The cost of completing Sarbanes-Oxley corporate governance legislation has risen to $5.1m (€4m) for the average large US company, with a further $3.7m in ongoing compliance bills.
The vast bulk of this cost relates to updating and documenting internal management controls the final stage of a controversial reform process that applies to companies reporting from Monday. Some very large companies such as General Electric say they have spent $30m on this alone.
The latest average figures are for Fortune 1000 companies and are published on Friday in one of the largest surveys yet of corporate governance attitudes conducted by Korn/Ferry, an executive recruitment firm.
If representative of all companies in the Fortune 1000, the figures suggest total Sarbanes-Oxley costs for this group have reached $5bn.
Final stage of a three-year marathon
The individual costs compare with estimates of $3.1m made by Financial Executives International in August, which in turn was up 60 per cent from surveys conducted in January.
While higher than these recent estimates, the Korn/Ferry figures are not as high as some critics predicted when legislation was first passed in July 2002. Nevertheless, the spiralling cost of paying auditors to carry out this compliance work comes as many are struggling to meet the deadline. Several large audit firms are adopting a “triage” system for those clients with work remaining, warning some that they are just too far behind to meet the end-of-year deadline and concentrating on those closest to completion.
Tim Ryan, an audit partner at PwC, said: “Across the industry, the number of companies that are behind on this is in the 10-25pc range.”
Nine firms, including PwC, Deloitte, KPMG and Ernst & Young recently sent a framework for evaluating how close companies are to complying with the new standard.
Analysis carried out by Compliance Week shows an increasing number of companies are already disclosing material weaknesses in their internal controls to investors as they fail to finish work in time.
The number making such announcements rose from less than 20 in February to 53 in October. In recent days, even large companies have confessed to outstanding problems.
Xerox, for example, said it is was taking steps to remediate “certain issues” in its internal controls. In a review of its controls, Xerox said it found some items that require “either remediation or the identification of alternative controls.”
Others have warned that the interal resources diverted to complete the work may delay other projects and routine work. This week, Ford warned it would have to delay filing accounts for its Jaguar subsidiary in the UK for this reason.
The Korn/Ferry poll of 1,000 companies from 14 countries also found that US companies were spending much more than rivals in the UK and France were on equivalent reforms.
Overseas companies listed in the US, together with smaller American companies, are not required to comply with Section 404 internal control rules, the most expensive and controversial part of Sarbanes-Oxley, until late next year.
