Two studies by law firm Foley & Lardner found that the average cost of being public for a company with annual revenues under $1 billion has increased $1.6 million through FY 2003 – or 130% – since the inception of SOX in 2001, SmartPros reported. For example, public companies surveyed said that their audit fees increased an average of 23% between FY 2002 and FY 2003.
Executives surveyed said Section 404 of Sarbanes-Oxley has had the most significant financial impact on their company, followed by the stepped-up cost of directors and officers (D&0) insurance. Shari Brown, vice chair of the White Collar Defense and Corporate Compliance Practice Group at Foley & Lardner, explained that directors now have more risk and responsibility and are held more accountable for their actions on the board.
“The rigor in terms of the director’s attention to detail … was not always what it should have been,” said Brown. “Today I think all directors really feel the scrutiny and the weight of the responsibility they have with respect to the company’s affairs, and they want their fees and compensation to reflect that risk.”
Following D&O insurance, public companies cite increased audit fees as having a significant financial hit on their company. Large-cap companies saw a 2003 increase of $959,000 compared to 2002, mid-cap companies reported a $120,000 hike, and small-cap companies reported an $89,000 jump.
Unfortunately, the past year, which was the first full year with the reforms in effect, has not given executives a better idea on the predictability of reform costs. Half of those surveyed (50%) disagreed that they are better able to predict costs associated with corporate governance reforms, while 39% agreed.
In a separate study, 60% of private companies said they have self-imposed accounting reforms. Some 83% of private companies consider the reforms “just right.”
Both studies were sent to CEOs, CFOs, general counsels, chief compliance officers, directors, board members, and other executives of public and private companies. A total of 115 surveys were returned by public companies, 30 by private companies.
The studies are available at http://www.foley.com/features/feature_detail.aspx?featureid=37 .