Which of the following statements about internal controls is true?

The statement that internal controls ensure the accuracy and reliability of financial reporting is accurate because internal controls are designed to establish processes and procedures that promote the integrity of financial information. These controls help to ensure that financial transactions are recorded and reported accurately, thereby enhancing the reliability of financial reports.

Internal controls encompass various elements such as segregation of duties, authorization processes, reconciliations, and documentation of transactions, all of which work together to minimize errors and mitigate the risk of fraud. By implementing effective internal controls, organizations can create a system of checks and balances that supports the overall accuracy and dependability of their financial statements, which is crucial for stakeholders such as investors, regulators, and management.

In the context of the other options, while it is desirable for internal controls to detect errors and fraud, it is impractical to expect them to catch every incident due to limitations inherent in any control system. The claim that internal controls are unnecessary in small businesses overlooks the fact that all businesses, regardless of size, can benefit from having appropriate controls to safeguard assets and ensure accurate reporting. Additionally, relying solely on external audits to maintain the integrity of financial information is a flawed approach since audits provide an assessment based on past information and do not prevent errors or fraud from occurring in the first