Justification for an Internal Control System Critical Analysis
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 error occurs. There can always be risks in a company, but it is the way we handle them, what is important. When they add insurance it is for a peace of mind, a company wants to be cover in case something did happen. Weather risks can happen anytime and any day. It can be challenging thinking best option for the business. Due to the fact that no one can know what will happen tomorrow but is it better to be protected. As the controller some of the aspects to look into is what do we need.
There hasn’t been a tornado in this area for more than 50 years, the question to think is, and do we need tornado insurance? The company was built once but if a risk strikes, it would be really hard to restart the company without developing a financial plan. The company will continue to grow every day, and we need to keep that in mind with the insurance. When the insurance was first put in place, the management team covers everything they thought was needed. However, we may not need certain things that are currently been covered by the insurance. That is why it is very important to do a six month or even a year checkup on the insurance plan.
As the controller of the company there are tasks to be completed such as compliance, reporting, budgets, analyzing, and goals. The internal controls help the company and especially the controller achieve all these tasks and stay up-to-date with them. Having internal controls can prevent any losses due to fraud and minimize the loss in assets. It also helps with everyday business activities and what to do in a situation in which a risk is encounter. For the previous reasons that were discuss the company’s success will be much better off having the internal controls with a combination of insurance and portfolio approaches.