In today’s fast-evolving digital landscape, understanding third-party compliance is not optional—it's essential. When it comes to demonstrating operational and data security assurance to customers and stakeholders, the debate of SOC 1 vs SOC 2 is common across industries. Both reports are essential for service organizations, but they serve different purposes and audiences. In this blog, we’ll break down the key difference between SOC 1 and SOC 2 reports, explore what each entails, and help you determine which is right for your business.

What Are SOC Reports?

SOC (System and Organization Controls) reports are auditing standards developed by the American Institute of Certified Public Accountants (AICPA). They are designed to evaluate how well a service organization manages risks, specifically those related to financial reporting and data security. The most common reports businesses encounter are SOC 1 and SOC 2. While they may sound similar, they address different types of controls and cater to different stakeholders.

SOC 1 vs SOC 2: A High-Level Overview

The key difference between SOC 1 and SOC 2 reports lies in their purpose:

• SOC 1 Reports: Focus on internal controls over financial reporting (ICFR). Clients' financial auditors usually request these reports.

• SOC 2 Reports: Focus on controls relevant to security, availability, processing integrity, confidentiality, and privacy (commonly known as the Trust Services Criteria).

Understanding this distinction is critical in making the right compliance decision for your organization. The SOC 1 vs SOC 2 comparison often comes down to whether your services impact your client’s financial reporting or if they involve storing, processing, or securing sensitive data.

Understanding SOC 1 and SOC 2 Reports in Detail

To gain a better understanding of SOC 1 vs SOC 2, let's look below:

SOC 1 Report

• Who Needs It? Companies that process financial transactions for clients, like payroll providers, payment processors, or third-party administrators.

• Scope SOC 1 audits the design and effectiveness of internal controls related to financial reporting.

• Audience Intended for auditors and finance professionals who assess financial statements.

• Content includes control objectives, testing procedures, and results related to financial data processing.

SOC 2 Report

• Who Needs It? Companies that store or process customer data, especially in the SaaS, IT, or cloud computing space.

• Scope: SOC 2 evaluates operational controls related to data protection, especially around the Trust Services Criteria.

• Audience Intended for stakeholders concerned with data security and privacy, including customers, partners, and regulators.

• Content Details controls around cybersecurity, access management, and data confidentiality.

As you can see, the difference between SOC 1 and SOC 2 reports is not just technical—it reflects different business functions and customer expectations.

SOC 1 vs SOC 2: Which One Does Your Business Need?

Deciding between SOC 1 vs SOC 2 depends on your service offerings and your clients’ compliance needs. Here are a few guiding questions:

• Do your services impact your clients’ financial reporting? → Go for SOC 1.

• Do your services involve handling sensitive or private customer data? → You’ll likely need a SOC 2.

• Are you dealing with both financial transactions and customer data? → You may need both.

In regulated industries or those with strict compliance frameworks, obtaining both reports might be essential for market trust.

Why the Difference Matters in Third-Party Risk Management

Understanding SOC 1 vs SOC 2 is vital for third-party risk management (TPRM). When working with vendors or outsourcing certain operations, businesses must ensure that those third parties uphold the same standards of data protection and financial control as they do.

Vendor-provided SOC reports—especially SOC 2—can help your organization evaluate cybersecurity posture, ensure compliance with data privacy laws, and reduce exposure to breaches or regulatory penalties. The distinction between SOC 1 and SOC 2 reports becomes even more significant when evaluating risk within your supply chain or digital ecosystem.

Final Thoughts

The difference between SOC 1 and SOC 2 reports is more than technical jargon—it’s a strategic consideration. Choosing the correct report based on your service model helps ensure regulatory alignment, client trust, and overall business resilience. For businesses determining which compliance route to take, Beaconer provides expert advice to help select the most suitable audit.