Driven in part by costs associated with Sarbanes-Oxley compliance, Fortune 1000 firms have paid more than $3.6 billion for their 2004 audits, up from $2.2 billion in 2003, according to a report by accounting professors at the University of Nebraska-Omaha.
As of April 27, an analysis of 633 Fortune 1000 companies showed that their auditing costs have increased by $1.4 billion collectively so far, UNO College of Business Administration accounting faculty members Susan Eldridge and Burch Kealey reported.
Following the companies' first SOX-required internal control audits in 2004, Eldridge and Kealey reported that the average audit fee increased almost $2.2 million. Their analysis noted that that figure is significantly higher than early SOX implementation cost estimates offered by the Securities and Exchange Commission, which had suggested that companies would face an additional $91,000 in costs to meet the new internal controls requirements of SOX, excluding internal control audit fees.
However, Kealey said that not all of the increases are directly attributable to SOX compliance. For example, audit fees for Cabela's, a Sidney, Neb.-based outdoor outfitter, increased from around $177,000 in 2003 to more than $1.3 million in 2004. While Cabela's doesn't directly disclose its SOX audit fees, it indicates in its annual report that it paid auditors $935,000 for services associated with its initial public offering in 2004. Even after factoring in that amount, Cabela's saw audit fees increase by more than 140 percent, while its assets increased by one-third and net income increased by more than 20 percent.
The professors noted that their analysis was limited by an inability to clearly identify what portion of the audit fee increase is due to the SOX internal control audit fees. "We had hoped to find most companies providing disclosures of those SOX audit costs, but only slightly more than 10 percent of the companies actually reported the portion of their 2004 audit fee that was attributable to the new internal control audit requirement," said Eldridge.
For the 71 companies that did report actual internal control audit fees, those fees averaged $2.6 million, Eldridge said. Those firms also had average total audit fee increases of $2.6 million, indicating that for these firms, their entire audit fee increase was due to the new SOX internal control audits, according to Eldridge.
Key industries had the following audit fee increases:
- Drug companies, up 90 percent;
- Banks, up 65 percent;
- Utilities, up 105 percent;
- Insurance, up 72 percent;
- Energy, up 100 percent; and,
- Retail, up 180 percent.
Of the 633 Fortune 1000 companies analyzed, 12 had audit fee increases of more than $10 million. General Electric's audit fees increased by $22.9 million, the largest dollar increase reported -- a 41 percent increase, while Bristol Myers Squibb saw the largest percentage increase in audit fees, of more than 140 percent. Audit fees for Ford Motor Co. rose 62 percent, from $25.3 million to $40.9 million. Boeing's audit fees jumped 90 percent, from $16.3 million to $30.9 million, while Honeywell International Inc.'s fees rose 82 percent, from 14.2 million in 2003 to $25.9 million in 2004.
Only 11 of the 633 companies had audit fee decreases, and one reported no change as compared to the amounts paid in 2003, according to the report.
