SOC 2 Type 1 vs Type 2: Which Report Do You Need and When?
When pursuing SOC 2 compliance, one of the first decisions you face is whether to start with a Type 1 or Type 2 report. Both are issued by licensed CPA firms under the AICPA's Trust Services Criteria, but they differ fundamentally in what they evaluate and how much time they require. Understanding this difference is critical for planning your compliance timeline, budget, and the expectations of your customers. Many companies treat Type 1 as a stepping stone to Type 2, but the right approach depends on your specific situation, customer requirements, and how quickly you need to demonstrate compliance.
What Each Report Evaluates
A SOC 2 Type 1 report evaluates the design and implementation of your controls at a specific point in time. The auditor reviews your policies, procedures, and technical controls to determine whether they are suitably designed to meet the relevant Trust Services Criteria. The question Type 1 answers is: 'Are the right controls in place today?' A SOC 2 Type 2 report evaluates both the design and the operating effectiveness of your controls over a period of time — typically 3, 6, or 12 months. The auditor not only confirms that controls are in place but tests whether they actually worked consistently throughout the observation period. The question Type 2 answers is: 'Have the right controls been working reliably over time?' This distinction is significant. Type 1 is a snapshot; Type 2 is a movie. A company can have well-designed controls that look good on paper (passing Type 1) but fail to operate them consistently in practice (failing Type 2).
Timeline & Observation Period
SOC 2 Type 1 has no required observation period. The auditor evaluates your controls as they exist at a chosen date. From the start of preparation to receiving the final report, a Type 1 engagement typically takes 3-6 months: 2-4 months to prepare (implementing controls, writing policies, gathering evidence) and 1-2 months for the audit itself. SOC 2 Type 2 requires a minimum observation period during which the auditor evaluates whether controls operate effectively. The most common observation periods are 3 months (minimum), 6 months (common for first-time audits), or 12 months (standard for mature companies). Total timeline from start to finished report is typically 6-18 months. Many companies start their Type 2 observation period immediately after completing their Type 1 audit, making the transition seamless.
Cost Comparison
SOC 2 Type 1 audits are generally less expensive because they require less auditor time. The auditor reviews documentation and tests control design but does not need to sample transactions or evaluate operating effectiveness over time. Typical Type 1 audit fees range from $15,000 to $40,000 depending on scope (which Trust Services Criteria are included) and company complexity. SOC 2 Type 2 audits cost more because the auditor must test controls throughout the observation period, sample evidence from multiple points in time, and evaluate operational consistency. Typical Type 2 audit fees range from $25,000 to $75,000. The longer observation period also means more internal effort collecting evidence and responding to auditor inquiries. For companies on a budget, starting with Type 1 provides a meaningful compliance credential at lower cost, buying time to prepare for the more rigorous Type 2 audit.
Customer Expectations
Sophisticated enterprise customers — particularly those in financial services, healthcare, and government — increasingly require SOC 2 Type 2 reports. A Type 1 report may not be sufficient to close a deal with these buyers because it only proves that controls existed at a point in time, not that they operated effectively. However, many customers will accept a Type 1 report as evidence that you are on the compliance journey, particularly if you can demonstrate that a Type 2 audit is underway or planned. For earlier-stage sales cycles, a Type 1 report is often sufficient to clear the vendor security review and move forward. Some customers, particularly smaller companies or those early in their own compliance programs, may not know the difference and will accept either type.
Common Strategy: Type 1 First, Then Type 2
The most common approach is to pursue Type 1 first as a stepping stone to Type 2. This strategy offers several advantages. First, it gives you a formal compliance credential faster — you can share a Type 1 report with customers while your Type 2 observation period is underway. Second, the Type 1 process helps you identify and fix control gaps before the more rigorous Type 2 evaluation begins, reducing the risk of exceptions in your Type 2 report. Third, working with an auditor on Type 1 builds the relationship and processes that make the Type 2 engagement smoother. Some companies skip Type 1 entirely and go directly to Type 2, particularly if they have no immediate customer requests and can afford to wait 6-12 months for the observation period. This can save the cost of a separate Type 1 engagement but requires confidence that your controls will operate effectively from day one of the observation period.
Renewal & Ongoing Compliance
A SOC 2 Type 1 report represents a single point in time and does not need to be renewed — but a report from two years ago has limited value to customers. Most companies that pursue Type 1 treat it as a one-time milestone on the path to Type 2. SOC 2 Type 2 reports are typically renewed annually. Each year, a new audit covers the most recent observation period. The annual renewal cost is generally comparable to the initial Type 2 audit, though auditor familiarity with your environment can reduce some costs. Once you have a Type 2 report, you are expected to maintain that level of compliance going forward. Gaps between reports — years where you do not audit — will raise questions from customers.
The verdict
For most companies, the optimal path is to start with a SOC 2 Type 1 report and transition to Type 2 as soon as practical. Type 1 gets you a compliance credential faster and at lower cost, while Type 2 provides the operating effectiveness evidence that enterprise customers ultimately require. If you have no immediate customer pressure and can wait 6+ months, going directly to Type 2 can save money by eliminating a separate Type 1 engagement. Regardless of which you choose, running a SOC 2 readiness assessment first — identifying gaps and remediating them before engaging an auditor — significantly reduces audit costs and the risk of a qualified opinion. AuditFront's SOC 2 assessment helps you evaluate readiness for both Type 1 and Type 2 audits.
Frequently Asked Questions
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