Final answer:
Controls over financial reporting are considered effective under the COSO definition if they ensure that asset losses are properly reflected in the financial statements, acknowledging that while such controls aim to minimize losses, they cannot guarantee the complete prevention of losses.
Step-by-step explanation:
According to the COSO definition of safeguarding of assets, the correct statement out of the options provided is that controls over financial reporting are effective if they provide reasonable assurance that losses are properly reflected in the financial statements. This aligns with the COSO framework, which emphasizes that internal controls should be designed to provide reasonable assurance regarding the achievement of objectives in the effectiveness and efficiency of operations, reliable financial reporting, and compliance with applicable laws and regulations.
Asset safeguarding includes prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a significant effect on the financial statements. However, it is important to note that while effective controls aim to minimize the occurrence of asset losses, they cannot guarantee that asset losses will not occur. The key is to ensure that such losses, if they occur, are detected and properly recorded and reported in the financial statements.