FEI polled 185 companies to gauge experiences in complying with Sarbanes-Oxley Section 404. The responding companies had average annual revenues of $4.7 billion.

According to the survey, which included 168 "accelerated filers" -- companies with market capitalizations above $75 million -- total average cost for Section 404 compliance was $1.7 million during fiscal year 2007. While a direct comparison cannot be made from 2006 costs, as the respondent pool varies year to year, the results show a continued decline in compliance costs. The survey also revealed that total audit fees for U.S. accelerated filers averaged $3.6 million, representing a slight (1.8 percent) increase from the previous year.

"As companies continue to find efficiencies in complying with Section 404 and make compliance part of a routine practice, we have seen a continued decline in costs," said FEI President and CEO Michael P. Cangemi. "While 404 auditor costs also declined 5.4 percent as the auditor scope of work narrowed, these costs were offset by a reported five percent increase in the average hourly audit rate charged by auditors."

In the fourth year of Section 404 compliance, accelerated filers managed to reduce costs within direct control of their companies, reporting drops in both internal and external people hours, as well as auditor attestation fees.

• Companies reported requiring an average of 11,100 people hours internally to comply with Section 404 in 2007, representing a decrease of 8.6 percent from the previous year.
• Companies reported requiring an average of 1,244 external people hours to comply with Section 404 in 2007, representing a decrease of 13.7 percent from the prior year of compliance.
• Auditor attestation fees paid by accelerated filers in 2007 constituted 23.7 percent of the accelerated filer's total annual audit fees and averaged $846,000, representing a 5.4 percent decrease from 2006.
  

Similar to the previous year, the survey found that respondents with centralized operations had lower total costs of compliance in 2007 than did those respondents with decentralized operations.

• Total average 2007 compliance costs for companies with centralized operations were $1.3 million;
• Total average 2007 compliance costs for companies with decentralized operations were $1.9 million, 30.1 percent higher than for those with centralized operations.

In year four of compliance, the survey showed that responding companies have increased confidence in the value of Section 404 over last year's respondents.

• 50.3 percent agreed that financial reports are more accurate; up from 46 percent in 2006.
• 56.0 percent agreed that financial reports are more reliable, up from 48 percent in 2006.
• 43.6 percent agreed that compliance with Section 404 has helped prevent or detect fraud; up from 34 percent in 2006.
• 69.1 percent agreed that compliance with Section 404 has resulted in more investor confidence in their financial reports, up from 60 percent in 2006.

Respondents also noted improvements in their 2007 audit for a number of areas related to Section 404:

• 71.3  percent reported more integration of Section 404 and the financial statement audit
• 69.8 percent reported more auditor use of a risk-based approach to Section 404 audits
• 68.5 percent reported that less key controls were identified
• 58.4 percent reported increased use of judgment by auditors (vs. "check the box" approach)
• 68.5 percent reported greater auditor reliance on the work of others

"The results from this survey demonstrate that, overall, auditors appear to be on course to achieve that goal," said Cangemi. "The majority of respondents reported Section 404 work, and work to prepare the annual audit is now more integrated, with auditors using a more risk-based approach to 404 adoption."

The full survey results, including costs by company size, historical cost comparisons and an executive summary are available for $99.00 at www.ferf.org/bookstore