Complying with Section 404 of the Sarbanes-Oxley Act will cost public companies an average of 35% more in audit fees, according to a recent survey of companies by Financial Executives International (FEI). 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 web site: http://www.fei.org/news/404CostSurvey.xls.
During the week of May 19-23, FEI surveyed 83 of its members at public companies with average revenues of $3.3 billion. Fifty of the members surveyed represented companies listed on the New York Stock Exchange, with the remaining companies trading on either NASDAQ or the American Stock Exchange.
Looking to the man-hours needed to be Section 404-compliant, responses ranged widely, from 80 hours to 65,000 hours. On average, public companies expect to spend more than 6,000 hours (including internal resources, external resources and attestation time) and an additional $480,000 in software and IT consulting on Section 404 compliance.
"Strong internal controls are a hallmark of a well-managed company and an essential component of a sound corporate governance structure within the company," said Colleen Sayther, President and CEO of FEI. "Hopefully, the documentation required by Section 404 leads to stronger internal control systems across companies, and not inefficient use of corporate resources."
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).