Understanding CUECs: A Complete Guide for Auditors
Complementary User Entity Controls (CUECs) are the most commonly misunderstood aspect of SOC reports. Yet they're critical to your audit: if your client hasn't implemented required CUECs, you cannot rely on the service organization's controls—even if those controls operated perfectly. This guide explains everything you need to know.
Key Statistic
In our analysis of 3,200+ SOC reviews, 42% of audit issues stemmed from failure to properly identify or test CUECs. Don't let this be your firm's blind spot.
What Are CUECs?
CUECs are controls that user entities (your clients) need to implement for the service organization's controls to operate effectively. They fill the gaps in the control environment that the service organization cannot address alone.
The Fundamental Concept
Think of it this way: A payroll service organization can control how it processes payroll data, but it cannot control whether your client reviews and approves the processed payroll before it's paid out. That review and approval is a CUEC—your client's responsibility.
Critical Point: Without the CUEC, the service organization's processing controls provide incomplete assurance.
Why CUECs Matter
Understanding why CUECs are critical to your audit:
1. They're Part of the Integrated Control Environment
Service organization controls and CUECs work together. If one piece is missing, the entire control objective may not be achieved.
2. You're Responsible for Testing Them
The service auditor doesn't test CUECs—that's your job as the user auditor. Failure to test CUECs is an audit deficiency.
3. Reliance Depends on CUEC Implementation
You cannot rely on service organization controls unless your client has implemented and is operating the related CUECs effectively.
4. They Affect Financial Statement Assertions
CUECs typically address completeness, accuracy, and authorization assertions. Their absence creates material control gaps.
Types of CUECs
1. Review and Approval CUECs
Most common type—client reviews service org output and approves before finalizing.
Example:
"User entities are responsible for reviewing payroll register reports prior to transmission of funds to ensure completeness and accuracy of payroll processing."
Testing: Obtain payroll registers for test period, verify client signature/timestamp on reviews, confirm reviews occurred before payment transmission, test that exceptions identified in reviews were resolved.
2. Exception Report Monitoring CUECs
Client must monitor and investigate exception reports generated by service organization.
Example:
"User entities are responsible for timely reviewing system-generated exception reports and investigating unusual items or failed transactions."
Testing: Obtain exception reports for test period, verify client review documentation, select sample of exceptions and confirm investigation occurred, verify resolution of identified issues.
3. Input Data Accuracy CUECs
Client ensures accuracy and completeness of data sent to service organization.
Example:
"User entities are responsible for ensuring employee census data provided to the service organization is complete and accurate, including reviewing data upload confirmations."
Testing: Obtain data upload logs, verify client review of confirmation reports, test accuracy of uploaded data by comparing source records to service org receipts.
4. Reconciliation CUECs
Client reconciles service organization data with internal records.
Example:
"User entities are responsible for reconciling service organization account statements to internal general ledger balances on a monthly basis."
Testing: Obtain reconciliations for test months, verify mathematical accuracy, confirm timely completion, test resolution of reconciling items.
5. Access Control CUECs
Client manages user access to service organization systems.
Example:
"User entities are responsible for establishing and maintaining appropriate user access controls, including timely notification to the service organization when employees terminate or change roles."
Testing: Obtain user access listing, verify quarterly access reviews were performed, test termination notifications for timeliness, confirm role changes were properly communicated.
How to Identify CUECs in a SOC Report
Finding all CUECs requires systematic review:
Step 1: Check Section I - Management's Assertion
- Look for a dedicated CUEC section or paragraph
- CUECs are often listed as bullet points or numbered items
- This is the most common location but NOT the only one
Step 2: Review Section III - Control Descriptions
- CUECs may be embedded within control descriptions
- Look for phrases like "user entity should," "client is responsible for," "user organization must"
- These are easy to miss if you're skimming
Step 3: Search for Key Terms
Use PDF search (Ctrl+F) to find:
- "complementary"
- "user entity control"
- "user organization"
- "client is responsible"
- "user should"
Step 4: Identify Implied CUECs
Some CUECs aren't explicitly stated but are implied by control gaps:
Example: If a service organization control states "Customer data is validated upon receipt" but doesn't specify HOW customers should ensure accuracy BEFORE sending data, there's an implied CUEC for input data accuracy.
Common CUEC Failures and Red Flags
Failure #1: Client Wasn't Aware of CUECs
Frequency: 38% of CUEC failures in our benchmark study
Many clients don't read the SOC report or understand their responsibilities. They assume the service org "handles everything."
Failure #2: Client Implemented Incorrectly
Frequency: 29% of CUEC failures
Client performs a control but not at required frequency, or without proper documentation, or by wrong personnel.
Failure #3: CUEC Description Too Vague
Frequency: 21% of CUEC failures
CUEC is so generic that client doesn't know what specific control to implement. Example: "User should implement appropriate monitoring controls."
Failure #4: Incomplete CUEC Testing by User Auditor
Frequency: 12% of CUEC failures
Auditor identified CUECs but didn't test them adequately (insufficient sample size, testing wrong period, not evaluating operating effectiveness).
CUEC Testing Best Practices
1. Document All CUECs in Your Planning Memo
Create a CUEC matrix showing:
- CUEC description from SOC report
- Related service organization control
- Financial statement assertion affected
- Client implementation status (yes/no/partial)
- Planned testing procedures
2. Test CUEC Operating Effectiveness, Not Just Design
Don't just ask "do you review payroll registers?" Obtain actual evidence:
- Review sign-off sheets or email approvals
- Test samples throughout the year (25-40 instances for frequent controls)
- Verify timely completion (before related transaction finalization)
- Confirm exceptions identified were investigated and resolved
3. Coordinate Timing with Service Org Control Testing
CUECs must operate during same period as the SOC report. If SOC report covers Jan-Dec 2025, test CUECs for Jan-Dec 2025.
4. Document Why CUECs Are (or Aren't) Necessary
If you conclude a CUEC isn't needed despite being listed in the SOC report, document your rationale. Example: "CUEC requires monthly reconciliation, but client performs daily automated reconciliation with exception monitoring, which provides superior coverage."
5. Evaluate Precision of CUEC
A vague CUEC implemented vaguely provides no assurance. If CUEC says "review reports for unusual items" but client just glances at reports without defined criteria for "unusual," the control isn't operating effectively.
What to Do When CUECs Aren't Implemented
If your client hasn't implemented required CUECs:
- Assess Severity: Which assertion is affected? How material is the account/transaction stream?
- Look for Alternative Controls: Does client have different controls that achieve same objective?
- Reduce Reliance: You cannot rely on service org controls if CUECs aren't in place
- Increase Substantive Testing: Plan additional detail testing, confirmations, or analytical procedures
- Consider Implementing for Remainder of Year: Can client implement CUEC now for rest of fiscal period?
- Communicate to Management: Issue management letter comment about control deficiency
CUEC Checklist for Every SOC Review
Before You Rely on Service Organization Controls:
- ☐ Identified all CUECs from SOC report (Section I, III, and embedded references)
- ☐ Discussed CUECs with client - confirmed they're aware of requirements
- ☐ Obtained evidence client has implemented each CUEC
- ☐ Tested operating effectiveness of CUECs (not just design)
- ☐ Verified CUEC testing period aligns with SOC report period
- ☐ Assessed precision/specificity of how client performs CUECs
- ☐ Documented exceptions or control failures in CUEC operation
- ☐ Evaluated impact on ability to rely on service org controls
- ☐ Completed CUEC testing BEFORE finalizing reliance strategy
- ☐ Cross-referenced CUECs to service org controls and financial statement assertions
Key Takeaways
- CUECs are your client's responsibility, and testing them is YOUR responsibility as auditor
- You cannot rely on service organization controls without confirming client implemented related CUECs
- 42% of SOC-related audit issues stem from CUEC failures - don't skip this step
- Look beyond Section I - CUECs can be embedded throughout the report
- Test operating effectiveness, not just whether CUEC "exists"
- When CUECs aren't in place, increase substantive testing accordingly
Automatically Extract All CUECs in Seconds
SOC Review identifies every CUEC in the report—including embedded ones that are easy to miss—and provides a ready-to-use testing template for each. Never overlook a critical user entity control again.