US firms complain of high cost of scandal avoidance

Business leaders in the US are complaining to regulators about the cost of complying with a provision of the Sarbanes-Oxley corporate reform law – designed to prevent a repeat of scandals such as WorldCom and Enron.

With a negative public image and continuing disclosures of fraud and criminal prosecutions, corporate America is not publicly questioning the law’s necessity, but is arguing that Section 404, which requires the assessment of internal controls for keeping records and preventing abuse, is too costly.

A recent survey of 217 publicly traded companies showed they spent an average of $4.36m (£2.3m) to comply, while a smaller survey pegged the cost at $7.8m (£4.1m), or about 0.1% of revenue.

Both surveys found that compliance costs drop by as much as 46% as companies became more familiar with the law.

However, the US Securities and Exchange Commission (SEC) is to consider ways to provide more guidance on the future requirements of Section 404.

Of 2,500 companies filing with the SEC in March, 8% found material weaknesses in their internal controls, which can be as simple as requiring two signatures on company cheques.



Comments are closed.