April 12, 2005
Our audit fees have gone from 350,000 to 4 million this year. Weve spent an additional 2 million in outside consultants. I believe the cost/benefit tradeoff of Section 404 is way out of line. Most of the costs of Section 404 result from documentation, testing and auditing areas which provide little benefit to investors. Keep upper mananagement on the hook through certifications, enforcement,etc. but leave it to each company to decide how to best determine what level of system documentation and controls are necessary to be able to sign off on the financial statements. Weve lost sight of the fact that the financial statements are what is most important to investors. Determining the adequacy of internal controls is too subjective and something that the audit profession is having difficulty grasping.
I believe many of the SOX reforms are very beneficial, especially the whistleblower and certification rules. However, the internal control requirements do not provide the same level of benefit for the amount of costs involved.