Justification for an Internal Control System

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Justification for an Internal Control System
Frank Harling
April 2, 2012
Christian Yang

Justification for an Internal Control System
Working as the controller for this company I am accountable for all of the accounting operations, which includes the creating of financial reports, maintenance of the accounting system that house the accounting data, and set internal controls to mitigate risk and enhance the accuracy of the reports. The company’s leadership has approached me with questions about the need for an internal control system. So I will justify the need for the system when controls are in place with insurance and portfolio approaches. Also I will explain why current approaches are valid but why an internal system will be much more beneficial. Controls in place with insurance approach

As we take a look at the internal controls with the insurance approach we will see some of the benefits of this approach. The insurance approach falls under the category of transfer. “By transferring a risk, a company solicits the involvement of a third party to take on some of the impact should a risk event occur”(McCarthy, Flynn, & Brownstein, 2004, P.94). Insurance is a type of risk management “primarily used to hedge against the risk of a contingent, uncertain loss” (Wikipedia, 2012). So if a company can find some affordable insurance with deductibles that the company feels comfortable with then this approach can be very beneficial in the event of a catastrophic disaster because then the company would only be responsible for paying the deductible and the insurance company would pay the rest. Controls in place with portfolio approach

Now we will look at the internal controls with a portfolio approach, and we will see the benefits from this approach. The portfolio approach is used to minimize risk while maximizing the investment. Portfolio risk is “the possibility that an investment portfolio may not achieve its objectives. There are a number of...
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