When evaluating a company’s security and compliance policies, System and Organization Controls (SOC) reports play a crucial role. The American Institute of CPAs (AICPA) outlines 3 different types of SOC reports: SOC 1, SOC 2, and SOC 3.

In this article, we’ll break down the key differences between SOC 1, SOC 2, and SOC 3 reports so you can help determine which is the right fit for your business. Whether you're in finance, healthcare, or any sector that requires strict data protection, knowing which SOC report to prioritize will help you ensure the right security measures are in place.

What are SOC reports?

SOC reports are compliance audits developed by the AICPA to evaluate and report on an organization’s controls. Although they are not a legal requirement, they are highly respected as they provide assurance to stakeholders, customers, and partners about how a company manages security, financial reporting, and data privacy.

Here’s a quick overview of the three types:

  • SOC 1 – Focuses on business and IT controls related to financial reporting.
  • SOC 2 – Evaluates internal controls based on the 5 Trust Services Criteria: security, availability, confidentiality, processing integrity, and privacy.
  • SOC 3 – A public-facing summary of SOC 2, designed for general audiences.

Among these, SOC 2 is the most widely used because of its relevance for technology companies, cloud service providers, and businesses handling sensitive data.

A common misconception is that these reports are ranked in order of importance—for example, SOC 1 is the most basic level, and SOC 3 is the highest. That’s not the case. Each one serves a different function, and a company may need one or multiple SOC reports depending on its industry and operations.

SOC 1: Focuses on financial reporting

Organizations that process financial transactions or handle sensitive financial data must ensure that their internal controls support accurate financial reporting. SOC 1 is designed specifically for this purpose.

Though not quite as popular as its counterparts, SOC 1 is geared towards businesses that deal with financial information on behalf of customers, clients, or business partners.

Who needs a SOC 1 report?

SOC 1 is essential for any companies that provide financial-related services, including:

  • Payroll processing companies
  • Financial transaction platforms
  • Investment firms
  • Insurance providers

These organizations must demonstrate that their internal controls support accurate and secure financial reporting to protect their clients and maintain compliance with industry regulations.

What types of SOC 1 reports are there?

There are two types of SOC 1 reports:

  • SOC 1 Type I – A type I report evaluates an organization’s controls at a specific point in time. It offers a quick assessment of whether proper controls are designed and implemented as of a given date.
  • SOC 1 Type II – A type II report assesses the effectiveness of those controls over a period of time (typically 3-12 months). Unlike Type I, this report demonstrates how well the controls operate over an extended period, making it more comprehensive and valuable for long-term assurance.

Which one is better?

If you need a quick audit to show you have controls in place, Type I is faster. But if you want to prove ongoing reliability, Type II provides stronger validation.

What are the benefits of a SOC 1 report?

SOC 1 compliance provides a major advantage for businesses that handle financial transactions or process sensitive financial data. By undergoing a SOC 1 audit, organizations can demonstrate their commitment to maintaining strong internal controls, ensuring financial data accuracy, and building trust with stakeholders.

Key benefits of a SOC 1 audit include:

  • Improved financial integrity – Ensures that financial reporting processes are accurate, reliable, and free from errors.
  • Regulatory compliance – Helps businesses meet industry and regulatory standards, reducing the risk of compliance violations.
  • Enhanced client trust – Provides assurance to customers, partners, and auditors that financial controls are properly designed and functioning.

What are the SOC 1 requirements?

To meet SOC 1 compliance, organizations must adhere to the guidelines established by the AICPA. This framework ensures that internal controls are well-defined, effectively designed, and consistently maintained over time.

While SOC 1 audits are tailored to each service organization, the AICPA outlines five fundamental areas that must be addressed for proper internal control over financial reporting:

  • Control environment – This assesses the overall structure of an organization’s internal controls, including leadership’s commitment to ethical standards, corporate governance, and the operational approach to maintaining control objectives.
  • Risk assessment – Organizations must proactively identify and evaluate risks that could impact financial reporting. This process considers both internal and external threats that may compromise data integrity.
  • Control activities – Companies must establish specific control mechanisms to mitigate financial reporting risks. These activities help ensure financial data remains complete, accurate, and secure.
  • Information and communication – Effective communication channels must be in place to capture, process, and share financial information in a timely and transparent manner, both within the company and with external stakeholders.
  • Monitoring activities – Organizations must continuously assess their control systems to confirm they function as intended. This includes routine evaluations and audits to ensure compliance with established standards.

Beyond these core requirements, SOC 1 compliance also expects organizations to have structured processes for managing risk, handling system changes, and responding to incidents. However, the specific controls and requirements will vary depending on the nature of the services provided and the needs of the business.

SOC 2 compliance: Focused on security and data protection

Unlike SOC 1, which focuses on financial reporting controls, SOC 2 is designed to evaluate an organization’s operational security, data protection, and privacy practices. It is particularly relevant for technology companies, SaaS providers, and businesses that store, process, or transmit customer information.

Among all SOC reports, SOC 2 is the most widely used due to its strong emphasis on security and its applicability across various industries. Customers, partners, and regulators often require SOC 2 compliance as proof that a company is taking the necessary steps to protect sensitive data.

Who needs a SOC 2 report?

SOC 2 is critical for organizations that store, process, or transmit customer data, including:

  • SaaS providers
  • Healthcare organizations
  • Cloud storage providers like AWS and Google Drive
  • Virtual mailbox providers ensuring secure document handling
  • Managed IT service providers

Since SOC 2 is the most widely used report among technology-driven businesses, it has become a gold standard for proving security and compliance in the industry.

What types of SOC 2 reports are there?

Similar to SOC 1, there are two types of SOC 2 reports:

  • SOC 2 Type I – Type I assesses controls at a single point in time, verifying whether they are properly designed.
  • SOC 2 Type II – Type II evaluates the effectiveness of these controls over an extended period, offering deeper insight into their real-world application and consistency.
SOC-report

Which one is better?

Because SOC 2 Type II provides a more thorough and trusted evaluation of security practices, it is often preferred by businesses and customers. Companies looking to establish a strong reputation in security and data protection often pursue a SOC 2 Type II certification to provide the highest level of assurance.

What are the benefits of a SOC 2 report?

Achieving SOC 2 compliance is a major milestone for businesses that handle sensitive customer data, offering numerous advantages that enhance security, trust, and marketability.

By adhering to SOC 2 standards, organizations can:

  • Demonstrate strong security measures – SOC 2 compliance proves that a company has implemented robust security controls to protect customer data from breaches and unauthorized access.
  • Build customer trust and reputation – With growing concerns over data privacy, businesses that achieve SOC 2 compliance reassure customers and partners that their information is handled securely and responsibly.
  • Align with industry regulations – SOC 2 compliance helps organizations meet regulatory requirements such as HIPAA, GDPR, and CCPA, reducing the risk of legal issues and financial penalties.
  • Reduce security breach and data loss risks – By enforcing strict internal controls, SOC 2 minimizes vulnerabilities that could lead to cyberattacks, data leaks, or operational disruptions.
  • Gain a competitive advantage – For SaaS and cloud-based businesses, achieving SOC 2 compliance provides a competitive advantage, as customers are more likely to choose a service provider that prioritizes security and data privacy.

What are the SOC 2 requirements?

SOC 2 reports are structured around five Trust Services Criteria, which define the core areas an organization must address to achieve compliance:

  • Security – This is the foundational principle of SOC 2 and is included in every report. It ensures that systems are protected from unauthorized access, cyberattacks, and data breaches through safeguards like firewalls, encryption, and multi-factor authentication.
  • Availability – This ensures that services remain accessible and operational for users. Companies must implement redundancy, disaster recovery plans, and performance monitoring to minimize downtime and disruptions.
  • Processing integrity – This focuses on the accuracy, completeness, and reliability of data processing. It ensures that data is processed as intended without errors, manipulation, or delays.
  • Confidentiality – Businesses handling sensitive or proprietary data must prevent unauthorized access or disclosure. This is achieved through encryption, access controls, and secure data storage practices.
  • Privacy – Organizations that collect, store, and process personally identifiable information (PII) must follow established privacy policies and regulatory frameworks, such as GDPR and HIPAA. This includes obtaining user consent, protecting data during transmission, and allowing users to manage their personal information.

By aligning with these five Trust Services Criteria, SOC 2 compliance helps businesses demonstrate their commitment to security and data protection, giving customers confidence that their information is handled responsibly.

Because SOC 2 reports provide detailed insights into an organization’s security controls, they have become the industry standard for proving compliance in today’s cloud-driven world.

SOC 3 compliance: A public-friendly summary of SOC 2

While SOC 2 provides in-depth insights into a company’s security controls, these reports are typically restricted to business partners and auditors. SOC 3, however, is designed for public consumption. It provides a high-level summary of SOC 2 compliance that companies can share openly.

Who needs a SOC 3 report?

Unlike SOC 1 and SOC 2, which are typically used by auditors, regulators, and business partners, SOC 3 reports are meant for a broader audience. They are particularly useful for:

  • Customers – Those who want to verify a company’s commitment to security but do not require technical specifics.
  • Potential business partners – This subgroup may need assurance of compliance without in-depth audit details.
  • General stakeholders – This includes investors or board members who want a quick, accessible overview of security practices.

What types of SOC 3 reports are there?

There is only one type of SOC 3 report. While SOC 1 and SOC 2 both have Type 1 and Type 2 variations, SOC 3 is a simplified version of a SOC 2 Type 2 report. It is designed for public distribution and provides a high-level summary of an organization's security controls without the detailed testing results included in a SOC 2 report.

How does a SOC 3 report differ from a SOC 2 report?

SOC 3 reports are derived from SOC 2 assessments, but differ in two major ways:

  • No detailed system descriptions or test results – Unlike SOC 2, which includes comprehensive descriptions of internal controls and testing outcomes, SOC 3 presents only a summary of compliance.
  • Designed for marketing and public assurance – Organizations often use SOC 3 to publicly demonstrate their commitment to security without revealing confidential operational details

What are the benefits of a SOC 3 report?

A SOC 3 report provides several benefits, especially for organizations that want to demonstrate their commitment to security and compliance without revealing sensitive details.

Here are a few advantages:

  • Publicly shareable certification – SOC 2 reports are confidential, but a SOC 3 report can be published on a company’s website or shared with customers, prospects, and partners as proof of security compliance.
  • Improved trust and credibility – It reassures potential customers and stakeholders that the organization meets high security and compliance standards under the AICPA’s Trust Services Criteria.
  • Marketing and competitive advantage – A SOC 3 report can be used as a trust signal in marketing materials, helping companies stand out against competitors that lack independent third-party security validation.
  • Easier for non-technical audiences – SOC 3 reports are high-level summaries, making them more digestible for customers, partners, and stakeholders who may not have the technical expertise to interpret a full SOC 2 report.

SOC 1 vs. SOC 2 vs. SOC 3

Understanding the differences between SOC 1, SOC 2, and SOC 3 reports is essential when determining which one fits your business needs. Use the chart below to help you choose which is right for you.

soc 2 type I vs. soc 2 type II comparison chart

Conclusion

Choosing the right SOC report ultimately depends on your business goals and compliance needs.

While SOC 1 is important for businesses that manage financial reporting and require controls for accuracy and compliance, SOC 2 focuses on security, availability, and data protection—critical for companies handling sensitive customer data. SOC 3 is ideal for businesses that want to publicly showcase their compliance in a non-technical, easy-to-understand format.

At VPM, we take security and compliance seriously. Our SOC 2 certification demonstrates our commitment to protecting your data and ensuring top-tier security standards. If you're looking for a trusted partner for secure virtual mailbox services, explore VPM today and experience the benefits of a SOC 2-certified provider.