Organizations handling sensitive information face mounting pressure to prove that their security and compliance programs are effective. Stakeholders — from customers to regulators — often request independent assurance in the form of System and Organization Controls (SOC) reports.
Without clear guidance, navigating the different SOC report types can feel overwhelming. Yet, making the right choice is critical for protecting your business, earning customer trust, and reducing the risk of costly breaches.
Whether you’re fielding procurement questions or planning your first audit, understanding the nuances between SOC 1, SOC 2, and SOC 3 can make a big difference. This guide breaks down what each report covers, explains the key differences between Type I and Type II reports, and helps you determine which path best fits your organization’s needs.
What Is a SOC Report?
Developed by the American Institute of Certified Public Accountants (AICPA), the SOC framework provides a structured way for independent certified public accountants to assess and report on a service organization’s controls. Each SOC examination results in an attestation report that external auditors, customers, and regulators rely on to validate compliance and risk-management practices.
For service organizations, SOC reports serve as an objective seal of assurance. By documenting how internal controls protect financial information and customer data, these reports foster transparency, shorten procurement cycles, and support long-term trust with user entities.
A user entity refers to any organization that uses the services of a service provider undergoing a SOC examination. They rely on the service provider’s controls to support their own compliance, operations, or financial reporting. For example, a company that outsources payroll processing to a third-party vendor would be considered a user entity — and may request the vendor’s SOC report to ensure adequate safeguards are in place.
There are three primary SOC report types, each tailored to a distinct assurance need:
- SOC 1 for financial reporting controls.
- SOC 2 for controls aligned to the Trust Services Criteria.
- SOC 3 for a publicly shareable summary of SOC 2 findings.
Understanding the differences among these reports is the first step toward choosing the right level of coverage. Next, let’s explore SOC 1 and its focus on financial reporting.
SOC 1: Financial Controls and Accuracy
A SOC 1 examination evaluates the controls a service organization has in place to safeguard user entities’ financial reporting data.
Conducted under the Statement on Standards for Attestation Engagements (SSAE) 18, specifically AT-C Section 320, which governs reporting on controls at service organizations relevant to user entities’ internal control over financial reporting, the audit verifies that processes affecting customers’ financial statements are designed appropriately and operating effectively. Because inaccuracies in these areas can trigger financial statement misstatements or audit issues for clients, SOC 1 assurance is often a contractual or regulatory requirement.
Typical Use Cases for SOC 1
Industries that directly influence clients’ financial data rely on SOC 1 to demonstrate robust internal controls. Common scenarios include:
- Payroll processors responsible for calculating wages, taxes, and deductions that flow into general ledgers.
- Claims administrators managing insurance payouts that impact reserves and financial disclosures.
- Payment processors handling transactions that feed into revenue recognition systems.
- Accounting software providers whose platforms generate or aggregate financial information for user entities.
- Software-as-a-Service (SaaS) vendors whose services materially affect customers’ financial reporting workflows.
These organizations benefit from SOC 1 by streamlining external audits, reducing customer due diligence questionnaires, and reinforcing confidence in financial integrity. Notably, SOC 1 reports are restricted-use documents intended only for user entities and their auditors, not for public distribution.
Type I vs. Type II SOC 1 Reports
SOC 1 offers two subcategories of reports:
- SOC 1 Type I reports assess whether controls are suitably designed as of a specific date (point-in-time). They provide a snapshot that helps stakeholders understand the control environment’s structure, but offer limited insight into the operational effectiveness of the controls.
- SOC 1 Type II reports test both the design and operating effectiveness of controls over a period, typically six to 12 months. This offers greater assurance to auditors, investors, and customers who need evidence that controls work consistently.
Selecting a Type I or Type II report depends on factors such as customer demands, audit timelines, and the maturity of the control environment. Organizations new to SOC compliance often begin with Type I, then progress to Type II to provide comprehensive, period-based assurance.
SOC 2: Data Security and Trust Services Criteria
While SOC 1 centers on financial reporting, a SOC 2 report evaluates how a service organization safeguards customer data across security, availability, processing integrity, confidentiality, and privacy. Conducted under SSAE 18, specifically AT-C Section 205, which governs examination engagements such as SOC 2 under the Trust Services Criteria.
SaaS providers, cloud storage vendors, managed service providers, and other technology-driven companies rely on SOC 2 compliance to demonstrate mature security practices. By presenting an independent audit report, these organizations reduce lengthy security questionnaires, shorten sales cycles, and satisfy the due diligence expectations of risk-averse clients.
Like SOC 1, SOC 2 reports are also restricted-use and are typically shared only with customers, partners, and other stakeholders under non-disclosure agreements.
Trust Services Criteria in SOC 2
The Trust Services Criteria form the backbone of every SOC 2 examination. Each criterion targets a specific aspect of customer data protection:
- Security: Protecting systems and data against unauthorized access, disclosure, and damage.
- Availability: Ensuring systems remain operational and accessible as promised.
- Processing Integrity: Confirming that system processing is complete, valid, accurate, timely, and authorized.
- Confidentiality: Safeguarding information designated as confidential from unauthorized disclosure.
- Privacy: Protecting personal data in line with the organization’s commitments and legal requirements.
Auditors map organizational controls to these criteria, then test design and — if applicable — operating effectiveness, resulting in a detailed SOC 2 report that user entities can rely on for risk assessments.
Type I vs. Type II SOC 2 Reports
Like SOC 1, there are two kinds of SOC 2 reports, and their distinctions are the same. Enterprise customers often insist on Type II because it validates day-to-day performance, strengthening confidence in the service provider’s security posture.
For growth-minded service organizations, conducting a SOC 2 examination can be the deciding factor between winning and losing major contracts.
SOC 3: A Public-Facing Seal of Trust
A SOC 3 report distills the detailed findings of a SOC 2 report into a high-level, publicly shareable document. Importantly, a SOC 3 report can only be issued if the service organization has successfully completed a SOC 2 Type II audit with an unqualified (clean) opinion from the auditor. Because it omits sensitive test procedures and results, any service organization can post a SOC 3 on its website, include it in sales collateral, or distribute it during conferences. This enables them to showcase a commitment to protecting customer data without breaching confidentiality agreements.
Though both SOC 2 and SOC 3 cover the same Trust Services Criteria, important differences remain. A SOC 2 report is restricted to informed parties — typically user entities and their auditors — who need granular insight into controls and test results. By contrast, a SOC 3 report is designed for general use, offering a concise overview of the audit scope and the auditor’s opinion that controls meet the criteria.
In short, SOC 2 provides depth, while SOC 3 offers breadth of audience.
Marketing Advantages of SOC 3
Service providers eager to strengthen brand credibility often leverage SOC 3 reports as a marketing asset because they can be shared freely. Customers, prospects, and investors gain immediate assurance that the organization maintains robust security, availability, processing integrity, confidentiality, and privacy controls — without wading through technical details.
The result is:
- Faster trust building during early sales conversations.
- Reduced friction in lead qualification and due diligence.
- A competitive differentiator to display alongside other compliance badges.
When to Consider a SOC 3 Report
Obtaining a SOC 3 report makes sense when an organization:
- Wants to provide public assurance of its control environment without releasing detailed test results.
- Serves a broad consumer base that may lack the expertise or nondisclosure agreements required to interpret a SOC 2 report.
- Seeks an additional trust symbol to complement certifications such as ISO 27001 or PCI DSS.
- Plans large-scale marketing campaigns where a concise, independent attestation resonates with a wide audience.
For many growing businesses, pairing a SOC 2 Type II report with a SOC 3 report creates a balanced approach: rigorous evidence for customers who need it and an accessible seal of trust for everyone else.
Choosing the Right SOC Report for Your Business
Selecting the correct SOC report begins with a clear understanding of your customers, data flows, and strategic objectives. Organizations can streamline the decision-making process by asking targeted questions, such as:
- What kind of customer data do we handle — financial information, sensitive personal data, or both?
- Do our services directly influence clients’ internal control over financial reporting?
- Which compliance requirements or contractual obligations drive customer expectations?
- How mature is our control environment, and are we prepared for a period-based Type II examination?
- What level of transparency do marketing and sales teams need to accelerate growth?
Answers to these questions reveal whether a SOC 1, SOC 2, or SOC 3 best addresses stakeholder needs. For example, a payroll processor dealing primarily with financial reporting should prioritize a SOC 1 audit, whereas a cloud SaaS platform protecting vast amounts of customer data will likely require a SOC 2 — and possibly a public-facing SOC 3 — to meet procurement demands and bolster market credibility.
Industry requirements and customer risk appetites further influence the choice. Highly regulated sectors may prefer a SOC 2 Type II report to satisfy stringent due diligence checklists, while startups targeting rapid go-to-market wins might opt for a SOC 2 Type I first, then expand to Type II as controls mature.
Finally, aligning SOC report selection with long-term strategy and resource allocation ensures an efficient audit process. By mapping reporting goals to growth plans — such as entering enterprise markets or preparing for a funding round — service organizations avoid reactive, box-checking exercises and instead build a scalable compliance roadmap.
Simplifying SOC Compliance
Achieving SOC compliance is about creating a clear, strategic framework that safeguards customer data, supports financial accuracy, and cultivates long-term trust. By selecting the appropriate SOC report category — SOC 1, SOC 2, or SOC 3 — organizations demonstrate accountability while positioning themselves for scalable growth and reduced risk.
Other SOC Frameworks
While SOC 1, SOC 2, and SOC 3 are the most commonly requested reports, the AICPA also offers additional SOC reporting options:
- SOC for Cybersecurity: An attestation report on an organization’s enterprise-wide cybersecurity risk management program.
- SOC for Supply Chain: A report designed to address risks in manufacturing and distribution environments.
These emerging frameworks offer specialized assurance in areas beyond traditional IT or financial reporting and may be worth considering for companies in high-risk or regulated industries.
Insight Assurance supports each stage of the SOC journey, offering independent SOC examinations backed by seasoned professionals and efficient workflows. From design evaluation to control testing, the goal is to deliver precise, transparent reporting that aligns with business objectives.
Ready to get started? Contact Insight Assurance for expert guidance on selecting the right SOC report for your organization.
