SOC 2 for Software Companies, Explained in Plain English

To get SOC 2 for software companies explained plainly, start with a founder we build with, who had a signed term sheet stuck on a single line buried in the customer's security addendum: provide your current SOC 2 Type II report. When enterprise buyers put that clause in front of the SaaS teams we support through our CodeStringers capabilities, the reaction is almost always the same — a beat of panic, then the real question: what even is SOC 2, and do we actually need it?

Here is the plain-English version, with no vendor spin.

SOC 2 is a voluntary security attestation, created by the American Institute of CPAs (AICPA), in which an independent auditor reports on how well a service organization's controls protect customer data. It is not a government regulation and not a certification you "pass" once. It is a report — written by a licensed CPA firm — that your enterprise customers read before they trust you with their data.

What is SOC 2, and who's behind it?

SOC stands for System and Organization Controls, a reporting framework owned by the AICPA — the same professional body that governs financial audits. SOC 2 specifically covers the controls a technology company uses to keep customer data secure, available, and private.

The important nuance: nobody hands you a SOC 2 badge. A CPA firm examines your controls and writes a detailed report — often 40 to 100 pages — describing what you claimed, what they tested, and where you fell short. Buyers request that report under NDA, read the auditor's opinion, and decide whether your security posture clears their bar. That is why "SOC 2 compliant" is really shorthand for "we have a clean SOC 2 report from a reputable auditor."

What are the five Trust Services Criteria?

Every SOC 2 report is graded against the AICPA's Trust Services Criteria — the 2017 criteria, updated with revised points of focus in 2022. There are five, and you do not have to include all of them.

Criterion	What it covers	Required?
Security	Protecting systems and data from unauthorized access — the "Common Criteria" every report includes	Yes, always
Availability	Uptime, disaster recovery, and meeting the SLAs you promised	Optional
Processing Integrity	System processing is complete, accurate, and authorized	Optional
Confidentiality	Protecting data designated confidential (e.g., contracts, IP)	Optional
Privacy	How you collect, use, retain, and dispose of personal information	Optional

Security is mandatory in every SOC 2 — it maps to a set of common criteria (CC1–CC9) that underpin everything else. The other four are ones you choose based on the promises in your customer contracts. If you sell an uptime SLA, add Availability. If you handle consumer personal data, add Privacy. Adding criteria you don't need only enlarges the audit and the cost, so scope deliberately.

What's the difference between SOC 2 Type I and Type II?

This trips up almost everyone, so here is the short version: Type I is a snapshot; Type II is a movie.

	SOC 2 Type I	SOC 2 Type II
What it tests	Whether controls are designed correctly at one point in time	Whether controls operate effectively over a period
Time frame	A single date	A window, typically 3–12 months
What buyers think	"A good start"	"The one we actually trust"
Best for	A fast first milestone	The report enterprise deals require

A Type I says your controls exist and look sound on the day the auditor checked. A Type II watches those controls actually run for months and confirms they held up — that access reviews really happened every quarter, that offboarding really revoked credentials, that alerts were really investigated. Most serious enterprise buyers want Type II. Type I is useful as an interim step to show a prospect you're on the path, but few large customers will accept it as the finish line.

What does a SOC 2 audit actually involve?

It is less a single event than a stretch of unglamorous evidence-gathering. In practice it runs in phases:

1. Scoping — decide which criteria apply and which systems are in scope.

2. Readiness assessment — a gap analysis (often with an advisor) against the criteria before the real audit starts.

3. Remediation — close the gaps: enforce MFA, formalize access reviews, write the security policies you've been meaning to write, turn on logging.

4. Observation window (Type II only) — operate those controls for 3–12 months while collecting evidence.

5. Audit fieldwork — the CPA firm samples your evidence, interviews your team, and tests each control.

6. The report — the auditor issues their opinion, which you then share with prospects under NDA.

The part teams underestimate is step 3. The tooling — MFA, a password manager, endpoint monitoring, centralized logging — is the easy half. The controls that fail audits are the human, repeatable ones: quarterly access reviews that nobody scheduled, a vendor list nobody maintains, onboarding checklists that live in someone's head. This is exactly where Managed technical operations matters — SOC 2 rewards boring, documented, consistently-run process far more than it rewards buying another security product.

SOC 2 doesn't test whether you own the right tools. It tests whether your team actually runs the right process, month after month, when nobody's watching.

How long does SOC 2 take, and what does it cost?

Honest ranges, because the numbers online swing wildly. A Type II observation window runs 3–12 months, and for a well-prepared small team the whole path — readiness through report — commonly lands around 6 months.

On cost, one auditor-facing breakdown from compliance platform Drata puts the Type II audit fee for a small-to-midsize company at $12,000–$20,000, rising to $30,000–$100,000+ for large organizations (source). But the audit fee is only a slice. Drata pegs the total first-year SOC 2 cost at $25,000 for a small startup, rising past $200,000 for a large enterprise once you add readiness work, security tooling, and the internal engineering hours the effort quietly consumes (source). For most seed-to-Series-A SaaS teams, budgeting somewhere in the mid-five figures all-in for year one is realistic.

Two levers move that number: how many trust criteria you scope in, and how much remediation your codebase and processes need before an auditor will sign off. Teams that bolt SOC 2 on after years of ad-hoc access management pay for that debt during remediation.

When does a software startup actually need SOC 2?

The straight answer nobody selling audits wants to give: most early-stage startups need SOC 2 exactly when — and not before — an enterprise customer's procurement team demands it.

SOC 2 is fundamentally a sales-enablement instrument. It doesn't make your software more secure by existing; disciplined engineering does that. What it does is let a Fortune 500 security reviewer check a box so your deal can move. So the trigger is commercial, not technical:

• You're moving upmarket and prospects' security questionnaires now ask for it.

• A signed deal is stalled on a "provide your SOC 2" clause (our founder's case above).

• You're selling into regulated buyers — finance, healthcare, government suppliers — where it's table stakes.

If you're pre-revenue or selling to small businesses that never ask, spending six months and $40K on SOC 2 is premature optimization. Do the underlying security engineering now; commission the audit when a real deal or a clear upmarket motion justifies it. When that day comes, the teams that built clean, well-instrumented systems — the way a disciplined Custom software developer would — sail through readiness while others scramble.

Book a free consultation with our team to pressure-test whether your architecture and processes are audit-ready: start a no-risk discovery call.

FAQ

Is SOC 2 a certification or a legal requirement? Neither. SOC 2 is a voluntary attestation report written by an independent CPA firm, not a certificate and not a law. No regulator requires it. Your enterprise customers do — they treat a clean SOC 2 report as proof your security controls meet a recognized standard before they'll trust you with their data.

Can a small startup get SOC 2 without a big compliance team? Yes. Plenty of sub-20-person startups earn SOC 2 by scoping tightly to the Security criterion, using a compliance-automation platform to collect evidence, and leaning on a fractional advisor for readiness. The bottleneck is rarely headcount — it's having documented, consistently-run processes an auditor can actually test.

How is SOC 2 different from ISO 27001? SOC 2 is a US, AICPA-governed attestation report you share under NDA; ISO 27001 is an international certification of an information security management system. Buyers in North America usually ask for SOC 2; global and European buyers often prefer ISO 27001. Many mature software companies eventually pursue both.

Does a SOC 2 report expire? Effectively, yes. A Type II report covers a defined window, and most buyers only accept one issued within the last 12 months. That's why SOC 2 becomes an annual cycle — you re-run the audit each year to keep a current report on hand for procurement reviews.

SOC 2 for Software Companies, Explained: The Takeaway

SOC 2 isn't a security silver bullet or a badge you frame on the wall — it's an independent report, graded against the AICPA's five Trust Services Criteria, that lets cautious enterprise buyers say yes. Get the engineering discipline right first, scope the audit to what your contracts actually require, and commission it when a real deal calls for it. If you're weighing whether your systems could survive that scrutiny, book a free consultation — and if security-by-design is the deeper question, our guides on HIPAA-compliant custom software development and the custom software development process are good next reads.

By the CodeStringers Team — Zoho Experts & Custom Software. We're a custom software engineering firm that builds and operates production systems for clients, so we live the audit-readiness questions above from the engineering side — writing here from work we've actually shipped.