The cost of compliance associated with Section 404 of the Sarbanes-Oxley Act are expected to drop significantly for some companies, according to a report commissioned by the Big Four audit firms.

Total 404 compliance costs may drop as much as 46 percent for some Fortune 1000 companies, according to a letter sent by KPMG, Deloitte, PricewaterhouseCoopers and Ernst & Young to Securities and Exchange Commission secretary Jonathan Katz this week.

"The firms believe that a number of one-time factors contributed to relatively high costs in the first year, including initial documentation and remediation of key controls, the general challenge of responding to any complex new reporting requirements and some uncertainties about thresholds for 'how much is enough,'" the firms wrote. "We believe all of these factors will diminish as cost drivers in year two. Auditors, regulators and issuers all should benefit from a 'learning curve' that will bias costs downward."

Among 90 Fortune 1,000 audit clients with average revenues of $8.1 billion, 404 compliance costs represented about 0.10 percent of total company revenue. The companies spent an average of $7.8 million on 404 compliance in 2004, according to the report commissioned by the Big Four. The report, issued by Charles River Associates, reviewed data for 90 Fortune 1000 clients in response to an SEC request for information related to implementing 404 requirements.

Section 404 audit fees averaged about $1.9 million -- about 0.2 percent of the companies' total revenue -- and accounted for one-fourth of total Section 404 costs in 2004.

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