Business readies for Sarbanes-Oxley compliance, but most companies have allocated meager resources to costly endeavor.

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A survey of nearly 400 tax executives regarding compliance with section 404 of the Sarbanes-Oxley Act revealed that 89 percent have begun planning or implementing processes and controls for their company's compliance with this federal law. Conducted by Tax Executives Institute as part of its 58th Annual Conference, the October 20 audience survey also showed that a full 85 percent of the respondents had not allocated any additional budget resources to that initiative. (Two percent answered "not sure.")

The Sarbanes-Oxley Act was enacted in 2002 to enhance the accuracy of corporate financial reporting. It requires that management's annual report contains both its assessment of the effectiveness of internal controls over financial reporting and the independent auditor's own attestation.

The TEI survey findings represent a paradox of sorts, according to TEI Executive Director Timothy McCormally. "While it's reassuring that most companies are already working toward compliance, there is a bit of a disconnect in having only 13 percent reporting any resources allocated to it, considering the industry generally agrees that compliance is likely to run a substantial tab." McCormally added that the interest level in section 404 is high, noting that more than 1,000 tax executives participated in a September telephone conference call on the provision. (Nearly 600 attended the Annual Conference, where the survey was conducted.)

Estimates of the cost to comply could reach well into the billions of dollars in additional staff, auditing fees, and other resources engaged toward compliance. In fact, a Business Week article released on the same day as the survey reported, "Industry experts say that as a result of these rules, auditing costs are likely to double, while the total tab for compliance [for a multinational company] could top $7 billion in the first year alone."

The TEI survey reveals that nearly all respondents (98 percent) consider one or more factors in their risk assessment, including:

* Legislative and judicial changes and effect on tax exposure accounts;

* Changes to business operations (e.g., new products, M&A, etc.), and effect on tax expense accounts; and

* Changes to information systems, data entry processes or system controls, and effect on tax expense accuracy.

The...