The Impact of AS 3101 and CAMs on Audit Fees


  • Heather Wall
  • Andrea Ayala


Auditor's Reports have often been perceived as a necessity of compliance with little intrinsic value to a company. Beginning in 2019, the goal of Auditing Standard 3101 includes enhancing transparency about the audit process by including the disclosure of Critical Audit Matters (CAMs) in the Auditor's Report. Billed as one of the biggest changes to hit the Auditor's Report in over seventy years, CAMs are explanatory paragraphs about the audit process that relates to accounts or disclosures that are 1) material to the financial statements and 2) involved especially challenging, subjective, or complex auditor judgment. The hope is that CAM disclosure will provide clarity and powerful signals of the financial performance of companies. Does it come at an additional cost? We examine the cost of providing this information. Using established models, we investigate the impact of five categories of CAMs (Revenue Recognition, Allowance for Credit Accounts, Acquisitions, Liabilities & Goodwill) on Audit Fees. We find evidence that the number of CAMs included in an Audit Report is significantly associated with a higher Audit Fee. Throughout this process, we use several dependent variables to test the impact on the Audit Fees. Some of these variables were: Auditor size, Auditor Tenure, Revenue Size, and Assets. Multiple regression analyses were run to test if the CAM had an impact on the Audit Fee. Furthermore, we found these variables to be individually significant with the Audit Fee Model.