Question

According to the COSO definition of safeguarding of assets:

A) controls over financial reporting are effective if they provide reasonable assurance that asset losses will not occur.

B) controls over financial reporting are effective if they provide reasonable assurance that losses are properly reflected in the financial statements.

C) controls over financial reporting are effective if they provide reasonable assurance that asset losses will not occur and that losses are properly reflected in the financial statements.

D) there is no way to create controls that will provide reasonable assurance that asset losses will not occur.

Answer 1

The COSO definition of safeguarding of assets states that controls over financial reporting are effective if they ensure losses are properly reflected in the financial statements, aligning with the goals of the Sarbanes-Oxley Act to protect investors from accounting fraud.

Step-by-step explanation:

According to the COSO definition of safeguarding of assets, controls over financial reporting are effective if they provide reasonable assurance that losses are properly reflected in the financial statements. While it's important to attempt to prevent asset losses, it is recognized that it's not always possible to completely eliminate such risks. Therefore, the correct answer to the student's question is B) controls over financial reporting are effective if they provide reasonable assurance that losses are properly reflected in the financial statements.

Furthermore, the implementation of the Sarbanes-Oxley Act in 2002, in the wake of major accounting scandals involving corporations like Enron, Tyco International, and WorldCom, underscores the need for reliable financial reporting and proper internal controls to protect investors from accounting fraud and enhance the confidence in the financial information provided by public corporations.