Third-Party Assurance - essential for service providers

Outsourcing continues to reshape how organisations operate, offering access to specialised capabilities, scalable infrastructure and efficiencies that would be difficult to achieve internally. But with opportunity comes risk - and while you may outsource activities, you cannot outsource accountability. Your organisation retains responsibility for the management of risks handled by service providers.

As a result, independent Third-Party Assurance (TPA) reporting has become a cornerstone of modern governance. SOC (System and Organization Controls) reports, and their international and Australian equivalents, provide clear and credible evidence that a service provider has designed and implemented controls (Type I report) that operate effectively (Type II report). Increasingly, stakeholders, regulators and Boards expect assurance that outsourced arrangements are well governed, resilient and secure.

This article outlines the evolving landscape and explains why TPA reporting should be part of your organisation’s annual governance cycle.

What is a Third-Party Assurance (TPA) report?

A TPA report is an independent assurance engagement performed by an assurance practitioner to assess whether a service organisation’s internal controls are suitably designed - and, for Type II reports, operating effectively over a defined period.

For the purposes of clarification, the TPA assurance report would be either a Type I or a Type II as defined below:
 

Type	Purpose of controls testing	Coverage
Type I	Design & implementation	"As at" a point in time
Type II	Design, implementation & operating effectiveness	Over 6-12 months

 Note: Type II is the industry standard for meaningful assurance, as Type I is generally used to establish the controls (baseline). Thereafter you would generally use a Type II. 

A high quality TPA report typically includes: 

• Independent assurance conclusion – an Assurance Practitioner’s conclusion on whether controls meet the relevant criteria. 
  
  
• Management’s description and assertion – presenting the system of controls and asserting fair presentation and suitability. 
  
  
• System description – covering objectives, processes, infrastructure and control activities. 
  
  
• Results of control testing – detailing whether each control operated effectively during the review period. 
  

Types of TPA reports

A range of frameworks support third-party assurance. The most common include: 

A. SOC (System and Organization Controls) reports 

Issued under the AICPA’s SSAE 18 standard:

• SOC 1 – controls relevant to financial reporting. 
  
  
• SOC 2 – controls relevant to security, availability, processing integrity, confidentiality and privacy. 

B. International and Australian equivalents 

TPA engagements align with the following assurance standards: 

Report type	US Auditing standard	International standard	Australian standard	Purpose
SOC 1 equivalent	SSAE 18	ISAE 3402	ASAE 3402	Controls over financial reporting
SOC 2 equivalent	SSAE 18	ISAE 3000 (Revised)	ASAE 3000	Used for SOC-2-type engagements together with suitable criteria (e.g. security, availability, confidentiality, processing integrity, privacy criteria)

 Important: ASAE 3402 ‘Assurance Reports on Controls at a Service Organisation’ is restricted to controls relevant to financial reporting. SOC 2 type engagements must be conducted under ASAE 3000 ‘Assurance Engagements Other than Audits or Reviews of Historical Financial Information’.  ‘SOC 2’ type engagements are generally conducted in accordance with ASAE 3000, using the AICPA Trust Services criteria controls framework.

ISO certifications

While not assurance engagements, ISO 27001, ISO 9001 and similar certifications offer independent validation of well established frameworks.  Under ASAE/ISAE 3000, organisations may incorporate frameworks such as ISO 27001, NIST, HITRUST or GDPR where they satisfy the "suitable criteria" requirements. 

What is driving the demand for TPA reports? 

The world economy is continually changing and businesses need to keep up or risk being left behind. A big catalyst has been the changing business operations and behaviours that have resulted from the use of cloud technologies, and now with artificial intelligence. It is easy to see how the world is being impacted by several significant changes including the following: 

Technology enabled operating models

The rapid growth of cloud services, digital platforms and outsourced technology environments has increased dependency on third-party providers. This trend requires careful oversight of cyber security, resilience, availability and data governance. 

Outsourcing now covers major components of business operations (particularly Infrastructure as a Service (IaaS), Software as a Service (SaaS), Supply Chain, Security, including Security and Privacy services etc.). This has increased exponentially over the last few years. With this comes a multitude of risks that must be properly managed within the organisation’s governance, risk and compliance (GRC) programs.

Regulatory expectations

Australian regulators and market bodies - including APRA, ASIC, ACNC, ACCC and ASX - are increasingly focused on the governance around outsourcing arrangements. Regulators are focusing on improving governance and, through this process, reinforcing the importance of ensuring outsourced operations are well controlled and managed. This is critical to avoid adverse events that may affect shareholders, investors, customers, suppliers, governments, and the wider community.  

Regulators are particularly focused on accountability and whether organisations have appropriate governance mechanisms in place to ensure Boards and Audit Committees identify, understand, and appropriately manage outsourced operational risks, as operations remain the responsibility of the business. These risks include business continuity and operational resilience, security, cyber and privacy (refer to APRA’s CPS 230 – Operational Risk Management which commenced on 1 July 2025, with transitional arrangements for some entities). 

APRA’s CPS 230 - Operational Risk Management strengthens expectations for Boards to actively understand and manage risks arising from outsourced arrangements. 

Competitive market dynamics

The supplier market is becoming saturated, with many suppliers opting for mergers and acquisitions and as a result, outsource providers are looking for competitive advantages to maintain existing customers and to win new business. They are now proactively seeking to demonstrate their proficiency, skills and reputation through the provision of independent assurance reports. 

Better practice governance

Even if a business is not specifically required to obtain independent assurance over its outsourced operation by regulators, from a governance stance, this is considered ‘better practice’. Given the risks managed by the outsource provider are still owned by the business, there is also a fiduciary duty on a business (including Directors) that can impact the broader community. This includes markets, governments and consumers to ensure risks are appropriately managed, the control mechanisms remain relevant, and that they are appropriate in design and effective in operation. There is also a reputational risk aspect, which in the case of outsourced operations can largely be achieved through the TPA reporting process. 

Why an SLA alone is not enough 

While service level agreements (SLAs) establish performance expectations, they do not demonstrate whether internal controls are appropriately designed or operating effectively. Modern governance frameworks require more than contractual commitments.  

In today’s digital age, where technology and related support services and infrastructure are heavily outsourced, if an SLA was the only mechanism to ensure the appropriate conduct and control of your outsourced business operations, it could be deemed ‘negligent’ from a governance perspective. 

Auditing standards - particularly ASA/ISA 315 ‘Identifying and Assessing the Risks of Material Misstatement’ and ASA/ISA 402 ‘Auditing Considerations Relating to an Entity Using a Service Organisation’ - require organisations and auditors to understand controls at service organisations. SLAs alone cannot satisfy these requirements.

How TPA reports complement the external audit 

A TPA report focuses on the control environment at a service organisation, not on financial statement assertions. Under ASA/ISA 402, external auditors may use a service auditor’s report to obtain evidence about relevant controls, provided:

• the controls relate to the auditor’s risk assessment; 
  
  
• the reporting period is appropriate; and 
  
  
• complementary user entity controls are considered.

This can reduce duplication, improve efficiency, and enhance audit quality.

Benefits of commissioning TPA reports

There are many benefits to obtaining TPA reports, these predominately relate to governance, risk management, increased sales and overall confidence as highlighted below: 

• Reduced repetition of customer driven audits. 
  
  
• Enhanced oversight of complex or high risk outsourced processes. 
  
  
• Demonstrated commitment to governance and transparency. 
  
  
• Stronger competitive positioning when bidding for new clients. 
  
  
• Streamlined internal assurance processes. 
  
  
• Increased stakeholder confidence. 

As outsourcing grows in scale and complexity, independent assurance is no longer optional - it is a fundamental component of responsible governance.

How Crowe can help 

• Our professionals deliver a full suite of third-party assurance related services, including: 
  
  
• SOC 1 and SOC 2 assurance reporting 
  
  
• APRA aligned IT assurance (CPS 220, 230, 234, 235 etc.) 
  
  
• ISO 27001 readiness and maintenance 
  
  
• IT governance reviews 
  
  
• Operational and technology due diligence 
  
  
• Controls mapping and self assessment frameworks 
  
  
• Data privacy impact assessments 
  
  
• Consumer Data Right attestation 
  
  
• Vendor and third-party assurance
  
  
• Governance, risk and compliance (GRC) framework design

The views and opinions expressed in this article are those of the author/s and do not necessarily reflect the thought or position of Crowe.