Multiple Choice
Which of the following is a principle of internal control?
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6. Internal Controls and Reporting Cash
Five Components of Internal Controls
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Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
Which of the following is a direct purpose of internal controls within an organization?
A
To eliminate all business risks
B
To guarantee compliance with tax laws in all countries
C
To maximize company profits
D
To ensure the reliability of financial reporting
Verified step by step guidance1
Understand the concept of internal controls: Internal controls are processes and procedures implemented by an organization to safeguard its assets, ensure the accuracy and reliability of financial reporting, and promote compliance with laws and regulations.
Analyze the options provided in the question: Evaluate each option to determine whether it aligns with the primary purpose of internal controls. For example, eliminating all business risks is not feasible, as risks can only be mitigated, not entirely eliminated.
Focus on the reliability of financial reporting: Internal controls are designed to ensure that financial statements are accurate and free from material misstatements, which is critical for decision-making by stakeholders.
Eliminate incorrect options: Internal controls do not guarantee compliance with tax laws in all countries, nor are they designed to maximize company profits directly. These are secondary or unrelated objectives.
Select the correct answer: Based on the analysis, the direct purpose of internal controls is to ensure the reliability of financial reporting, as this aligns with their primary function within an organization.
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