FEI Survey: Average 2007 SOX Compliance Cost $1.7 Million

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FEI Survey: Average 2007 SOX Compliance Cost $1.7 Million

4/30/2008
FEI Survey: Average 2007 SOX Compliance Cost $1.7 Million
-Audit Fees Show Slight Increase to $3.6 Million-
-More Companies See Benefit, Note Positive Changes to Audit-

PRNewswire
FLORHAM PARK, N.J.

FLORHAM PARK, N.J., April 30 /PRNewswire/ -- Financial Executives International (FEI) announced today the results of its seventh Sarbanes-Oxley compliance survey, which found that Section 404 compliance cost Corporate America less in year four of adoption than in each of the first three years. FEI polled 185 companies to gauge experiences in complying with Section 404. The responding companies had average annual revenues of $4.7 billion.

According to the FEI survey, which included 168 "accelerated filers" -- companies with market capitalizations above $75 million -- total average cost for Section 404 compliance was $1.7 million during fiscal year 2007. While a direct comparison cannot be made from 2006 costs, as the respondent pool varies year to year, the results show a continued decline in compliance costs. The survey also revealed that total audit fees for U.S. accelerated filers averaged $3.6 million, representing a slight (1.8%) increase from the previous year.

"As companies continue to find efficiencies in complying with Section 404 and make compliance part of a routine practice, we have seen a continued decline in costs," said FEI President and CEO Michael P. Cangemi. "While 404 auditor costs also declined 5.4% as the auditor scope of work narrowed, these costs were offset by a reported five percent increase in the average hourly audit rate charged by auditors."

  Lowering Costs
  Fewer Internal and Non-Auditor External Hours Indicate Less Time Spent on
  Compliance

In the fourth year of Section 404 compliance, accelerated filers managed to reduce costs within direct control of their companies, reporting drops in both internal and external people hours, and well as auditor attestation fees.

  -- Companies reported requiring an average of 11,100 people hours
     internally to comply with Section 404 in 2007, representing a decrease
     of 8.6% from the previous year.
  -- Companies reported requiring an average of 1,244 external people hours
     to comply with Section 404 in 2007, representing a decrease of 13.7%
     from the prior year of compliance.
  -- Auditor attestation fees paid by accelerated filers in 2007 constituted
     23.7% of the accelerated filer''s total annual audit fees and averaged
     $846,000, representing a 5.4% decrease from 2006.


  Centralized Operations More Cost-Effective

Similar to the previous year, the survey found that respondents with centralized operations had lower total costs of compliance in 2007 than did those respondents with decentralized operations.

  -- Total average 2007 compliance costs for companies with centralized
     operations were $1.3 million;
  -- Total average 2007 compliance costs for companies with decentralized
     operations were $1.9 million, 30.1 percent higher than for those with
     centralized operations.

"FEI has championed a number of suggested improvements to increase efficiency in Section 404 compliance, while maintaining effectiveness. The results from this survey demonstrate that, overall, auditors appear to be on course to achieve that goal," added Cangemi. "The majority of respondents reported Section 404 work, and work to prepare the annual audit is now more integrated, with auditors using a more risk-based approach to 404 adoption."

Some Increase in Confidence, but Sentiment Still Split

In year four of compliance, the survey showed that responding companies have increased confidence in the value of Section 404 over last year's respondents.

  -- 50.3% agreed that financial reports are more accurate; up from 46% in
     2006.
  -- 56.0% agreed that financial reports are more reliable, up from 48% in
     2006.
  -- 43.6% agreed that compliance with Section 404 has helped prevent or
     detect fraud; up from 34% in 2006.
  -- 69.1% agreed that compliance with Section 404 has resulted in more
     investor confidence in their financial reports, up from 60% in 2006.

Respondents also noted improvements in their 2007 audit for a number of areas related to Section 404:

  -- 71.3 % reported more integration of Section 404 and the financial
     statement audit
  -- 69.8% reported more auditor use of a risk-based approach to Section 404
     audits
  -- 68.5% reported that less key controls were identified
  -- 58.4% reported increased use of judgment by auditors (vs. "check the
     box" approach)
  -- 68.5% reported greater auditor reliance on the work of others

The full survey results, including costs by company size, historical cost comparisons and an executive summary are available for $99.00 at http://www.ferf.org/bookstore. For reprints and content licensing, contact Cheryl Graziano at 973-765-1064 or cgraziano@financialexecutives.org.

About Sarbanes-Oxley Section 404

Section 404 requires each company's annual report to contain (1) a statement of management's responsibility for establishing and maintaining an adequate internal control structure and procedures for financial reporting; and (2) management's assessment, as of the end of the company's more recent fiscal year, of the effectiveness of the company's internal control structure and procedures for financial reporting. Section 404 also requires the company's auditor to attest to and report on management's assessment of the effectiveness of the company's internal controls and procedures for financial reporting.

About Financial Executives International (FEI)

Financial Executives International is the leading advocate for the views of corporate financial management. Its 15,000 members hold policy-making positions as chief financial officers, treasurers and controllers at companies from every major industry. FEI enhances member professional development through peer networking, career management services, conferences, teleconferences and publications. Members participate in the activities of 85 chapters, 74 in the U.S. and 11 in Canada. FEI is headquartered in Florham Park, NJ, with additional offices in Washington, DC, and Toronto. Visit http://www.financialexecutives.org/ for more information.

Financial Executives Research Foundation, Inc. (FERF) is the non-profit 501(c)3 research affiliate of Financial Executives International (FEI). FERF researchers identify key financial issues and develop impartial, timely research reports for FEI members and nonmembers alike, in a variety of publication formats. The Foundation relies primarily on voluntary tax-deductible contributions from corporations and individuals.

SOURCE: Financial Executives International

CONTACT: Nicole Madison, FD, +1-212-850-5647, Nicole.Madison@fd.com, for
Financial Executives International

Web site: http://www.financialexecutives.org/