Type 1 SOC Reports Vs. Type 2 SOC Reports: What’s the Difference?

In our previous article, we highlighted the differences between a System and Organization Controls (SOC) 1, SOC 2, and SOC 3 report. In addition to these report variations, the American Institute of Certified Public Accountants (AICPA) allows for SOC 1 and SOC 2 reports to be issued as a Type 1 or Type 2. For instance, an organization can obtain a SOC 1 Type 1, SOC 1 Type 2, SOC 2 Type 1, or SOC 2 Type 2. Below, we break down each report type, the benefits and drawbacks of each report, and what the organization issuing the report and the readers of the report must consider.

Type 1

A Type 1 SOC report is a point-in-time review intended to offer assurance that the internal controls are designed and implemented as of a specific date. This report is generally issued by an organization undergoing its first SOC audit, since it is a building block in long-term SOC compliance. Additionally, a Type 1 report may be issued by an organization in order to “reset” after a significant event where the control environment has been materially changed, such as a merger or acquisition. However, these reports do not provide any assurance on whether the control is operating or “working” effectively. Therefore, many organizations will prefer a Type 2 report that offers additional assurance. If you do obtain a Type 1 report, you should discuss with the issuing organization and clarify why this report has been selected and if there is a roadmap for issuing a Type 2 report at a later date.

Type 2

A Type 2 SOC report covers a period of time (often 12 months but can range from 6 to 18 months) and provides assurance that the internal controls are designed, implemented, and operating effectively during the defined timeframe. Due to the additional assurance of effective operating, a Type 2 report is viewed as a “stronger report.” Therefore, these reports are generally issued by organizations who have undergone previous SOC audits and have established controls. It is also important to note that a SOC 3 can only be issued as a Type 2 report based on the guidance issued by the AICPA.

In summary, both the Type 1 and Type 2 reports serve a purpose in demonstrating an organization’s commitment to developing and maturing an internal control environment. In our next article, we will highlight how the testing performed by the audit firm will vary based on whether the SOC audit is for a Type I or Type 2 report.

If you have any questions regarding your SOC reporting requirements, reach out to a member of our team today!