Calculating Costs of Sarbanes-Oxley Compliance

Here's how to get started on an accounting system that is an effective guard against discrepancies.

Its August of 2003: Do you know where your companys Sarbanes-Oxley compliance system is?

Like many companies, your publicly traded $3 billion retail operation has been a rather late—and disgruntled—adopter of the tough corporate-compliance rules triggered by the Sarbanes-Oxley Act of 2002. Youve struggled to meet the provisions of Section 302, already in effect, which covers detailed certification of quarterly financial statements. But Section 404, which holds executive management responsible for their companys internal control system, is now looming large.

So its time to get moving: If a companys compliance system doesnt measure up, itll be the CEOs (and the CFOs) head on a platter. The challenge is nothing less than a thorough analysis and overhaul of all internal controls. And this isnt a corporate-only job; all six subsidiaries and 2,000 stores, plus hundreds of employees, will need to be involved—and diverted—in the process.

Creating a system that meets the new requirements wont be cheap, either. AMR Research estimates that Fortune 1000 companies will spend $2.5 billion on Sarbanes-Oxley compliance this year. A few million of that will come from you, mostly in staff time. A consulting firm will help you scope out the project and implement a Web-based compliance application that will help manage the flow of work. But in the end, technology and consulting costs will be just a drop in the bucket compared with your ongoing internal costs.

The return on this investment? The exhaustive analysis of processes may generate some incremental returns, but few companies are expecting a windfall. For now, its simply a cost of doing business—one youll be sure to document and certify in your brand-new compliance system.

To download an interactive spreadsheet you can use to total your own numbers, click on the above .xls download graphic link.