What Is The Difference Between a SOC 2 Type 1 and Type 2 Report?

As business activities increasingly move online, data security and privacy have become paramount concerns for all kinds of organizations. Many businesses now expect their partners and vendors to take a sophisticated approach to safeguarding their data. One way for businesses to demonstrate their credentials in this area is to secure SOC 2 certification. 

There are two types of SOC 2 reports: a Type 1 report and a Type 2 report. If a client has asked you to obtain a SOC 2 report and your business doesn’t currently hold SOC 2, it’s likely you’ll first start with a SOC 2 Type 1 report, before eventually obtaining a SOC 2 Type 2 report.  

The reports are different in several ways, as we’ll explore in this introductory guide. By understanding the distinctions between the different types of SOC 2 reports, business leaders can better understand which type of report their business should obtain, and can plan a path forward toward SOC 2 compliance. 

What Are SOC 2 Reports?

SOC stands for System and Organizational Controls. A SOC 2 report audits those internal controls in five dimensions: security, availability, processing integrity, confidentiality, and privacy. These five dimensions are also known as the Trust Services Criteria (TSC). They are part of a larger SOC framework governed by the Association of International Certified Professional Accountants. 

While your business’s clients might request a SOC 2 Type 2 report with all five of these criteria, that’s often unnecessary. Instead, many businesses need only focus on three criteria: security, availability, and confidentiality. 

By becoming SOC 2 compliant, organizations gain insights into the status of their security practices. SOC 2 assessments also act as a roadmap for future cybersecurity initiatives. The enhanced security resulting from SOC 2 compliance can also help organizations become more competitive in the marketplace, giving them the ability to demonstrate the sophistication of their security infrastructure to potential clients and partners.

Learn More: The Business Case for a SOC Report

Key Distinctions: SOC 2 Type 1 vs. SOC 2 Type 2

There are two different types of SOC 2 reports: a SOC 2 Type 1 and a SOC 2 Type 2. Both focus on service organizations’ operational security practices, but each serves a distinct purpose for organizations and consumers. 

While the specifics vary by project, client responsiveness, and other factors, both types of reports typically incur similar costs and are completed in similar time frames of approximately four to six months. In most instances, a business begins its SOC 2 journey with a Type 1 report, before obtaining a SOC 2 Type 2 report on an annual basis. 

What Is SOC 2 Type 1 Report?

At a basic level, a SOC 2 Type 1 report is a snapshot of security controls at a specific time. 

Because they are more static, SOC 2 Type 1 reports establish a baseline for security control design and implementation and prove to readers that these controls were in place at the date of the audit. However, they do not scrutinize the effectiveness of those controls over time. During the audit, businesses must demonstrate that they have completed certain activities in advance of the audit, including penetration testing and employee security awareness training. 

Depending on the existing maturity of a business’s information security systems, preparing for a SOC 2 Type 1 report can take anywhere from 3 – 9 months. A SOC Readiness Assessment typically serves as a precursor to this, providing an overview of a business’s existing controls and recommending a series of remediation measures that should be implemented to ensure the organization will pass its SOC 2 Type 1 audit. 

What Is SOC 2 Type 2 Report?

SOC 2 Type 2 reports assess the effectiveness of a business’s information security controls over a period of time – typically six to twelve months. These reports assess all of the same factors as a Type 1 report, but do so over a continuous period, rather than a single point in time. 

Because they analyze the effectiveness of controls over time, Type 2 reports help an organization demonstrate that their control systems are operational on a continuous basis. This offers an increased level of assurance as it demonstrates your organization’s continued commitment to security measures that safeguard customer and partner data.

For example, in a Type 1 report, the auditor would typically look at a security awareness training policy, an example of the training provided, and an example of an active employee and a newly hired employee completing the security awareness training. In a Type 2 report, the auditor would look at the security awareness training policy, an example of the training provided, and randomly select a portion of all active employees and newly hired employees to ensure each employee completed the security awareness training in the period. 

The Journey to SOC 2 Compliance

If a business has not obtained a SOC 2 report in the past, they typically begin the process with a SOC 2 Readiness Assessment. This assessment aims to identify the business’s current level of preparedness for a SOC 2 audit. During this process, the business completes a series of tasks it must conduct in the months preceding the audit, such as penetration testing and establishing all relevant internal controls.

Once the business is confident it is prepared for the rigorous testing of a SOC audit, it schedules a SOC 2 Type 1 audit. Assuming all of the issues identified in the SOC Readiness Assessment were remediated and the business has remained consistent with its internal controls, it should be well placed to obtain a SOC 2 Type 1 report. 

Next, businesses typically seek to obtain a SOC 2 Type 2 report, which demonstrates their SOC compliance over a period of time. These audits typically take place over a six-month period and organizations must undergo a SOC 2 Type 2 audit each year. In some instances, businesses might even seek a SOC 3 Report: an abbreviated version of the SOC 2 Type 2 report that can be used for marketing purposes. 

Often, businesses are motivated to obtain a SOC report by a new opportunity: a major new client, a new partnership, and so on. While obtaining a SOC report isn’t something that can be done overnight, showing potential clients and partners that your business has a clear path toward SOC 2 compliance tends to give all parties the confidence to move forward with a new relationship. As noted above, it may take businesses several months, if not a couple of years, to become fully SOC compliant. 

Learn More: How Long Does It Take to Complete a SOC 2 Report?

Secure SOC 2 Certification with Smith + Howard

SOC 2 reports are pivotal in evaluating an organization’s internal controls, maintaining rigorous security practices, and demonstrating compliance. They’re indispensable in building trust with potential clients and partners, demonstrating that your organization can be trusted with confidential data. 

Ensuring that your business remains in SOC 2 compliance demonstrates your commitment to security and helps to build your reputation as a responsible, trustworthy partner. 
At Smith + Howard, our experienced SOC Reporting team can help you choose the right report for your business, prepare for the audit process, and identify the best path forward. To learn more about how Smith + Howard can help you navigate your SOC reporting process, contact an advisor today.