Justification Of An Internal Control System

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Running head: JUSTIFICATION FOR AN INTERNAL CONTROL SYSTEM Justification of an Internal Control System Jen Russell University of Phoenix Justification of an Internal Control System A company with established internal controls will be successful in conducting business practices and company’s put internal controls in place to respond to changes in the company and environment. Internal controls are used for risk reduction, to mitigate risks whereas portfolio, hedging and insurance are methods of sharing risks (Risk Evaluation, 2010). Not only must a company have internal controls established but a company must also have insurance to protect the company from significant losses. Internal Controls Internal controls are systematic measure implemented by an organization to 1) conduct business in an orderly and efficient manner, 2) safeguard assets and resources, 3) deter and detect errors, fraud and theft, 4) ensure accuracy and completeness of accounting data, 5) produce reliable and timely management and financial information, and 6) ensure adherence to policies and plans (Internal Control, 2010). Internal controls are not only used for risk management but are also used to control accounting, such as budgets as well as qualitative and quantitative controls. The controls include all processes used by managers to guarantee the organizational goals are accomplished and procedures are followed. Internal controls are established to help identify risks the company may face and also reduce the possibility or impact of risk. Portfolio Approach The portfolio approach is used by a company to share or manage risk, sometimes the risks are transferred to third parties. The portfolio approach focuses on risk characteristics for each obligation, an asset or liability manager will evaluate and combine the risks by type to achieve a balance between

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