Smaller Firms Feel Sarbanes-Oxley Cost Pinch

July 3, 2003 ( - The perceived cost of compliance with the Sarbanes-Oxley Act of 2002 is split down the middle, with 56% of companies saying it was not very costly and 44% saying it was somewhat costly, according to a new survey.

Compliance cost estimates appear drawn along company size lines, with more executives at smaller companies – those with total revenues under $1 billion – perceiving compliance as costly than those at larger firms.  At smaller companies, more than half (58%) said compliance was costly, compared with just 38% of executives at companies with revenues exceeding $1 billion, according to PricewaterhouseCoopers Management Barometer as reported by SmartPros.

“How companies view the added administrative cost of complying with the new law appears to be a function of size and preparedness,” said Frank Brown, global leader of PricewaterhouseCoopers’ Assurance and Business Advisory Services. “Larger companies with a well-established corporate reporting infrastructure are better able to handle the added certification and disclosure requirements of the new law. For smaller companies, compliance has been more of a burden.”

More than three-quarters (76%) of the cost of Sarbanes-Oxley compliance is for added internal resources, and 24% for external assistance.  A majority of executives listed several aspects of compliance as being at least “somewhat costly,” including:

  • Documentation
  • Legal requirements;
  • Detailed policy development
  • Self-assessment
  • Attest requirements and certifications
  • Staff training.

Going forward:

  • 41% expect the cost of compliance will stay about the same in the second year as in the first year;
  • 37% anticipate an increase, and
  • 22% foresee a decrease. 

Overall, compliance costs are expected to rise by an average rate of 4.1%.  Product sector companies expect costs to rise 6.6%, while service businesses predict no change in costs.

Executives said the total costs for Sarbanes-Oxley control and compliance are expected to average 10.4% of their management controls budget over the next two years. However, a high proportion (42%) of survey respondents said they could not estimate the costs.