What Is SOC 1? The Complete Guide to SOC 1 Reports for Service Organizations

SOC 1 (System and Organization Controls 1) is an auditing standard developed by the American Institute of Certified Public Accountants (AICPA) that evaluates a service organization's internal controls relevant to its clients' financial reporting. If your company processes, handles, or has any impact on your customers' financial data -- payroll, billing, transaction processing, revenue calculations, or financial record keeping -- your customers' auditors may require a SOC 1 report as evidence that your controls are effective.

SOC 1 is governed by the SSAE 18 (Statement on Standards for Attestation Engagements No. 18) standard and is the direct successor to SAS 70 reports. Unlike SOC 2, which evaluates security and operational controls broadly, SOC 1 focuses exclusively on controls that could affect the accuracy and reliability of your clients' financial statements.

TL;DR -- Key Takeaways

SOC 1 evaluates internal controls over financial reporting (ICFR) -- controls that impact your clients' financial statements
It is required when your service directly affects your customers' financial data (payroll processing, billing, transaction handling)
SOC 1 comes in two types: Type I (point-in-time design assessment) and Type II (effectiveness over a period, typically 6-12 months)
SOC 1 is not the same as SOC 2 -- SOC 2 evaluates security, availability, and data protection controls; SOC 1 evaluates financial reporting controls
Many organizations need both SOC 1 and SOC 2, depending on the nature of their services

SOC 1 vs. SOC 2: What Is the Difference?

This is the most common point of confusion. SOC 1 and SOC 2 are both AICPA standards, but they serve fundamentally different purposes.

	SOC 1	SOC 2
Purpose	Evaluate controls relevant to clients' financial reporting	Evaluate controls for security, availability, processing integrity, confidentiality, and privacy
Standard	SSAE 18 (AT-C Section 320)	SSAE 18 (AT-C Section 205) using Trust Service Criteria
Focus	Internal controls over financial reporting (ICFR)	Operational and security controls over data
Who needs it	Service organizations that impact clients' financial statements	Technology and SaaS companies that store, process, or transmit customer data
Who requests it	Clients' external financial auditors	Enterprise procurement and security teams
Control framework	Custom control objectives defined by the service organization	AICPA Trust Service Criteria (Security, Availability, Processing Integrity, Confidentiality, Privacy)
Common industries	Payroll processors, financial services, billing platforms, fund administrators	SaaS, cloud services, data hosting, healthcare tech

Key distinction: If your customers' financial auditors need assurance that your service does not introduce errors or misstatements into their financial reports, they need a SOC 1. If your customers' security teams need assurance that you protect their data, they need a SOC 2.

When Do You Need a SOC 1 Report?

You likely need a SOC 1 if your organization provides services that directly affect your clients' financial statements. Common scenarios include:

Payroll processing -- You calculate wages, withholdings, and tax filings on behalf of clients
Payment and transaction processing -- You process credit card transactions, ACH transfers, or other financial transactions
Billing and invoicing platforms -- Your system generates invoices, calculates charges, or manages accounts receivable for clients
Fund administration -- You calculate net asset values, process investor transactions, or manage fund accounting
Revenue recognition services -- Your platform handles contract management, subscription billing, or revenue calculations that flow into clients' financial statements
Benefits administration -- You manage retirement plan contributions, health insurance deductions, or other financial benefits
Loan servicing -- You process loan payments, calculate interest, or manage escrow accounts
Claims processing -- You adjudicate and process insurance claims that affect financial reserves

If your service touches the numbers that end up in your clients' annual financial statements, their external auditors will ask for your SOC 1.

SOC 1 Type I vs. SOC 1 Type II

Like SOC 2, SOC 1 reports come in two types:

	SOC 1 Type I	SOC 1 Type II
What it evaluates	Design and implementation of controls at a specific point in time	Operating effectiveness of controls over a period (typically 6-12 months)
What it proves	"These controls exist and are suitably designed"	"These controls operated effectively and consistently over the review period"
Audit scope	Walkthrough of control design	Testing of control operations with sample evidence
Timeline	Shorter engagement	Longer -- requires evidence collection over the observation period
What auditors prefer	Acceptable as an interim step	Required by most clients' financial auditors for year-end reliance

Most clients' auditors will require SOC 1 Type II. Type I can serve as a bridge while you establish the operational history needed for a Type II examination.

What Is in a SOC 1 Report?

A SOC 1 report contains several key sections:

1. Management's Description of the System. A detailed description of the services you provide, the systems involved, the boundaries of the engagement, and how your service fits into your clients' financial reporting processes.

2. Control Objectives and Related Controls. Unlike SOC 2 (which uses the predefined Trust Service Criteria), SOC 1 control objectives are defined by the service organization based on the specific financial reporting risks relevant to its services. Examples include:

Controls to ensure payroll calculations are accurate and complete
Controls to ensure transactions are recorded in the correct period
Controls to ensure data transfers between client systems and your platform are complete and accurate
Controls to ensure user access to financial data is restricted to authorized personnel

3. Complementary User Entity Controls (CUECs). Controls that your clients must implement on their end for the overall control environment to function properly. For example, "The client is responsible for reviewing and approving payroll reports before submission."

4. Auditor's Opinion. The CPA firm's opinion on whether your controls are suitably designed (Type I) or operating effectively (Type II). Opinions can be unqualified (clean), qualified, or adverse.

5. Tests of Controls and Results (Type II only). Detailed descriptions of the tests the auditor performed and the results, including any exceptions identified.

Common Misconceptions About SOC 1

Misconception 1: "SOC 1 is just an older version of SOC 2." False. SOC 1 and SOC 2 are parallel standards that serve different purposes. SOC 1 addresses financial reporting controls; SOC 2 addresses security and operational controls. Neither replaces the other.

Misconception 2: "We have SOC 2, so we don't need SOC 1." Not necessarily. If your service impacts clients' financial statements, their auditors will specifically ask for a SOC 1 report. A SOC 2 report does not address financial reporting control objectives.

Misconception 3: "SOC 1 is only for financial institutions." SOC 1 applies to any service organization whose services affect clients' financial reporting -- including payroll companies, billing platforms, transaction processors, and benefits administrators across every industry.

Misconception 4: "We can define whatever control objectives we want." While SOC 1 control objectives are customized (unlike SOC 2's standardized Trust Service Criteria), they must be relevant to the financial reporting risks your service creates for clients. Your auditor will evaluate whether the control objectives are appropriate and comprehensive.

How QuickTrust Supports SOC 1 Compliance

QuickTrust's compliance team supports organizations through the SOC 1 process with the same engineering-included approach used for SOC 2, ISO 27001, and other frameworks:

Control objective design -- Work with your team to define SOC 1 control objectives that accurately reflect the financial reporting risks your service creates for clients
Gap assessment -- Evaluate your current controls against the defined objectives and identify where controls are missing, weak, or undocumented
Control implementation -- Engineers implement the technical controls that support your SOC 1 objectives -- access controls for financial systems, audit logging for transaction processing, data integrity checks, change management for financial applications
Evidence collection -- Build the evidence trail auditors need for Type II -- transaction logs, access reviews, reconciliation records, and change tickets mapped to specific control objectives
Auditor coordination -- Manage the engagement with your CPA firm, respond to auditor requests, and prepare your team for walkthrough interviews
Dual SOC 1 + SOC 2 efficiency -- For organizations that need both reports, QuickTrust identifies control overlap and implements shared controls once, reducing total effort and cost

Result: 100% audit pass rate across 100+ audits. Audit-ready in 6-10 weeks. 90% reduction in internal engineering time.

SOC 1 FAQ

Can we get SOC 1 and SOC 2 at the same time?

Yes, and many service organizations do. There is meaningful overlap in general IT controls (access management, change management, system monitoring) that apply to both reports. Running them in parallel reduces total audit cost and effort. QuickTrust helps organizations scope and execute dual engagements efficiently.

How much does a SOC 1 audit cost?

SOC 1 audit fees from a CPA firm typically range from $20,000 to $60,000 depending on the complexity of your service, the number of control objectives, and whether it is Type I or Type II. Add internal preparation time, which QuickTrust's engineering-included model significantly reduces.

How often do we need a SOC 1 report?

SOC 1 reports are typically issued annually. Your clients' financial auditors need a current report that covers the same period as their financial statement audit. Most organizations align their SOC 1 observation period with their clients' fiscal year.

Who reads our SOC 1 report?

Primarily your clients' external financial auditors, who need to assess whether they can rely on your controls when auditing your clients' financial statements. Clients' internal audit teams and management also review SOC 1 reports during vendor due diligence.

Ready to Get Started?

Whether you need SOC 1, SOC 2, or both, QuickTrust's team implements the controls and coordinates the audit -- so your internal team stays focused on your product.

Get your compliance assessment at trust.quickintell.com

Engineering-included. Audit-ready in 6-10 weeks. 100% audit pass rate.

What Is SOC 1? The Complete Guide to SOC 1 Reports for Service Organizations