Justification for an Internal Control System Essay Example

Many organizations utilize either the insurance or portfolio approach to risk management in their business activities. However, some organizations recognize the advantages of implementing an internal control system, which is crucial for effective risk management procedures. The upcoming paragraphs will outline the insurance and portfolio approaches and underscore the benefits of adopting an internal control system as a more advantageous option.

There are two common approaches used with controls: the insurance approach and the portfolio approach. The insurance approach acknowledges the risk of business and highlights the importance of protecting investments. It considers purchasing insurance as a way to safeguard against loss. However, it is crucial to understand that insurance primarily functions as a tool for financing risks rather than managing them. In essence, this approach is more reactive, concentrating on reducing the impact of losses instead of proactively protecti