Risk Exposed, Fees Adjusted: Family Firms and Audit Fees after Expanding Audit Reporting

This study examines how external governance mechanisms, specifically expanded audit reporting, reshape auditors’ perceptions of risk in family firms by enhancing to their understanding of family governance, and in turn influence audit pricing. Family firms have traditionally incurred lower audit fees, often attributed to stewardship-oriented governance, ownership–management alignment, and long-term orientation. However, the introduction of expanded audit reports (EARs), which mandate the public disclosure of key audit matters (KAMs), increases transparency around audit risk and places auditors’ judgments under heightened public scrutiny. We investigate how this shift interacts with internal governance features of family firms, particularly the presence of a family CEO. Using data from both the pre- and post-EAR periods, we document three key findings. First, family firms experience a relative increase in audit fees following the adoption of EARs, indicating that the traditional audit fee discount is not robust to increased transparency. Second, this fee increase is especially pronounced when auditors disclose entity-level KAMs that signal engagement-wide risk and governance complexity. Third, the presence of a family CEO amplifies this relationship: family firms with both a family CEO and entity-level KAMs exhibit the largest audit fee increases. These findings underscore the role of auditors as external governance intermediaries and highlight how regulatory transparency reshapes risk assessment and pricing decisions in family-controlled firms.