SOC 1, SOC 2, or SOC 3: How to Choose the Right Report

Outsourcing has become a defining characteristic of modern business operations. From IT infrastructure and customer support to payroll processing and cloud hosting, organizations are increasingly relying on third-party providers to streamline costs, access specialized expertise, and stay competitive. While outsourcing offers clear advantages, it also introduces new risks, especially when sensitive data or critical business processes are involved.

To address these risks and give customers assurance that their providers are operating securely and responsibly, the American Institute of Certified Public Accountants (AICPA) developed the System and Organization Controls (SOC) reporting framework. SOC reports, performed by independent auditors, help service organizations demonstrate the strength of their internal controls while giving clients confidence in their risk management and compliance practices.

This article explores the different types of SOC reports, what they mean for service organizations, and how to prepare for a successful SOC 1, SOC 2, or SOC 3 audit.

Why SOC Reports Matter

When a service organization handles customer or company data, user entities need assurance that proper safeguards are in place. SOC reports provide this assurance by offering an independent evaluation of a provider’s controls, policies, and processes.

Beyond building trust, SOC reports:

• Reduce liability concerns for both service providers and clients

• Provide a competitive advantage in industries where security and compliance are differentiators

• Help meet regulatory or contractual requirements

• Strengthen organizational resilience and risk management practices

Recommended Approach for First-Time SOC Reports

When your organization is considering a SOC report for the first time, timing and your clients’ expectations play a central role in determining the best path forward. It's also important to distinguish between Type I and Type II examinations—these represent two different approaches to evaluating and reporting on your organization's controls.

• Type I SOC Report:
  A Type I report provides a snapshot as of a specific date. It focuses on whether the controls at the service organization are suitably designed and implemented at that particular point in time. Think of Type I as a "moment-in-time" assessment: it verifies that the necessary controls exist and are properly described by management, but it does not evaluate how those controls operate over time.

• Type II SOC Report:
  In contrast, a Type II report goes a step further. Not only does it review the design and implementation of controls, but it also tests the operating effectiveness of those controls over a defined period—typically at least six months, but twelve months coverage is common for organizations seeking uninterrupted assurance year-over-year. This type of report demonstrates how well the controls function in practice, offering a more robust level of assurance to user entities and their auditors.

In summary, while a Type I report may help satisfy an urgent client request or provide evidence of controls on short notice, a Type II report is considered the gold standard for ongoing assurance, reflecting consistent and effective control operation over time.

What Is a Readiness Assessment and Why Does It Matter?

Before diving headfirst into a SOC audit, it’s wise to ensure you’re truly ready for the examination process. This is where a readiness assessment comes into play—a sort of “dress rehearsal” that allows service organizations to identify any gaps or weaknesses in their controls before the official audit begins.

A readiness assessment helps you:

• Evaluate whether your existing controls meet the required control objectives (for SOC 1) or control criteria (for SOC 2).

• Spot any deficiencies or missing elements that might cause trouble during the actual audit.

• Map out an action plan to remediate concerns or bolster your internal processes ahead of time.

Think of it as having a trusted adviser come in, poke around your systems, and help you shore up any weak spots—all before the curtain rises on your first formal audit. Not only does this boost your confidence, but it often leads to a smoother examination and reduces the risk of unpleasant surprises later in the process.

Armed with a thorough readiness assessment, your organization stands a much better chance of acing that first SOC audit, impressing your clients, and demonstrating a strong commitment to internal control and compliance.

SOC 1 - What is it?

The SOC 1 report has restricted use and can only be distributed to the user entities that rely on your services, or their auditors in the preparation of the financial statements. A SOC 1 report falls under the Statement on Standards for Attestation Engagements (SSAE) 18 AT-C 320 (formerly SSAE 16 or AT 801) and is specifically focused on controls relevant to a client’s internal control over financial reporting (ICFR). Rather than being known by the standard itself, these reports are referred to as SOC 1—not SSAE 18s.

The service organization, often with the assistance of auditors, defines the key control objectives related to the services provided. These objectives may cover both information technology processes and business processes. Control activities are then designed to address these objectives, offering flexibility in how controls are identified and tested as part of the independent examination.

SOC 2 - What is it?

SOC 2 reports are intended to assess a service organization's controls that are relevant to its operations and compliance, as described in the AICPA's Trust Services Criteria: security (the common criteria), availability, confidentiality, processing integrity, and privacy. A service organization can choose to be assessed against the security/common criteria only, or a combination of the five criteria.

A SOC 2 report also falls under the SSAE 18 standard AT-C 105 and the SSAE 21 standard AT-C 205. The controls included in a SOC 2 are those that address the selected Trust Services Criteria. While security (the common criteria) is the only required category, organizations may elect to include any or all of the other criteria based on the needs of their clients and stakeholders.

Generally, the SOC 2 is the most-sought-after report by security professionals, as it is more prescriptive and provides a consistent set of parameters on which to evaluate service organizations. The SOC 2 cannot be freely distributed.

Key distinction:

• In a SOC 1, controls meeting the identified control objectives are tested—these are typically relevant to financial reporting.

• In a SOC 2, controls are evaluated against the applicable Trust Services Criteria, which extend beyond financial reporting to encompass a broader set of risks and operational concerns.

The audience for SOC 2 reports often includes compliance officers, financial executives, IT executives, auditors, regulators, and business partners—all of whom rely on the report for assurance about a service organization’s system and risk management processes.

Preparing for a SOC 1 or SOC 2 Audit

Once your organization has identified whether a SOC 1 or SOC 2 report (or possibly both) is appropriate—and whether a Type I (a point-in-time report) or Type II (covering a period of time) is needed—the next step is preparation. Effective preparation is crucial for a smooth and successful audit process.

A common and highly recommended approach is to conduct a readiness assessment. This is essentially a pre-audit “health check” that evaluates whether the necessary controls and processes are in place to meet the specific criteria of the chosen SOC report. During this phase, your internal teams, often with support from external advisors or consultants, will review existing documentation, map processes, and identify any gaps in your control environment.

Key steps in preparing include:

• Defining Control Objectives or Criteria: Clarify which services, systems, and controls will be within the scope of the audit, aligning with the relevant framework (e.g., AICPA’s Trust Services Criteria for SOC 2 or ICFR for SOC 1).

• Documenting Policies and Procedures: Ensure that processes and controls are clearly documented and up to date. This helps both your teams and external auditors understand how controls are being managed.

• Conducting Internal Testing: Before the official examination, run internal tests of controls to confirm effectiveness, address any deficiencies, and demonstrate operating evidence during the reporting period (especially for a Type II report).

• Remediation of Gaps: If any issues or weaknesses are uncovered, collect supporting evidence of remediation and ensure controls have been properly implemented before starting the formal audit.

Careful upfront preparation—whether through an internal readiness review or with professional support—can significantly streamline your audit and increase confidence in a positive outcome.

SOC 3 - What is it?

A SOC 3 report is often described as the “public-facing” version of a SOC 2 report. Like SOC 2, it is based on the AICPA Trust Services Criteria—security, availability, confidentiality, processing integrity, and privacy—but its purpose and format are different.

While SOC 2 reports provide in-depth, technical details about the design and effectiveness of controls, SOC 3 reports are designed for general use. They summarize the auditor’s opinion without including the granular descriptions of systems, controls, or test results. This distinction makes SOC 3 reports freely distributable and accessible to a broader audience, such as potential customers, partners, and the general public.

Summary

To determine which report your organization needs, here are key considerations to assist with the evaluation:

There are instances when a service organization may get asked for a SOC 1 from some client, and a SOC 2/SOC 3 from other clients which can eat away at company resources and. These requests will vary, depending on the regulatory landscape or industry in which the clients or users operate.

SOC Reports and Their Relationship to Other Frameworks

In recent years, many organizations have faced not just requests for traditional SOC 1, SOC 2, or SOC 3 reports, but also inquiries about compliance with other industry standards like HIPAA, HITRUST, or NIST. To help bridge these requirements, the AICPA has enabled what are frequently referred to as “SOC Plus” reports.

A SOC Plus report allows an organization to have its controls mapped to another framework alongside the standard SOC audit. For example, a SOC 2 + HIPAA report will include the standard SOC 2 evaluation based on the Trust Services Criteria, while also demonstrating how the same controls align with HIPAA requirements. Similarly, you may encounter SOC 2 + HITRUST or SOC 2 + NIST reports, which offer a crosswalk, essentially a mapping, between your SOC controls and those other security frameworks.

It’s important to note, however, that these “plus” reports do not provide official certification for the additional framework (for instance, receiving a SOC 2 + NIST report does not certify you as fully NIST compliant). Instead, they show how your existing controls meet and support the criteria specified by those standards, helping to satisfy diverse client expectations and regulatory obligations efficiently.

As organizations look to streamline compliance efforts in a complex regulatory environment, these combined reports offer a practical approach to demonstrating due diligence across multiple requirements.

Conclusion

SOC reports play a critical role in today’s outsourced and cloud-driven business landscape. Whether your organization needs a SOC 1 for financial reporting assurance, a SOC 2 for operational and security controls, or a SOC 3 for broad public trust, these audits provide the transparency and accountability clients demand.

Starting with a readiness assessment, understanding the distinction between Type I and Type II reports, and considering SOC Plus options for broader compliance will help service organizations choose the right path forward.

Ultimately, SOC reports are both a compliance requirement and an opportunity to strengthen trust, enhance credibility, and demonstrate a commitment to secure and responsible business practices.