Analysis of Microsoft Corporation Governance

Running head: ANLYSIS OF MICROSOFT CORPORATION GOVERNANCE 0
Analysis of Microsoft Corporation Governance
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ANLYSIS OF MICROSOFT CORPORATION GOVERNANCE
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Corporate Governance and Internal Control
The objective of this report is to evaluate corporate governance and its close relationship with
risk management in an organization. The paper critically analyses Microsoft Company internal
controls and other corporate governance procedures. The paper discusses definition of corporate
governance and the association with risk management. The report then argues the importance of
internal controls and the requirements of regulations. A discussion of international corporate
governance regulations, the differences between countries and impact of these differences on
Microsoft Company follows. The report concludes by highlighting the findings on how
Microsoft Corporation has adopted rules and regulations to strengthen its corporate governance
procedures.
Corporate Governance and risk management
Corporate governance is the management of relationships between a company and its
stakeholders as interpreted from a stakeholder theory viewpoint. This a broad view and goes
beyond from the shareholder theory perspective which views corporate governance and
management of relationships between a company and its owners (Tricker, 2015). According to
the Cadbury report (1992), corporate governance is a structure by which a corporation is directed
or controlled (The Committee on the Financial Aspects of, 1992). Corporate governance has also
been defined as a set of mechanism both institutional and market-based which influences the
decision of making of a firm with a goal maximizing the value of capital providers to the firm. In
other words, corporate governance reduces the risk of the management acting against the interest
of shareholders or tries to solve the agency problems between management and owners of capital
(Shleifer & Vishny, 1997).

ANLYSIS OF MICROSOFT CORPORATION GOVERNANCE
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Whereas the corporate governance is concerned with assuring the providers of capital to the
firm that they can get a good return on their investment risk management is concerned about
minimizing probabilities of loss or failure. There is a relationship between the risk and return,
which is positive and hence corporate governance, and risk management both tries to protect the
interest of shareholders and other stakeholders by maintaining an acceptable risk limit to
minimize downward and at the sometimes maximizing upward return (Price, 2018).
Importance of internal control and the requirements of regulations
Internal control is any policy, behavior, procedures, and the task is taken by management
to enable effective and efficient response to any risk whether it is; operational, financial,
business, legal or any other risk that an organization may face (Brennan). The following are the
specific importance of internal control;
The internal control system is important in the management and mitigation of risks. The internal
control system assists management in the identification of possible risks, understanding of the
risks, measurement of risk and management of these risk to reduce the organization overall
exposure to risks. For example, internal controls help management in identification of areas with
high risk or weaknesses, and in doing so management is able to plan well on reducing the
likelihood of failures.
Internal control improves compliance of organization to the applicable regulatory and legal
framework. An internal control system ensures that all regulatory and legal requirements are
meet and hence reduces the legal risks associated with non-compliance. This also improves the
relationships between an organization and other stakeholders such as the government, regulatory
authorities, suppliers, customers among others.

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Internal controls facilitate effective external reporting. The internal controls mechanisms
significantly reduce the risk of material financial reporting misstatements. Moreover, the internal
controls provide assurance that the financial reports represent a true and fair view of a company
financial position and performance. Strong internal controls such as reconciliation of account
support the financial reporting by detecting any material misstatements.
A strong internal control system prevents and detects fraud and errors. Internal control aspects
such as secretion of duties, internal check, and audit reduce the possibility of fraud and errors,
the internal control ensures that any error in financial accounting is identified and corrected
while at the same time tries to detect any fraud. This internal control procedure increases
awareness among the involved parties that fraud and errors will be detected and hence
discourages any such behavior (Zhang, 2016).
Internal control systems assist an organization in developing corporate practices and culture. The
existence of a strong internal control system will shape the behavior of employee by encouraging
due diligence, care, and integrity. When this behavior is maintained for long periods, it develops
into a traditional practice and an organizational culture.
Good internal controls foster effective and efficient operations that reduce wastage (SVA
Certified Public Accountants). Effective internal controls ensure that operations are done in a
procedural way that is economical and effective. Effective operations ensure the quality of
products and services offered (Mahadeen, Al-Dmour, Obeidat, & Tarhini3, 2016).
Internal control systems also support management assertions and safeguard the asset and interest
of the firm (AICPA). For example, physical control such as an authorization ensures that assets
including important information are protected from misappropriation or access to unauthorized
persons.