A process designed to provide reasonable assurance about the achievement of the entity's objectives with regard to reliability of financial reporting, effectiveness and efficiency of operations is called:
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A. B. C. D.C
The correct answer is C. Internal control.
Internal control is a process designed to provide reasonable assurance that an entity's objectives related to financial reporting, operational effectiveness, and efficiency are achieved. It is a critical component of any organization's risk management system and involves the policies, procedures, and controls put in place by management to safeguard assets, ensure accuracy of financial information, and compliance with laws and regulations.
Internal control encompasses a wide range of activities and is tailored to meet the specific needs and risks of each organization. Some examples of internal control activities include:
Segregation of duties: This involves separating key functions such as authorizing, recording, and custody of assets to prevent fraud and errors.
Policies and procedures: These are written guidelines that establish clear expectations and provide consistency in operations. They can cover a range of topics such as purchasing, cash handling, and payroll.
Physical controls: These include locks, cameras, and alarms to protect assets from theft or damage.
Information technology controls: These controls include firewalls, access controls, and backup procedures to protect electronic data and systems.
Monitoring and reporting: This involves ongoing review and assessment of internal control effectiveness and reporting of any issues or deficiencies to management.
Internal control is not a one-time event, but rather an ongoing process that requires continuous monitoring, assessment, and improvement. Internal auditors may play a role in evaluating the effectiveness of internal control, but internal control is broader than internal auditing.
External control, on the other hand, refers to oversight and regulation by outside parties such as government agencies, auditors, and creditors. While external control can provide additional assurance, internal control is the responsibility of management and is critical to achieving an organization's objectives.