Costs and Benefits of Compliance

Sarbanes Oxley: Is It Performing?

Sarbanes Oxley sweeping provisions greatly add to the costs of SOX compliance without a doubt. Most companies see compliance including the need of procuring SOX compliance software as a sunk cost for the long-term benefits of credibility and efficiency benefits that will extend over many years. In addition, they expect that the costs of sox compliance will decline as companies deploy sox compliance software and learn to automate their processes. Currently, many companies are unsure about the benefits they will actually reap and the means to automate sox compliance in a situation where processes are hard to standardize.

According to widely quoted figures from Foley and Lardner, the SOX compliance cost for companies with sales turnover of less than one billion dollars, the SOX compliance cost was about $2.86 billion in financial year 2003 up from $2.12 billion in financial year 2002 and the corresponding figures for companies with revenues in excess of $1 billion is $7.4 billion. The major components of costs were Directors and Officers Insurance, lost productivity and accounting.

Figures have been presented in a variety of ways depending on how they are collected. Other sources such as Parson Consulting indicate that 50 percent or more of overall corporate governance cost revolves around process improvement, controls documentation, testing, SOX compliance software procurement and adapting controls to changing needs.

In more recent years, however, companies are also increasingly reporting benefits from their investments in compliance with Sarbanes Oxley. In a survey of 200 financial executives by Oversight Systems, 49% of them reported that the risk of fraud and errors has been reduced, 48% of them agree that their financial operations are now more efficient and 31% report lower error rates.

Furthermore, companies will be increasingly focused on lowering costs from automation of their compliance processes through the purchase of SOX compliance software. As many as 60% of them have plans to implement technology to automate their manual processes.

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