Financial Executives International polled companies for the 7th year in a row to determine how much it costs to comply with Section 404 of the Sarbanes-Oxley Act. This year, they talked to 185 companies with average annual revenues of $4.7 billion.

The total average cost of compliance was $1.7 million in 2007. This is a decrease from the prior years.

The survey also asked “accelerated filers” (companies with market capitalization above $75 million) about their audit fees for 2007. The total audit fees for these companies averaged $3.6 million, up a bit from 2006.

Here are some other interesting figures:

• Companies averaged 11,100 internal people hours to comply with Section 404 in 2007. (What a waste!) Yet this was considered good because it was a 8.6% decrease from 2006.
• Companies averaged 1,244 external people hours to to comply with Section 404 in 2007. (More waste!) This was also considered good because it was a 13.7% decrease from 2006.

And companies apparently think that Section 404 is doing some good:

• 50.3% agreed that financial reports are more accurate; up from 46% in 2006.
• 56.0% agreed that financial reports are more reliable, up from 48% in 2006.
• 43.6% agreed that compliance with Section 404 has helped prevent or detect fraud; up from 34% in 2006.
• 69.1% agreed that compliance with Section 404 has resulted in more investor confidence in their financial reports, up from 60% in 2006.

Although you’ll see in my book, Essentials of Corporate Fraud, there is generally a disconnect between what the executives think about fraud and the reality of fraud. Executives think that what they’ve implemented is more effective than it is in reality.