What are internal controls?

Internal controls refer to the processes and procedures implemented by an organization to ensure the integrity of financial reporting, compliance with laws and regulations, and the effectiveness and efficiency of operations. By establishing internal controls, organizations aim to safeguard assets, prevent fraud, and provide accurate financial information that stakeholders can rely on.

The significance of internal controls lies in their ability to minimize risks associated with financial reporting errors or fraudulent activities. They encompass various activities, including authorization of transactions, segregation of duties, reconciliations, and reviews of financial statements. Therefore, the definition aligning with measures taken to ensure the integrity of financial information is the most accurate portrayal of what internal controls are.

Other options, while related to organizational efficiency and performance, do not accurately describe internal controls. Measures reducing employee turnover, techniques for workplace culture improvement, or policies outlining marketing strategies do not capture the essence of the systems and procedures that focus primarily on maintaining accurate and trustworthy financial information.