Florham Park, N.J. (Feb. 12, 2004) -- The costs of first-year compliance with Section 404 of Sarbanes-Oxley could exceed $4.6 million for the largest U.S. companies, according to a survey by Financial Executives International.

The added costs are driven by a projected investment of 35,000 hours of internal manpower, $1.3 million in spending on external consulting and software, and additional audit fees of $1.5 million (a jump of 35 percent), FEI reported.

Among the 321 companies surveyed, 20.3 percent of respondents were from companies with more than $5 billion in annual sales revenue; 30 percent were from firms with $1 billion to $4.9 billion in revenue; 17.3 percent had revenue of $500 million to $999 million; 19.3 percent had revenue of $100 million to $499 million; 9.7 percent had revenue of $25 million to $99 million; and 3.3 percent had less than $25 million.

The average cost of compliance estimate for all companies was just under $2 million for roughly 12,000 hours of internal work, 3,000 hours of external work, and additional auditor fees of $590,000 -- a rise of 38 percent. That’s far larger than estimated in an earlier FEI survey, which suggested that the average company expected the effort to consume 6,000 hours in total for internal, external and attestation time, and projected a 35 percent rise in audit fees.

“It stands to reason that larger, more complex companies will incur higher costs for implementing the internal control-related provisions of Section 404, but even for small companies the estimates are almost equally significant in proportion to revenue,” said Colleen Sayther, FEI president and chief executive. “Until final rules are adopted for Section 404 by the Public Company Accounting Oversight Board and the Securities and Exchange Commission, companies and auditors can only estimate what the jump in audit fees will be. Ultimately the fees could be much higher.”

For firms with annual revenues of $1 billion to $4.9 billion, first-year compliance costs were estimated at $1.83 million. That number drops to $1.04 million for firms with sales of $500 million to $999 million, and to $776,060 for firms with sales of $100 million to $499 million, FEI reported. For firms with sales of $25 million to $99 million, first-year costs are estimated at $742,825, while costs for firms with less than $25 million in revenues were estimated at $279,700, according to the report.

-- WebCPA staff

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