Justification for an Internal Control System
Juanita R. Martin
ACC/544
December 3, 2012
Robert J. Cornett

Justification for an Internal Control System
The internal control system plays an important part in a company’s management function. Internal controls keep a company from loss of assets while maintaining objectives, which helps keep the company on track with its mission. The controller’s role is to be a supportive mechanism in helping the management teams in their reporting and financial information. This paper will take a look at the insurance and portfolio approach as it relates to risk. It will also justify why an internal control system is needed to protect the company from further risks.
Insurance manages risk by pooling risks to minimize the cost of rare events to any one person. Insurance is very effective for risks with low likelihood and high impact, but it fails to work if the risk changes from low likelihood to extremely widespread. Insurance companies make educated guesses regarding the likelihood of paying out on the insurance policies they issue, which is called the level of risk. Companies purchase insurance not only to protect themselves, but to also reduce any out of pocket costs associated with that risk. Insurance is a good tool to have to prevent the unforeseen from damaging your company. For example, does the risk affect one division or does it affect the company as a whole. Insurance allows a way to put the risk on someone else other than the company itself. Insurance does not eliminate risk, it is usually transferred which helps reduce it.
Most company’s make sure they have coverage with a reliable insurance so they can be protected against all kinds of risks. However, these companies cannot be protected against all risks. Companies obtain insurance to protect them from flooding, accidents on the premises, fires, and from any