First-of-Its-Kind Report Quantifies Actual Cost of Sarbanes-Oxley Section 404 Compliance for Smaller Public Companies
Average first-year cost of $78,000 is 14% less than SEC initially
predicted
WORCESTER, Mass.--(Business Wire)--Lord & Benoit, a SOX research and consulting firm, recently
gathered empirical cost data to answer a crucial question that
government officials, legislators, and business executives have been
asking since June of 2007: "what exactly is the cost for a smaller
public company to comply with Sarbanes-Oxley Section 404(a) and
Section 404(b) regulations using the latest guidance issued by the SEC
and PCAOB?" The data reveal that for non-accelerated filers, the total
average first-year cost for management assessment and additional audit
fees is $78,474, which is 13.8% less than the $91,000 cost
the SEC initially predicted.
The new Lord & Benoit Report, entitled "The Sarbanes-Oxley
Investment: A Section 404 Cost Study for Smaller Public Companies," is
based on a cross-section of 29 smaller public companies in the
semiconductor, manufacturing, distribution, banking and finance, real
estate, food and beverage, transportation, mining, software, energy,
services, and biotech industries. The Report is also based on an Audit
Analytics study of actual audit fees reported by nearly 5,500 public
companies.
From a public policy perspective, this newest Lord & Benoit Report
is very relevant and timely. Concerned that the cost of Section
404(b) on small companies is still unknown and could therefore be
disproportionally high for smaller publicly-held companies, the US.
House of Representatives Committee on Small Business recently
requested cost estimates prior to enforcement of the law. In order to
honor this request, SEC Chairman Christopher Cox is considering
extending the delay in the auditor attestation requirement of Section
404(b) for non-accelerated filers until years ending after December
15, 2009. The empirical data in the Lord & Benoit Report may provide
government officials with the cost information they need now.
While analyzing the compliance cost data, the research team at
Lord & Benoit discovered a paradoxical, unintended consequence of past
delays in Section 404 compliance: the American Institute of CPA
auditing standards governing the audit of internal
controls for private companies and non-profit organizations are now
greater than PCOAB auditing standards for smaller public companies in
years 2007 and 2008, and possibly 2009 should the SEC grant an
extension of Section 404(b).
In the summary, the Report states that compliance costs are not
without corresponding benefits. The improvement in procedures has
removed volatility in reporting and this, in turn, has contributed to
the recent dramatic decrease in security class action claims against
companies. In addition, the Market Capitalization to Revenue Ratio of
companies with good financial reporting procedures and filings results
in higher stock values.
For a free copy of the full report, go to www.Section404.org and
visit the Research section.
The Lord & Benoit Report was written by Bob Benoit. Bob is
President and Director of SOX Research at Lord & Benoit, LLC, one of
the most influential SOX Research and Compliance firms for smaller
public companies. In addition to his position with Lord & Benoit, Bob
serves on the COSO Monitoring Project Task Force. He has also served
on the AICPA Peer Review Acceptance Board in MA for past 11 years, has
taught Complying with Sarbanes-Oxley Section 404 throughout the
country through the State CPA Societies and is the author of the Lord
& Benoit Reports, which have been referenced by the SEC, PCAOB, COSO,
AICPA, CHH, RIA, BNA, Wall Street Journal, all of the "Big 4" firms
and over 120 legal, educational and trade journals around the world.
Bob is the first evaluator to use the COSO Guidance for Smaller Public
Companies, the inventor of Virtual SOX taught on the AICPA website and
research contributor to the SEC Subcommittee, SEC Concept Releases and
SEC/PCAOB Internal Control Roundtables which can be downloaded free of
charge from the SEC and PCOAB websites or at www.Section404.org.
Lord & Benoit
Robert Benoit, 800-404-7794 ext: 204
President
BobB@LordandBenoit.com
Copyright Business Wire 2008
