Abstract:   Internet reform has a dual effect on increasing operational risks and mitigating informational risks, both of which are crucial factors influencing audit fees. This paper theoretically analyzed the impact of Internet reform on audit fees, and empirically tested it by using a sample of the Chinese listed companies from 2011 to 2020. We found that: (1) Higher levels of Internet reform significantly increase corporate audit fees overall. (2) A mediating mechanism whereby the Internet increases audit fees by raising operational risk is significant, while the mediating mechanism of reducing audit fees through mitigating informational risk is not significant. This explains why the Internet tends to increase rather than decrease audit fees. (3) Firms with higher internal control quality and accounting firms with stronger auditing capabilities can suppress the negative effect of the Internet on increasing operational risk while enhancing its positive effect on reducing informational risk. Consequently, the negative impact of the Internet on increasing audit fees is relatively lower for firms with high-quality internal controls and for those audited by accounting firms with strong auditing capabilities. This study has integrated the macro-level Internet technological environment with microlevel audit fee decision-making, thus offering new insights into the economic consequences of Internet technology and the determinants of audit fees.

Key words: Internet, audit fee, operation risk, information risk, internal control, audit capability