Litigation

An average company wasted $1.7 million on SOX 404 Compliance last year

By Tracy Coenen

Financial Executives International polled companies for the 7th year in a row to determine how much it costs to comply with Section 404 of the Sarbanes-Oxley Act. This year, they talked to 185 companies with average annual revenues of $4.7 billion.

The total average cost of compliance was $1.7 million in 2007. This is a decrease from the prior years.

The survey also asked “accelerated filers” (companies with market capitalization above $75 million) about their audit fees for 2007. The total audit fees for these companies averaged $3.6 million, up a bit from 2006.

Here are some other interesting figures:

• Companies averaged 11,100 internal people hours to comply with Section 404 in 2007. (What a waste!) Yet this was considered good because it was a 8.6% decrease from 2006.
• Companies averaged 1,244 external people hours to to comply with Section 404 in 2007. (More waste!) This was also considered good because it was a 13.7% decrease from 2006.

And companies apparently think that Section 404 is doing some good:

• 50.3% agreed that financial reports are more accurate; up from 46% in 2006.
• 56.0% agreed that financial reports are more reliable, up from 48% in 2006.
• 43.6% agreed that compliance with Section 404 has helped prevent or detect fraud; up from 34% in 2006.
• 69.1% agreed that compliance with Section 404 has resulted in more investor confidence in their financial reports, up from 60% in 2006.

Although you’ll see in my book, Essentials of Corporate Fraud, there is generally a disconnect between what the executives think about fraud and the reality of fraud. Executives think that what they’ve implemented is more effective than it is in reality.

Full post as published by The FRAUDfiles Blog on May 04, 2008 (boomark / email).