Internal Control Compliance Cost Could Top $35 Billion
The $35 billion pricetag is signifcantly higher than expected, with the Securities and Exchange Commission anticipating in 2003 that costs would average around $1.24 billion per year, with higher costs in initial years.
The SEC has already acted to suspend compliance for small- and medium-sized companies because of the higher costs.
"Smaller companies neither require, nor can they afford, the same level of investment in internal controls as larger companies," said Alex Davern, chief financial officer of National Instruments Corp. (NATI) and chairman of the group's Sarbanes-Oxley advisory committee. Implementation of the requirement "needs to be re-evaluated and modified to prevent permanent damage."
As part of the Sarbanes-Oxley Act, passed in 2002 to clean up corporate America after a rash of accounting scandals, Congress required companies to include internal controls over financial reporting information in their annual reports.
U.S. companies with market capitalization between $75 million and $700 million must begin including the internal control assessments in their annual reports, beginning with fiscal years that end on or after Dec. 30, Dow Jones reported. The requirements have caused a lot of extra work for chief financial officers, who are answering a barrage of questions from auditors.
AeA is calling for a preliminary report from the SEC's small-business advisory committee by May 1, rather than the expected date of January 2006. The advisory group is charged with providing advice about whether the requirements should be tailored to companies depending on size.
AeA also seeks a suspension of internal-control requirements for all companies with annual revenue of less than $1 billion until the U.S. audit oversight board provides guidance that will lower compliance costs, Dow Jones reported.
AeA has also proposed that companies be allowed to rotate the controls that are tested each year, instead of testing all the controls for business processes, from the reporting and checking of sales figures to the auditing of expense accounts, Dow Jones reported.