Analysis On The Impact Of Financing Regulations On The Audit Risk Of Real Estate Companies

The real estate industry is a pillar industry in the national economy,which not only provides a large number of employment opportunities,but also affects huge economic volume.The development model of the real estate industry determines that it has high requirements for cash flow management and great demand for financing channels.Therefore,the financing policy regulation of the real estate industry is an important guarantee for the steady growth of the national economy.The past two decades have witnessed the golden age of my country’s real estate industry,but at the same time,it has also brought about phenomena such as excessively high housing prices,overheated investment,and excessively high leverage ratios.In August 2020,the central bank and the China Banking and Insurance Regulatory Commission put forward the three red lines indicators for real estate companies,which will be fully implemented from January 1,2021.During the two years of implementation,the growth of interest-bearing liabilities in the real estate industry will be strictly limited.had a profound impact.Since August 2021,China Evergrande,Rongchuang,Country Garden,Vanke,Xiangsheng and other real estate companies have successively encountered debt storms,which caused a series of social and people’s livelihood issues such as stock prices plummeting and unfinished real estate projects.In order to rescue real estate companies and revive market confidence,policies such as the Sixteen Financial Measures have been introduced successively since November 2022.Measures such as supporting development loans for real estate companies and reasonable extension of existing loans have shown the effectiveness of real estate companies’ financing policies.Attitudes shift from restrictive to supportive.As the industry is affected by policy shocks,investors are eager to obtain valuable investment decision-making information,so they have stricter requirements for the content and information content of audit reports.Auditing,as an important external supervision mechanism,needs to accurately assess the risks brought about by the company’s operating conditions and financial conditions and deliver this information to investors in a timely manner.Therefore,when auditors carry out audit work in the real estate industry,whether they can accurately identify the specific impact of financing policies on business performance,decision-making behavior,and financial statements,and ensure audit quality by identifying and preventing audit risks has become an important proposition.In order to provide relief to real estate enterprises and revive market confidence,policies such as the "Sixteen Articles of Finance" have been introduced since November 2022,indicating that the attitude of real estate enterprise financing policy has shifted from restriction to support through measures such as supporting the development loan placement of real estate enterprises and reasonable extension of stock loans.This paper also attempts to analyze the impact of the liberalized financing policy on the auditor’s identification of audit risks.Based on this,the research question of this paper is posed: what is the impact of financing policies in the real estate industry on audit risk identification and response? This paper takes the modern audit risk model as the basis of research,and discusses the audit risk brought by the increased difficulty of financing for real estate enterprises from the perspective of CPAs by analyzing the specific case of audit of BRC by Shinewin CPA Firm,and extends from this case to the whole industry to provide ideas for the subsequent audit work.This paper firstly compares the current status of domestic and international research,including the impact of financing policies on enterprises,especially the literature on the real estate industry after the introduction of the three red lines financing policy,and the audit risks in the real estate industry,then analyzes and constructs the mechanism of the impact of financing policies on real estate enterprises from the theoretical level,and finally combines Finally,we analyze the impact of the three red lines and the subsequent relaxed financing policy on the audit risk and countermeasures with the case of BRC.The study finds that the risk of material misstatement at the financial statement level requires attention to the ability of real estate enterprises to continue as a going concern,changes in corporate strategy and internal operational governance issues,while the risk of material misstatement at the determination level requires attention to the cut-off and accuracy of revenue and the determination related to the closing measurement of inventory.For material misstatement risks at the financial statement level,CPAs can address them by reasonably assessing the going concern capability of the enterprise,communicating with management about the development strategy,and maintaining professional skepticism about the internal management activities of the enterprise.To address the risk of material misstatement at the determination level,CPAs can respond by devoting more audit resources to perform further audit procedures on high-risk accounts such as revenue and inventories,such as examining revenue contracts and understanding internal controls related to the estimation of net realizable value of inventories.Finally,some suggestions are offered for CPAs auditing the real estate industry.