To calculate the increase in costs, FEI compared the results of the recent survey to one taken in January. Both surveys were based on 224 public companies with average revenues of $2.5 billion. In January, expected cost of compliance for these firms was $1.93 million, compared to $3.14 million in the most recent survey.
Along with a 109% rise in internal costs and 42% jump in external costs, there was a 40% rise in fees charged by external auditors. “When we conducted our January survey, audit firms hadn’t yet provided their clients with complete estimates for Section 404 work because the auditing standards had not been finalized,” said Colleen Sayther, President and CEO of FEI, in a press release. “Now that the standards are finalized and implementation efforts are further along, compliance costs can be more accurately determined.”
The rise in internal and external costs, FEI stated, was due to an increased amount of work-hours needed to be Section 404 compliant. Public companies expect to spend an average of 25,667 internal hours (vs. 12,265 estimated in six months ago) and 5,037 external hours (vs. 3,059) on compliance. On top of this, public companies also expect to spend an additional $1,037,100 on IT consulting and software.
Section 404 of the Sarbanes-Oxley Act was created with the intent of improving corporate governance and financial reporting effectiveness following the accounting scandals of a few years ago. “However,” Sayther insists, “compliance alone cannot be expected to produce higher levels of accountability or deter those from acting without integrity. That responsibility remains in the hands of senior management entrusted to set a proper tone at the top and act in the best interests of shareholders.”
The survey is online at http://www.fei.org/news/404_july.cfm