FEI Survey: Section 404 Costs Exceed Estimates
SARBANES-OXLEY COMPLIANCE COSTS EXCEED ESTIMATES
Companies Say Section 404 Improves Investor Confidence,
But Question Cost vs. Benefit;
Public companies have had to dig even deeper than previously estimated to pay the costs of complying with Section 404 of the Sarbanes-Oxley Act, according to a just-completed survey by Financial Executives International (FEI).
Companies' total costs for year one Section 404 compliance averaged $4.36 million, up 39 percent from the $3.14 million they expected to pay, based on FEI's earlier July 2004 cost survey. The increase stems largely from a 66 percent leap in external costs for consulting, software and other vendors and a 58 percent increase in the fees charged by external auditors.
With March 16 as the general deadline for public companies to complete an assessment of their internal controls over financial reporting, FEI recently surveyed 217 public companies with average revenues of $5 billion to gauge Section 404 compliance costs. Their total cost of compliance averaged $1.34 million for internal costs, $1.72 million for external costs and $1.30 million for auditor fees. The auditor fees are in addition to companies' financial statement audit fees, on average 57 percent higher.
FEI Member Write-in Comments re: Section 404 Adoption/Recommendations
Survey Detail Report Package (free to members, $99 to purchase for all others)
- Exhibit A -- Compares the results of the last 3 FEI surveys (January 2004, July 2004, March 2005)
- Exhibit B -- Breaks out March 2005 costs by SEC filing status
- Exhibit C -- Categorizes March 2005 results by company revenue
- Exhibit D – Company responses to potential Section 404 benefits
- Exhibit E -- Looks at expectations for “year 2” costs
- Exhibit F -- Scores what companies believe are worthwhile improvements
to Section 404