businesses. If enterprise procurement teams are asking you to complete a security questionnaire, they likely want a SOC 2 instead. Typical candidates include:

• SaaS platforms and cloud infrastructure providers
• Managed IT services and managed security services firms
• Data analytics and business intelligence vendors
• Healthcare IT companies handling protected health information
• HR tech platforms that store employee data
• Any organization where customer data security is a key contracting requirement

A SOC 2 does not map directly to a regulatory compliance framework like HIPAA or SOX, but it provides strong third-party evidence of security controls that satisfies many customer due-diligence requirements.

The Five Trust Services Criteria

Security (Common Criteria): Required in every SOC 2 engagement. Covers logical access controls, system monitoring, threat detection, and incident response.

Availability: Covers whether systems are available for operation and use as agreed. Relevant for SaaS providers with uptime commitments.

Processing Integrity: Covers whether system processing is complete, valid, accurate, timely, and authorized. Relevant for payment processors and data pipelines.

Confidentiality: Covers how information designated as confidential is protected. Relevant for professional services firms and data custodians.

Privacy: Covers the collection, use, retention, and disposal of personal information. Relevant for any organization subject to GDPR, CCPA, or similar privacy regulations.

SOC 2 Type 1 vs. Type 2

The same Type 1 and Type 2 distinction applies to SOC 2 engagements. Type 1 reports assess design at a point in time and are useful early in a compliance program. Type 2 reports cover operating effectiveness over a monitoring period of 3 to 12 months, and they carry significantly more weight with sophisticated buyers and enterprise security teams. Most customers requesting a SOC 2 report want a Type 2.

SOC 3: The Public-Facing Summary

A SOC 3 report covers the same five Trust Services Criteria as SOC 2, conducted under the same SSAE 18 standard. The critical difference is distribution: a SOC 3 is a general-use report that can be shared freely, including posted on your website. A SOC 2 is a restricted-use report requiring a non-disclosure or confidentiality agreement with each recipient.

SOC 3 reports contain the auditor’s opinion and management’s assertion, but they do not include the detailed description of the system, the auditor’s test procedures, or the test results. Because of that, a SOC 3 generally will not satisfy the due-diligence requirements of a sophisticated customer or their external auditors.

When to Pursue a SOC 3

SOC 3 is best viewed as a marketing supplement, not a substitute for SOC 2. Organizations use it to publicly signal that they have passed an independent security audit without disclosing the internal details of their control environment. Many companies pursue a SOC 2 Type 2 first and then use the resulting SOC 3 for their website and sales materials.

SOC 3 reports are always Type 2, meaning they cover operating effectiveness over a period of time, not just design at a point in time.

SOC 1 vs. SOC 2: Choosing the Right Report

The question of SOC 1 vs. SOC 2 comes down to what your services affect. The decision framework is straightforward:

• Does your service affect your customers’ financial statements? SOC 1 is what their auditors will ask for.
• Does your service involve storing or processing sensitive customer data or systems? SOC 2 is what their security and procurement teams will ask for.
• Do both apply? Some organizations pursue both. A payroll SaaS company, for instance, processes financial data relevant to client ICFR (SOC 1 territory) and also stores sensitive employee information including Social Security numbers and bank account details (SOC 2 territory).

Neither report is inherently harder than the other. They evaluate different things. SOC 1 audits are driven by the transaction cycles and financial reporting risks specific to your clients. SOC 2 audits are driven by the Trust Services Criteria and whatever categories apply to your service.

What All Three Reports Have in Common

All three SOC report types share these characteristics:

• They must be performed by an independent, licensed CPA firm.
• They follow SSAE 18 and are attestation engagements, not financial statement audits.
• They evaluate a defined system, not the entire organization.
• The service organization’s management provides a written assertion about its controls.
• Both Type 1 and Type 2 variations include an auditor’s opinion.

Working with an Auditor on Your SOC Report

Scope is the most consequential decision in a SOC engagement. Too narrow and the report fails to satisfy customer requirements; too broad and preparation costs climb unnecessarily. A qualified auditor will help you define the system, select the right report type, identify which Trust Services Criteria categories to include, and determine whether a Type 1 or Type 2 period is appropriate for your current stage.

For organizations new to SOC reporting, a Type 1 can serve as a baseline assessment before committing to the full monitoring period required for a Type 2. That said, many customers will not accept a Type 1 as a substitute, so it is worth confirming what your specific customers require before beginning.

At Modus, SOC reporting engagements are conducted using AI-native workpapers that maintain source-linked evidence and allow for faster turnaround than traditional engagements. For organizations that also need financial statement audits or other audit and assurance services, coordinating both under a single firm reduces duplication of effort.

Related reading: SOC 2 Audit: A Complete Guide for Service Organizations

Frequently Asked Questions

What is the difference between SOC 1, SOC 2, and SOC 3?

SOC 1 reports cover controls relevant to a client’s financial reporting, governed by AT-C Section 320 under SSAE 18. SOC 2 reports cover controls over security, availability, processing integrity, confidentiality, and privacy, using the AICPA’s Trust Services Criteria. SOC 3 covers the same subject matter as SOC 2 but produces a shorter, unrestricted report suitable for public distribution. The numbers do not represent a sequence or a level of difficulty.

Who needs a SOC 1 report?

Service organizations whose activities can affect their clients’ financial statements need a SOC 1. Common examples include payroll processors, benefits administrators, loan servicers, fund administrators, and data centers that host financial applications. If a client’s external auditor is asking for evidence of your internal controls, they most likely want a SOC 1 Type 2.

Who needs a SOC 2 report?

SaaS companies, cloud providers, managed IT services firms, healthcare IT vendors, and any organization whose customers require third-party evidence of security controls typically need a SOC 2. Enterprise customers, PE-backed companies, and organizations subject to regulatory scrutiny routinely require a SOC 2 Type 2 from vendors in their supply chain.

What is the difference between a Type 1 and a Type 2 SOC report?

A Type 1 report evaluates whether controls are suitably designed as of a specific point in time. A Type 2 report evaluates whether controls are suitably designed and also operating effectively over a defined period, typically 3 to 12 months. Type 2 reports are more valuable to user auditors and customers because they demonstrate that controls actually functioned over time.

Can you have both a SOC 1 and a SOC 2?

Yes. Some service organizations need both because they affect both financial reporting and data security for their clients. A payroll SaaS platform, for instance, may need a SOC 1 for the financial reporting controls and a SOC 2 for the security and privacy controls around employee data. The two engagements can often be coordinated to reduce overlap in audit fieldwork.

How long does a SOC 2 Type 2 audit take?

The monitoring period itself is typically 3 to 12 months. Add preparation time of 1 to 3 months and reporting time of 2 to 6 weeks after the audit fieldwork concludes. A first-time SOC 2 Type 2 commonly takes 9 to 15 months from kickoff to final report issuance.