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2274With the continuous development of China’s capital market, the quality of information disclosure by listed companies has gradually attracted attention from various sectors of society. The emergence of new economic forms and the proliferation of financial derivatives have led to the widespread adoption of off-balance-sheet financing methods, exerting a significant impact on investor decision-making, accounting information disclosure, and capital market risks. In recent years, accounting-standard setting bodies have taken active measures to bring more off-balance-sheet financing onto the balance sheet (off-balance-sheet financing internalization), which has significant implications for enterprises’ daily operations and financial decision-making, and poses significant challenges to auditing work.
Based on the implementation of the new leasing standards, this paper takes China’s A-share listed companies from 2019 to 2021 as the sample and examines the impact of off-balance-sheet financing internalization on audit fees. The results show that off-balance-sheet financing internalization will lead to an increase in audit fees. The conclusion remains valid after conducting a series of robustness tests. Further testing shows that this effect is more significant in SOEs and enterprises audited by the “Big Four” auditing firms. Mechanism testing shows that off-balance-sheet financing internalization will affect audit fees by affecting audit workload and audit risk, of which audit risk has a more substantial impact.
This paper enriches the relevant literature on the economic consequences of off-balance-sheet financing internalization and the determinants of audit fees. Meanwhile, investigating the impact of off-balance-sheet financing internalization on auditor pricing decisions helps to facilitate a comprehensive assessment of the economic implications from a micro-level perspective for both enterprises and auditing firms. As audit fees can be regarded as a cost of off-balance-sheet financing internalization, standard setters can use this to assess the actual effectiveness of on-balance-sheet financing internalization, thereby measuring the benefits and costs of changing disclosure methods.
