Which of the following statements about internal controls are correct?
A)It is not possible to have perfect (materially correct)financial statements and no internal controls.
B)It is possible to have perfect internal controls and materially incorrect financial statements.
C)Testing internal controls does not answer the question,"Are the financial statements correct?" It only answers the question,"Are the controls working to prevent or detect misstatements in the financial statements?"
D)Control tests answer the question,"Are the account balances correct?"
E)Both A and B
F)Both B and C
G)Both C and D

Question

Quizplus · Accepted Answer

Internal controls are designed to prevent or detect misstatements in financial statements, but they do not guarantee the financial statements are materially correct. Testing internal controls assesses whether the controls are working as intended, not whether the financial statements themselves are accurate. Therefore, it is possible to have perfect internal controls and still end up with materially incorrect financial statements if the controls fail to address or detect all possible errors or frauds.

Which of the Following Statements About Internal Controls Are Correct