The Effects of Enterprise Digital Transformation and Internal Control on Audit Fees in China

[Purpose] This study investigates the impact of corporate digital transformation on external audit fees and examines the moderating role of internal control in this relationship. [Methodology] Using data from Shanghai and Shenzhen A－share listed companies between 2013 and 2023, the study analyzes how digital transformation and internal control affect actual and abnormal audit fees. The digital transformation index is derived from keyword frequency analysis of corporate disclosures (CSMAR), while internal control is measured using evaluation scores from the DIB Internal Control and Risk Management database. Abnormal audit fees are calculated as the residuals from a fee estimation regression. [Findings] Digital transformation has a significant positive effect on both actual and abnormal audit fees, whereas internal control shows a significant negative effect. Furthermore, internal control significantly weakens the positive association between digital transformation and audit fees. [Implications] This study highlights the structural determinants of audit fees based on digital transformation and internal control. Firms can reduce audit fee burdens by improving internal control systems during digital transitions. Auditors should consider the digital maturity of firms in planning audits and determining fees, and enhance audit quality through digital audit tools.