Case Study on Identification and Management of Internal Control Defects in Listed Companies

Abstract

The 2024 case of financial fraud involving Evergrande Group has exposed the symbiotic risks arising from systemic failures in listed companies’ internal control systems and the lack of independence in third-party audits. Such incidents not only trigger a crisis of confidence in capital markets but also highlight the limitations of traditional qualitative evaluation methods and the growing trend toward formalism in internal control frameworks. Based on the COSO framework, this study employs the Analytic Hierarchy Process to construct a three-level quantitative indicator system covering the five key components. Taking Evergrande Group as a typical case, the study conducts an in-depth analysis of its financial control deficiencies, inadequate risk assessments, ineffective internal oversight, and issues related to information disclosure, and calculates a comprehensive defect index for quantitative evaluation. The study finds that the root causes of Evergrande Group’s internal control defects lie in the imbalance of its governance structure, the excessive concentration of power among actual controllers, the fundamental conflict between its aggressive expansion strategy and internal control requirements, and a corporate culture overly focused on short-term performance. On this basis, the study proposes recommendations for adjusting key areas and standards of internal control within the real estate industry, outlines a risk-warning mechanism for highly leveraged enterprises, and suggests a design approach for establishing mechanisms to balance the power of actual controllers—providing practical guidance for preventing and addressing internal control deficiencies in listed companies.