Justification for an Internal Control System

Justification for an Internal Control System

This report will present essential information to consider as a response to your inquiry for an internal control system in addition to the use of insurance and portfolio approach controls in place to manage risks associated with business activities. Once the company starts growing, an efficient internal control needs to be implemented to create a set of rules for each risk process.

Internal Control

Internal controls consist of a system of rules established for the purpose of achievement of the company objectives related to the effectiveness and efficiency of operations, financial reporting with relevant and reliable financial data of published financial statements, and compliance with laws and regulations(Tanki & Steinberg, 1993). In essence, five interrelated components need to form the internal control to enhance the effectiveness of the organization Those components are presented bellow as:

• Control Environment. The key factors that form the control environment include the integrity, ethical value, and competence of people in the organization.

• Risk Assessment. The management needs to decide how much risk the company can accept, manage, and optimize effectively.

• Control Activities. It includes the policies and procedures as diverse as approvals, authorization, verification, reviews of operating performance, security of assets, and segregation of duties(Tanki & Steinberg 1993).

• Information and Communication. Relevant information need to be communicated to the right people at the right time.

• Monitoring. If any deficiencies are discovered in internal control, they need to be reported to higher echelons in the organization.

Insurance and Portfolio Controls

The two existing approaches of insurance and portfolio of company's control are validated on the idea that "All business is risky" . Insurance approach as a risk-financing tool for company provides a protection when a loss occurs because...