In June 2007, the PCAOB issued Auditing Standard No. 5 (AS5), superseding Auditing Standard No. 2 (AS2). AS5 significantly changed the rules relating to audits of internal control over financial reporting (ICFR). Policymakers expected AS5 to lead to improvements in audit efficiency and thus a general reduction in audit costs, and specifically a reduction in fees for smaller and less complex companies that were disproportionately affected by AS2. We investigate the impact of the change from AS2 to AS5 on audit fees. We restrict our analysis to stable client-auditor combinations to ensure that auditors had prior AS2 experience with the client before the transition to AS5. We find that, after controlling for other factors, audit fees were lower in the first two years of implementation of AS5 relative to the last year of AS2. The decrease in fees was the highest for companies that had remediated material weaknesses in their internal control and thus moved from an adverse opinion under AS2 to a clean opinion under AS5. Further, firms that received first-time adverse opinions on their internal control in the AS5 period paid lower fee premiums (relative to firms with clean opinions) than did firms with adverse reports in the last AS2 year. Finally, in contrast to policymakers' expectations that AS5 would generate cost savings by allowing the ICFR audits to be “scaled” for small and less complex firms, there is no evidence that the smallest firms benefited. Specifically, audit fee savings were found only for relatively more complex firms (measured by multiple segments and international operations).