Research On The Internal Control Quality And Its Economic Consequences From The Risk Management Framework

Since entering the era of commercial housing,China's real estate industry has developed into a pillar industry of the national economy from the golden decade,the silver decade to the gold-plated era.Although the low urbanization rate and people's growing need for a better life support the rapid development of China's real estate industry,in the long run,the real estate market will enter a new era of intensified competition,accelerated renewal and decreased profit with the slowdown of economic growth.The multiple pressures of economic downturn,intensified competition,regulations control,and stringent external supervision put forward high requirements for the real estate industry to prepare for internal and external risks.However,Research Report on Internal Control Index of Chinese Listed Companies in 2016 showed that the overall internal control(IC)of China's real estate industry was relatively low,and the ability to response to external and internal risks was relatively weak.Therefore,it is very important for real estate enterprises to construct and improve the IC system.The real estate enterprises should attach importance to the construction of IC,improve the IC system,get early warning of risks by scientific and efficient management means,and achieve sustainable growth of enterprise value.NE PROPERTY GROUP Co.,Ltd.,as a large non-state holding real estate company listed on the A-share mainboard of Shenzhen Stock Exchange,actively responded to the call for the construction of IC system.NE successively issued the Work Programme for the Implementation of Internal Control and its adjustment plans in 2012.Up to now,NE's IC has been implemented for six years,and its internal control quality(ICQ)and related economic consequences were worth exploring.Based on the research results at home and abroad,relying on the Basic Norms of Internal Control and its supporting guidelines and the related IC system of NE,this study carried out the research on the ICQ and its economic consequences from the perspective of risk management.First,this study consulted a large number of domestic and foreign literatures,combed the development history,research status and theoretical basis of IC,and provided theoretical support for the case study in the following part.Second,this study described the basic situation and IC status of NE,and formed a clear understanding of this enterprise.Third,this study established the ICQ evaluation indicators based on risk management framework.And combined the IC index of DIBO,the basic model of comprehensive evaluation of IC was used to get the results of comprehensive evaluation of ICQ,which provided the possibility of exploring the relationship between ICQ and its economic consequences.Forth,this study explored the relationship between ICQ and its economic consequences by using financial analysis and trend analysis,which expanded the relevant research of IC.In evaluating NE's ICQ,this study concluded that the design and implementation of NE's IC has been continuously optimized since 2012.However,the degree of realization of IC objectives should be further improved,and the transformation of the implementation effect of IC should be strengthened.In exploring the relationship between ICQ and its economic consequences,this study found as follows: Firstly,in terms of internal economic consequences,NE's ICQ was in complete synchronization with the risk prevention ability,the transparency of clean government,the management ability(eliminating the influencing factor of strategic development)and the accounting information quality.The improvement of IC had a promoting effect on the avoidance and recovery of economic losses,the containment of bribery,the control of inventory and administration expenses,and the regulation of provision for impairment of inventory and its return.Secondly,in terms of external economic consequences,the reverse linkage between the modified cost of debt capital and the ICQ was sensitive,with no lag effect.The reverse linkage between the cost of equity capital and the ICQ showed one year lag.Both debt cost and equity cost could accurately reflect the potential impact of abnormal events.Thirdly,the positive change of enterprise value and ICQ lagged one year.The improvement of ICQ was helpful to improve enterprise value.Moreover,Tobin Q could accurately reflect the potential impact of abnormal events.Finally,according to the actual situation of NE and the research results above,this study put forward some suggestions in order to contribute a little to the construction and improvement of NE's IC,such as to perfect system construction continuously,to strength the transformation of IC effect,to strength the disclosure of relevant information,and to use IC to manage and control costs.