According to the 238 accelerated filers’ polled by FEI, total average cost for Section 404 compliance was $3.8 million during fiscal year 2005, down 16.3% from 2004. FEI said in a news release that the data shows many of the cost reductions can be attributed to lower staff and consultant time and reduced auditor fees.
Internal staff time decreased 11.8%, while external costs, including software and consultant fees, but excluding primary auditor fees, fell 22.7%, the release said. Auditor attestation fees dropped 13%.
In spite of the reduction in costs, 85% of survey respondents say the benefits of 404 compliance have not exceeded the costs. Larger companies viewed the benefits of compliance more favorably than smaller companies.
Positive views of the benefits of compliance the survey found included:
- 56% agreed that compliance with Section 404 has resulted in greater investor confidence in financial reports. Among large companies with more than $25 billion in revenue, 83% agreed.
- 44% agreed that financial reports are more reliable.
- 38% agreed that financial reports are more accurate.
- 33% agreed that compliance with Section 404 has helped prevent or detect fraud.
Companies surveyed agreed with the following recommendations for making 404 compliance more efficient or effective:
- Reduce the degree of documentation (67%),
- Permit greater reliance on internal audit data and resources (66%),
- Clarify the definition of “key controls” (55%),
- Permit roll-forward procedures (58%), and
- Allow cumulative reliance on year one testing and documentation (53%).
The full survey results and an executive summary are available for purchase at www.fei.org .