SOC 1 Type 1 vs Type 2 | What teams actually need to know

SOC 1 reports are built to give customers confidence in how your internal controls affect their financial statements. They do this in two different ways. One looks at a moment in time. The other looks at how things work over time.

Understanding the difference matters. It affects audit scope, effort, cost, and what your customers can rely on.

What a SOC 1 audit covers

A SOC 1 audit evaluates controls at a service organization that impact a customer’s internal control over financial reporting. This includes things like transaction processing, data accuracy, access controls, change management, and monitoring.

The output is an independent report. Customers use it to assess risk. Auditors use it to rely on your controls instead of testing everything themselves.

There are two report types. Type 1 and Type 2.
 

SOC 1 Type 1 explained

A Type 1 report evaluates whether controls are properly designed and implemented at a specific point in time.

The auditor reviews how controls are described, how risks are addressed, and whether controls are in place to meet stated objectives. This includes governance, control activities, systems, and oversight.

What it does not show is consistency. It confirms that controls exist and make sense on a given date. It does not prove they work day after day.

Type 1 is often used as a first step. It helps organizations validate their control framework before committing to a longer observation period.

SOC 1 Type 2 explained

A Type 2 report includes everything in Type 1. It goes further.

In a Type 2 audit, controls are tested over a defined period. Usually six to twelve months. The auditor checks whether controls operated as described throughout that time.

This involves sampling, evidence review, staff interviews, and process walkthroughs. Gaps are documented. Exceptions are evaluated.

Type 2 reports give customers stronger assurance. They show not just intent, but execution.

Key differences that matter

Timeframe

Type 1 looks at one date.

Type 2 looks across months.

Depth

Type 1 reviews design and setup.

Type 2 reviews design, setup, and performance.

Customer confidence

Type 1 shows readiness.

Type 2 shows reliability.

Use cases

Type 1 works for early stage compliance or initial customer requests.

Type 2 is often required for mature vendors and regulated customers.

Which one should you choose

The answer usually comes from your customers.

Some customers accept a Type 1 report. Others explicitly require Type 2. Many will eventually ask for Type 2 even if they start with Type 1.

If this is your first SOC audit, Type 1 is often the practical entry point. It lets teams learn the process, tighten documentation, and fix gaps without the pressure of proving long term performance.

If you are already operationally mature and customers expect strong assurance, Type 2 is the better signal. Do you need Type 1 before Type 2 No. It is not a formal requirement.

In practice, skipping straight to Type 2 is harder. You need stable controls, historical evidence, and consistent execution going back months. Teams that rush this often end up with weaker reports and more exceptions. Starting with Type 1 reduces risk. It surfaces issues early and makes the Type 2 cycle cleaner.

The role of gap analysis

For first time audits, a gap analysis is strongly recommended. It compares current practices to SOC expectations before the audit begins. This helps identify missing controls, weak documentation, or process gaps while there is still time to fix them. Many organizations follow a simple path. Gap analysis first. Type 1 next. Type 2 when ready.

What happens if issues are found

SOC audits are not pass or fail. Auditors issue opinions. Qualified or unqualified. A qualified opinion means some controls did not fully meet expectations. An unqualified opinion means reasonable assurance was achieved without major exceptions. Both outcomes are common. What matters is transparency and remediation.

Final takeaway

Type 1 shows that controls are designed and in place.
Type 2 shows that controls actually work over time.

Most organizations eventually need both. The timing depends on customer pressure, internal maturity, and risk tolerance.