Implementation of Section 404 of the Sarbanes-Oxley Act (“SOX”), which requires management and their independent auditors to issue separate assessments of a public company’s internal control over financial reporting, has sparked significant public debate over the relative costs and benefits of the reporting process. To assist in the evaluation of the various views Deloitte & Touche LLP, Ernst & Young LLP, KPMG LLP, and PricewaterhouseCoopers LLP (the “Accounting Firms”) asked CRA International (“CRA”) in early 2005 to review data for a sample of the firms’ Fortune 1000 clients with market capitalization over $700 million (“Larger Companies”). That study (the “Original Study”), which was issued in April 2005, provided data on average year-one Section 404 implementation costs. It also included data on the number of control deficiencies identified and remediated as a result of Section 404, and included an estimate of expected cost changes in the second year of implementation.
As a follow up to that study, the Accounting Firms engaged CRA to examine second-year costs for both the Fortune 1000 clients that were included in the April study and a separate group of smaller public companies with market capitalization between $75 million and $700 million (“Smaller Companies”). It is our understanding that all of the companies included in this study implemented Section 404 in the first year. The current study (the “Updated Study”), which is presented in this report, also includes information about auditors’ methodology and the key factors driving costs.
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