AICPA SSAE 18 - Does Your Service Organization Effectively Assess the Controls Residing at its Subservice Organizations?

Many service organizations (e.g., payroll processors, data centers, facilities management companies), for reasons similar to why their clients contract with them, will contract with third parties to perform certain functions or services on their behalf.  The AICPA refers to these third-party vendors of service organizations as “subservice organizations.”  Recognizing the impact that both service organizations and their subservice organizations can have on the financials of the service organizations’ clients (a.k.a., user organizations), the AICPA established Service Organization Control (SOC 1) examinations.  Within SOC 1 examinations, subservice organizations are defined as third parties contracted by service organizations to perform activities or provide services to the service organizations that could have financial implications to the clients of the service organizations.  Therefore, the internal controls at these organizations are critical to the clients of the service organizations.  To promote greater assurance over the financial information clients receive from their service organizations, knowing such could be dependent on the subservice organizations, the AICPA issued Statement on Standards for Attestation Engagements (SSAE) 18, which supersedes SSAE 16.  SSAE 18, in comparison to SSAE 16, more explicitly addresses the need for service organizations to assess controls at subservice organizations and the controls residing within the service organization to complement the sub-servicer organizations’ controls (complementary controls).

These are the controls that management of the service organization assumes, in the design of the service organization’s system, which will be implemented by the subservice organizations and are necessary to achieve the control objectives stated in management’s description of the service organization’s system.

The most significant change from the SSAE 16 requirements to the SSAE 18 requirements for service organizations that use a subservice organization is that the service organization has to put more emphasis on the monitoring of the effectiveness of controls at subservice organizations.  Not only does the service organization need to include the subservice organization’s control detail in management’s description of the system, but they also have to monitor the effectiveness of the control at the subservice organization.

Management’s description of the service organization’s system and the scope of the service auditor’s engagement are required to include controls at the service organization that monitor the effectiveness of controls at the subservice organization.  These monitoring controls should include some combination of ongoing monitoring to determine that potential issues are identified timely and separate evaluations to determine that the effectiveness of internal control is maintained over time.  SSAE 18 provides the following monitoring control suggestions:

  • reviewing and reconciling output reports
  • holding periodic discussions with the subservice organization
  • making regular site visits to the subservice organization, testing controls at the subservice organization by members of the service organization’s internal audit function
  • reviewing type 1 or type 2 reports on the subservice organization’s system prepared pursuant to this section or section 205
  • monitoring external communications, such as customer complaints relevant to the services by the subservice organization

Remember the Statement on Standards for Attestation Engagements (SSAE) No. 18, Attestation Standards: Clarification and Recodification will be in effect for reports dated on or after May 1, 2017.

Please contact us with questions as you prepare for SSAE 18.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2024 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on
Audit BY Erin Puko-Wilking
2024 Audit Plan Hot Spots
Understanding SOC Report Opinions
Technology Enhancements Continue to Infuse the Manufacturing World
Cap Table Basics for Startup Companies
Selecting the Right Partner for your Corporate Performance Management (CPM) Solution Implementation
Potential Accounting Changes for Environmental Credits
Register to receive our weekly newsletter with our most recent columns and insights.
Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us
contact us
Pittsburgh

This site uses cookies to ensure that we give you the best user experience. Cookies assist in navigation, analyzing traffic and in our marketing efforts as described in our Privacy Policy.

×