What Is SOC 1 and SOC 2: Definitions, Application, Controls, Compliance and Differences

This article explains clearly what SOC, SOC 1, and SOC 2 reports are and when your organization might need them. If you’re wondering what is SOC exactly?—it stands for Security Operations Center and it’s all about how businesses manage data to protect the interests of their clients. The article identifies the key differences between SOC 1 and SOC 2, clarifies whether they're interchangeable, discusses if companies might require both, details their compliance requirements, and evaluates which report offers greater customer trust, ending with an overview of the SOC 1 Type 2 audit process and benefits. Today, many companies also opt for SOC as a Service models, where cybersecurity monitoring and incident response are outsourced to specialized providers for improved efficiency and compliance 

What is SOC, SOC 1 and SOC 2? 

SOC stands for Security Operations Center, which is a centralized facility where cybersecurity professionals monitor, detect, analyze, and respond to cybersecurity incidents in real time. SOC analysts within these centers are responsible for real-time monitoring and incident response, making them key to maintaining secure infrastructure while supporting audit readiness. Partnering with a trusted SOCaaS vendor allows organizations to access scalable security operations expertise, ensuring real-time incident management while supporting regulatory audit readiness. 

A SOC 1 report is an attestation report issued after a thorough SOC 1 audit, evaluating a service organization’s internal controls specifically related to financial reporting (ICFR), ensuring accuracy, reliability, and security in financial processes.

A SOC 2 report is an attestation report issued after a thorough SOC 2 audit, evaluating an organization’s controls at a service organization related to security, availability, confidentiality, processing integrity, and privacy. SOC reports assess internal controls critical for maintaining data security and reliability, as defined by the AICPA. 

According to Deloitte, SOC 1 reports focus primarily on financial controls, whereas SOC 2 audits encompass broader data protection measures. 

When do you need a SOC 1 report? 

A SOC 1 report is essential for service organizations that handle financial information on behalf of their clients, particularly where those services directly affect a client’s financial statements.  

Typical examples of organizations needing a SOC 1 include: 

• Payroll providers 
• Financial transaction processors 
• Fund administrators 
• Cloud-based financial management software providers 
• Data centers that host financial data 

When do you need a SOC 2 report? 

Organizations handling sensitive client data or providing technology-related   services commonly receive requests for a SOC 2 report. 

 Typical requestors include: 

• B2B clients evaluating a vendor’s security posture. 
• Companies outsourcing IT, cloud services, or SaaS applications. 
• Enterprises needing assurance regarding third-party risk management. 
• Partners or regulators validating the vendor’s cybersecurity compliance status. 

What controls are included in a SOC 1 report? 

A SOC 1 report evaluates internal controls over financial reporting (ICFR) within a service organization. Typically, the controls assessed include: 

• Transaction authorization and processing accuracy 
• Data security and access management related to financial information 
• Segregation of duties to prevent fraud or errors 
• Reconciliation and accuracy of financial transactions 
• Backup and disaster recovery measures impacting financial records 
• Physical and environmental controls safeguarding financial data 

What controls are included in a SOC 2 report?

A SOC 2 report evaluates an organization's controls related to security, availability, processing integrity, confidentiality, and privacy. Typically, the controls assessed include: 

• Logical and Physical Access Controls: Ensuring only authorized individuals can access sensitive systems and data. 
• System Security and Incident Response: Measures to protect systems against unauthorized access, cybersecurity threats, and timely incident management. 
• Data Encryption and Confidentiality: Safeguarding data in storage and transmission through robust encryption protocols. 
• Availability and Reliability Controls: Ensuring system uptime, timely backups, and consistent performance. 
• Change Management Procedures: Structured protocols for system updates, patches, and software changes to maintain system integrity. 
• Monitoring and Audit Logging: Continuous tracking of system activities to detect and respond promptly to anomalies or unauthorized activities. 
• Vendor and Third-party Management: Controls ensuring outsourced services meet defined security and compliance criteria. A rapidly growing Managed Services Provider offering IT infrastructure solutions needed to demonstrate data security rigorously. By successfully completing a SOC 2 Type 2 audit, they documented and validated security and availability controls. The SOC 2 attestation enabled the MSP to differentiate itself competitively, attract high-profile enterprise customers, and significantly reduce vendor risk assessments during the sales process. 
• Data Privacy and Processing Integrity: Proper handling of personal and sensitive information in alignment with privacy regulations and maintaining accuracy throughout data processing. 

Which is more important, SOC 1 or SOC 2? 

Neither SOC 1 nor SOC 2 is universally more important; their significance depends on your organization's nature and the type of services provided. If your business directly affects your client's financial statements, a SOC 1 report is crucial, whereas SOC 2 becomes more vital for companies handling sensitive customer information or those whose clients emphasize stringent security and privacy standards. Ultimately, your clients' specific compliance expectations determine the importance of one type of SOC report over the other. 

Are SOC 1 and SOC 2 reports interchangeable? 

SOC 1 and SOC 2 reports are not interchangeable, as each fulfills a unique compliance requirement. A SOC 1 report addresses the effectiveness of internal control over financial reporting, tailored specifically to financial data security. Conversely, a SOC 2 report validates broader system controls related to security and data management, making each report unique and designed for distinct client expectations. 

Does my organization need both SOC 1 and SOC 2 reports? 

Whether your organization requires both a SOC 1 and a SOC 2 report depends on the nature and diversity of your services. Companies providing multifaceted services—those that directly impact financial statements and manage sensitive customer data—often need both. For example, payment processing companies commonly obtain both SOC reports to demonstrate financial accuracy (SOC 1) and robust data protection measures (SOC 2). 

How do SOC 1 and SOC 2 reports differ in compliance requirements? 

The compliance requirements for SOC 1 and SOC 2 vary significantly due to their different objectives: 

• SOC 1 compliance revolves around documenting and evaluating controls over financial processes, often requiring detailed control testing for accuracy and reliability. 
• SOC 2 compliance involves meeting specific Trust Services Criteria, including implementing rigorous security practices, documented procedures for data handling, privacy protection, and continual monitoring to safeguard client data. EY highlights that SOC 2 compliance significantly boosts client trust due to rigorous security and privacy standards 

SOC 1 vs SOC 2: Which offers more customer trust? 

Both SOC 1 and SOC 2 reports provide considerable customer assurance, but SOC 2 compliance often resonates more broadly with customers, especially those highly concerned about cybersecurity and data privacy.  

A SOC 2 attestation report signals your commitment to comprehensive data protection and proactive risk management beyond financial controls alone. Nevertheless, a SOC 1 audit is equally crucial for trust when accurate financial operations are central to your business-client relationship. 

What is SOC 1 Type 2? 

A SOC 1 Type 2 report evaluates the effectiveness of a service organization's internal controls over financial reporting over a specified period (usually 6–12 months). It provides assurance that controls are suitably designed, consistently implemented, and operating effectively throughout the SOC audit timeframe. 

A cloud-based accounting software company serving thousands of businesses needed validation for its internal controls. By obtaining a SOC 1 Type 2 report, the company assured clients that all financial data processed within its platform was accurate, secure, and compliant with financial regulations. This not only fulfilled regulatory requirements but also attracted new enterprise clients who required robust controls over financial reporting.