Cost Of Being Public Falls, Though Audit Fees Rise

For manufacturers and other companies, the overall cost of being public fell 16% last year for firms with less than $1 billion in annual revenues and 6% for companies with more than $1 billion in revenues, figures Foley & Lardner LLP.

In 2005, lost productivity, legal fees and set-up costs associated with corporate governance reform were lower than in 2004, while audit fees, director and officer insurance costs and board compensation rose, says the Chicago-based law firm in a study released June 15. Its study included results from 114 company surveys and a statistical analysis of proxy-statement data from more than 850 companies.

The study shows audit fees for S&P small-cap companies increased 22% in fiscal 2005, 6% for S&P mid-cap companies and 4% for S&P 500 companies. " . . . We did not expect to see the continued increase in audit fees over fiscal year 2004 -- a year in which [Sarbanes-Oxley Act] Section 404 drove costs to an already unprecedented level," says Thomas E. Hartman, a partner at Foley & Lardner and director of the study. Section 404 mandates an annual assessment of a company's financial controls. "Corporate governance reform continues to present a more significant financial burden for smaller public companies than it does for larger ones," concludes Hartman.

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