Introduction

Data security, service availability and customer trust are essential considerations for SaaS companies, cloud providers, technology businesses and other service organisations.

Enterprise customers increasingly expect their technology suppliers to demonstrate that appropriate controls are in place to protect systems and information.

A SOC 2 examination is one recognised way to provide independent assurance about those controls.

However, businesses beginning their SOC 2 journey often face an important question: SOC 2 Type 1 vs Type 2 — which report should we pursue?

Both report types address controls relevant to the Trust Services Criteria, but they differ significantly in their assessment periods and the assurance they provide.

Understanding these differences helps businesses make informed decisions about readiness, evidence collection, examination planning and customer expectations.

What Is SOC 2?

SOC 2 stands for System and Organization Controls 2.

It is an attestation reporting framework developed by the American Institute of Certified Public Accountants (AICPA).

SOC 2 examinations assess controls relevant to selected Trust Services Criteria, including security, availability, processing integrity, confidentiality and privacy.

Security is the common category, while the other categories are included based on the services provided, commitments made and examination scope.

SOC 2 is particularly relevant to organisations that process, store, transmit or otherwise handle information on behalf of customers.

Examples include SaaS platforms, managed service providers, data processors, cloud-based application providers and certain financial technology businesses.

Organisations preparing for an examination can explore SOC 2 compliance readiness support to understand evidence preparation and independent examination coordination.

What Is a SOC 2 Type 1 Report?

A SOC 2 Type 1 report evaluates the description of a service organisation's system and the suitability of the design of relevant controls as of a specified date.

It focuses on whether the organisation has designed controls appropriately to meet the applicable Trust Services Criteria.

For example, an organisation may have established access-management procedures, defined incident-response responsibilities and documented security policies.

A Type 1 examination evaluates the design of relevant controls at the reporting date.

It does not provide the same period-based operating-effectiveness testing as a Type 2 report.

This distinction matters because a control may be appropriately designed without sufficient evidence that it has operated consistently over time.

What Is a SOC 2 Type 2 Report?

A SOC 2 Type 2 report addresses the design and operating effectiveness of relevant controls over a specified period.

The practitioner examines evidence showing whether the controls functioned as intended during the review period.

For example, the assessment may consider access reviews, change approvals, security monitoring, incident handling and other relevant activities.

A Type 2 examination therefore requires historical operating evidence rather than simply showing that a procedure exists.

The reporting period depends on the engagement and customer expectations.

Many organisations use a period of several months, while longer periods may be appropriate for established compliance programmes.

A Type 2 report does not guarantee that security incidents cannot occur. It provides independent assurance about the controls and criteria included in its scope.

SOC 2 Type 1 vs Type 2: Main Differences

Neither report should be represented as an official SOC 2 certificate.

SOC 2 is an attestation examination resulting in a report issued by an appropriately qualified independent CPA firm.

Understanding the SOC 2 Trust Services Criteria

The Trust Services Criteria help define the controls relevant to a SOC 2 examination.

Security

Addresses protection of systems against unauthorised access, use or modification and other relevant security risks.

Controls may include identity management, access restriction, monitoring and incident response.

Availability

Addresses whether systems are available for operation and use in accordance with relevant commitments and requirements.

This may involve capacity planning, backup arrangements and recovery procedures.

Processing Integrity

Addresses whether system processing is complete, valid, accurate, timely and authorised in accordance with objectives.

Confidentiality

Addresses protection of information designated as confidential.

Privacy

Addresses collection, use, retention, disclosure and disposal of personal information in accordance with relevant commitments and criteria.

Organisations should choose applicable categories based on their services and obligations rather than automatically including all five.

Which SOC 2 Report Is Better for SaaS Companies?

A growing SaaS company may consider a Type 1 examination when its controls have been established but there is limited operating history.

A Type 1 report can help demonstrate the design of those controls at a specified date.

However, enterprise customers may specifically request a Type 2 report because it includes operating-effectiveness testing.

An established SaaS provider with a functioning compliance programme may therefore choose to prepare directly for Type 2.

The best route depends on contractual requirements, current control maturity, available evidence and business objectives.

Before selecting the examination type, review customer security questionnaires and contract language to determine what is actually requested.

SOC 2 Audit Readiness: What Should Businesses Prepare?

Successful SOC 2 preparation requires coordination between leadership, security, engineering, human resources and other relevant teams.

Important readiness activities include defining the system boundaries, identifying applicable Trust Services Criteria and assessing existing controls.

The organisation should establish appropriate policies, assign control owners and ensure procedures are followed consistently.

Common evidence may include:

• Access-control policies and approval records.

• User access review results.

• Change-management approvals.

• Security awareness training records.

• Incident-response procedures and incident records.

• Risk assessments and remediation activities.

• Vendor risk reviews.

• Backup and recovery testing evidence.

• Relevant security monitoring records.

Evidence must reflect actual activities.

A policy written immediately before the examination cannot, by itself, demonstrate that the corresponding control operated effectively over a previous period.

The Role of ISO 27001 in SOC 2 Readiness

Organisations already maintaining an Information Security Management System may have useful processes that support SOC 2 readiness.

For example, ISO 27001:2022 certification addresses information security risk management, internal auditing, governance and continual improvement.

These processes may provide a useful foundation for identifying controls and collecting evidence.

However, ISO 27001 certification does not automatically establish SOC 2 compliance.

The two frameworks have different assessment approaches, reporting structures and criteria.

A business pursuing both should map overlapping controls while separately addressing each framework's requirements.

SOC 2 Readiness for Fintech Businesses

Fintech organisations often handle sensitive information and operate under detailed contractual and regulatory obligations.

SOC 2 may support customer assurance by providing an independent assessment of relevant technology and operational controls.

However, financial institutions may also need to address separate regulatory frameworks, privacy laws and sector-specific requirements.

The London Cert banking and fintech guidance explains related information security, privacy and business continuity considerations.

SOC 2 should be treated as one component of an overall assurance strategy rather than a replacement for applicable legal obligations.

How Much Does SOC 2 Type 1 or Type 2 Cost?

SOC 2 examination costs vary significantly.

Relevant factors include company size, technical architecture, number of systems, scope of the examination and existing control maturity.

A Type 2 engagement may require greater effort because controls must operate over a specified period and supporting evidence must be examined.

Businesses should distinguish between readiness costs, security-tool costs and the independent CPA firm's examination fees.

A transparent proposal should define responsibilities, scope, report type, evidence requirements and expected deliverables.

Common SOC 2 Preparation Mistakes

One mistake is treating SOC 2 as a documentation-only exercise.

Another is beginning the reporting period before essential controls are operating effectively.

Organisations may also misunderstand which Trust Services Criteria apply or assume that buying compliance software guarantees a successful examination.

Other difficulties arise when control ownership is unclear, evidence is inconsistent or access reviews are not performed as scheduled.

A readiness assessment can identify these weaknesses before the independent examination begins.

Frequently Asked Questions

Is SOC 2 Type 2 better than Type 1?

Type 2 provides additional assurance about operating effectiveness over a period. Whether it is necessary depends on customer requirements and organisational readiness.

Can a business pursue SOC 2 Type 2 directly?

Yes. A Type 1 examination is not always a prerequisite for Type 2.

Who can issue a SOC 2 report?

An independent, appropriately qualified CPA firm performs the attestation examination and issues the report.

Is SOC 2 a certification?

No. SOC 2 is an attestation reporting framework, not an ISO-style certification scheme.

How long does SOC 2 preparation take?

Preparation time depends on control maturity, organisational complexity and the reporting period chosen. There is no universal timeline.

Conclusion

Understanding SOC 2 Type 1 vs Type 2 is essential for businesses preparing to demonstrate the security and reliability of their services.

Type 1 focuses on the suitability of control design at a specified date, while Type 2 also examines operating effectiveness throughout a reporting period.

Businesses should choose their reporting pathway according to customer expectations and their ability to maintain reliable evidence.

Preparing for a SOC 2 examination?

London Cert provides SOC 2 readiness and examination coordination support to help organisations assess controls, organise documentation and prepare for an independent CPA examination.