Survey Reveals SOX Costs Will Decline

Big Four Retain Firm to Study Implementation Costs

A follow-up survey by CRA International of Washington, DC on second-year implementation costs of Section 404 of the Sarbanes-Oxley Act for a select group of small public companies showed that the costs will drop substantially. CRA was retained by Deloitte & Touche LLP, Ernst & Young LLP, KPMG LLP, and PricewaterhouseCoopers LLP.

"One would expect there would be some learning being done," explained Robert Lidan, senior consultant, CRA International. Lidan was also the lead investigator on the study. "It demonstrates to auditors that they’ve already done their homework."

But the controversial segment of the study is that as a percentage of revenue. The cost is a higher percentage for smaller companies than larger ones. It seems to validate what the smaller companies have been complaining about. "It works to the smaller firms’ detriment," says Lidan. "I think that’s why smaller firms are complaining so loudly about the requirements. For the larger firms it shows that the total compliance costs are a drop in the bucket compared to average revenues." The smaller firms feel it is not a one-size-fits-all situation.

The "Big Four" commissioned an initial survey that was published in April revealing the initial costs of Section 404 of the SOX. This follow-up survey measures the differences in costs.

Highlights of CRA’s analysis showed the following:

• Section 404 implementation costs for companies with a market cap between $75 million and $700 million are expected to decline in year two by 39 percent (from $1.5 million to $900,000)

• For larger companies with market caps above $700 million, implementation costs are expected to decrease by 42 percent (From $7.3 to $4.3 million)

• Independent audit engagement teams are expected to rely more heavily on the work of others in the second year

• The number of key controls tested in year two is expected to decline for both groups

• The expected cost declines are primarily attributable to first-year documentation and reduced control remediation requirements that are not expected to be repeated in year two

Go to the CRA International Web site at for details of the survey.