What Are Complementary User Entity Controls in a SOC Report?
Learn about Complementary User Entity Controls (CUECs) in SOC reports. Understand their importance and your organization's role in effective control.
Organizations increasingly rely on external service providers for various operations, ranging from cloud computing to payroll processing. To build trust and provide transparency regarding their internal controls, these service organizations often obtain System and Organization Controls (SOC) reports. These reports, issued by independent certified public accountants, verify the effectiveness of a service organization’s control activities. Complementary User Entity Controls (CUECs) represent a significant component within SOC reports, highlighting controls that user entities, or client organizations, are expected to implement to ensure the overall effectiveness of the service provided.
Understanding Complementary User Entity Controls
CUECs are specific control activities a service organization expects its user entities to implement. These controls are necessary for the service organization to achieve its own control objectives and deliver its services effectively. CUECs bridge the gap between the service organization’s control environment and the user entity’s operational processes. They essentially define a shared responsibility model, where both parties contribute to the integrity and security of the overall system.
Common examples of CUECs include managing user access to the service organization’s system, ensuring the accuracy and completeness of data submitted to the service provider, and reviewing output reports received from the service organization. For instance, a service provider might specify that user entities are responsible for implementing multi-factor authentication for their employees accessing the service. Another example could involve the user entity encrypting data before transmitting it to the service provider, especially for sensitive financial information.
Without the proper implementation of CUECs by the user entity, the service organization’s controls alone may not be sufficient to achieve its stated objectives. For example, if a user entity fails to remove system access for a terminated employee, the service organization’s security controls could be compromised, leading to unauthorized access. CUECs ensure the user entity’s interaction with the service remains within the agreed-upon scope.
CUECs in Different SOC Report Types
While the fundamental concept of CUECs remains consistent, their application and relevance vary between different types of SOC reports. SOC 1 reports primarily focus on controls relevant to a user entity’s internal control over financial reporting (ICFR). In this context, CUECs directly relate to the user entity’s financial reporting objectives and how the service organization’s activities impact them. These CUECs might involve controls related to data input, processing, and output that affect financial statements.
SOC 2 reports, conversely, address a service organization’s controls related to security, availability, processing integrity, confidentiality, and privacy, known as the Trust Services Criteria. CUECs in SOC 2 reports therefore pertain to the user entity’s role in maintaining these principles. For example, a CUEC in a SOC 2 report might require the user entity to monitor and update its own antivirus software, or to implement robust physical security for any on-premise equipment related to the service.
The AICPA’s guidance suggests that CUECs are typically expected in SOC 1 reports, often appearing alongside control objectives. For SOC 2 reports, user responsibilities are common, though explicit CUECs may not always be present. Regardless of the report type, CUECs work in conjunction with the service organization’s controls to achieve the stated control objectives (SOC 1) or Trust Services Criteria (SOC 2).
Locating and Interpreting CUECs in a SOC Report
User entities can find CUECs within the service organization’s SOC report. These are typically listed in a dedicated section, often within the service description section of the report, or in some cases, integrated into the tested controls section. They may also be delineated next to the specific control objectives or process areas they relate to.
Interpreting CUECs involves understanding what each control implies for the user entity’s operations. For example, a CUEC stating “User entities are responsible for maintaining strong password policies for their personnel accessing the system” means the user entity must have and enforce such a policy.
The user entity is responsible for assessing the applicability and relevance of these listed CUECs to their own environment. Not all CUECs mentioned in a report may apply to every service or every user entity’s specific configuration. If a user entity is unclear about any CUEC, direct communication with the service organization for clarification, preferably in writing, is a recommended practice.
User Entity Actions Regarding CUECs
Once identified and understood, user entities must take proactive steps regarding the CUECs listed in a SOC report. The primary responsibility lies with the user entity to implement these controls as described by the service organization. This implementation ensures that the controls are suitably designed and operate effectively within the user entity’s environment, complementing the service organization’s own controls.
User entities should also assess whether the implemented CUECs are designed and operating effectively. This assessment involves reviewing their own internal processes and procedures to confirm alignment with the CUEC requirements. If a relevant CUEC is identified but a corresponding control is missing, the user entity should develop a strategy to implement the necessary control.
Documentation is another important step; user entities should maintain records of how they have implemented and how they continually operate these CUECs. This documentation can include internal policies, procedures, and evidence of control performance. Such records are valuable for internal audits and can demonstrate compliance with the expectations outlined in the SOC report.
Continuous monitoring of CUECs is also necessary to ensure their ongoing effectiveness, as business needs and system environments can evolve. Communication with the service organization about CUECs is also important. This includes informing the service organization of any changes in the user entity’s environment that might affect the CUECs or if any issues arise with their implementation. CUECs are an integral part of a user entity’s broader internal control framework, and their proper management contributes to overall risk management and compliance efforts.