Compliance is not cheap, companies say.
Author | Swartz, Nikki |
Position | Up front: news, trends & analysis - With Sarbanes-Oxley Act of 2002 |
U.S. companies say complying with new rules stemming from the Sarbanes-Oxley Act of 2002 and aimed at improving corporate accountability is costing them millions in both time and money.
Additional regulations imposed by Congress and the Securities and Exchange Commission (SEC) are beginning to take a bite out of businesses' bottom lines. While companies agree that the government rules are needed, they say the cost of compliance is high. According to The Wall Street Journal, the rules are coming into effect at a time when corporations are already burdened with other increasing costs such as health care. In addition, companies say their audit costs are increasing by as much as 30 percent or more this year due to tougher audit and accounting standards, including complex rules to bring more off-balance-sheet items onto the books. They also are paying steep fees to fund a new accounting oversight board--as much as $2 million a piece annually for some large businesses, according to The Wall Street Journal.
Many companies say some of the rules force them to devote thousands of staff hours to formalize procedures already in place. The harshest criticism is aimed at Section 404 of the act, which is meant to improve internal controls over financial reporting. Beginning in June 2004, management at most large companies must have in place tight internal controls, assess the effectiveness of those controls, and then pay for an independent assessment by outside auditors.
A recent survey of 321 companies released by Financial Executives International, which represents top corporate officials, revealed that businesses with more than $5 billion in revenue expect to spend an average of $4.7 million each to implement the new 404 rule this year. Much of that will be spent...
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