In this paper we use a difference-in-differences research method to examine the impact of government audits on the cost variability of state-owned enterprises. Empirical evidence shows that, after the implementation of government audits, the cost variability of listed companies controlled by audited state-owned enterprises significantly increases, indicating that the implementation of government audits raises the risk awareness of management. Heterogeneity analysis shows that the effect of government audits on cost variability is mainly present in samples with higher operational risks and a cost-leadership strategy, which confirms the intermediate effect channel through which government audits strengthen management’s risk awareness. Further research shows that the impact of government audits on enterprise operational risks mainly occurs in samples with more cost variability, and a three-step mechanism test also shows that cost variability is part of the mediating mechanism by which government audits reduce risks of state-owned enterprises. This study enriches the relevant literature on the impact of government audits on operational risks of state-owned enterprises, and it provides empirical support for the view that government audits promote high-quality development of state-owned enterprises.