Financial services companies have reported higher-than-expected costs in dealing with the demands of compliance, according to a survey released this spring by Financial Executives International (FEI; Florham Park, N.J.), a financial professionals' networking and advocacy membership group.
FEI polled 217 public companies with average revenues of $5 billion to gauge Sarbanes-Oxley Section 404 compliance costs. The survey found that the one-year costs of compliance averaged $4.36 million, an increase of 39 percent from the $3.14 million that companies expected to pay, based on a July 2004 cost survey conducted by FEI. Just more than half of all respondents said they believed Section 404 gives investors and others more confidence in companies' financial reporting; of companies with revenues of more than $25 billion, that figure jumps to 83 percent. But 94 percent agreed that the cost of compliance exceeded its benefits.
While the survey suggests that larger companies believe they realized a benefit from their Section 404 compliance efforts - even if they generally believe they overpaid - companies across the board underestimated the financial burden of compliance. According to Colleen Cunningham, president and CEO of FEI, "No one anticipated that they'd have to put that kind of resource on this effort."