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Audit fees expected to rise: new standards for government auditors … ethics found lacking at the board level … FATF tackles money laundering … standards board issues quality-control guidance …

Internal Auditor, August, 2003 by A. Scott

IN A RECENT SURVEY, senior financial executives said they expect their companies to pay on average 35 percent more in audit fees to comply with Section 404 of the Sarbanes-Oxley Act of 2002. Financial Executives International (FEI) surveyed 83 of its members at public companies with average revenues of $3.3 billion. Fifty of the surveyed members represent companies listed on the New York Stock Exchange, with the other companies trading on either NASDAQ or the American Stock Exchange.

Survey responses varied widely as to the man-hours companies expect to be necessary to comply with the act--from 80 hours to 65,000 hours. On average, respondents said they expect their companies to spend more than 6,000 hours--including internal resources, external resources, and attestation time--and an additional $480,000 on software and IT consulting to comply with Section 404.

"Strong internal controls are a hallmark of a well-managed company and an essential component of a sound corporate governance structure within the company," said Colleen Sayther, president and chief executive officer of FEI, in a statement. "Hopefully, the documentation required by Section 404 will lead to stronger internal control systems across companies, and not inefficient use of corporate resources."

Section 404 requires annual reports to contain: 1) a statement of management's responsibility for establishing and maintaining an adequate internal control structure and procedures for financial reports; 2) management's assessment, as of the end of the company's most recent fiscal year, of the effectiveness of the company's internal control structure and procedures for financial reporting; and 3) attestation and a report on management's assessment of the effectiveness of the internal controls and procedures for financial reporting from the company's external auditor, in accordance with standards established by the Public Company Accounting Oversight Board.

In another recent survey, "The Increased Financial and Non-financial Cost of Staying Public," Chicago law firm Foley & Lardner found that the new compliance and disclosure requirements, as well as new U.S. Securities and Exchange Commission listing rules, could increase the cost of being public from about $1.3 million to $2.5 million for small- and mid- capitalization companies. Approximately 13 percent of the companies surveyed by the firm said they are considering a switch to non-listed status as a result of the new rules.

The complete FEI survey is available at www.fei.org/news/404CostSurvey.xls. The Foley & Lardner survey is available at www.foleylardner.com/coststudy.>