Justification for an Internal Control System
Justification for an Internal Control System
ACC/544
December 2, 2013
Justification for an Internal Control System
The internal control system has been used since the company was in need of the system and until this day it has been working to its fullest potential. Internal control plays an important key in making sure that the accounting information, financial data, meeting the targets, and ensuring that the management policies are getting followed. There are two elements in making an internal control system successful. These elements are portfolio approaches and insurance. Even though they both help the internal controls, they are somewhat different.
Portfolio approach is used in different ways, this helps make investments decisions easier. It also balances the risk against the routine of the company. When discussing portfolio management it is known that there are two types of management: active and passive. Active management can be only one manager or a team but regardless if it one or more. They all have the same idea in mind, which is to get a better market return and they do this by constantly checking the funds portfolio. A passive management just checks the market index; it does not necessarily say that the passive management is less capable of doing its job.
“Every company 's risk management “solution” will be unique because the exposures and risk appetites all differ. The key is to have a reasonable under-standing of how each treatment option works, alone, and in combination with others, so that decisions are informed and results are less influenced by luck than by reason (McCarthy, Flynn, & Brownstein, 2004). The appetite for risk will always depend on the management team. We will need to understand every risk and think of the options before continuing. A great return is always good but a big loss will hurt more.
Insurance is another element that was put in place with the internal controls. Insurance will protect the company in case of an
ACC/544
December 2, 2013
Justification for an Internal Control System
The internal control system has been used since the company was in need of the system and until this day it has been working to its fullest potential. Internal control plays an important key in making sure that the accounting information, financial data, meeting the targets, and ensuring that the management policies are getting followed. There are two elements in making an internal control system successful. These elements are portfolio approaches and insurance. Even though they both help the internal controls, they are somewhat different.
Portfolio approach is used in different ways, this helps make investments decisions easier. It also balances the risk against the routine of the company. When discussing portfolio management it is known that there are two types of management: active and passive. Active management can be only one manager or a team but regardless if it one or more. They all have the same idea in mind, which is to get a better market return and they do this by constantly checking the funds portfolio. A passive management just checks the market index; it does not necessarily say that the passive management is less capable of doing its job.
“Every company 's risk management “solution” will be unique because the exposures and risk appetites all differ. The key is to have a reasonable under-standing of how each treatment option works, alone, and in combination with others, so that decisions are informed and results are less influenced by luck than by reason (McCarthy, Flynn, & Brownstein, 2004). The appetite for risk will always depend on the management team. We will need to understand every risk and think of the options before continuing. A great return is always good but a big loss will hurt more.
Insurance is another element that was put in place with the internal controls. Insurance will protect the company in case of an
References: AICPA. (2006). ET Section 202 - Composition, Applicability and Compliance. Retrieved from http://www.aicpa.org/Research/Standards/CodeofConduct/Pages/et_202.aspx McCarthy, M. P., Flynn, T. P., & Brownstein, R. (2004). Risk from the CEO and Board Perspective. N/a: The McGraw-Hill Companies.