When accounting for assets, which category requires internal controls?

The correct answer is liquid cash equivalents because this category necessitates stringent internal controls to mitigate risks of theft, fraud, and errors in financial reporting. Liquid cash equivalents, such as checking accounts and highly liquid investments, are assets that can be quickly converted into cash. Due to their inherent liquidity and the potential for significant financial loss if mishandled, careful tracking and accountability are crucial.

Internal controls in this context might include procedures for cash handling, regular reconciliations of accounts, separation of duties among individuals who handle cash, and strict access protocols to cash-related processes. These measures help ensure that all transactions are properly recorded and that access to cash is restricted and monitored. While other asset categories may have their own compliance or oversight requirements, the immediacy and ease of misuse associated with liquid cash equivalents underscore the importance of robust internal controls in their management.