Section 404 Could Cost Big Companies $4.6 Million, or More
FLORHAM PARK, N.J., Feb. 10 /PRNewswire/ -- Total costs of first-year
compliance with Section 404 of the Sarbanes-Oxley Act could exceed $4.6
million for each of the largest U.S. companies, according to a survey of 321
companies by Financial Executives International (FEI). The added costs are
driven by a projected investment of 35,000 hours of internal manpower, $1.3
million in spending on external consulting and software, and additional audit
fees of $1.5 million (a jump of 35 percent). FEI is the leading professional
organization serving chief financial officers (CFOs) and other senior
financial executives. Complete results of the survey are available at the FEI
website: http://www.fei.org.
The average cost-of-compliance estimate for all companies in the survey --
where 20 percent of the respondents were from companies with more than
$5 billion in annual revenue, compared to 3.3 percent in the under $25 million
category-was just under $2 million for roughly 12,000 hours of internal work
and 3,000 hours of external work, plus additional auditor fees of $590,000, or
a rise of 38 percent. The compliance effort is significantly larger than
estimated in an earlier FEI survey. A smaller survey of 83 companies conducted
in May 2003 suggested the average company expected the effort to consume 6,000
hours in total for internal, external and attestation time, and projected a
rise in audit fees of 35 percent.
The average respondent expected to spend the most on external costs, which
may be good news for software vendors and consultants.
"It stands to reason that larger, more complex companies will incur higher
costs for implementing the internal control-related provisions of Section 404,
but even for small companies the estimates are almost equally significant in
proportion to revenue," said Colleen Sayther, President and CEO of FEI. "Only
time will tell how this first-year cost will compare to the benefit for
shareholders."
On the sharp rise in audit fees, Sayther cautions, "Until final rules are
adopted for Section 404 by the PCAOB and the SEC, companies and auditors can
only estimate what the jump in audit fees will be. Ultimately the fees could
amount to be much higher."
On average, companies expect to document processes at 80 percent of their
locations. Across the board, companies expect the documentation to cover
roughly 92 percent of their total revenues. Companies on average expect their
auditor to test 57 percent of their documented processes, with the exception
of the smallest companies, which expect the percentage of processes tested to
be 42 percent.
According to the survey, 25 percent of respondents have already deployed
their permanent solution for Section 404 compliance, while another 52 percent
expect to do so in 2004. Ten percent plan deployment after 2004, while 14
percent have no specific plans to implement a solution tool at this time.
Requirements of Section 404
Section 404 of Sarbanes-Oxley requires each annual report of a company 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 most 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, in accordance with standards established
by the Public Company Accounting Oversight Board (PCAOB).
About FEI
Financial Executives International (FEI) 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.
FEI enhances member professional development through peer networking, career
planning services, conferences, publications, and special reports and
research. Members participate in the activities of 86 chapters, 75 of which
are in the United States and 11 in Canada. For more information about FEI,
visit http://www.fei.org.
Contact:
Scott Sunshine/Ed Sweeney Chris Allen
TowersGroup FEI
(212) 354-5020 (973) 765-1058
scottsunshine@towerspr.com callen@fei.org
edwardsweeney@towerspr.com
SOURCE Financial Executives International
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Related links:
http://www.fei.org
Company News On-Call:
http://www.prnewswire.com/comp/310650.html
CONTACT:
Scott Sunshine, scottsunshine@towerspr.com,
or Ed Sweeney, edwardsweeney@towerspr.com, both of TowersGroup,
+1-212-354-5020, or Chris Allen of FEI, +1-973-765-1058,
callen@fei.org
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