Question

the primary way that fraud is prevented, detected, or corrected is through a proper system of:
a. internal and external audits.
b. internal control.
c. policies developed by upper management.
d. ethical standards and a code of ethics.

Explanation:

To determine the answer, we analyze each option:

• Option A: Audits (internal/external) are used to assess controls but not the primary prevention/detection/correction system for fraud.
• Option B: Internal control systems are designed to prevent, detect, and correct fraud by establishing procedures, segregation of duties, etc. This is the primary system.
• Option C: Upper management policies alone aren't the primary system; they support internal control.
• Option D: Ethical standards guide behavior but aren't the primary system for preventing/detecting/correcting fraud (internal control is more direct for these actions).

Answer:

B. internal control.