Sarbanes-Oxley effect now wearing off for auditors
More work in ensuring compliance with the new corporate governance laws means higher fees
When the Sarbanes-Oxley Act first reared its head in the wake of a rash of
corporate scandals in the US, including Enron and WorldCom, it left many
companies with quite a headache.
Auditors, however, must have been rubbing their hands with glee: more work in
ensuring compliance with the new corporate governance laws meant higher fees
after all.
The amount of non-audit work you could undertake with an audit client may
have been restricted, but this loss of work could be picked up elsewhere, from
other firms that also have to drop some services.
But the good times for auditors caused by the new rules now appear to be
over, after a recent US study showed that audit fees have started to drop once
again.
A survey by Compliance Week showed that of the 47 companies with
more than $1bn (£570m) annual revenues it looked at, 25 showed a decline in fees
following the second year of working under Sarbox rules.
Some businesses saw fees fall by as much as 20%, compared to the figures paid
out in 2004. It is understood that the drop can be attributed to the compliance
process being much less painful for companies the second time. It is also
believed that many companies identified efficiencies when altering systems to
ensure compliance with Sarbox.
Even with these falls, auditors are unlikely to panic just yet as there were
many companies in the survey that saw fees jump instead. Some saw rises of more
than 70% year on year.
In the UK, the regulation situation is yet to fully pan out, meaning further
fee rises could still be on the cards for British companies. The effects of
Section 404 of the Sarbanes-Oxley Act, rules on internal control, are yet to be
felt outside the US.
Continuing delays to the deadline for its implementation in non-US companies
that file accounts with the SEC means there will be a lag for UK companies. In
addition to this, the enormous impact of the switch to IFRS is yet to be fully
appreciated by many companies.
Nevertheless, some of the larger auditors will be looking at ways to replace
the fee income that could drop away over the next few years.