SOC Audits Explained: How SOC 1, SOC 2, and SOC 3 Compare and Which One to Choose

What Are SOC Audits?

A SOC audit is an independent assessment of the internal controls at a service organisation. Its purpose is to give the organisation’s clients confidence that appropriate safeguards are in place and that risk is being managed in a documented, verifiable way. The output is a report that clients can use when evaluating the risks of working with a particular provider.

SOC reports were developed by the AICPA (American Institute of Certified Public Accountants). A SOC audit must be carried out by an independent audit firm with the qualifications required by the AICPA. In Europe, this work is done by international audit firms as well as specialised local practices with the relevant credentials. The AICPA defines three report types. SOC 1 covers controls that affect the financial reporting of the service organisation’s clients. SOC 2 assesses security and data-handling controls. SOC 3 is a condensed, publicly available version of a SOC 2 report.

Origins and AICPA Standards

SOC reports trace their origins to SAS 70, which for many years was the only standard for assessing controls at service organisations. SAS 70 was designed for financial reporting controls, but over time it came to be used far more broadly, including for IT security assessments. In 2011, the AICPA retired SAS 70 and replaced it with three distinct SOC reports, drawing a clear line between financial controls and security controls.

SOC reports are governed by AICPA standards. SOC 1 audits follow SSAE (Statement on Standards for Attestation Engagements), currently in its SSAE 21 revision, effective since 2022. SOC 2 and SOC 3 are assessed against the Trust Services Criteria, also developed by the AICPA. The Trust Services Criteria define five areas of evaluation: security, availability, processing integrity, confidentiality, and privacy.

It is worth noting that the AICPA standards have international counterparts. SOC 1 aligns with ISAE 3402, issued by the IAASB (International Auditing and Assurance Standards Board), while SOC 2 corresponds to ISAE 3000. Organisations that operate across multiple markets can commission a combined audit that satisfies both AICPA and IAASB requirements in a single engagement, avoiding the cost and effort of two separate exercises.

SOC 1: Financial Reporting Controls

A SOC 1 report evaluates the controls at a service organisation that could affect its clients’ financial reporting. A typical case is a payroll outsourcer or a firm that processes financial transactions on behalf of its clients. The client’s own financial auditors need assurance that the provider’s controls are effective, and a SOC 1 report supplies that evidence.

Unlike SOC 2, a SOC 1 audit is not built around a fixed set of criteria. Instead, the service organisation and its auditor define control objectives tailored to the services being provided. This gives greater flexibility in what gets tested, but it also means every SOC 1 report is different in scope.

Distribution is restricted. Only the service organisation’s clients and their auditors may receive the report. It is not intended for publication or marketing use.

SOC 2: Security and IT Controls

A SOC 2 report assesses the service organisation’s controls against the five Trust Services Criteria developed by the AICPA: security, availability, processing integrity, confidentiality, and privacy. Security is the only mandatory criterion. The organisation selects the remaining criteria based on the nature of its services and what its clients expect.

SOC 2 is the most widely requested SOC report in the technology sector. SaaS providers, data centres, cloud companies, and IT outsourcing firms are its core audience. Their clients want assurance that the data they entrust to a provider is protected, that systems are available, and that processing is reliable.

Like SOC 1, a SOC 2 report has restricted distribution. It is shared only with clients and parties that have a legitimate interest in reviewing its contents. Organisations that want to communicate the results of a SOC 2 audit publicly can do so through a SOC 3 report.

SOC 3: The Public Version

SOC 3 is based on the same Trust Services Criteria as SOC 2 but serves a different purpose. It is a condensed report designed for public distribution. It does not include a detailed description of the organisation’s controls, policies, or procedures. What it does provide is the auditor’s opinion on whether the controls meet the requirements of the selected criteria.

Organisations use SOC 3 reports in marketing materials, on their websites, and in communications with prospective clients. The report signals that the organisation has undergone an independent security audit without disclosing the kind of technical detail that could be commercially sensitive. SOC 3 does not replace SOC 2 for clients who need the full picture, but it complements it as a communication tool.

Key Differences Between SOC 1, SOC 2, and SOC 3

The table below summarises the main characteristics of each SOC report type.

SOC 1 is the standard choice where the provider’s services have a direct bearing on the client’s financial statements. SOC 2 is the most commonly requested report in the technology and digital services sectors. SOC 3 serves primarily as a communication and marketing tool.

SOC Report Types: Type I and Type II

Every SOC report, whether SOC 1 or SOC 2, comes in one of two forms: Type I or Type II.

A Type I report evaluates the design of controls at a specific point in time. The auditor checks whether controls are properly designed and in place on a given date. It answers the question: does the organisation have the right controls?

A Type II report goes further. It assesses both the design and the operating effectiveness of controls over a defined period, typically six to twelve months. The auditor verifies that controls actually functioned as intended throughout the review window. It answers the question: do the controls work consistently over time?

Type II carries more weight with clients because it demonstrates that controls are not just documented but actively enforced. Many organisations start with a Type I report as an initial step and move to Type II once their control environment has matured. Clients in financial services and large enterprises almost always expect a Type II report.

When Should an Organisation Pursue a SOC Audit?

Several situations point to the need for a SOC report. Clients may ask for one directly or list it as a requirement in procurement questionnaires. The organisation may be expanding into international markets or beginning to serve clients from large multinational companies. Or it may be processing client data under a SaaS, cloud, or outsourcing model and want formal confirmation that it does so securely.

The choice of report depends on the nature of the services. SOC 1 fits where the services affect the client’s financial reporting, such as payroll processing or transaction handling. SOC 2 is the right choice when clients are asking about data security, IT controls, and privacy. SOC 3 complements SOC 2 where the organisation wants to communicate audit results publicly.

Before the formal audit, a readiness assessment is a worthwhile step. It identifies gaps in controls and documentation before the auditor arrives, reducing the risk of surprises. Many audit firms that offer SOC services begin their engagements with exactly this kind of preliminary review.

SOC and Other Security Standards (ISO 27001, GDPR)

Both SOC 2 and ISO 27001 deal with information security, but they differ in form and recognition. ISO 27001 is an international standard that results in a certification of the organisation’s information security management system (ISMS). SOC 2 produces an attestation report based on AICPA standards. ISO 27001 is recognised globally. SOC 2 has its roots in the United States but is increasingly expected in Europe, especially by clients in the technology sector.

The two can complement each other well. An organisation that holds ISO 27001 certification will already have many of the controls that a SOC 2 audit examines. Some organisations pursue both to satisfy different client groups: European clients who look for ISO 27001, and US clients who expect SOC 2.

The GDPR regulates the protection of personal data in the European Union and is not a direct counterpart to SOC. A SOC 2 report that includes the privacy criterion from the Trust Services Criteria can, however, help demonstrate some of the technical and organisational measures that the GDPR requires. SOC 2 does not replace GDPR compliance, but it can support it.

Getting Ready for a SOC Audit: Summary and Good Practices

Of the three SOC report types, SOC 2 is the most widely used standard for auditing the security of digital services. This reflects the growing expectation from clients that SaaS providers, cloud companies, and IT outsourcing firms can prove they protect the data entrusted to them.

Preparing for a SOC audit is best approached in stages. Start by defining which services, systems, and processes the report will cover. Then carry out a readiness assessment to identify where controls or documentation fall short. Next, make sure that security policies and procedures are not only documented but actively followed. It also pays to involve IT and compliance teams from the outset, since the audit will require input from across the business.

Choosing an audit firm with SOC experience makes a real difference to how smoothly the process runs. Both international audit firms and specialised local practices carry out SOC audits in Europe.

Frequently Asked Questions