Justification for an Internal Control System Essay

631 Words Sep 11th, 2014 3 Pages
Justification for an Internal Control System
Christine Griffin
ACC 544
July 28, 2014
Richard Cornett

Justification for an Internal Control System
As the controller for my company, I monitor all financial activities, conduct audits as needed, create high-level financial reports, and implement accounting methodologies to make the company run efficiently (PayScale, n.d.). The leadership of the company has asked me why there is a need for an internal control system when controls are in place with insurance and portfolio approaches.
Insurance Approach
A company will purchase insurance to protect their assets. The owner of a company will purchase liability insurance to protect his income, home, and other personal items of worth.
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Systematic risks are associated with interest rates, recession, war, and political instability. Unsystematic risk (specific risk) relates to the shares of a specific company in the portfolio. Unsystematic risk can be controlled and minimized. The more investments a company has will reduce the risk by spreading it across the portfolio (diversification) (Spowart, 2014).
Need for an Internal Control System
An internal control system is needed to provide accountability and encourage sound management practices. A well designed system will help reduce the chance of material misstatements. Policies and procedures are added to these systems to make sure they are working properly. These safeguards are a company’s internal control system (Hoyle & Skender, 2014). An internal control system assures the effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations.
Conclusion
I have explained about insurance and portfolio approaches and the need for an internal control system. The current approaches are valid because each approach has a different risk management tool. Insurance approach mitigates the risk to an insurance company. Portfolio approach minimizes risk and maximizes investment by spreading out the risk through the portfolio. An internal control system is more beneficial because it ensures the protection of a company’s assets by the use of many systems (financial

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