FLORHAM PARK, N.J., Aug. 11 /PRNewswire/ -- Complying with Section 404 of
The Sarbanes-Oxley Act will cost public companies an average 62 percent more
than previously anticipated, according to a recent survey by Financial
Executives International (FEI), the leading professional organization serving
Chief Financial Officers (CFOs) and other senior financial executives. The
increase in Section 404 compliance costs stems from a 109 percent rise in
internal costs, a 42 percent jump in external costs and a 40 percent increase
in the fees charged by external auditors.
In July 2004, FEI surveyed 224 public companies with average revenues of
$2.5 billion to gauge Section 404 compliance cost estimates. Results showed
the total cost of compliance is now estimated at $3.14 million*, or 62% more
than the $1.93 million estimate identified in FEI's January 2004 survey. The
companies surveyed expect to pay their auditors $823,200 in fees for
attestation of their internal controls, in addition to the annual audit fees.
This compares to the $590,100 companies expected auditors would charge for
attestation in January 2004. The survey was conducted the week of July 19,
and distributed to 3,088 companies, and drew a response rate of 13.8 percent.
"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. "Now that the standards are finalized and implementation
efforts are further along, compliance costs can be more accurately
determined."
As part of management's attestation process, the survey showed that
companies are documenting internal controls for 92% of total revenue.
The estimates on the cost of complying with Section 404, in terms of hours
and dollars, have steadily risen over the last six months. Looking to the
employee hours needed to be Section 404 compliant, public companies expect to
spend an average of 25,667 internal hours (vs. 12,265 estimated in January)
and 5,037 external hours (vs. 3,059). Companies also expect to spend an
additional $1,037,100 on software and IT consulting.
"Audit firms have been entrusted to deliver value from Section 404," adds
FEI's Sayther. "They have latitude in terms of the scope and depth of their
work and should exercise care and judgment, and be cognizant of the
cost-to-benefit ratio. However, 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."
Section 404 of Sarbanes-Oxley 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 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 PCAOB (Public Company Accounting Oversight Board).
About FEI
Financial Executives International (FEI) is the leading advocate for the
views of corporate financial management. Its 15,400 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 .
* FEI calculated the dollar amount by adding the cost of the attestation
fee, the external technology cost and the internal cost, which assumes
full-time professionals (at 2,000 hours per year) at a compensation rate
(salary plus benefits) of $100,000 per year per individual.
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, for Financial Executives International; or Chris
Allen of Financial Executives International, +1-973-765-1058,
callen@fei.org
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