What is the difference between SOC 2 Type 1 and SOC 2 Type 2?
There are two different types of SOC reports:
A SOC 2 Type 1 (Type I report) audit tests the design of your compliance program. It assesses your compliance at one point in time. Typically, this involves checking to see that you’ve identified and documented the controls you have in place, as well as provide sufficient evidence that your controls are functional at that point in time.
A SOC 2 Type 2 (Type II report), on the other hand, tests not only your compliance program but also the operating effectiveness of controls over time. Usually, a Type 2 audit assesses your compliance over a six to 12-month review period, with your first audit typically lasting up to six months. (Check out our detailed blog on SOC 2 Type 2 here)
What are the similarities between SOC 2 Type I and SOC 2 Type II?
Both audited by a licensed CPA firm, SOC 2 Type 1 and Type 2 provide customers and third-party vendors with reasonable assurance that the service provider meets controls objectives against the chosen trust services criteria– availability, confidentiality, security, privacy, and processing integrity.
Not only can you trust that the business you are working with complies with industry standards, but also that the business is appropriately protecting sensitive, personal information.
How does a service organization decide what type of report they need?
Businesses should start with a Type 1 then build to a Type 2, unless a specific client requires a Type 2 immediately. However, the type of report can depend on how urgently businesses need compliance, and if they will eventually need a Type 2 report.
If an organization needs a SOC 2 report as soon as possible, it might be enough to begin with a Type 1 audit. Type 1 audits are faster and can set realistic expectations for a Type 2 audit report. Keep in mind that
A Type 2 audit is more comprehensive and shows a greater level of audit assurance. Although it covers the same controls as a Type 1, Type 2 audits go further in-depth on the operating effectiveness of the controls with evidence. The results of SOC 2 Type 2 are more indicative of how securely the organization operates.
Which is better for startups selling into the enterprise, SOC 2 Type 1 or SOC 2 Type 2?
Each type comes with its own benefits and challenges. Type 1 is faster and cheaper than Type 2. The requirements aren’t as strict as Type 2, since Type 1 tests the suitability of the design of controls and does not require evidence. Type 2, however, points to a higher level of compliance.
Type 1 is enough for some enterprise customers, making it a sufficient option for some startups. That is until SaaS startups want to work with enterprise customers that require a more complete picture of their compliance. In that case, you’ll want to pursue SOC 2 Type 2.
When should you obtain a Type 1 vs Type 2 SOC report?
Generally, businesses should explore both SOC 2 reports as soon as possible. The attestations can be customized to the current stage of your business (pre-seed, seed, series A, etc), and made to change as the business evolves. (See: Why Stage-Appropriate Compliance Matters for Startup Growth). As your company grows, so will the need for information security to protect against unauthorized access.
At the minimum, we recommend seed companies upgrade their internal controls and series A companies implement SOC 2 Type 1, tighten people management controls, and prepare business continuity plans. You might even need to start a SOC 2 Type 1 earlier if you sell to financial institutions or healthcare organizations.
Which SOC report can you get faster and cheaper?
As with many important and complicated things, the answer is — it depends.
The deciding factor here is complexity. How many employees work for your startup? How many systems do you run? Do you have multiple locations? What’s your startup’s revenue like? How sensitive is your customer data?
In a best-case scenario, a SOC 2 Type 1 audit can cost anywhere from $10,000 to $30,000 and can take as quickly as 2-4 weeks to draft, and then another 2-4 weeks for the audit. A SOC 2 Type 2 audit can cost roughly $30,000, and take anywhere from 2-6 weeks to draft, 6 to 12 months to collect evidence, and 4 to 6 weeks for the audit.
However, in both scenarios, businesses usually spend much more time preparing for the audit.