The SarOx costs discussions that have been penned here on Going Private have generated almost as much reader mail as my musings on the impending death of private equity. Interestingly, Going Private readers have been almost exclusively anti-SarOx. Many had personal examples of the slow, vampiric suck SarOx had on their firms. Noted one valued reader:
I have been following your discussion and various articles on the true costs of SarOx with interest. I head up sales and marketing for a mid-sized, publicly traded professional services firm that is struggling with the costs of being public.
I cannot give you hard figures but some "circimstantial" evidence to back up your thoughts.
- We know have two outside auditors that essentially sit in our offices looking over the shoulder of the finance and accounting team. They are supposed to be there working on "other things" but it ends up they are involved in ongoing day to day accounting decisions and of course we are paying for all that time they are there. We have complained continiously about it but have gotten nowhere.
- As head of sales I am deeply involved in revenue recognition activities on a monthly/quarterly basis and I can tell you that in the last year, the time I spend on these discussions has more than tripled.
- At 2:00 PM on the last day of Q2, the auditors informed us that we would have to use a brand new method for revenue recognition for all fixed fee software development projects that were over $1,000,000 in value. This required a team of people across 5 different offices (US, Asia and Europe) to work practically non-stop for 4 days to re-calculate the revenue to be recognized. Further in the 2 months since then, the auditors have continued to "tweak" the model so by this point, the assumptions used to recognize revenue for Q2 are invalid so we have been doing write ups and write downs this quarter to deal with it anyway.
- The guys that I work with in legal and accounting are burned out and tired of it and turnover has increased. In addition the the added expense for the audit firm itself, we have added staff to help deal with the increased work load and it is still not enough.
- The best people we have in finance who I used to work closely with to help craft creative deals for our clients are no too busy to spend much time on that. The external auditors have priority over our clients and prospects (not all the time but most of the time).
All this has us seriously looking at the business going forward to determine if we can continue to be viable as a public company.
Another reader opines:
...its not just monetary concerns that turn people away from US listings. The just released CEO Survey in the NYSE magazine (don't ask me why I have a copy) has another stat. It does corroborate that financially, US listings are a bitch: 70% of the CEO's of NYSE listed companies have said compliance costs have increased over three years ago. But additionally, 89% of the same group say they are spending more TIME on regulatory and compliance manners.
I'm not aware of any study that looks at "soft costs," i.e. time, opportunity cost, additional payroll expense required to deal with SarOx, but I should like to find one. I have to wonder what the additional hours and CEO grief alone cost a large firm.