What's Inside
Discover the differences between SOC 1, SOC 2, and SOC 3 reports—their uses across industries and how they help organizations build trust, enhance security, and meet compliance needs.
SOC 1 vs. SOC 2 vs. SOC 3: A Detailed Comparison
Get Started with Drata
Contents
According to IBM’s Cost of a Data Breach Report, the global average cost of a data breach was $4.88 million, a 10% increase from the previous year. This growing security, compliance, and financial impact highlights the critical need for robust security measures.
System and Organization Controls (formerly Service Organization Controls), or SOC, compliance frameworks provide organizations with a structured way to validate their security, availability, financial control measures, and confidentiality. Using the Trust Services Criteria (TSC) and rooted in the Statements on Standards for Attestation Engagements (SSAE), SOC frameworks define how companies should manage, process, and store users’ data. Depending on the use case, SOC 1, SOC 2, and SOC 3 reports help organizations prove their robust data-handling practices to clients and stakeholders.
Achieving SOC compliance establishes credibility, mitigates risks, and helps align companies with best business practices. Each SOC report, which is conducted by a certified public accountant (CPA) or CPA firm, is tailored to a specific need and compliance requirement.
Discover the distinct purposes of—and similarities and differences between—SOC 1, SOC 2, and SOC 3.
SOC 1 vs. SOC 2 vs. SOC 3: Key Differences
To build trust with your customers, you have to understand the distinctions between SOC 1, SOC 2, and SOC 3. These reports provide independent validation that your organization meets industry standards for data management, security, and controls—key factors that instill confidence in business decision-makers.
Each type of report addresses a unique need, such as demonstrating financial reporting accuracy, validating data security and privacy controls, or providing public assurance of compliance.
Definition, Purpose, and Industry Applications
SOC reports, developed by the American Institute of Certified Public Accountants (AICPA), provide independent attestation that an organization’s controls effectively manage and secure data in accordance with industry standards.
By addressing compliance requirements across industries, these reports help businesses safeguard financial transactions, protect sensitive information, and build trust with clients and stakeholders. Each type of SOC report serves a distinct purpose, offering organizations a reliable way to demonstrate accountability and meet regulatory expectations.
SOC 1: Financial Reporting Controls
SOC 1 reports examines the internal controls that a service organization has in place that could affect the financial reporting of its user entities. This includes controls related to transaction processing, data integrity, and security that could lead to material misstatements in financial reports.
Payroll processors: Handling clients’ financial data and ensuring reporting is error-free.
Financial service firms: Managing sensitive client transactions securely.
Healthcare organizations: Validating processes for medical benefit and claims management.
SOC 2: Security, Availability, and Privacy Controls
SOC 2 audits emphasize the protection of sensitive data and system reliability. They are designed for organizations where information security is paramount, including:
SaaS providers and cloud computing companies: Protecting customer data in cloud environments.
Fintech firms: Securing financial transactions and mitigating fraud risks.
Healthcare organizations: Ensuring HIPAA compliance and patient data confidentiality.
E-commerce: Safeguarding customer and payment information in online retail environments.
SOC 3: Public assurance of compliance
SOC 3 reports are a simplified, public-facing version of SOC 2, designed to build trust with a general audience without disclosing detailed audit findings. They are ideal for:
Marketing and PR initiatives: Demonstrating compliance and security practices.
Broad trust-building: Establishing credibility with customers, investors, and partners.
Trust Services Criteria Overview for SOC 2 and SOC 3
The TSC framework, which SOC 2 and SOC 3 reports are built on, was developed to evaluate how organizations manage systems and data to protect their clients, stakeholders, and end users. The TSC forms the backbone of SOC compliance by outlining five key principles that companies must adhere to when handling sensitive information.
1. Security
The cornerstone of the TSC, Security is a mandatory criterion for SOC 2 compliance. It ensures that systems are protected from unauthorized access—whether malicious or accidental—by implementing robust security controls like firewalls, multi-factor authentication, and continuous monitoring to protect sensitive information against breaches and unauthorized use.
Example: A SaaS company hosting customer data in the cloud must have robust access controls and intrusion detection systems to protect its infrastructure from cyber threats.
2. Availability
The principle of Availability means that systems and services, including critical infrastructure like data centers, must be operational and accessible as promised to users. It evaluates controls related to uptime, redundancy, and disaster recovery planning, ensuring organizations meet their commitments to service reliability.
Example: A cloud service provider offering critical infrastructure to enterprises must implement redundancy protocols and incident response plans to guarantee minimal downtime during unexpected events.
3. Processing Integrity
Processing Integrity focuses on the accuracy, completeness, and timeliness of data processing. This principle is about ensuring that systems deliver reliable outcomes without errors, unauthorized alterations, or delays.
Example: An e-commerce platform offering online transactions must deliver on the promise that customer orders are processed accurately and delivered on time—free of glitches or inconsistencies.
4. Confidentiality
The confidentiality principle protects sensitive information from unauthorized disclosure. This includes using encryption, access controls, and data classification practices to ensure that information remains private.
Example: A healthcare provider storing patient records must encrypt data at rest and in transit. They must guarantee that only authorized users and personnel have access to these records.
5. Privacy
Privacy governs how organizations collect, use, store, and share personal information, ensuring compliance with applicable regulations and internal policies. This criterion is especially relevant for companies that handle sensitive customer or user data, like personally identifiable information (PII) or protected health information (PHI).
Example: A fintech company that collects financial data for loan applications must implement clear privacy policies, secure data storage, and adhere to regulations like GDPR or CCPA.
SOC 3 reports leverage the same TSC as SOC 2 but present them in a simplified, public-facing format. While SOC 2 provides detailed insights for specific audiences like business partners and clients, SOC 3 is designed to establish confidence in the broader public that an organization is committed to these principles.
Types of SOC Reports: Type 1 vs. Type 2
SOC 1 and 2 reports are divided into two primary types: Type 1 and Type 2. SOC 3 reports are based on a SOC 2 Type 2 audit, but the SOC 3 report itself is a general use report, and does not carry the Type 2 designation. Each serves a distinct purpose in assessing an organization’s controls.
SOC 1 and 2 Type 1 Reports
SOC 1 and SOC 2 Type 1 reports evaluate the construction and implementation of controls at a specific point in time. They’re designed for organizations that are just beginning their compliance journey or for those that need to demonstrate initial readiness. They answer the question, “Are the necessary controls in place to address the specified criteria today?”
Type 1 reports offer a baseline for future audits. They’re quicker to achieve compared to Type 2 reports, so they’re the preferred option for organizations with tight deadlines or immediate client needs. For example, a SaaS startup that is entering the enterprise market may pursue a Type 1 report to demonstrate that their controls are designed appropriately at a specific point in time. While a Type 1 is faster to achieve than a Type 2, it’s crucial to understand that a Type 1 report still requires significant preparation and auditing.
SOC 1 and SOC 2 Type 2 reports take compliance a step further by assessing the operating effectiveness of controls over a defined period of time—typically 6 to 12 months. These reports provide more of a guarantee to stakeholders and clients that controls are not only properly in place but also functioning effectively.
The extended monitoring period required by Type 2 reports makes them more resource-intensive, but they offer significant credibility in industries with strict compliance requirements. A cloud provider serving healthcare clients, for example, might pursue a SOC 2 Type 2 report to illustrate consistent adherence to privacy and security standards over time.
Deciding Between Type 1 and Type 2 Based on Business Needs
Whether a business chooses a Type 1 or Type 2 report depends on an organization’s stage of growth, client expectations, and compliance goals.
Type 1 reports are best for companies that are new to SOC compliance or for those looking to establish initial credibility. They’re ideal for businesses that need to quickly validate that controls are in place to meet client expectations and regulatory requirements. For example, a payroll processor preparing for enterprise partnerships will begin with a SOC 1 Type 1 report to demonstrate to stakeholders and potential clients that their financial reporting processes are secure, accurate, and reliable.
Mature companies and those targeting enterprise clients often prefer Type 2 reports. These reports provide long-term assurances that controls are effective and consistently maintained. For example, a fintech company scaling its operations might pursue a SOC 2 Type 2 report to meet rigorous vendor due diligence requirements and adhere to regulatory standards.
Whether starting with a Type 1 report or advancing to Type 2, leveraging a security and compliance automation platform simplifies the process by monitoring controls and collecting evidence. A platform like Drata can guide organizations through the audit process and ensure achieving compliance is both efficient and scalable.
When Do You Need SOC 1, SOC 2, or SOC 3?
The type of SOC report your company needs depends on the data you manage, the industry in which you operate, and your target audience. Here are some common scenarios that require each report type:
Common Scenarios for SOC 1
Organizations require SOC 1 reports if they’re in industries where controls directly impact financial operations. Common scenarios for SOC 1 could include showing proof that:
Payroll systems are secure and reliable to prevent errors in financial reporting.
The handling of insurance claims processing or retirement benefits is accurate and safeguarded.
Third-party admins who manage financial services on behalf of clients are trustworthy.
Common Scenarios for SOC 2
SOC 2 reports are designed for organizations that handle sensitive customer data—particularly in sectors like SaaS, cloud computing, fintech, healthcare, and retail—where data security, privacy, and availability are vital. Common scenarios for SOC 2 could include showing proof that:
SaaS providers’ systems are secure, reliable, and compliant, so they can expand into enterprise markets.
PHI demonstrates compliance with HIPAA and sufficient data security measures are in place.
A digital payment processor or online lending platform is able to protect sensitive financial information and manage fraud risks.
E-commerce retailers have validated their security practices for processing payments and handling customers’ personal information.
Common Scenarios for SOC 3
Organizations use SOC 3 reports to provide public validation of compliance. They’re typically designed for businesses to communicate their commitment to security and privacy without disclosing audit specifics. Common scenarios for SOC 3 could include showing proof that:
A company’s practices are secure; in this case, a SOC 3 acts as a transparent seal of trust to attract new customers or investors.
Organizations in highly visible industries like technology or healthcare prioritize security and privacy to build public confidence and differentiate themselves from competitors.
A business complies with industry standards and safeguards sensitive information, offering transparency to general audiences—such as customers or partners—without revealing proprietary audit details.
Why SOC 2 is Often the Most Requested Report
SOC 2 compliance is a benchmark for data security and privacy, particularly for SaaS providers, cloud companies, and organizations managing sensitive customer data. While frameworks like ISO 27001 offer a comprehensive approach to information security, SOC 2 is often favored in the U.S. for its focus on trust service criteria like Availability and Processing Integrity. SOC 2 compliance helps businesses meet regulatory standards, build trust, and gain a competitive edge.
The Role of SOC 2 for SaaS Companies and Data Processors
To gain a customer’s trust, companies must be transparent about how they protect sensitive customer data. For SaaS companies and data processors, SOC 2 reports illustrate compliance and a commitment to their enterprise partners. This report could be the difference between landing a high-value contract—or not.
Clients and regulatory bodies often require proof of SaaS and data companies’ security and privacy practices. SOC 2 compliance provides this validation. With cybersecurity concerns at an all-time high, companies with SOC 2 compliance position themselves as reliable and forward-thinking.
How SOC 2 Aligns With Modern Data Security Demands
Data security threats grow more complex by the day. SOC 2 has evolved to address these challenges.
SOC 2 compliance takes on modern threat concerns by validating an organization’s ability to mitigate risks like unauthorized access, data breaches, and system outages. By emphasizing regular control evaluations, it proves that security benchmarks are being met consistently instead of just at a single point in time.
Today’s zero-trust security models prioritize strict identity verification and limit system access to minimize risks. SOC 2 compliance complements this by requiring robust access controls and data encryption measures. The reports also confirm that an organization’s systems are resilient to future disruptions.
SOC 1 vs. SOC 2 vs. SOC 3: How to Choose
Choosing the right SOC report for your needs depends on your organization’s unique circumstances, including the type of data you handle. It also depends on your industry’s regulatory requirements and your clients’ expectations. Once you understand these factors, you can make an informed decision that aligns with your compliance goals, operational priorities, and budget constraints.
Factors to Consider
When selecting between SOC 1, SOC 2, and SOC 3 reports, the following considerations can help you make the right choice for your organization.
Industry Requirements
Finance and healthcare industries often require SOC 1 to authenticate internal controls that affect reporting.
SaaS and cloud providers prioritize data security, so SOC 2 reports are often needed to demonstrate extensive security and privacy practices.
For industries seeking broad consumer trust without giving away the specifics of a company’s business, SOC 3 offers a public guarantee that’s suitable for marketing and PR purposes.
Types of Clients
Large organizations and enterprise clients often require SOC 2 Type 2 reports as proof of sustained operational effectiveness over time.
Small to medium-sized businesses (SMBs) might find SOC 1 or SOC 2 Type 1 sufficient to illustrate readiness or meet basic client needs.
Public or B2C companies may choose SOC 3 to serve large audiences and establish widespread confidence without giving away an organization’s business details.
Compliance Goals and Budgets
When companies are looking to attract enterprise clients, the comprehensive nature of SOC 2 Type 2 reports can provide guarantees about their control effectiveness.
Businesses that are new to compliance can begin with Type 1 reports to validate their controls quickly before progressing to Type 2 as their processes mature.
SOC compliance is not a one-size-fits-all solution. The right choice for your organization will depend on a combination of the factors listed above. But tools like Drata can help you streamline decision-making and simplify your compliance processes.
Simplify Your Path to SOC Compliance with Drata
SOC compliance is a strategic advantage for building trust with clients, partners, and the general public. By safeguarding data, demonstrating security, and meeting regulatory requirements, SOC reports help organizations unlock new business opportunities.
Whether you need SOC 1, SOC 2, or SOC 3, achieving compliance doesn’t have to be overwhelming. Drata streamlines the process with expert guidance and continuous monitoring tools designed to keep your company ahead of compliance challenges. Book a demo to discover Drata’s compliance automation solution.
SOC 1 vs. SOC 2 vs. SOC 3 FAQs
Find out the answers to some of the most frequently asked questions about SOC 1, SOC 2, and SOC 3.
What are the Key Differences Between SOC 1, SOC 2, and SOC 3?
SOC 1 focuses on financial reporting controls, while SOC 2 evaluates controls for security, availability, processing integrity, confidentiality, and privacy. SOC 3 is a public summary of SOC 2 without detailed results.
How Long Does it Take to Achieve SOC Compliance?
The timeline for SOC 1 and 2 compliance depends on your organization’s readiness and the type of audit you’re pursuing. A SOC 1 or SOC 2 Type 1 audit can take up to 6 months. A SOC 1 or SOC 2 Type 2 audit can take anywhere from 3 to 12 months to complete.
Can a Company Have Multiple SOC Reports?
Yes, depending on client and regulatory requirements, companies may need SOC 1, SOC 2, and SOC 3 reports.
Is SOC 3 Just a Summary of SOC 2?
Yes, SOC 3 is a condensed, public-facing version of SOC 2 designed for general audiences.
