Which of the following is NOT accomplished with an internal control system?

• A. Eliminating all risk of fraud and error
• B. Ensuring the reliability of financial reporting
• C. Complying with applicable laws and regulations
• D. Promoting operational efficiency

Answer: (A)

Verified step by step guidance

1. Understand the purpose of an internal control system: Internal controls are processes and procedures implemented by an organization to safeguard assets, ensure accurate financial reporting, comply with laws and regulations, and promote operational efficiency.
2. Analyze the options provided in the question: Each option represents a potential function or limitation of an internal control system. Carefully evaluate whether each option aligns with the objectives of internal controls.
3. Recognize the limitations of internal controls: Internal controls are designed to reduce the risk of fraud and error, but they cannot completely eliminate these risks. This is a key limitation of internal control systems.
4. Compare the options to the limitations: Identify which option explicitly states a limitation that internal controls cannot achieve, such as 'Eliminating all risk of fraud and error.' This option does not align with the realistic capabilities of internal controls.
5. Conclude that the correct answer is the option that describes a limitation of internal controls, as internal controls cannot eliminate all risks of fraud and error, but they can achieve the other listed objectives.