Survey Shows SOX Compliance Costs Falling

by Glen Shapiro, LawAndTax-News.com, New York

24 April 2006

A study published last week on the costs for companies of complying with the Sarbanes-Oxley legislation has revealed that compliance with the accounting rules was less costly in their second year of operation than when they first came into force.

The study, entitled 'Sarbanes-Oxley Section 404- Costs and Implementation Issues: Spring 2006 Survey Update', was commissioned by 'Big Four' accounting firms, Deloitte & Touche, Ernst & Young, KPMG, and PricewaterhouseCoopers LLP.

CRA International Inc was asked by the firms in March 2005 to facilitate a survey, and to review data related to the cost of implementing Section 404 of the Sarbanes-Oxley Act of 2002 for a sample of the firms’ Fortune 1000 clients with market capitalization over $700 million.

As a follow up to that report, the accounting firms subsequently asked CRA to survey second-year implementation costs both for the Larger Companies included in the Spring 2005 Survey and for a separate group of smaller public companies with market capitalization between $75 million and $700 million. That later survey was released in December 2005.

This current survey updates the previous surveys with data for year two Section 404 costs and cost drivers, and the number of material weaknesses and significant deficiencies identified.

The Spring 2006 Survey includes an analysis of total Section 404 issuer costs and audit fee information derived from proxy materials.

According to the survey results, in 2005, larger firms paid an average of $4.77 million to comply with SOX provisions, down from average first year costs of $8.51 million.

For the smaller firms questioned, last year's compliance costs were down to $860,000 from the previous year's high of $1.24 million.

However, compliance costs remain significantly higher than anticipated when the corporate governance legislation was first put in place.

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