Report Estimates New Costs of SOX Compliance

A new report finds the cost of compliance with Sarbanes-Oxley Section 404 internal control audit requirements for smaller public companies is actually about 14 percent lower than the Securities and Exchange Commission's original estimates.

The SEC had initially predicted a cost of $91,000 for all public companies. However, a report by research company Lord & Benoit estimates that the average costs for smaller public companies are closer to $78,474.

The average cost of complying with just Section 404(a)'s requirement for the management assessment is estimated at $53,724 for non-accelerated filers. However, costs can range from $15,000 for a smaller software company to as high as $162,000 for a complex company.

For just Section 404(b)'s requirements for an auditor attestation of internal controls, the average is $24,750. Nevertheless, the fees could range from $7,517 to $86,417, according to Lord & Benoit.

SEC Chairman Christopher Cox recently said in a hearing before the House Committee on Small Business that he was considering delaying the auditor attestation requirement of Section 404(b) for non-accelerated filers to years ending after Dec. 15, 2009, in order to gather more information about the costs of compliance.

Bob Benoit, president and director of SOX research at Lord & Benoit and a member of the COSO Monitoring Project Task Force, believes the research may come as a surprise to some congressional leaders who have questioned the costs of SOX 404 compliance for smaller companies.

"They were seemingly under the impression that the costs were way in excess of $91,000," he said. "It may provide some clarity that if SOX 404 is done with the new SEC guidance, that the engagements can be rightsized to an entity and become cost effective yet comprehensive at the same time."

He acknowledged that the costs could still be higher than $91,000 for some companies, however. "Entities that have several locations with several people signing checks, several inventory calculation techniques and decentralized bureaus can expect that their SOX costs will be higher," he said.

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