Sarbanes-Oxley compliance estimates soar

Complying with Section 404 of The Sarbanes-Oxley (SOX) Act will cost public companies an average of 62% more than previously anticipated, according to a recent survey by Financial Executives International (FEI). The increase in Section 404 compliance costs stems from a 109% rise in internal costs, a 42% jump in external costs and a 40% increase in the fees charged by external auditors.

In July 2004, FEI surveyed 224 public companies with average revenues of main.5 billion to gauge Section 404 compliance cost estimates. Results showed the total cost of compliance is now estimated at $3.14 million, or 62% more than the $1.93 million estimate identified in FEI’s January 2004 survey. The companies surveyed expect to pay their auditors $823,200 in fees for attestation of their internal controls, in addition to the annual audit fees. This compares to the $590,100 companies expected auditors would charge for attestation in January 2004.

“When we conducted our January survey, audit firms hadn’t yet provided their clients with complete estimates for Section 404 work because the auditing standards had not been finalized,” said Colleen Sayther, president and CEO of FEI. “Now that the standards are finalized and implementation efforts are further along, compliance costs can be more accurately determined.”

As part of management’s attestation process, the survey showed that companies are documenting internal controls for 92% of total revenue.

Compliance with SOX and other new corporate reporting requirements are a major challenge for many U.S. multi-national companies, according to PricewaterhouseCoopers’ Management Barometer report. The report states that 51% of companies are considering purchasing new technologies over the next 12 months to improve their current reporting infrastructure.

“Sarbanes-Oxley is corporate America’s number one challenge for reporting and compliance. The new requirements are a significant test of existing information systems and capabilities because of their far-reaching scope,” said PwC partner Mike Willis.

Nearly half of those polled (46%), report that expanded corporate reporting resulted in larger IT budgets. Of this group, 11% increased their IT budgets considerably.

More service businesses (60%) are considering further upgrades in their technology than produce sector companies (48%), although the report suggests that this could still change.

For more information on the Financial Executives International study visit www.fei.org. For more information on the PricewaterhouseCoopers study visit www.pwcglobal.com.

Financial institutions lagging in risk management

Financial services companies have pushed risk management further up the corporate agenda and now regard reputational risk as the greatest threat to their market value, according to a new study by PricewaterhouseCoopers (PwC) and Economist Intelligence Unit (EIU). Despite this, quantifiable risks, like credit and market risks, still absorb the most attention among institutions.

In a survey of more than 130 senior executives in financial institutions worldwide, 82% agreed that awareness of risk is now more pervasive in their organizations than it was two years ago and 73% agreed that their organizations define their appetite for risk more clearly. However, the results are shrouded in some concerns.

The survey identified four reasons why risk management remains primarily focused on meeting regulatory requirements and only after that is managed, on protecting and enhancing the value of the franchise:

• A culture of risk awareness has yet to be established
• Compliance isn’t being turned into a competitive advantage
• The importance of governance is underestimated
• Quantifiable risks are still the focus of too much attention.

“Financial institutions have made significant strides since our last risk management survey two years ago,” said Phil Rivett, global leader for PwC’s banking and capital markets group. “But our latest findings have revealed that too many organizations are still concentrating on calculating market and credit risk to a further order of accuracy, and too few on understanding the totality of the risks they face in order to give themselves a competitive advantage.”

Rivett also noted that companies have to see the big picture, to anticipate and avoid risks when possible, or at least have the processes in place to soften their impact.

The study, entitled Uncertainty tamed? The evolution of risk management in the financial services industry, also revealed that many central risk groups did not have much input in the strategic decision making of their companies.

For more information, or to download a copy of the survey, visit www.pwc.com/financialservices.

Investment management firms restructuring in face of challenges

The large-scale losses by investors in the last bear market, mutual fund scandals and increasing legislation, have lead to investor nervousness the world over, according to a recent study of investment management firms around the world. The study, called Raising the Performance Bar: challenges facing global investment management in the 2000s, was conducted by think-tank CREATE and KPMG and covered 300 prominent fund managers from 29 countries, including Canada. The study found that the majority of global fund management firms are radically restructuring their business models to regain investor confidence.

“The industry faces some tough challenges ahead in this new environment of intense scrutiny,” said Harry Ort, national industry leader of KPMG’s financial services practice. “The validity of all the fundamentals of the business model, such as performance and charges and service, are now being questioned,” he notes, stressing that there is a growing recognition that a business model that works in a bull market won’t succeed in today’s nominal return environment.

In response, fund managers are now focusing on their core strengths and running their businesses by establishing external alliances. This might involve outsourcing back office functions, or mergers and acquisitions that focus on acquiring other skill sets rather than expanding market reach — more strategic choices.

However, the study cautions that the changes currently under way may be insufficient. The challenge will be in changing the mind set of those in the industry — reshaping old attitudes while retaining key staff will be the biggest challenge.

For more information visitwww.kpmg.com.

High tech

Ergonomics for your laptop

Laptops, while convenient in some ways, can also be rather irksome — having to use a touch pad instead of a mouse can be irritating if you’re not used to it. This makes LapWorks, Inc., based out of California, an interesting company. It designs ergonomic computing accessories for laptop computers. The Laptop Desk UltraLite, for instance, is the newest product in LapWorks’ Laptop Desk line — portable, fold-away table tops that hold your laptop, redirect the heat from them and give you space for your mouse and other accessories, whether you’re using your computer on a desk or in a chair.

The newest model weighs only 14.6 ounces and is only 5/16 of an inch thick. It’s designed to support less weighty, 5-pound-and-under Ultra Portables and Thin and Light notebooks, Tablet PCs and PDAs with external keyboards. The lap tray is 22 x 11 inches, which gives it a larger workable mousing area.

The desk also cools laptops by 8% to 10% via ventilation channels that allow increased airflow beneath the computer.

For more information visitwww.laptopdesk.net.

New Software

• CyberMatrix Point of Sale, an easy to use Windows-based retail sales management application
• Siebel Systems’ Enterprise Marketing Suite 7.7

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