Key findings from this year's public and private studies were revealed during the firm's Web conference:

• Sixty-seven percent of public companies consider the Sarbanes-Oxley corporate governance reforms (SOX) "too strict," while 83 percent of private companies consider the reforms "about right."
• Public companies surveyed said that their audit fees increased an average of 23 percent between fiscal year (FY) 2002 and FY 2003.
• Private firms said the average cost of compliance in 2003 was $50,000, whereas public companies reported costs close to $3 million.
• Seventy-seven percent of private companies feel SOX or other requirements have impacted their organizations.

Public companies

The average cost of being public for a company with annual revenues under $1 billion has increased $1.6 million -- or 130 percent -- since the inception of SOX in 2001 (through FY 2003).

Executives surveyed said Section 404 of Sarbanes-Oxley has had the most significant financial impact on their company. This was followed by the increased cost of D&O insurance.

Conference participant Shari Brown, vice chair of the White Collar Defense and Corporate Compliance Practice Group at Foley & Lardner, explained that directors now have more risk and responsibility and are held more accountable for their actions on the board.

"The rigor in terms of the director's attention to detail ... was not always what it should have been," said Brown. "Today I think all directors really feel the scrutiny and the weight of the responsibility they have with respect to the company's affairs, and they want their fees and compensation to reflect that risk."

Pat Condon, Partner and Midwest Corporate Governance Leader at Deloitte & Touche, agreed. He cited a recent Deloitte study that found the average number of audit committee meetings in a year-long period have increased, from about four meetings a year to six or more meetings a year.

Following D&O insurance, public companies cite increased audit fees as having a significant financial impact on their company. Large-cap companies saw an increase of $959,000 in 2003 compared to 2002; mid-cap companies reported a $120,000 increase; and small-cap companies reported an $89,000 increase.

At the same time, non-audit fees averaged a 20 percent decrease. The study's director, Tom Hartmann of Foley & Lardner, attributed this decline to certain consulting work being shifted away from accountants because of SOX regulations.

Brown said she has seen tension between accountants and legal departments. Some "legal departments feel that accountants are going overboard in meeting their SOX obligations," she explained. "It's not unusual for legal departments and outside auditors to have a different point of view of how and when things should be raised."

While many public companies believe the incremental requirements of Section 404 may have gone too far, Deloitte's Pat Brown said he has not heard any company object "to the principal" of the reforms.

Unfortunately, the past year, which was the first full year with the reforms in effect, has not given executives a better idea on the predictability of reform costs. Half of those surveyed (50 percent) disagreed that they are better able to predict costs associated with corporate governance reforms, while 39 percent agreed.

Overall, the study showed that the cost associated with regulation compliance is not a one-time expense; in fact, the expense continue into 2004 for many companies.

Private companies

In a separate study, 60 percent of private companies said they have self-imposed accounting reforms. Hartman noted that this makes sense, because 83 percent of private companies consider the reforms "just right."

Private companies said several groups have encouraged them to impose reform standards, even though they are not required by law to meet the SOX requirements. These groups include board members, auditors, insurance companies, lenders and customers.

Eighty-seven percent of those surveyed plan to or have already implemented financial statements, while 63 percent plan to or already have implemented independent directors.

Finally, the study found that 63 percent of private companies surveyed feel the benefits of reform standards equal or exceed the costs. Just 27 percent said the costs outweigh the benefits.

Study details

Both studies were sent to CEOs, CFOs, general counsels, chief compliance officers, directors, board members, and other executives of public and private companies. A total of 115 surveys were returned by public companies, 30 by private companies.

-- Niquette M. Kelcher