SOC 1 vs SOC 2: Financial Controls vs Security Compliance – What’s the Right Fit?

If you're exploring compliance reports for your business, the terms SOC 1 and SOC 2 can sound similar, but they serve very different purposes. Choosing the right one isn’t about checking a box. It’s about understanding what your clients care about and what your service actually does.

In this post, we’ll explain the real difference between SOC 1 and SOC 2, when each is needed, and how to decide which one applies to you.

What Is SOC 1?

SOC 1 is a report focused on financial controls. It’s designed for service providers that directly affect their clients’ financial reporting, think payroll companies, billing systems, or financial platforms.

SOC 1 reports evaluate whether your internal processes are reliable and won’t cause errors in your clients’ accounting records.

Common use cases:

• Payroll processors
• Billing and invoicing systems
• Accounting service providers
• ERP software that touches financial data

SOC 1 is performed under the SSAE 18 standard and comes in two types:

• Type I – A snapshot of your control design
• Type II – An audit over time to prove your controls actually work

📌 If your service can impact the accuracy of a client’s financial statements, a SOC 1 report may be required, especially for publicly traded clients under SOX compliance.

What Is SOC 2?

SOC 2 is about security, privacy, and operational integrity. It applies to companies that handle or store sensitive customer data, especially in the cloud.

SOC 2 reports follow the Trust Services Criteria, which include:

1. Security (required)
2. Availability
3. Processing Integrity
4. Confidentiality
5. Privacy

This report doesn’t focus on accounting. Instead, it asks:

• Are your systems secure from outside threats?
• Is data being accessed appropriately?
• Are privacy practices clearly documented?

Common use cases:

• SaaS platforms
• API providers
• Cloud infrastructure
• HR, CRM, or analytics tools

SOC 2 is usually what customers ask for when they’re evaluating data protection and operational reliability.

Key Difference: Financial Controls vs Data Security

| Feature | SOC 1 | SOC 2 | |---|---|---| | Main focus | Financial reporting accuracy | Security, privacy, availability | | Designed for | Auditors and finance stakeholders | Customers, partners, and procurement teams | | Framework | SSAE 18 | AICPA Trust Services Criteria | | Common users | Payroll, billing, finance tech | SaaS, cloud, data platforms | | Key outcome | Supports accurate financial statements | Proves secure and reliable data practices |

Which One Does Your Business Need?

Ask yourself the following questions:

1. Does my service affect a customer’s financial reporting? → ✅ You likely need SOC 1

2. Do I handle personal data or customer information? → ✅ You likely need SOC 2

3. Is my client asking about security and privacy, not accounting? → ✅ Focus on SOC 2

4. Is my client asking about Sarbanes-Oxley or audit requirements? → ✅ That points to SOC 1

Example: A SaaS Platform With a Billing Feature

Let’s say you run a SaaS app that offers:

• Time tracking
• Automated invoicing
• Client data management

You’re handling financial data and sensitive information.

💡 In this case, your company might need both SOC 1 and SOC 2: SOC 1 for financial integrity, and SOC 2 for customer trust.

Summary: Different Needs, Different Reports

| Your Situation | Report You Need | |---|---| | Clients rely on your numbers in their accounting | SOC 1 | | Clients trust you with their sensitive data | SOC 2 | | You want to prove security best practices | SOC 2 | | Your client is a public company under SOX rules | SOC 1 |

If you're still unsure which one applies, think of it this way:

SOC 1 = “Can I trust your numbers?”
SOC 2 = “Can I trust your systems?”

Related Articles

• 📘 SOC 1 vs SOC 2 vs SOC 3: Key Differences
• 🔐 SOC 2 Audit Checklist
• 🚀 How Startups Can Get SOC 2 Without a Security Team