Enterprise digital transformation and audit quality: Empirical evidence from annual reports of Chinese listed companies

Abstract This study explores how enterprise digital transformation affects audit quality. The results show that the relationship between enterprise digital transition and audit quality takes on a U‐shaped. Mechanism test results indicate that during the initial stages of digitization, the restrictive effect of auditor's professional competence mismatch predominates. Conversely, during the mature stages of digitization, the promotion effect of improved auditor's substantive independence predominates. Heterogeneity tests demonstrate that this U‐shaped relationship is significant primarily within the sample set of short audit tenure and state‐owned enterprises. The study reveals the internal mechanism of the impact of enterprise digital transition on audit quality, offering empirical evidence to comprehend the incremental dynamic effects of enterprise digitalization and mitigate potential adverse consequences throughout the transformation process.