Although compliance costs for Section 404 of the Sarbanes-Oxley* (SOX) corporate-goverance law have fallen each year since the law was enacted three years ago, most of that reduction is because company managers are spending less money and time on reviews, according to a survey of corporate financial executives.

SOX requires companies to hire an independent auditor to verify the quality of their procedures for publishing accurate financial statements.

In spite of the decrease, 78 percent of the 200 executives who participated in the survey said the costs of complying with controversial Section 404 have outweighed any benefits realized. Last year, 88 percent of those surveyed held that point of view.

During 2006, total compliance costs fell 23 percent to an average of $2.92 million per company from the year before when costs averaged $4.51 million. Those figures were generated by a survey conducted by Financial Executive International, a Washington trade association.

This week, the U.S. Securities and Exchange Commission and the Pubic Company Accounting Oversight Board are expected to approve additional guidance that companies hope will cause costs to decrease even further. It is anticipated the SEC will approve new guidance to help management identify internal controls more efficiently. Additionally, the PCAOB is expected to guide external auditors charged with testing management's assessment of internal controls by issuing a new auditing standard that supercedes existing standards.

Although executives have indicated overall compliance costs have decreased due to internal change reasons, there has been very little reduction in the amount paid to external auditors who are required to test the assessments of management. According to industry observers, auditing firms are reluctant to decrease the work required by Section 404 due to their concern they could be held liable if a company is later determined to have engaged in fraud.

*The Sarbanes-Oxley Law of 2002 was signed into law by President George Bush after accounting fraud triggered the collapse of WorldCom and Enron. The collapse caused investors to lose about $65 billion, according to shareholder lawsuits and government estimates.

If you would like more information about the services provided by our Risk Advisory and Outsourced Audit Services Team and its Sarbanes Oxley experience, please contact Darren Welker at 717-757-6999 or 800-745-8233 or email Darren using the form below.

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