Section 404 costs way down, but total audit fees on the rise
Price tag for compliance now under $2 million; external auditors are charging more for their services, however
The cost to meet the requirements of Section 404 of Sarbanes-Oxley is tapering off for companies in their third year of compliance, according to a survey released today by Financial Executives International. The fees these businesses are paying to their external auditors…well, that’s a different story.
The survey of 185 companies—most of which had a market capitalization of at least $75 million—found the average cost for Section 404 compliance last year was $1.7 million. That’s down 41% from 2006.
Fees to outside auditors for Section 404 attestation—one of the more controversial parts of the law—dropped to an average of $846,000, down 5.4% from 2006.
The sucker punch? Total audit expenses for these companies—including internal and external costs—averaged $3.6 million in fiscal year 2007. That’s a 1.8% increase over the prior year, an increase driven by fees related to the audit of the financial statement.
https://francinemckenna.com/wp-content/francine-mckenna.png 0 0 Francine https://francinemckenna.com/wp-content/francine-mckenna.png Francine2008-05-01 04:26:002012-01-07 15:42:17Hate To Say I Told You So…
We’ve talked about the Big 4 audit firm Catch-22 – Pay me here or pay me there, but you’re going to pay, since I hold the trump card.
As was reported here and here, intolerance for risk and management of legal liability exposure are motivating the Big 4 to force the extra work and fees down client’s throats, whether it comes as part of Sarbanes-Oxley testing and documentation or as rework and lack of dependence on other’s work when completing the external audit.
Spend all you want internally and on cheaper resources to do Sarbanes-Oxley, (and you are, as the layoffs in the Big 4 attest to), sayeth the Big 4, but we can play that game. We’ll charge you to redo and rework that work because we don’t deem your team competent, objective or neither competent nor objective. Or perhaps you haven’t proven that we should have any faith in what you do…
The SEC will have a hard row to hoe in making a case that it’s not Sarbanes-Oxley’s fault that companies are paying more to their auditors. It is. But the reasons are more complex than just blaming a law for not providing any “value”.
Companies, for the most part , were woefully unprepared to prove they had sufficient internal controls over financial reporting. The scandals, frauds, and restatements prove that point.
The audit firms were handed a double edged sword – make more money by moving companies towards this higher standard, a reasonable one in my mind. But also be judged on the quality of your efforts in this regard by a new regulatory body that should now be making sure companies never get a pass again form their auditors on poor controls over financial reporting.
It’s not going to be easy for the SEC to balance the interest of their two customers:
the public companies’ executive management teams and the audit firms.
Or maybe they should rejigger their headsets and reconsider who their customer should be – the shareholder.
Their job is then super crystal clear.