SOC 2 Type 1 vs Type 2

 

 

 

The prevalence of cyber security attacks and data breach in the recent years have brought to light   how vulnerable organizations are to a cyber-attack. In this landscape, understanding SOC 2 Type 1 vs Type 2 compliance has become crucial for businesses that want to build customer trust and ensure data integrity.The financial losses and the tarnish of reputation caused by such attacks cannot be underestimated by any organization handling confidential data.

Data breach still continues to be a pressing concern for companies across the globe. Indeed, information security has now become a major concern for organizations handling sensitive data and including those who outsource their business requirements to third-party organizations such as SaaS providers, data analytic companies and Cloud computing providers.

Needless to say, all IT managers and security stakeholders have been scrambling to find ways to tackle the situation and gain control over their network and data security. One way to ensure the security and privacy of data is by obtaining a SOC 2 Type1 & Type 2 report from a CPA. So, let us today understand in detail about the SOC 2 audit and its application to your organization. 

Why SOC 2 Compliance Has Become a Necessity

To tackle these challenges, IT managers and security leaders have been scrambling for ways to strengthen their cybersecurity posture. One proven approach is obtaining a SOC 2 Type 1 or Type 2 report from a licensed CPA firm.

But why does this matter?

A SOC 2 report doesn’t just validate your security—it tells your customers and partners that you take data protection seriously. In industries like SaaS, healthcare, and finance, this level of assurance is often a deal breaker when securing partnerships or contracts.

Let’s dive deeper into SOC 2 audits and understand the differences between Type 1 and Type 2 reports, their use cases, and which one may be the right fit for your organization.

What is SOC 2 audit

A SOC 2 report essentially verifies whether an organization is in compliance with the requirements relevant to Security, Processing integrity, Availability, Confidentiality, and Privacy.  It is an audit meant for service organizations that holds, stores, or processes private data of their clients. A SOC 2 audit report provides the organization and its clients an assurance that the reporting controls are suitably designed, well in place, and client’s sensitive data is appropriately secured. 

 

Types of SOC 2 report

SOC 2 audits are divided into two types—SOC 2 Type 1 and SOC 2 Type 2. Both focus on the five trust principles, but they serve different purposes in terms of depth and timeline.

Quick tip: If you’re unsure which trust principles apply to your business, you might want to revisit our earlier article: SOC 2 Trust Service Criteria.

SOC 2 Type 1 Definition:

SOC 2 Type 1 is a report on a service organization’s system and the suitability of the design of controls. The report describes the current systems and controls in place and review documents around these controls. Design sufficiency of all Administrative, Technical and Logical controls are validated.

SOC 2 Type 2 Definition:

SOC 2 Type 2 Report is very similar to the Type 1 report, except that the evidence of control effectiveness are described and evaluated for a minimum of six months to see if the systems and control in place are functioning as described by the management of the service organization. 

(Note- SOC 2 Type 1 & SOC 2 Type 2 are two different stages of achieving SOC 2 Compliance.)  

SOC 2 Type 1 vs Type 2 – Key Differences

The most significant difference lies in the depth of testing and time frame.

• Type 1: Point-in-time report (e.g., as of March 2025). Focuses on design sufficiency.

• Type 2: Covers operational effectiveness over 6–12 months. More thorough but also more time-consuming and costly.

Feature	SOC 2 Type 1	SOC 2 Type 2
Scope	Design of controls	Design + operational testing
Timeline	Point-in-time snapshot	6–12 months testing period
Cost	Lower	Higher
Best For	New compliance or startups	Mature organizations with ongoing controls
Customer Appeal	Moderate	Strong assurance of security maturity

Which One Should You Choose?

For many organizations, Type 1 is the natural first step. It’s faster (often completed within 3 months), less expensive, and establishes your initial compliance framework.

However, Type 2 holds greater value because it proves that your security controls are not just in place but also function reliably over time. This is why many large enterprises prefer working with vendors who have achieved Type 2 compliance.

 

SOC 2 Type 1 Audit: A Starting Point for Businesses

SOC 2 Type 1 serves as the foundational step for organizations beginning their journey toward compliance and building trust with clients. This report demonstrates that a service organization has best-practice controls in place, even if those controls haven’t been tested over time. The auditor evaluates the design effectiveness of all administrative, technical, and logical controls—whether preventive, detective, or corrective—to ensure they meet SOC 2 standards.

Why it matters:

For companies handling sensitive customer data—such as healthcare firms, financial institutions, and cloud service providers—this report provides a baseline assurance to clients that their data is being handled securely. (In competitive industries, simply having a SOC 2 Type 1 report can often be the deciding factor when winning new contracts.)

Who should consider Type 1?

Organizations that are new to SOC 2 compliance or pressed for time often begin with a Type 1 audit because:

• It’s faster to complete (usually within 3 months).

• It’s less expensive compared to Type 2.

• It’s an ideal starting point for companies planning to upgrade to Type 2 later.

In short, SOC 2 Type 1 is the “quick win” for organizations seeking immediate credibility and a foundation for future, more robust audits.

Example:
A SaaS company aiming to secure contracts with financial clients might start with a Type 1 report to prove that security measures are in place, while planning for Type 2 in the next phase.

SOC 2 Type 2 Audit: Higher Assurance for Bigger Contracts

Although, SOC 2 Type 1 compliance offers many benefits, it pales in comparison with the SOC 2 Type 2 audit report.  SOC 2 Type 2 compliance has a better leverage over the SOC 2 Type 1 report, for the service organization has to pass through a thorough examination of its internal control and prove its operational effectiveness. The Type 2 audit report provides a clear description with evidence to the evaluation of the company’s effectiveness with regards to its internal control policies and practices over the time. 

The Type 2 audit report in comparison gives a higher level of assurance on data security and control systems of the service organization. With SOC 2 Type 2 report, it gives a clear message that the service organization applies the documented best practices in data security and control systems effectively and efficiently. Further, these companies have a better chance to bag contracts from bigger firms. Although, complying with SOC 2 Type 2 audit can be quite timing consuming and would also call for significant investment in terms of money.

Companies today prefer achieving compliance to SOC 2 Type 2 for their desire to assure customers that they have the best processes and controls to protect data. Moreover, customers too prefer a SOC 2 Type 2 compliant service organization to work with as it gives better assurance of data safety over service organizations compliant with SOC 2 Type 1 report.

Example:
A cloud provider aiming to serve enterprise clients with strict compliance requirements will benefit more from Type 2, as it proves that controls work continuously and not just on paper.

Also Read:- Benefits Of SOC 2 Certification

Closing thought

Having understood the differences and implications of both Type 1 & Type 2 reporting, it brings us back to the question as to which type of report is ideal for an organization. Well, to put it in simple words, for an organization that is new to the SOC 2 Compliance and has time/budget constraints, can initially kick-start with SOC 2 Type 1 compliance in the first year. So, during the course of the first year, a readiness assessment can help identify failed controls in the service organization which will enable them to prepare a detailed action plan to remediate gaps, gain efficiencies and achieve SOC 2 Type 1 Compliance over the first year.

Eventually in the later years, they can try achieving SOC 2 Type 2 Compliance. While, for those companies that can spare good amount of time and money towards being SOC 2 Type 2 Complaint, can opt for achieving the same in the very first year itself. However, the company has to pass through the initial stage of SOC 2 Type 1 Compliance in order to proceed further, to achieve SOC 2 Type 2 Compliance. But, for the max bang for the buck, SOC 2 Type 2 is always the best bet.

SOC 2 compliance requirements can be challenging to implement. (But with 20 years of cybersecurity expertise, our auditors can simplify the entire process—whether you’re aiming for Type 1 or Type 2.) Contact our auditors and compliance experts for assistance and guidance in the compliance and attestation process.

 

You can watch the video here

Faq

1. Why do businesses start with SOC 2 Type 1 instead of going directly for Type 2?

Many companies choose SOC 2 Type 1 as a strategic first step because it is faster, less costly, and provides an immediate compliance framework to showcase to clients. Type 1 acts as a readiness assessment, helping organizations identify gaps in controls before committing to the longer and more intensive Type 2 audit. Once the foundation is set, moving to Type 2 becomes smoother and more efficient.

2. Does SOC 2 Type 2 guarantee better security than Type 1?

Not exactly. Both audits verify that an organization has strong security controls, but Type 2 offers ongoing proof that these controls work effectively over time. It’s not about “better security,” but rather higher trust and confidence for clients who want to see continuous operational excellence rather than a single-point-in-time review.

3. How do I decide if my organization is ready for SOC 2 Type 2?

Your readiness depends on factors like internal control maturity, resources, and client expectations. If your team already follows well-defined security policies, monitors controls consistently, and has at least 6–12 months of data to back it up, you’re likely ready for Type 2. However, if you’re still formalizing policies and frameworks, starting with Type 1 is the smarter approach.

4. Can SOC 2 compliance really help me win more clients?

Absolutely. SOC 2 certification is often a deciding factor for potential clients, especially in industries like SaaS, fintech, and healthcare. A Type 2 report, in particular, sends a clear signal that your organization is trustworthy, security-conscious, and committed to protecting data, which can give you a competitive edge during vendor evaluations.