The Cost of Being Public in the Era of Sarbanes-Oxley

THE COST OF BEING PUBLIC
IN THE ERA OF SARBANES-OXLEY

Foley & Lardner law firm

SUMMARY
! Based on data received from Foley & Lardner?s 2004 and 2005 studies, the average cost of being
public in FY 2004 for a company with annual revenue under $1 billion has increased $851,000
(33%) over FY 2003. Further, from the enactment of the Sarbanes-Oxley Act through FY 2004,
the average costs have increased a total of $2.4 million, representing a 223% increase.
! In FY 2004, the average cost of being a public company with annual revenue of $1 billion and
over was $14.3 million, an increase of $4.4 million (45%) over FY 2003.
! Lost productivity continued to represent a major cost for all companies responding to our 2005
survey, particularly for the smaller public companies responding. Average costs associated with
lost productivity increased more than 556% to $1 million in FY 2004 for responding companies
with annual revenue under $1 billion, compared to an 18% increase to $2.9 million in FY 2004 for
responding companies with annual revenue over $1 billion.
! Fees paid to outside auditors have continued to increase by double digit percentages year over
year since the enactment of the Sarbanes-Oxley Act in 2002. This increase accelerated
dramatically in FY 2004. We attribute this increase to the substantial costs associated with the
financial control audits required under Section 404 of the Sarbanes-Oxley Act, which phased-in
for most domestic public companies at the end of 2004.1
- Of all the companies analyzed, audit fees increased an average of 61% between FY 2003 and
FY 2004.
- Audit fees increased an average of 84% for S&P Small-Cap companies, 92% for S&P Mid-
Cap companies and 55% for S&P 500 companies.
! It continues to be increasingly expensive for companies of all sizes to attract and retain qualified
directors. In FY 2004, S&P Small-Cap, S&P Mid-Cap and S&P 500 companies witnessed doubledigit
increases in average annual director fees with increases of 17%, 14% and 13% respectively.
Over the past four years, the impact of corporate governance reform on director fees has been
significant, with increases of 46% for S&P Small-Cap, 45% for S&P Mid-Cap and 43% for S&P
500 companies between FY 2001 and FY 2004.
! Consistent with results from previous years, a significant number of survey respondents (20%)
are considering going-private transactions as a result of corporate governance and public
disclosure reforms. Additionally, respondents to our 2005 survey are increasingly considering
other options, including selling the company (10%) and merging with another company (14%).
! There was a significant increase in the number of respondents to our survey who felt that
corporate governance and public disclosure reforms have impacted administrative expenses
?a great deal,? increasing from 54% in our 2004 survey to 70% in our 2005 survey. We attribute
this increase to the financial impact of the phase-in of Section 404 in FY 2004.
! A vast majority (82%) of respondents felt that corporate governance and public disclosure reforms
are too strict, an increase of 15% compared to our 2004 survey. Read more

Posted on June 30, 2005
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SAP

SAP Expands Financial Management Offerings for Small and Midsize Enterprises
Monday June 27, 7:00 am ET
Growing Solution Partner Network Offers Broad Financial Management Capabilities With SAP(R) Business One

LAS VEGAS, June 27 /PRNewswire-FirstCall/ — SAP America, Inc., a subsidiary of SAP AG (NYSE: SAP - News), today announced an expanded portfolio of financial management applications for small and midsize enterprises (SMEs) offered through its growing network of solution partners for SAP? Business One. SAP Business One solution partners Altec, FXport Technology, Inc., Information Systems Group, Inc. (isgi) and Tenrox have joined with SAP to deliver new capabilities in the areas of finance and accounting, including document management, project accounting and risk management. The announcement was made at TECH 2005: The American Institute of Certified Public Accountants’ (AICPA) annual information technology conference being held in Las Vegas, Nev., June 27-29.

(Logo: http://www.newscom.com/cgi-bin/prnh/20050310/SFTH009LOGO-a )

The new components integrate seamlessly with SAP Business One, SAP’s affordable business management software solution for SMEs, and meet the growing need for applications that can automate financials and accounting as part of a company’s core business processes.

“Increasingly complex regulatory compliance requirements and tax issues are making it more and more difficult for small businesses to rely solely on spreadsheet solutions to meet their reporting needs,” said Peter Russo, director, Entrepreneurial Management Institute, Boston University, School of Management, CPA. “Financial management solutions with the versatility to manage diverse functions in real time can help meet the rigorous demands of running a small business and provide a clear-cut path to financial transparency.”

“Planning for future growth while adhering to current regulatory measures, the SAP Business One solution has allowed us to fully automate financial controls and discover new, lasting efficiencies by connecting business processes onto one platform throughout our internal operations,” said Garry Lowenthal, executive vice president and CFO, Viper Powersports, a leading designer and manufacturer of “custom factory built” Viper Super Cruiser motorcycles. “We are now confident in our ability to meet the requirements of Section 302 of Sarbanes-Oxley. We expect to be in compliance with Sarbanes-Oxley Section 404 and to voluntarily comply with those requirements well ahead of the current reporting deadlines for companies our size.”

The growing financial management portfolio complements SAP’s CPA Advisor Program, through which the company and its partners offer information and insights that assist participating CPAs in advising their growing small business clients on taking advantage of the expanding functionality of SAP Business One. Discussions focus on updated information on the impact of regulatory requirements of small businesses, offering continuing education courses on effective new technology for streamlining business processes and connecting financial functions with all aspects of the enterprise.

New Business Partners Provide Full Financial Functionality

SAP’s solution partners for SAP Business One include: Altec, FXport Technology, Inc., Information Systems Group, Inc. (isgi), and Tenrox. The fully integrated components offered by these partners are part of a roster of more than 100 SAP Business One Solution Partner offerings available or under development.

– Altec will offer Doc-link(TM), the integrated document management system enabling SAP Business One to eliminate office paperwork by capturing all business documents, extending built-in workflow functionality and enhancing transaction processing.

– FXport will provide SAP Business One with FXportADVISOR, a structured and collaborative currency risk management solution to help companies understand the impact of currency shifts on financial performance on importers and exporters and to act strategically to win sales and drive growth.

– Information Systems Group, Inc. (isgi), also an SAP Business One reseller, supplies Project Accounting Suite for SAP Business One, a solution designed to provide real-time financial reporting on the profitability and productivity of specific jobs, projects and customer accounts.

– New partner Tenrox will provide Tenrox Release 8, a professional services and workforce automation management functionality within the SAP Business One solution to allow small businesses to enhance operational control and greatly reduce billable and non-billable project time and expense tracking costs and errors by eliminating redundant data entry, management by spreadsheet, poor auditing of approvals and modifications, and file-based or manual imports and exports to financial systems.

– Current integrated financial management components for SAP Business One include Third Wave Business Systems’ CrystalWave, a reporting tool that tightly integrates SAP Business One with CrystalReports, eliminating the inefficiencies associated with using an external reporting tool and Solver, Inc., offering XL Reporter Consolidations, a tool to automate and speed up the consolidation of financial statements and general ledger account data across SAP Business One databases.

“SAP Business One provides a flexible, easy-to-use solution both for our customers to manage their businesses more effectively and for our solution partners to build applications that meet specific market needs,” said Dan Kraus, vice president, SAP Business One. “Together with our partners, we are building a portfolio of SAP Business One solutions to manage vertical industry and other key business processes so that small businesses can focus on managing their business and avoid the headaches and cost of cobbling together disparate applications.”

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Posted on June 30, 2005
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Sage Accountants’ program

Sage Software Enhances Accountants’ Program With New Product Libraries at AICPA Tech 2005
ACCPAC and Timberline Libraries Now Available Through Newly Named Sage Software Accountants Network Along With Additional New Resources for Effective Practice Management
LAS VEGAS, NV — (MARKET WIRE) — 06/27/2005 — In conjunction with its corporate rebranding, Sage Software today announced the new name for its popular BSAN (Best Software Accountants Network) program — the Sage Software Accountants Network — as well as expansion of its available libraries for accountants, which now include Timberline and ACCPAC.

Small and mid-sized organizations often rely on their accountants for insight and suggestions on how to more effectively manage their businesses through technology. With the addition of ACCPAC and Timberline to the Accountants Network libraries, program members now have more tools at their disposal to better advise and serve their clients.

The Accountants Network offers resources to increase technical competency and help grow an accountant’s practice by providing informative communications and resources, product discounts and membership benefits related to the Sage Software family of products. Through the Accountants Network, accounting professionals also have access to software Libraries for Sage Software products that include accounting and business management software, support services and automatic upgrades and updates, including tax tables when applicable. In addition to product libraries, the program offers valuable practice development aids and access to discounts on products and services through preferred “Value Partner” vendors such as Dell, Nextel and CCH Learning Center (for CPE).

Two additional companies will join the Accountants’ Network as Value Partners in July: First Research, which provides industry intelligence tools; and iLumen?, the private company financial monitoring and benchmarking network. Through First Research, accountants can gain access to several services: Industry Profiles from more than 170 target markets, highlighting critical industry trends, challenges and opportunities; Call Prep Sheets — one-page executive summaries of the Industry Profiles; and Email Alerts with the most recent updates on selected industries. iLumen offers private company trending, monitoring and benchmarking services that firms can use to continuously monitor and benchmark their private company business clients. Both services assist accountants in the analysis of not just their own progress, but that of their clients and the markets they serve.

“Sage Software is squarely focused on providing the accountant community with the best tools possible to manage their own firms and serve their clients,” said Ed Cheeseman, vice president, Sage Software Accountants Network. “Sage Software has nurtured strong ties with accountants for nearly 30 years; we understand the needs of this community, and we value the opportunity to support AICPA Tech 2005 for our accountant partners. So many of them value this forum, where they can learn about new technologies, refine their own practice skills, and take additional insight back to their customers at home.”

Also new are the Sage Payroll Services offerings for mid-market companies and organizations. Announced in May at the company’s Insights conference and offered within the framework of Sage Online Services, the new outsourced payroll services joined the company’s existing Peachtree Payroll Service for small businesses. Built on a true Web-native architecture, the new Sage Payroll Services include Sage Payroll Services — Abra Edition, which integrates with Sage Abra HRMS (human resources management system) solution, Sage Payroll Services — MAS Edition, which integrates with the company’s Sage MAS 90 and Sage MAS 200 accounting products, and a stand-alone Sage Payroll Services offering, which can be used in conjunction with any in-house accounting system. More information about these outsourced payroll services will be available in the Sage Software booth at AICPA Tech 2005.

The conference, held this year at the Bellagio Hotel in Las Vegas, draws hundreds of CPAs annually, who attend the event to learn more about enhancing their practices through technology. Serving as at the Platinum sponsor of this year’s AICPA Tech Conference, Sage Software will feature live demonstrations this week in booth 301 at the Bellagio in Las Vegas, showing several of the products from its broad portfolio: Sage CPAPractice Manager, Peachtree by Sage 2006, Sage MAS 90, Sage MAS 200, Sage MAS 500, Sage ACCPAC, Sage BusinessWorks Gold, Sage MIP Fundraising, Sage Common Desktop featuring Sage ACCPAC, Sage Abra and Sage FAS. Representatives from the Sage Software Accountants Network will also be on hand in the booth to answer questions.

About Sage Software (formerly Best Software)

Sage Software offers leading business management products and services that support the needs, challenges and dreams of more than 2.4 million small and mid-sized customers in North America. Its parent company, The Sage Group plc (London: SGE.L), supports 4.5 million customers worldwide. For more than 25 years, Sage Software has delivered easy-to-use, scalable and customizable applications through its portfolio of leading brands, including Abra, ACCPAC, ACT!, BusinessWorks, CPASoftware, FAS, MAS 90, MAS 200, MAS 500, MIP, Peachtree, SalesLogix, and Timberline Office, among many others. For more information, please visit the Web site at www.bestsoftware.com/moreinfo or call (866) 308-BEST.

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Posted on June 30, 2005
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ICAS

Why ICAS is against consolidation

by Des Hudson, chief executive of ICAS
[From accountancyage.com]

ICAS is against the consolidation of the profession, instead seeing the value in keeping an exclusive focus on chartered accountants

The proposed consolidation of the accountancy profession in the UK via a merger of the Institute of Chartered Accountants in England and Wales with the Chartered Institute of Public Finance and Accountancy is predicated upon the unproven belief that one centralised monolith would be more effective than several institutes.

The ICAEW further contends that current relationships between the major institutes tend to emphasise competition rather than partnership, resulting in the profession, as a whole, experiencing difficulty speaking with one voice. The Institute of Chartered Accountants of Scotland regards both arguments as unpersuasive.

Rather than being more effective, one monolithic institute would be just as likely to be less effective. Of necessity, such an entity would be a broad church representing various different interest groups, making the process of representation, and lobbying on behalf of, these differing interest groups much more problematic. At least in part the various institutes exist within the UK because they represent different member needs.

A merger of institutes representing chartered accountants would have the potential of being a much more homogenous grouping than a merger of institutes representing, not only chartered accountants, but public finance accountants and management accountants.

While these different kinds of accountants are unlikely to hold conflicting views about all issues all of the time, nonetheless, the identification of a common cause upon which they can all rally behind with equal enthusiasm, is likely to be more difficult for a larger, organisation to achieve, than it is for a smaller, more homogenous organisation. The contention that the bigger the institute is, the more effective at lobbying it will be, is unconvincing.

For its part, ICAS sees considerable benefit in an exclusive and unremitting focus on chartered accountants and in particularly CAs whom we consider to r epresent the most able tier of the profession.

Further, contrary to ICAEW?s apparent aversion to competition, ICAS embraces both competition and partnership. We do not regard them as mutually exclusive and believe firmly in the benefits of competition, both for our members and more importantly for the markets we serve. Simultaneously, where there is scope for co-operation and we think there is, ICAS is eager to co-operate.

Since structures already exist to encourage co-operation, ICAS sees no convincing argument for consolidation of the profession. Rather, ICAS considers the Consultative Committee of Accounting Bodies (CCAB) as the appropriate vehicle for co-operation. With the proper level of support from the profession?s representative bodies, CCAB?s effectiveness can only be enhanced.

There are far more important issues for the profession?s representative bodies to contend with than consolidation, which is why ICAS has no current intention to merge.

Rather, ICAS will continue to focus its efforts solely on chartered accountants, the premium positioning of CAs within the profession, the urgent need to protect the term ?accountant? so that only the qualified may hold themselves out as an accountant, and an unparalleled excellence of education provision and a personalised service to its members.

ICAS is committed, above all else, to the training of individuals of the highest calibre and ability, to equip them with a skillset that enables them to take on the most significant, important, comprehensive and challenging roles both within the profession and business. Read more

Posted on June 30, 2005
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Increasing the Pool of Black CPAs

Howard University teams with accounting firms to find ways to appeal to new talent and retain seasoned professionals

Sources: blackenterprise.com, washingtonpost.com
For an industry focused on the veracity of numbers, one in particular has prompted a bit of soul-searching: Only 1 percent of CPAs in the United States are black, and the numbers for Hispanics and other minorities are similarly low.

Cordier and 119 other first-year accountants and auditors got a boost toward nudging that percentage upward this week during a six-day leadership program sponsored by Howard University’s Center for Accounting Education.

The Big Four, as well as a few of the major black-owned accounting firms, are helping pay for the event at the Westfields Marriott Hotel and Conference Center in Chantilly. They also are providing speakers and mentors who offer tips on how to network, how to deal with bosses and career pitfalls, and, crucially, how to pass the CPA exam. Similar to the bar exam for lawyers, the CPA test qualifies people to, for example, perform certified audits.

“Studying for the exam is crucial,” said Allen Boston, Ernst & Young’s director of campus and diversity recruiting, imploring his firm’s “Staff 1″ employees, those who have started their accounting careers but have yet to take the test.

Once again, numbers tell a disheartening story: Even though blacks constitute 12 percent of students enrolled in accounting courses, they make up only 8 percent of accounting graduates and only about 4 percent of those who sit for the CPA exam. According to the American Institute of Certified Public Accountants, the industry’s leading professional organization, blacks constitute only 1 percent of their membership. Asians and Pacific Islanders make up 4 percent and Hispanics represent 2 percent.

The number has remained stagnant for almost a decade, while the representation of blacks in comparable professions such as law has inched slowly upward.

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While the need for new accounting talent grows in the wake of corporate wrongdoing, African American representation in the field remains low. However, one partnership is aiming to change that.

Howard University minority accounting firms and associations, and several of the nation’s largest accounting firms have teamed up to increase the number of African Americans who enter the field as well as retention.

?We’re About Success!? a week-long event from June 26 to July 1 in suburban Virginia has brought together new accounting hires and experienced veterans to give newcomers technical and interpersonal skills that will aid their advancement.

A recent study by the American Institute of Certified Public Accountants found 5% of new graduates hired by CPA firms between 2003 and 2004 were African American. While up 2 percentage points from the following period, white applicants made up 81% of new hires from 2003 to 2004.

Organizers say the event is a first step, and plan to replicate it at other historically black colleges and universities.

?This program is unique,? says George S. Willie, managing partner of Bert Smith & Co., a Washington, D.C.-based African American accounting firm. ?This is the first time we have confronted what we think are the problems with high turnover and low retention. If we can keep enough minorities and African Americans in the profession, we could get them to stay and advance.? Read more

Posted on June 30, 2005
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PICPA Picks Krebs for ‘05-’06 President

Robert H. Krebs Jr., CPA, was elected 2005-2006 president of the Pennsylvania Institute of Certified Public Accountants. Krebs is a partner with Goff Backa Alfera & Company LLC in Pittsburgh and works in the firm’s quality control and accounting and auditing services departments. A graduate of Pennsylvania State University, he is also the director of the Pittsburgh region of the Becker Professional Review, an organization that provides CPA exam review courses.
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Posted on June 30, 2005
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MERGERS & ACQUISITIONS: CPAs See the Deals Coming

Mergers and acquisition activity in the private markets is clearly heating up.

Two-thirds of CPAs see more deal flow.

So what’s the affect on CPAs and firms?
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Posted on June 28, 2005
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VACATIONS: Are You Taking Enough?

Taking time off is essential to mental health, good relationships, and even good job performance. But too many CPAs may be working too hard.

And that’s not necessarily a good thing.

Here are some highlights from our latest study. For more information about crosstab detail and methodology, contact Rick Telberg.

Most CPAs fail to take advantage of all the vacation time they are earning.

… And they wish they had more time off.

The situation hasn’t changed much from last year.

But, for about half all CPAs, more vacation time could be an added benefit worth changing jobs for.

Most CPAs get two to three vweeks off.

And they take it in June and December.

How crazy are CPAS about their work? About 2% filled out this survey while actually on vacation!

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Posted on June 28, 2005
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The Busy Season from Hell

A Lesson in Leadership, or, When Leaders Fail

A Reader Writes (Name Withheld by Request)…

We serve high end family groups. Our focus for the last 20 years has been team work with each other and with the client. We have been very successful.

But now our managing, founding partner has released his compliance responsibilities to his co-owners.

It is amazing how the lead partner can set the tone for the whole office.
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Posted on June 27, 2005
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How CPAs Profit From New Technologies

Implementing the right technology at the right time can be as important as selecting the right products.

by Rick Telberg
[www.cpa2biz.com/news/telberg]

If productivity equals profits for CPA firms, then CPAs at this week’s AICPA Tech show in Las Vegas could walk away with a lot of money-making ideas.

Much of the gain in CPAs’ productivity has already come with the help of new technologies ? technologies that will be on display at the Tech 2005 AICPA Information Technology Conference. We already reported on the perspectives of the meeting’s organizers in “CPA Tech: Ya Gotta Deal With It” and how vendors are attacking productivity issues for CPAs in “The Winning Formula.”

This week, we talk to a few more vendors about the trends and issues in technology, starting with what may be the practitioner’s biggest headache ? tax-season workload compression. Read more

Posted on June 26, 2005
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eBay, Intuit Team for eBay Sellers

QB Add-on Gives eBay Sellers New, Faster Way to Track Sales, Fees and Profits

Intuit Inc. says eBay has used the QuickBooks Software Development Kit to develop the eBay Accounting Assistant. This free application automatically downloads eBay transactions into QuickBooks, enabling eBay sellers to easily track their sales, fees and profits, according to Intuit. With an accurate and complete view of their finances, small business owners can make faster, more informed business decisions, the company says. Accounting Assistant was developed by eBay to allow its sellers, including approximately 430,000 people in the United States who run all or some of their business on eBay, to easily import eBay and PayPal transactions directly into QuickBooks, the company said. Before Accounting Assistant, sellers who wanted to track how they are making and spending money had to either manually enter transactions into QuickBooks or lump a batch of transactions together and track them as a single line item, Intuit said. Manually entering individual transactions can take hours and entering lump sums can lead to mistakes in the books, the company said. With Accounting Assistant, eBay sellers eliminate these problems and have an accurate easy way to manage their business, Intuit said.

Source: Intuit.com Read more

Posted on June 25, 2005
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CPAs’ Top Tech Worries: Privacy, Security

CPAs worry most about privacy and security issues in technology.

Only 15% are concerned with loose password policies. The study doesn’t say how many CPAs are unworried because they already have tough policies in place. But most experts say the biggest security and pivacy threats come from loose policies on password control, or lost laptops or PDAs.

But what are they doing about it? Which issues are they most concerned with? And what are they actually going to be investing in?
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Posted on June 24, 2005
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SARBOX Flows Downstream to States, Non-Profits

New York and California are considering asking private companies to comply with SarbOx-type regulations, according to businessweek.com. California has began requiring nonprofits with more than $2 million a year in receipts to undergo audits. Colleen Cunningham, CEO of Financial Executives International, says compliance is not a matter of if, but when. “Private companies have the advantage of doing it right now at their own pace,” says Cunningham. However painful that may be.

“Sarbanes-Oxley doesn’t apply to nonprofits, but like ink in water it’s changing the way they operate,” says Charles Elson, director of the University of Delaware’s Weinberg Center for Corporate Governance, according to WSJ.com. “Suddenly you’ve got accounting firms that audit nonprofits clamoring for the same financial controls now in place at for-profits.” And nonprofit trustees want more transparency. Although they’re exempt from financial liability in most states except in cases of fraud, they worry that in this climate their reputations could be hurt if money is misused or the organization falters.
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Posted on June 23, 2005
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