The correct option is Incorrect classification of systems may lead to audit findings and financial penalties.

Regulators and auditors rely on accurate system classification because classification determines which controls and protections must be applied and which legal or regulatory obligations are applicable. When systems are classified incorrectly organizations may apply insufficient controls and auditors can record findings or impose financial penalties.

Cloud Asset Inventory is incorrect because it names a record or tool and does not by itself state how external regulators treat classification. The question asks which statement reflects regulator treatment of classification and this option does not address that.

Compliance frameworks never refer to system classification is incorrect because many frameworks and regulatory regimes require or expect system categorization to map sensitivity and controls to systems. Frameworks and standards use classification to determine handling requirements and control baselines.

System classification is only relevant for internal risk assessments and not for external audits is incorrect because external auditors and regulators use classification as part of their review to ensure controls match the sensitivity and regulatory requirements of systems and misclassification can cause audit findings and penalties.

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