The results of a survey conducted by Financial Executives International, a trade association, found that Section 404 compliance cost American corporations less in year three of adoption than in each of the previous two years.

The survey of 200 companies, which included 172 "accelerated filers" -- companies with market capitalizations above $75 million -- reported a total average cost for Section 404 compliance of $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, according to FEI President and CEO Michael P. Cangemi. He said total compliance costs have dropped about one-third (35 percent) since year one, largely attributed to increased efficiencies, a positive learning curve, and technical systems and software rollouts. However, he noted that 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 Cangemi. "We are hopeful that pending guidance from the SEC and PCAOB will further reduce 404 expenses," said Cangemi.

In year three of Section 404 compliance, accelerated filers reported a continued drop in both internal and external people hours. 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.

When asked whether the benefits of compliance with Section 404 have exceeded their costs, 78 percent said the costs have exceeded the benefits, down from 88 percent of those companies surveyed last year.

Among those who agreed that benefits have exceeded costs saw a slight increase -- 22 percent-- was more than last year's 15 percent. Sixty 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; and 34 percent agreed that compliance with Section 404 has helped prevent or detect fraud.

FEI polled 200 companies to gauge experiences in complying with Section 404. Responding companies have average revenues of $6.8 billion.