SOC 1 vs SOC 2 - why your auditor might be recommending the wrong one?

SOC 1 vs SOC 2 - why your auditor might be recommending the wrong one?

At first glance, choosing between a SOC 1 and SOC 2 report seems straightforward—until you start analyzing the actual purpose of the audit and who it’s meant for. In practice, this is where most mistakes happen. Many auditors, relying on habit or playing it overly safe, end up recommending the wrong report—often under the assumption that “SOC is SOC.” In reality, the differences between the two are fundamental, and choosing the wrong one can lead to financial losses, wasted effort, and diminished client trust.

Where mistakes most often occur

Most errors come down to three key factors.

First, organizations frequently request a “SOC report” without specifying which type they actually need. Only during a more detailed discussion about their services does it become clear whether SOC 1 or SOC 2 applies—and rarely both.

Second, some financial auditors approach the issue purely from a financial reporting perspective. As a result, they recommend SOC 1 even when the service provider has no influence on the client’s financial statements. In such cases, SOC 2 is the correct choice, as it evaluates the security, reliability, and integrity of data processing.

Third, SOC 2+ is often misunderstood as a certification equivalent to frameworks like ISO 27001 or HITRUST. In reality, SOC 2+ merely provides a mapping of controls—not an official certification.

Another source of confusion is that certain controls can overlap between the two reports. For instance, access control policies and security incident logging are equally relevant for both financial and IT audits. This can make the boundary between SOC 1 and SOC 2 appear blurry. However, the primary distinction lies in the purpose of the audit and its intended audience. Moreover, IT-related controls may apply to entirely different systems: SOC 1 covers financial and accounting systems, while SOC 2 focuses on systems supporting or impacting the provided service.

Key differences that drive the decision

The core distinction between SOC 1 and SOC 2 lies in what is being evaluated and for whom the report is produced.

SOC 1 focuses on controls that could affect a client’s financial reporting (ICFR). The auditor assesses whether the service provider’s control mechanisms protect the client’s financial data and ensure the accuracy of reports derived from that data.

SOC 2, in contrast, evaluates controls based on the Trust Services Criteria (TSC), which cover five categories: security, availability, processing integrity, confidentiality, and privacy. Only the first—security—is mandatory, while the others are selected depending on the nature of the service, regulatory requirements, client expectations, and the organization’s risk profile.

The intended audience also differs. SOC 1 is aimed primarily at CFOs, auditors, and financial risk teams, while SOC 2 is written for IT departments, information security officers, compliance teams, and business partners who need assurance that data is handled securely and in compliance with industry standards.

Each report can come in two forms:

• Type I – evaluates the design and implementation of controls at a specific point in time.

• Type II – assesses their operational effectiveness over a defined period (at least six months, ideally a full year).

As a result, SOC Type II serves as a more reliable and enduring piece of evidence for clients, demonstrating that the organization maintains the required level of control throughout the entire audit period.

How to avoid the wrong recommendation

To prevent choosing the wrong report, it helps to start with a simple analysis.

The first step is to determine whether your organization impacts clients’ financial data. If it does, SOC 1 is the right choice. If your services relate to data security, infrastructure, or cloud operations, the audit should be performed under SOC 2.

Next, identify the intended recipients of the report. If the target audience is the client’s financial auditor, you need SOC 1. If the report is for IT, compliance teams, or regulators, SOC 2 is the better fit.

You should also decide whether to pursue Type I or Type II. Type I reports are quicker to obtain but only describe system design and control setup. Type I is often treated as a transitional report, since the long-term goal should be a Type II. Although Type II requires a longer observation period, it provides tangible proof of ongoing control effectiveness—enhancing client and partner trust.

Before launching the audit, conduct a readiness assessment. This pre-audit phase identifies control gaps, organizes documentation, and prepares your team for collaboration with the auditor. Doing so helps avoid complications later and reduces the overall time and cost of the audit.

Why auditors often get it wrong

Not every auditor understands the nuances of technology or SaaS services. Many come from traditional financial audit backgrounds, where recommending SOC 1 is second nature—even when it’s not appropriate.

Another issue stems from client pressure: end customers often include vague requirements such as “SOC report required” in RFPs, without specifying the type. Eager to meet contractual demands quickly, the service provider picks the first option—usually SOC 1. Only later does it become clear that the client didn’t need assurance over financial reporting but rather over data security and operational resilience, i.e., SOC 2.

A common misconception also persists around SOC 2+, which many mistake for a “certification” comparable to ISO 27001 or HITRUST. In reality, SOC 2+ is a mapping exercise, showing how Trust Services Criteria align with those frameworks. Possessing a SOC 2+ report does not mean the organization is certified under those other standards—it simply demonstrates that the same requirements are being addressed.

Real-world examples

To illustrate the difference, consider a few practical examples.

A company that handles payroll processing or financial transaction outsourcing will need a SOC 1 report because its services directly affect clients’ financial data.

Conversely, a SaaS provider, cloud platform operator, or healthcare data processor should pursue SOC 2, typically covering at least Security, and often Availability and Confidentiality as well.

A SOC 2 Type II report covering at least six months—ideally a full year—serves as evidence of mature security practices. Clients increasingly expect it to be renewed annually, treating it as a precondition for continued business relationships.

Taking a strategic approach to SOC compliance

Leading organizations begin by mapping their services against risks and client expectations. Wherever there’s a potential impact on financial data, they pursue SOC 1. Where trust in data processing is the key factor, they focus on SOC 2. In some cases, both reports can be combined by leveraging shared controls, reducing time and audit costs.

It’s also worth remembering that a well-crafted SOC 2 report can serve as a powerful sales asset—enhancing credibility, shortening the sales cycle, and strengthening competitive advantage. Therefore, choosing the right report isn’t merely about compliance; it’s an investment in your organization’s reputation and customer trust.

Summary

Before accepting your auditor’s recommendation, ask yourself three essential questions:

• Do my services impact my client’s financial data?

• Who will be reading the report—financial auditors or security and compliance teams?

The answers will guide you toward the right report and help you avoid costly missteps. In many cases, SOC 2 offers greater business value than SOC 1, as it addresses clients’ real concerns about data protection and operational reliability. The key is making an informed, intentional decision—not simply following the auditor’s default recommendation.