Public companies spent 23 percent less adhering to the Sarbanes-Oxley Act's accounting rules in 2006, as they benefited from work done in earlier years to comply with the landmark federal corporate-governance law, a new survey found.
Complying with the 2002 Sarbanes-Oxley Act cost companies $2.92 million on average last year, compared with $3.8 million in 2005, Financial Executives International said in a statement yesterday. Costs have fallen 35 percent from 2004, the first year companies were required to adhere to the law's accounting requirements.
"This drop is largely attributed to increased efficiencies, a positive learning curve," and use of technical systems and computer software, Financial Executives International president Michael Cangemi said in the statement. "While there is still work to be done, we have come a long way."
The Florham Park, N.J., group represents corporate chief financial officers and audit committee members.
Business groups such as the U.S. Chamber of Commerce have criticized Sarbanes-Oxley for stifling innovation by subjecting companies to burdensome regulations.
The Securities and Exchange Commission and the board that oversees the accounting industry will finalize efforts next week to make compliance with the 2002 law cheaper and less time-consuming.
Financial Executives International surveyed 200 companies, 172 of which had a market value of more than $75 million. The average annual revenue of the companies responding to the survey is $6.8 billion.
Companies with market values of less than $75 million will not be required to fully comply with Sarbanes-Oxley audit rules until 2009.
Congress passed Sarbanes-Oxley after accounting frauds at Enron Corp. and WorldCom Inc. cost shareholders billions of dollars, eroding investor confidence. The provision of the law that has drawn the most criticism requires an outside auditor to verify that a company has sufficient internal procedures to catch fraud and bookkeeping errors.
Seventy-eight percent of the respondents to the survey said that, even with the drop in expenses, the cost of complying with Sarbanes-Oxley exceeded the benefits.
Some findings on corporate compliance with the Sarbanes-Oxley Act.
Employees' time: An average of 18,070 hours per company in 2006, down 10 percent from the year before.
Outsiders' time: An average of 3,382 hours spent by consultants and others (excluding auditors) last year, 14 percent less than in 2005.
Auditor fees: An average of $1.2 million (excluding preparation of annual financial statement), 0.8 percent less than in 2005.
Accuracy: 46 percent of the companies said their financial reports were more accurate.
Fraud: 34 percent said the act had helped prevent or detect fraud.