Impacted by the exorbitant costs of Sarbanes-Oxley 404 compliance, the average audit fees for companies with less than $1 billion in revenue skyrocketed 96 percent, to roughly $1 million from 2003 to 2004, according to a study by the law firm of Foley & Lardner LLP, based here.

The third annual F&L survey also found that the price tag of corporate governance reforms has driven up the costs of being a public company some 33 percent.

Foley & Lardner's findings were based on surveys of chief financial officers, general counsels, chief compliance officers, board members, and directors at both public and private companies. Of that sample, F&Y said that 147 public companies responded.

The firm also commissioned a statistical analysis of proxy statement data compiled and maintained by Standard and Poor's Investment Services Custom Business Unit. An analysis of data obtained from S&P revealed that audit fees for public companies increased an average of 61 percent between 2003 and 2004.

Small-cap company audit fees rose 84 percent, from $567,000 in 2003 to $1,042,000 in 2004, while mid-cap company audit fees rose 92 percent, from $1,135,000 in 2003 to $2,177,000 in 2004. Large-cap company audit fees rose 55 percent, from $4,809,000 in 2003 to $7,443,000 in 2004.

"As predicted, Section 404 dominated corporate governance concerns for public companies in 2004," said Tom Hartman, study director and a partner with Foley & Lardner. "The magnitude of the average audit fee increases, coupled with the reported lost productivity numbers, confirm that the economic costs of the Sarbanes-Oxley Act are not trivial or immaterial, particularly for smaller public companies."

In addition to the rising audit costs, a majority of public companies reported that Sarbanes-Oxley had affected administrative expenses "a great deal." The study found that lost productivity costs soared 556 percent, to $1.1 million, in 2004, from $160,000 in 2003 for companies with annual revenue under $1 billion.

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