VAT Self-Enforcement Attribute and Audit Fees——Evidence based on the reform of"replacing business tax with VAT"
Under the system of input tax deduction and value-added tax(VAT)invoicing system,VAT invoices and the counterparties'ledger entries in transactions become third-party transaction information for regulators.This endows the VAT with a self-enforcement attribute,capable of influencing audit costs.On the one hand,the self-enforcement attribute of VAT can directly affect audit risks from the perspective of enhancing the quality of accounting information.On the other hand,the consistency of financial records between upstream and downstream firms is strengthened,thereby reducing the difficulty for auditors in identifying financial fraud and addressing potential issues in audited firms.Taking the opportunity of China's"VAT reform",this paper manually compiles relevant information on suppliers/customers of listed companies and employs a DID model to examine the spillover effects of the VAT self-enforcement mechanism on audit costs.The study focuses on firms that have consistently paid VAT themselves but whose customers or suppliers paid business tax before the"VAT reform"(treated group).Empirical evidence indicates that,as the customers or suppliers of the treated group transition from paying business tax to paying VAT,the audit costs of the treated group firms significantly decrease.This effect is more pronounced in firms with tighter upstream-downstream relationships,higher business complexity,and those not sharing auditors between upstream and downstream entities.
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