The overall cost of complying with Sarbanes-Oxley corporate governance reforms in 2005 dropped 6% from the previous year for companies with more than $1 billion in revenues and 16% for companies with less than $1 billion in revenues, according to a study released today by Foley & Lardner. But audit fees, one component of the overall compliance cost, rose 22% in 2005 for small companies, 6% for midsized companies and 4% for S&P 500 companies.
"Audit fees alone now represent more than 50% of out-of-pocket costs associated with Sarbanes-Oxley Act compliance for public companies with under $1 billion in annual revenue, up from 33% of such costs in the last year before the Sarbanes-Oxley Act was enacted in 2002," the study said.
Reductions in the cost of overall compliance in 2005 "were driven by large decreases in costs associated with lost productivity, legal fees and initial corporate governance reform set-up," according to a statement about the study. "However, these decreases were largely offset by year-over-year increases in audit fees, directors and officers insurance and board compensation for companies of all sizes."
Annual compensation for directors in 2005, excluding fees for attending meetings and committee assignments, rose 141% from the previous year for small and midsized companies and 11% for large firms, the study found. Between 2001 and 2005, annual director compensation was up 71%, 64% and 58% for small, midsized and large companies, respectively.
The study was based on data from more than 850 proxy statements from public companies' 2005 fiscal year and responses from CEOs and other top executives of 114 public companies.