Section 404 of Sarbanes-Oxley (SOX) requires executive managers of public companies to attest to the effectiveness of the internal controls on their financial reporting.
The increase in compliance spending was largely due to a 66 percent jump in costs for consulting and software, and a 58 percent increase in fees charged by external auditors, according to Financial Executives International (FEI), which conducted the survey.
FEI surveyed 217 public companies with average revenues of $5 billion. Their total cost of Section 404 compliance averaged $1.34 million for internal costs, $1.72 million for external costs, and $1.30 million for auditor fees.
Fifty-five percent said Section 404 gives investors and others more confidence in a company's financial reports. However, 94 percent of those surveyed said the costs of compliance exceed the benefits.
To improve the effectiveness of the Section 404 process, 71 percent of the respondents said regulators allow for a more risk-based audit approach and 66 percent said they should reduce the degree of documentation.