FLORHAM PARK, N.J., May 16 /PRNewswire/ -- Financial Executives
International (FEI) announced today the results of its sixth Sarbanes-Oxley
compliance survey, which found that Section 404 compliance cost Corporate
America less in year three of adoption than in each of the first two years.
FEI polled 200 companies to gauge experiences in complying with Section
404. Responding companies have average revenues of $6.8 billion.
According to the FEI survey, which included 172 "accelerated filers" --
companies with market capitalizations above $75 million -- total average
cost for Section 404 compliance was $2.9 million during fiscal year 2006,
which represents a 23 percent decrease from 2005 totals. The data also
shows reductions in internal and external costs of compliance, with
internal staff time decreasing by 10 percent. The lower costs can be
attributed to companies' increased efficiencies in complying with Section
404.
"Efficiency gains are being realized in Section 404 compliance;
however, audit fees are virtually unchanged. Companies have driven down
compliance expenses by getting beyond the initial start-up, and now await
relief from the added audit costs of Section 404," said FEI President and
CEO Michael P. Cangemi. "While there is still work to be done, we have come
a long way, and total compliance costs have dropped about one-third (35
percent) since year one. This drop is largely attributed to increased
efficiencies, a positive learning curve, and technical systems and software
rollouts. We are hopeful that pending guidance from the SEC and PCAOB will
further reduce 404 expenses."
Lowering of Costs
Fewer Internal and Non-Auditor External Hours
In year three of Section 404 compliance, accelerated filers reported a
continued drop in both internal and external people hours. Notably, while
companies have achieved double-digit decreases in both internal and
external hours (other than external auditor) spent on Section 404
compliance, auditor attestation fees have remained flat.
-- Companies said that they required an average of 18,070 people hours
internally to comply with Section 404 in 2006, a 10 percent decrease
from the previous year.
-- Companies said that they required an average of 3,382 external people
hours (other than external auditor) to comply with Section 404 in 2006,
a 14 percent drop from the year before.
-- Auditor attestation fees for Section 404, paid in addition to annual
financial statement audit fees by accelerated filers, averaged $1.2
million in 2006, only slightly less (0.8 percent) than in 2005.
Centralized Operations More Cost-Effective
As expected, the survey found that respondents with centralized
operations had significantly lower total costs of compliance in 2006 than
did those respondents with decentralized operations.
-- Total average 2006 compliance costs for companies with centralized
operations were $1.7 million;
-- Total average 2006 compliance costs for companies with decentralized
operations were $4.0 million, 58 percent higher than for those with
centralized operations.
Seeing the Value
"The survey revealed that financial executives agree that compliance
with Section 404 raises investor confidence, but does so at a significant
price, with three-quarters saying the costs still exceed the benefits,"
continued Mr. Cangemi.
For each benefit, the survey revealed a direct correlation between the
benefit and the size of the company, with a greater percentage of larger
companies on average agreeing with the value of the benefit.
-- When asked whether the benefits of compliance with Section 404 have
exceeded their costs, 22 percent, on average, agreed, with 78 percent
saying instead that the costs have exceeded the benefits.
-- The number of respondents agreeing that benefits have exceeded costs
saw a slight increase from last year's 15 percent.
-- 60 percent of accelerated filer companies agreed that compliance with
Section 404 has resulted in more investor confidence in their financial
reports.
-- 46 percent agreed that financial reports are more accurate.
-- 48 percent agreed that financial reports are more reliable.
-- 34 percent agreed that compliance with Section 404 has helped prevent
or detect fraud.
The full survey results, including costs by company size, historical
cost comparisons and an executive summary are available for $99 at
http://www.fei.org/404survey. For reprints and content licensing, contact Janet
Russell at 973.765.1000 or jrussell@fei.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 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 management services, conferences, teleconferences and
publications. Members participate in the activities of 85 chapters, 74 in
the U.S., 11 in Canada.
Financial Executives Research Foundation (FERF) is the non-profit
501(c)(3) research affiliate of FEI. FERF researchers identify key
financial issues and develop impartial, timely research reports to FEI
members and non-members alike, in a variety of publication formats.
For more information, visit http://www.fei.org.
SOURCE Financial Executives International
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Related links:
http://www.fei.org/
CONTACT:
Kristen Crofoot, FD, +1-212-850-5692,
kristen.crofoot@fd.com; Nicole Madison, FD, +1-212-850-5647,
nicole.madison@fd.com; Chris Allen, FEI, +1-973-765-1058,
callen@fei.org
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