Question

A best practice for internal controls is to include which of the following in an organization's investment policy?

A) Providing minimal detail to avoid confusion

B) Excluding guidelines for risk management

C) Establishing a single individual as the sole decision-maker

D) Setting clear investment objectives and risk tolerance levels

Answer 1

The best practice for an organization's investment policy is to set clear investment objectives and risk tolerance levels, ensuring a common understanding and effective risk management.

Step-by-step explanation:

A best practice for internal controls in an organization's investment policy is to include setting clear investment objectives and risk tolerance levels. This approach ensures that all stakeholders have a common understanding of what the organization aims to achieve with its investments and what level of risk is acceptable. Providing minimal detail may lead to confusion and misunderstandings, excluding guidelines for risk management would be irresponsible, and establishing a single individual as the sole decision-maker increases conformity costs and does not leverage the collective expertise of a group. Effective investment policies are characterized by clear objectives, risk management strategies, and balanced decision-making processes that may involve a committee or group to distribute responsibility and benefit from diverse perspectives.