A survey conducted by AMR has revealed that companies are spending $1 million for every billion dollars in revenues in order to comply with the Sarbanes-Oxley Act.
According to the AMR Research findings, the total cost of complying with the Sarbanes-Oxley Act has reached $14 billion and is expected to exceed $20 billion by the end of 2006. The spending breakdown for this year is expected to be 39 percent for labor, 32 percent for technology, and 29 percent for out-sourced services.
The average cost to ensure compliance with the Sarbanes-Oxley Act stands at $1 million for every $1 billion earned by a company. Last year a third of companies spent more than they had anticipated on compliance measures, while none said that spending had been lower than expected.
The survey results outlining the breakdown of the spending on Sarbanes-Oxley compliance more or less reflect the costs in practice. For instance, compliance with the act cost British Petroleum $100 million. That was the figure stated by Lord John Brown, the head of the company, in a recent interview with The Daily Telegraph. He also noted that company profits for 2005 were $285 billion, but that the figure of $100 million only covered the “external spending" and not the time spent by the company's own employees.
The AMR findings also reflect the fact that no companies overestimated their projected spending on the cost of compliance with the Sarbanes-Oxley Act. A few days prior to the results of the survey being published a member of the U.S. Securities and Exchange Commission announced that, in his personal opinion, section 404 of the law had led to significant unforeseen expenses. As a result, companies have had to spend 20 times more than the planned $94,000 for each public company.
However, the burden of ensuring compliance looks set to ease in 2006. Research by the consulting firm CRA International, involving companies from the Fortune 1000 list, suggests that expenditure on section 404 of Sarbanes-Oxley will fall by 40% this year. It should mean that larger companies will face average costs of around $4.3 million, while smaller companies will have a bill in the region of $900,000.
Those figures can be added to the results of research carried out by the U.S. Institute of Risk Management, which suggest that compliance with Sarbanes-Oxley costs small banks $423,000 and $4.5 million for large banks. Of those sums 10% is spent on information technology, while the majority is spent on hiring new staff or retraining existing personnel.
“The Sarbanes-Oxley Act definitely consumes a lot of resources. However, companies have little choice but to comply, and the costs of the law are in part compensated by the increased levels of transparency and control at a company. Corporations also receive a substantial boost in their relations with investors, which means spending on the Sarbanes-Oxley Act can actually be regarded as attracting investment," says Denis Zenkin, marketing director at InfoWatch.
Source: IT Compliance Institute
