Shooting the messenger.

• Position: Effect of Sarbanes-Oxley Act of 2002 on audit firms

Some lessons learned from the J.D. Power and Associates 2004 Audit Firm Performance Study

On November 9, 2004, J.D. Power and Associates, a marketing services information firm, released its 2004 Audit Firm Performance StudySM. The study, which measures audit firm performance in the wake of the Sarbanes-Oxley Act of 2002, is based on interviews with 1,007 audit committee chairs and 944 chief financial officers (CFOs).

The study finds significant angst among audit committee chairs and CFOs in the industry. Top management is concerned about the costs of implementing the extensive requirements associated with Sarbanes-Oxley compliance. A number of auditors believe they are being stretched too thin by additional audit requirements, which in turn is affecting service. Also, audit committee chairs feel pressured by the requirement of the financial reporting process for increased accountability.

Almost 9 out of 10 CFOs say the cost of implementing the new rules and procedural requirements of Sarbanes-Oxley outweigh the benefits. The study reports, "Confidence is ... particularly low among CFOs, with just 44 percent expressing high levels of confidence in the accounting industry." It appears that the brunt of the distress among CFOs and other management is being borne by the accounting industry. According to Conlin, confidence in the accounting industry declined since last year's survey (this is the third year the survey was taken), reflecting the increased stress on CFOs and audit committees in complying with Sarbanes-Oxley.

Lessons learned

The study covered only two audit-firm-performance segment rankings, firms managing clients with more than $1 billion in revenue and firms...