Audit Fee Report - Audit Analytics€¦ · Audit Fee Report Mark Cheffers, CEO...

Audit Fee Report

Mark Cheffers, [email protected]

508.476.7007 x223

Maggie Thrun, Research [email protected]

508.476.7007 x236

Don Whalen, Esq., Research [email protected]

508.476.7007 x222

August 2008

Introduction 1

Database Overview 2

Methodology 2

Executive Summary 2

Summary Table Backup 5

Audit Fee Changes during Last Three Years (Graph) 6

Fiscal Year Audit Fees Analysis: All Registrants (Table) 7

Calendar Year Audit Fee Review (Table) 8

SOX 404 Year Audit Fee Review (Table) 9

Overview: Audit Analytics® 10

Appendix A A1

Appendix B B1

Table of Contents

Audit fees paid by public companies over the past three years have risen each year, but at a decelerating rate. (See first graph on right.) A review of all registrants that disclosed audit fees to the SEC for each of the last four calendar years (8109 companies) shows that these companies experienced a steady drop in the percentage increase from year to year: 12.0% in 2005, 7.8% in 2006, and 4.1% in 2007.

When these companies are broken into subsets based on their involvement and performance under section 404 of the Sarbanes Oxley Act (SOX 404), the percentage of audit fee changes vary significantly. For example, companies that filed SOX 404 disclosures each of the four years experienced a decrease in fees in 2005 followed by increases much lower than that of the general population. In 2005, the audit fees for 404 filers decreased by 3.4% and then increased by 5.2% in 2006 and only 2.3% in 2007. This group of companies filed their first SOX 404 disclosure in their annual reports for fiscal years ending on or after November 15, 2004.

Therefore, for most of these companies, the investment costs for their initial SOX 404 compliance occurred in 2004 or prior. As internal controls over financial reporting improve, the entire auditing process becomes more reliable and efficient. A further refinement of the group of SOX 404 filers, are those companies that disclosed an adverse opinion in at least one of the four years. This subset of the first group saw

a reduction in audit fees for all three years: -7.5% in 2005, -0.4% in 2006, and -3.7% in 2007. The only subcategory of companies to see a percentage spike in 2007 is the Non-404 filers. Ostensibly, this spike is caused by the time investment in 2007 by auditors

assisting management with their first SOX 404 assessment. Companies that have not fallen under the purview of SOX 404 as of the beginning of 2007 must begin filing SOX 404 management assessments of the company’s internal controls over financial reporting in annual reports for fiscal years ending on or after December 15, 2007. Although an auditor attestation is not yet required from these companies, this requirement will most likely be phased in at the end of 2009.

Audit Fee Changes: A Three-Year Review

1

Introduction

The audit fee changes experienced by public companies over the last

three years varied significantly depending on their SOX 404 involvement and performance

12.0%

-3.4%

-7.5%

16.8%

2005

2005

2005

2005

2006

2006

2006

2006

2007

2007

2007

2007

7.8%

5.2%

-0.4%

3.8%

4.1%

2.3%

-3.7%

13.6%

Percent Change from Prior Year




Audit Fee ChangesAll Registrants

Audit Fee ChangesSOX 404 Filers

Audit Fee ChangesAdverse SOX 404 Filers

Audit Fee ChangesNon-404 Filers

Data Base OverviewThe Audit Analytics auditor fees database contains fee data for over 15,000 companies with information dating back to 2000, when these disclosures first became an SEC requirement. The SEC requirement currently designates four categories of fees to be disclosed: audit fees, audit related fees, tax fees, and other/miscellaneous fees. This data is updated daily and may be searched and parsed by company, audit firm and other demographic criteria such as industry, financial size, filing designation, location, or peer groups.

In addition to audit fees, the Audit Analytics database contains separate and distinct information regarding Auditor Changes, Auditor Engagements, Audit Opinions, Benefit Plan Opinions, Director & Officer Changes, Restatements, Disclosure Controls (SOX 302), Internal Controls (SOX 404), Late Filers (Non-timely Disclosures), and Litigation. The relational nature of the database gives the researcher the ability to correlate audit fees to other events contained in this range of data sets.

Methodology:This 2007 Audit Fee Briefing Paper is based on data obtained from the Audit Analytic database on April 30, 2008 (allowing for a large sample, but not complete list, of fees to be disclosed for fiscal year 2007). The study provides a four year review of the audit fees and total fees paid by 8109 public companies that disclosed audit fees to the SEC for each of the following calendar years: 2004, 2005, 2006, & 2007. The analysis also calculates the change in fees from year to year. For the purposes of this analysis, the Audit Fees presented include Audit Related fees. The Total Fees include all five categories of fees disclosed.

For comparison purposes, this population is divided into two primary groups: (1) companies that filed a SOX 404 disclosure for each of the four years (“404 Filers”) and (2) companies not required to file a disclosure in any of the four years (“Non-404 Filers”). The category of 404 Filers includes companies that were not under the purview of SOX 404, but nevertheless filed voluntarily. Since companies that filed one, two or three SOX 404 disclosures do not meet the definition of 404 Filers or the definition of Non-404 Filers, the sum of these two populations will not equal the entire population studied.

Executive SummaryOver the last few years detractors of the regulations under Section 404 of the Sarbanes Oxley Act of 2002 (“SOX 404”) have stated that the implementation of its requirements are too onerous and costly. Supporters of the requirements state that accurate financial reporting must be a paramount objective of public companies and the initial costs attributable to SOX 404 are, in many cases, one-time investments that elevate the company’s financial controls to a level that should be considered necessary regardless of regulation.1

In short, SOX 404 requires the CEO and CFO to evaluate and provide an assessment of the effectiveness of the company’s internal controls over financial reporting (“ICFRs”) in every annual report while also attaching a certification from both the CEO and CFO. When fully applicable, SOX 404 also requires the company’s registered public accountant to attest to and report on the management’s assessment (the auditor’s attestation). Initially, SOX 404 only applied to U.S. accelerated filers,2 which began providing the requisite assessments and certifications in their annual reports for fiscal

1 In February 2007, Audit Analytics published a study that quantified the cost of SOX 404 implementation and adherence by comparing audit fee changes of 404 filers with non-404 filers. This analysis found that SOX 404 compliance represented about 15% of the audit fees paid and that companies with clean SOX 404 disclosures benefited by achieving higher stock values when analyzing the Market Capitalization to Revenue Ratio. (See Audit Analytics, Surprised by Audit Fees; A Comparison of Audit Fee Changes Experienced by SOX Section 404 Filers and Non-Filers, Feb. 2007.)

2 An accelerated filer is a company whose public Float (as opposed to Market Capitalization) exceeds $75 million as of the last day of their second quarter. Once a registrant becomes an accelerated filer, it will not lose this status unless its float drops below $50 million. (See Rule 12b-2 of the Securities Exchange Act of 1934.)


2

years ending on or after November 15, 2004. Large accelerated foreign filers began observing SOX 404 in annual reports for fiscal years ending on or after July 15, 2006. On the same compliance date, an accelerated foreign filer that was not a large accelerated filer was only required, for its first year, to provide a management assessment and certifications in its annual report. In other words, an accelerated foreign filer did not need to include an auditor attestation for the first year.3 This two-step approach for implementing the requirements of SOX 404 is presently being used to phase in every public company, and as of December 15, 2007, all annual reports are required to provide at least the management assessment and certifications (which will begin to be filed with the SEC in March and April of 2008 because these non-accelerated filers have 90 days for which to file). The requirement to file an auditor attestation will most likely apply to all companies by the end of 2009.4

Since the SOX 404 requirements have been phased in over time, the regulation’s impact on audit fees has been staggered. As a result, for comparison purposes, Audit Analytics created subset populations. One population was comprised of companies that have filed a SOX 404 disclosure for each of the four years (U.S. accelerated filers) and another population includes those companies not required to file a disclosure in any of the four years (non-accelerated filers). In addition, the fees for these populations were quantified using both a typical calendar year and, for a more precise 404 presentation, a SOX 404 year.5 All populations were further filtered to analyze the effects of an auditor change, financial restatement, or adverse SOX 404.

Our research findings are summarized as follows:

• All Registrants: As shown in the top graph of the Introduction, the population as a whole has experienced audit fee increases in each year, but the percentage of the increases has dropped steadily, from 12.0% in 2005, down to 7.8% in 2006, and 4.1% in 2007. (See, also, summary graph on page 6: Audit Fee Changes during Last Three Years.) The average audit fee paid in 2007 was $1.57 million. (See table on page 7: Audit Fees Analysis, All Registrants that Disclosed Fees all four Years.) The total fees paid by the registrants did not rise to the same extent as the audit fees: 6.7% in 2005, down to 5.6% in 2006, and 4.3% in 2007. Therefore, a drop in other fees buffered some of the increases in audit fees.

• Revenue Greater than $1 Million: The research population of 8109 became 4481 when filtered to keep only those registrants that, for all four years, earned revenue of more than $1 million and disclosed audit fees greater than zero. In 2005 and 2006, this population experienced percentage increases about 1% less than the overall population. (See summary table on page 8: Calendar Year Audit Fee Review.)

• 404 Filers: When the research focused on only those companies that filed SOX 404 disclosures all four years (with revenue greater than $1 million and audit fees greater than zero), the population became 1799 registrants. (See summary table on page 8: Calendar Year Audit Fee Review.) These companies experienced a decrease in fees in 2005 followed by increases much lower than that of the general population. In 2005, the audit fees for 404 filers decreased by 3.4% and then increased by 5.2% in 2006 and only 2.3% in 2007. (See 2nd graph on page 1, Introduction.) The difference in audit fee changes of this group is due, in large part, to the fact that they began observing SOX 404 in their annual reports for fiscal years ending on or after November 15, 2004. Therefore, most initial investments made to abide by SOX 404 occurred prior to 2005.

3

3 See SEC Final Rule 33-8760 and SEC Press Release 2006-210, issued December 15, 2006.4 In Release No. 33-8889, the SEC proposed a one-year extension of the auditor’s attestation requirement for nonaccelerated filers. Therefore, it

is expected that non-accelerated filers will be required to file their first auditor’s attestation in their annual report for fiscal year ending on or after December 15, 2009.

5 A SOX 404 Year 1 is defined to encompass annual reports for fiscal years ending November 15, 2004 to November 14, 2005, inclusive. Likewise, Year 4 (still ongoing) is defined to encompass annual reports for fiscal years ending November 15, 2007 to November 14, 2008, inclusive. This offset-year approach is consistent with the SEC requirement that accelerated filers first comply with Section 404 in annual reports for fiscal years ending on or after November 15, 2004.


• Adverse 404 Filers: In this analysis, 405 companies filed at least one adverse SOX 404 disclosure in one of the four years. (See summary table on page 8: Calendar Year Audit Fee Review.). This category of registrants is the only category that experienced a reduction in audit fees all three years: -7.5% in 2005, -0.4% in 2006, and -3.7% in 2007. (See 3rd graph on page 1, Introduction.) The reductions in fees are, to some extent, attributable to two factors. First, because the ICFRs of these companies were less than adequate when they began abiding by SOX 404, many of these companies likely experienced temporarily high fees in the earlier years in order to invest more time and money to cure the material weaknesses in their ICFRs. Second, as ICFRs improve, fees tend to go down because the ongoing improvement of ICFRs create a more streamlined and accurate financial reporting processes that that allow for a more efficient auditing.6

• Non-404 Filers: The research population contained 1405 registrants (which had revenue greater than $1 million and audit fees greater than zero) that did not file a SOX 404 disclosure in any of the four years under review. (See summary table on page 8: Calendar Year Audit Fee Review.) This category of companies saw a 13.6% increase in audit fees in 2007, the only category to experience a percentage spike in 2007. (See summary graph on page 6: Audit Fee Changes during Last Three Years.) This spike is very likely caused by the extra time needed by auditors in 2007 to assist management with their first SOX 404 assessment. Companies that have not fallen under the purview of SOX 404 as of the beginning of 2007 must begin filing SOX 404 management assessments of the company’s IFCRs in annual reports for fiscal years ending on or after December 15, 2007. (Therefore, with a 90-day filing deadline, the first wave of management assessments from these December year end registrants would be filed with the SEC in March or April, 2008.) Based on the trends identified in the notes above, fees may rise in the future, but not nearly to the same extent. Indeed, companies that are investing a large amount of time and money to cure material weaknesses in their ICFR will likely see their fees go down.

• Auditor Changes and Restatements: Every population category researched was further refined to determine how audit fees responded to the occurrence of (1) an auditor change or (2) either an auditor change or restatement. The results of the refined populations are listed below each category presented in the summary table. (See summary table on page 8: Calendar Year Audit Fee Review and on page 9: SOX 404 Year Audit Fee Review.)

• Other Market Forces: The Non-404 filers experienced a 16.8% rise in audit fees in 2005. (See summary graph on page 6: Audit Fee Changes during Last Three Years.) This increase resulted from market forces other than the requirements of SOX 404. As explained in prior research by Audit Analytics, these forces are more significant than the cost of complying with SOX 404 regulations.7 A few of the potential reasons include the following:

o Salary Increases: during the year under review, salaries for entry level and lateral hires in the audit industry increased much more than in other industry sectors. For example, while a 2% increase was typical in many industries in 2006, a survey by Robert Half International Inc. expected a 9% increase in starting salaries for large auditing firms. Information Technology auditors were expected to do even better, with an 11% increase. Since auditing is a high labor task, such increases must be reflected in audit fees.

4

6 One company worthy of note is Federal National Mortgage Association (Fannie Mae), During the years under review, Fannie Mae experienced all three adverse events reviewed (an adverse 404, auditor change, and restatement). Its fees, listed below, greatly influenced the audit fee results obtained for the adverse populations:

Year Audit Fees Total Fees2004 $217,220,720 $221,841,5002005 $59,966,000 $59,966,0002006 $42,192,000 $42,192,0002007 $47,000,000 $49,300,000

7 See footnote 1.


o Litigation Risk Exposures: during the four years presented, the audit industry was required to make a reassessment of risks inherent in public company audits, including the astounding inventory of class action claims currently faced by auditing firms. The litigation inventory against the Big 4 firms is daunting. For example, while not admitting to any wrongdoing, an auditor settled the Parmalat securities class action matter, that was filed in January of 2004, for $149 million. These types of payments and the ongoing exposure from outstanding litigation must be factored into the fees.

o Fraud Detection and Valuation: changes in auditing standards require additional work in the areas of fraud detection, understanding the business, and fair value considerations.

o Reevaluation of Audit Processes: a reevaluation of all external audit processes, including a decision to focus more on internal controls (independent of 404 requirements) has increased the scope of many audits.

o Restatements and Financial Personnel Changes within Clients: Prior to 2007, there were six consecutive years during which the number of financial restatements grew.8 In addition, the changes in financial personnel in companies (1,371 CFO departures in 2006 alone) created a more risky environment for auditors.

o SEC Auditor Independence Rules: Auditor Independence Rules adopted by the SEC to implement Section 208(a) of the Sarbanes-Oxley Act (rules that are not linked to the requirements of Section 404) preclude auditors from performing non-audit services that previously represented a substantial segment of fees. The loss of this income forced auditors to shift the cost of risks absorbed by these fees over to audit fees. For example, in 2003, Audit and Audit Related Fees for 404 Filers represented 74.56% of total fees with 25.44% of the fees outside this category.9 In 2005, the percentages shifted to 88.65% and 11.35%9. Therefore, in 2003 about 25% of the litigation exposure and other risks were distributed over work that was not audit work or audit related work. Consequently, audit and audit related work carried about 75% of the risk burden. As the rules changed, audit firms were forced to be audit focused for independence reasons and only audit and audit related fees were available to carry the burden/cost of the risk.

Summary Table BackupOn page 8, a summary table of audit fee changes is presented in a calendar year format. On the next page, selected data is also presented in a 404-year format. Each row in the summary tables has an underlying table that supports the data. These supporting tables are similar to the table on page 7. Since the Calendar Year Summary table contains 21 rows, 21 underlying tables provide support its data. Likewise, 6 underlying tables support the data for the SOX-year summary table. The 21 supporting tables and 6 supporting tables are available in Appendix A and Appendix B, respectively.

5

8 See Audit Analytics, 2007 Financial Restatements, A Seven Year Comparison, Feb 2008.9 See footnote 1.


6

Audit Fee Changes during Last Three Years by registrant type

(Percent Change from Prior Year)

Notes 1) The research above is based on disclosed fees in SEC filings retrieved from an Audit Analytics database download of April 30, 2008 (allowing for a large sample, but not complete list, of fees to

be disclosed for fiscal year 2007).

2) The percentage increase or decrease shown above represent the percent change as compared to the year prior.

3) The registant types displayed above are further definded below:

All Registrants: Registrants that disclosed audit fees to the SEC for each of the following calendar years: 2004, 2005, 2006, & 2007. Revenue > 1 Million: The subset of All Registrants with revenue greater than 1 million all four years and fees greater than 0 all four years. Non-404 Filers: The subset of All Registrants comprised of non-404 registrants with revenue greater than 1 million all four years and fees greater than 0 all four years. 404 Filers: The subset of All Registrants that met the following criteria all four years: filed a SOX 404; earned revenue greater than 1 million, and disclosed fees greater than 0. Clean 404s: The subset of 404 Filers with Clean SOX 404s during all four years. Adverse 404s: The subset of 404 Filers with at least one adverse 404 during the four years.

Source: AuditAnalytics.comAuditAnalytics.com is a premium on-line market intelligence service available from IVES Group Inc. a leading independent research provider focused on the accounting, insurance, regulator, legal and investment communities. For information, call (508) 476-7007, email [email protected] or visit www.auditanalytics.com.

20%

12.0%

7.8%

4.1%

10.9%

6.4%

4.0%

16.8%

3.8%

13.6%

-3.4%-1.9%

-7.5%

-0.4%

-3.7%

4.1%

7.1%

2.3%

5.2%

15%

10%

5%

-5%

-10%

0%

All Registrants Non-404 Filers Clean 404sRevenue > 1 Million 404 Filers Adverse 404

2005

2006

2007


Year by Year Audit & Total Fee Analysis

Audit Fees (incl. Audit Related) Total Fees

($) Fees per Audit % Change ($) Fees per Audit % ChangeFiscal Year Total Audits

All Registrants that Disclosed Fees all Four Years

2004 8109 $10,132,815,040 $1,249,576 N/A $12,138,663,130 $1,496,937 N/A

2005 8109 $11,352,848,641 $1,400,031 12.0% $12,946,915,652 $1,596,611 6.7%

2006 8109 $12,236,887,783 $1,509,050 7.8% $13,677,515,768 $1,686,708 5.6%

2007 8109 $12,735,676,972 $1,570,561 4.1% $14,267,674,743 $1,759,486 4.3%

Audit Fees Analysis(Fiscal Year Analysis)

Notes1) The research above is based on a population comprised of registrants that disclosed audit fees to the SEC for each of the 4 years presented.

2) The research above is based on disclosed fees in SEC filings retrieved from an Audit Analytics database download of April 30, 2008 (allowing for a large sample, but not complete list, of fees to be disclosed for fiscal year 2007).

3) The % Change column provides a percent increase or decrease in fees from one year to the next.

4) The data above is a regular fiscal year analysis based on calendar years. For a comparison, see attached tables based on a SOX 404 year (offset year).


7


2005 Fees Change (% of Prior Yr.)



Audit Total Audit Total Audit Total

Registrant CategoryTotal

Audits

Registrants that Disclosed Fees all Four Years 8109 12.0% 6.7% 7.8% 5.6% 4.1% 4.3%

Excluding Registrants with an Auditor Change in 1 or more of the 4 Years 6975 13.0% 7.4% 8.4% 6.3% 4.5% 4.7%

Excluding Registrants with Auditor Changes or Restatements in 1 of the 4 Years 5472 11.3% 5.8% 9.4% 7.3% 6.0% 6.2%

Registrants with Revenue Greater than 1 Million All four Years and Fees Greater than 0 all Four Years 4481 10.9% 5.1% 6.4% 4.5% 4.0% 3.9%


Excluding Registrants with an Auditor Change or Negative Restatements in 1 or more of the 4 Years 3000 10.6% 4.6% 7.0% 5.2% 5.9% 5.5%

Registrants that Filed SOX 404s All 4 Years with Revenue Greater than 1 Million and Fees Greater than 0 All Four Years 1799 -3.4% -6.8% 5.2% 3.9% 2.3% 2.5%

Excluding Registrants with an Auditor Change in 1 or more of the 4 Years 1648 -0.8% -4.4% 5.9% 4.5% 2.5% 2.6%

Excluding Registrants with an Auditor Change or Negative Restatements in 1 or more of the 4 Years 1271 -1.7% -5.2% 6.5% 5.2% 4.2% 4.2%

Registrants with Clean SOX 404s for Four Years 1395 -1.9% -5.9% 7.1% 5.6% 4.1% 4.1%



Registrants with Clean SOX 404s for Four Years with Revenue Greater than 1 Million and Fees Greater than 0 all Four Years 1370 -1.9% -5.9% 7.2% 5.6% 4.1% 4.1%



Registrants with at Least One Adverse 404 405 -7.5% -9.6% -0.4% -1.1% -3.7% -3.0%

Excluding Registrants with an Auditor Change in 1 or more of the 4 Years 346 2.5% -0.7% 1.7% 0.7% -2.2% -1.5%

Excluding Registrants with an Auditor Change or Negative Restatements in 1 or more of the 4 Years 150 0.6% -3.2% 1.5% 1.8% 1.8% 3.0%

Non 404 Registrants that Disclosed Fees all Four Years with Revenue Greater than 1 Million and Fees Greater than 0 all Four Years 1405 16.8% 11.3% 3.8% 2.4% 13.6% 13.5%



Calendar Year Audit Fee Review(of Registrants that Disclosed Fees All 4 Years)

Notes1) The research above is based on disclosed fees in SEC filings retrieved from an Audit Analytics database download of April 30, 2008 (allowing for a large sample, but not complete list, of fees to


2) For backup tables that support the data shown above, (one table per row), see Appendix A.

3) The data above is a regular fiscal year analysis based on calendar years and thus not a proper approach for assessing fees associated with SOX compliance since accelerated filers first complied with Section 404 in annual reports for fiscal years ending on or after Nov. 15, 2004 (a SOX 404 year is not a calendar year). For such a comparison, see attached tables based on a SOX 404 year (offset year). 8


9






Audits


Clean SOX 404s for Four Years, excluding Auditor Change and/or Negative Restatements 1121 -2.4% -5.6% 7.3% 5.8% 4.9% 4.8%

Adverse SOX 404 in One or more of the Four Years 405 -6.7% -8.8% 0.3% -0.5% -2.7% -2.1%

Non 404 Registrants with Revenue Greater than 1 Million and Fees Greater than 0 all Four Years 703 15.7% 9.2% 4.6% 2.4% 8.6% 10.0%

Excluding Registrants with an Auditor Change in One or more of the Four Years 561 14.0% 6.7% 7.6% 4.9% 9.2% 10.5%

Excluding Registrants with an Auditor Change or Negative Restatements in One or more of the Four Years 442 11.8% 2.1% 5.4% 4.7% 10.0% 12.1%

Notes1) Year 1 is defined as Nov. 15, 2004 to Nov. 14, 2005, inclusive, to be consistent with the SEC requirement that accelerated filers comply with Section 404 in annual reports for fiscal years ending

on or after Nov. 15, 2004. SInce Year 4 begins on Nov. 14, 2007, the data in the table is based on a partial Year 4.

2) For backup tables that support the data shown above, (one table per row), see Appendix B.

3) The research above is based on disclosed fees in SEC filings retrieved from an Audit Analytics database download of April 30, 2008 (allowing for a large sample, but not complete list, of fees to be disclosed for Year 4).

SOX 404 Year Audit Fee Review(of Registrants that Disclosed Fees All 4 Years)



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August 2008

Appendix ACalendar Year Audit Fee Review

Notes1) The research above is based on disclosed fees in SEC filings retrieved from an Audit Analytics database download of April 30, 2008 (allowing for a large sample, but not complete list, of fees to


2) For backup tables that support the data shown above, (one table per row), see the following pages.

3) The data above is a regular fiscal year analysis based on calendar years and thus not a proper approach for assessing fees associated with SOX compliance since accelerated filers first complied with Section 404 in annual reports for fiscal years ending on or after Nov. 15, 2004 (a SOX 404 year is not a calendar year). For such a comparison, see attached tables based on a SOX 404 year (offset year).

Calendar Year Audit Fee Review(of Registrants that Disclosed Fees All 4 Years)

A1

Appendix A Calendar Year Audit Fee Review






Audits

Registrants that Disclosed Fees all Four Years 8109 12.0% 6.7% 7.8% 5.6% 4.1% 4.3%


Excluding Registrants with Auditor Changes or Restatements in 1 of the 4 Years 5472 11.3% 5.8% 9.4% 7.3% 6.0% 6.2%

Registrants with Revenue Greater than 1 Million All four Years and Fees Greater than 0 all Four Years 4481 10.9% 5.1% 6.4% 4.5% 4.0% 3.9%






Registrants with Clean SOX 404s for Four Years 1395 -1.9% -5.9% 7.1% 5.6% 4.1% 4.1%



Registrants with Clean SOX 404s for Four Years with Revenue Greater than 1 Million and Fees Greater than 0 all Four Years 1370 -1.9% -5.9% 7.2% 5.6% 4.1% 4.1%



Registrants with at Least One Adverse 404 405 -7.5% -9.6% -0.4% -1.1% -3.7% -3.0%

Excluding Registrants with an Auditor Change in 1 or more of the 4 Years 346 2.5% -0.7% 1.7% 0.7% -2.2% -1.5%

Excluding Registrants with an Auditor Change or Negative Restatements in 1 or more of the 4 Years 150 0.6% -3.2% 1.5% 1.8% 1.8% 3.0%

Non 404 Registrants that Disclosed Fees all Four Years with Revenue Greater than 1 Million and Fees Greater than 0 all Four Years 1405 16.8% 11.3% 3.8% 2.4% 13.6% 13.5%





($) Fees per Audit % Change ($) Fees per Audit % Change


A2



All Registrants that Disclosed Fees all Four Years

Fiscal Year Total Audits

2004 8109 $10,132,815,040 $1,249,576 N/A $12,138,663,130 $1,496,937 N/A

2005 8109 $11,352,848,641 $1,400,031 12.0% $12,946,915,652 $1,596,611 6.7%

2006 8109 $12,236,887,783 $1,509,050 7.8% $13,677,515,768 $1,686,708 5.6%

2007 8109 $12,735,676,972 $1,570,561 4.1% $14,267,674,743 $1,759,486 4.3%

Notes1) The research above is based on a population comprised of registrants that disclosed audit fees to the SEC for each of the 4 years presented.



4) The data above is a regular fiscal year analysis based on calendar years. For a comparison, see attached tables based on a SOX 404 year (offset year).





A3




2004 6975 $8,931,796,177 $1,280,544 N/A $10,756,774,304 $1,542,190 N/A

2005 6975 $10,091,489,185 $1,446,808 13.0% $11,556,142,229 $1,656,795 7.4%

2006 6975 $10,936,755,094 $1,567,994 8.4% $12,279,880,017 $1,760,556 6.3%

2007 6975 $11,431,016,327 $1,638,855 4.5% $12,859,526,456 $1,843,660 4.7%

Notes1) The research above is based on a population comprised of registrants that disclosed audit fees to the SEC for each of the 4 years presented above while also avoiding an auditor change.




All Registrants that Disclosed Fees all Four Years(Excluding Registrants with an Auditor Change)





A4




2004 5472 $6,282,532,563 $1,148,124 N/A $7,617,950,337 $1,392,169 N/A

2005 5472 $6,990,614,520 $1,277,525 11.3% $8,056,883,569 $1,472,384 5.8%

2006 5472 $7,650,535,498 $1,398,124 9.4% $8,648,428,269 $1,580,488 7.3%

2007 5472 $8,112,485,848 $1,482,545 6.0% $9,183,832,490 $1,678,332 6.2%

Notes

1) The research above is based on a population comprised of registrants that disclosed audit fees to the SEC for each of the 4 years presented above while also avoiding an auditor change or negative restatement within the 4 years.




All Registrants that Disclosed Fees all Four Years(Excluding Registrants with Auditor Changes or Negative Restatements)





A5




2004 4481 $7,849,831,043 $1,751,803 N/A $9,423,931,425 $2,103,087 N/A

2005 4481 $8,702,174,591 $1,942,016 10.9% $9,901,756,489 $2,209,720 5.1%

2006 4481 $9,257,322,519 $2,065,905 6.4% $10,344,452,770 $2,308,514 4.5%

2007 4481 $9,626,316,255 $2,148,252 4.0% $10,750,455,455 $2,399,120 3.9%

Notes1) The research above is based on a population comprised of registrants that disclosed with the SEC audit fees greater than zero for each of the 4 years presented above while also earning

revenue greater that 1 million for each of the 4 years.




Registrants with Revenue Greater than 1 Million and Fees Greater than 0





A6




2004 3919 $7,127,494,739 $1,818,702 N/A $8,586,028,973 $2,190,872 N/A

2005 3919 $8,032,065,561 $2,049,519 12.7% $9,160,363,248 $2,337,424 6.7%

2006 3919 $8,568,332,154 $2,186,357 6.7% $9,598,911,058 $2,449,327 4.8%

2007 3919 $8,926,329,836 $2,277,706 4.2% $9,984,871,213 $2,547,811 4.0%

Notes1) The research above is based on a population comprised of registrants that meet the following criteria for each of the 4 years presented above: (1) disclosed with the SEC audit fees greater than

zero, (2) earned revenue greater that 1 million and (3) avoided an auditor change.




Registrants with Revenue Greater than 1 Million and Fees Greater than 0(Excluding Registrants with an Auditor Change)





A7




2004 3000 $4,922,940,534 $1,640,980 N/A $5,992,280,245 $1,997,427 N/A

2005 3000 $5,444,207,163 $1,814,736 10.6% $6,266,107,373 $2,088,702 4.6%

2006 3000 $5,827,008,215 $1,942,336 7.0% $6,591,139,377 $2,197,046 5.2%

2007 3000 $6,170,237,428 $2,056,746 5.9% $6,951,858,910 $2,317,286 5.5%

Notes1) The research above is based on a population comprised of registrants that meet the following criteria for each of the 4 years presented above: (1) disclosed with the SEC audit fees greater than

zero, (2) earned revenue greater that 1 million and (3) avoided an auditor change and negative restatement.




Registrants with Revenue Greater than 1 Million and Fees Greater than 0(Excluding Registrants with an Auditor Change or Negative Restatement)





A8




2004 1799 $5,708,630,177 $3,173,224 N/A $6,682,237,063 $3,714,417 N/A

2005 1799 $5,514,717,385 $3,065,435 -3.4% $6,225,547,955 $3,460,560 -6.8%

2006 1799 $5,800,683,057 $3,224,393 5.2% $6,468,961,448 $3,595,865 3.9%

2007 1799 $5,933,077,215 $3,297,986 2.3% $6,632,382,608 $3,686,705 2.5%

Notes1) The research above is based on a population comprised of registrants that meet the following criteria for each of the 4 years presented above: (1) filed a SOX 404 disclosure, (2) disclosed with

the SEC audit fees greater than zero and (3) earned revenue greater that 1 million.




Registrants with 4 Years of SOX 404 Disclosures(Revenue Greater than 1 Million and Fees Greater than 0)





A9




2004 1648 $5,217,995,428 $3,166,259 N/A $6,131,716,477 $3,720,702 N/A

2005 1648 $5,174,258,109 $3,139,720 -0.8% $5,861,319,117 $3,556,626 -4.4%

2006 1648 $5,478,721,956 $3,324,467 5.9% $6,125,097,815 $3,716,686 4.5%

2007 1648 $5,616,397,904 $3,408,008 2.5% $6,287,373,125 $3,815,154 2.6%


the SEC audit fees greater than zero, (3) earned revenue greater that 1 million and (4) avoided an auditor change.




Registrants with 4 Years of SOX 404 Disclosures(Revenue Greater than 1 Million and Fees Greater than 0)

(Excluding Registrants with Auditor Changes)





A10




2004 1271 $3,647,038,683 $2,869,425 N/A $4,331,696,309 $3,408,101 N/A

2005 1271 $3,585,991,041 $2,821,393 -1.7% $4,107,081,489 $3,231,378 -5.2%

2006 1271 $3,819,441,236 $3,005,068 6.5% $4,321,715,586 $3,400,248 5.2%

2007 1271 $3,979,183,750 $3,130,750 4.2% $4,504,696,263 $3,544,214 4.2%


the SEC audit fees greater than zero, (3) earned revenue greater that 1 million and (4) avoided an auditor change and negative restatement.




Registrants with 4 Years of SOX 404s, Revenue Greater than 1 Million and Fees Greater than 0(Excluding Registrants with an Auditor Change or Negative Restatement)




A11





2004 1395 $4,200,901,827 $3,011,399 N/A $5,007,785,448 $3,589,810 N/A

2005 1395 $4,120,607,573 $2,953,841 -1.9% $4,713,325,065 $3,378,728 -5.9%

2006 1395 $4,414,785,743 $3,164,721 7.1% $4,976,824,466 $3,567,616 5.6%

2007 1395 $4,596,370,219 $3,294,889 4.1% $5,182,038,735 $3,714,723 4.1%

Notes1) The research above is based on a population comprised of registrants that filed SOX 404 disclosures all 4 years with all disclosures declaring that the internal controls over financial reporting

were effective.




Registrants with Clean SOX 404s for 4 Years





A12




2004 1302 $4,061,011,510 $3,119,056 N/A $4,826,994,661 $3,707,369 N/A

2005 1302 $3,987,790,057 $3,062,819 -1.8% $4,565,275,714 $3,506,356 -5.4%

2006 1302 $4,272,456,440 $3,281,457 7.1% $4,820,857,025 $3,702,655 5.6%

2007 1302 $4,436,964,327 $3,407,807 3.9% $5,002,923,178 $3,842,491 3.8%

Notes1) The research above is based on a population comprised of registrants that meet the following criteria for each of the 4 years presented above: (1) filed a SOX 404 disclosure declaring effective

internal controls over financial reporting and (2) avoided an auditor change.




Registrants with 4 Years of Clean SOX 404s(Excluding Registrants with Auditor Changes)




2004 1122 $3,366,763,974 $3,000,681 N/A $4,015,996,026 $3,579,319 N/A

2005 1122 $3,304,757,112 $2,945,416 -1.8% $3,802,041,955 $3,388,629 -5.3%

2006 1122 $3,533,997,040 $3,149,730 6.9% $4,011,317,222 $3,575,149 5.5%

2007 1122 $3,688,895,162 $3,287,785 4.4% $4,184,814,039 $3,729,781 4.3%


A13




internal controls over financial reporting and (2) avoided an auditor change.




Registrants With Clean 404s all Four Years(Excluding Registrants with an Auditor Change or Negative Restatement)





A14




2004 1370 $4,183,383,288 $3,053,564 N/A $4,987,983,914 $3,640,864 N/A

2005 1370 $4,104,535,315 $2,996,011 -1.9% $4,695,699,142 $3,427,518 -5.9%

2006 1370 $4,400,089,922 $3,211,744 7.2% $4,960,861,219 $3,621,067 5.6%

2007 1370 $4,580,091,444 $3,343,132 4.1% $5,164,120,818 $3,769,431 4.1%

Notes1) The research above is based on a population comprised of registrants that meet the following criteria for each of the 4 years presented above: (1) filed a SOX 404 disclosure declaring effective internal controls over financial reporting, (2) disclosed with the SEC audit fees greater than zero and (3) earned revenue greater that 1 million.




Registrants with 4 Years of Clean SOX 404 Disclosures(Revenue Greater than 1 Million and Fees Greater than 0)





A15



2004 1301 $4,059,005,634 $3,119,912 N/A $4,824,518,677 $3,708,316 N/A

2005 1301 $3,986,000,057 $3,063,797 -1.8% $4,563,325,819 $3,507,553 -5.4%

2006 1301 $4,270,582,470 $3,282,538 7.1% $4,818,882,050 $3,703,983 5.6%

2007 1301 $4,435,186,077 $3,409,059 3.9% $5,001,192,928 $3,844,114 3.8%


internal controls over financial reporting, (2) disclosed with the SEC audit fees greater than zero, (3) earned revenue greater that 1 million and (4) avoided an auditor change.




Registrants with 4 Years of Clean SOX 404s, Revenue Greater than 1 Million and Fees Greater than 0(Excluding Registrants with Auditor Changes)





A16




2004 1121 $3,366,432,274 $3,003,062 N/A $4,015,603,626 $3,582,162 N/A

2005 1121 $3,303,809,612 $2,947,199 -1.9% $3,801,064,955 $3,390,781 -5.3%

2006 1121 $3,533,092,040 $3,151,732 6.9% $4,010,225,222 $3,577,364 5.5%

2007 1121 $3,688,036,262 $3,289,952 4.4% $4,183,787,139 $3,732,192 4.3%


internal controls over financial reporting, (2) disclosed with the SEC audit fees greater than zero, (3) earned revenue greater that 1 million and (4) avoided an auditor change and negative restatement.

2) The research above is based on disclosed fees in SEC filings retrieved from an Audit Analytics daabase download of April 30, 2008 (allowing for a large sample, but not complete list, of fees to be disclosed for fiscal year 2007).



Registrants with 4 Years of Clean SOX 404s, Revenue Greater than 1 Million and Fees Greater than 0(Excluding Registrants with an Auditor Change or Negative Restatement)




A17





2004 405 $1,508,235,024 $3,724,037 N/A $1,675,672,042 $4,137,462 N/A

2005 405 $1,395,123,377 $3,444,749 -7.5% $1,514,007,282 $3,738,290 -9.6%

2006 405 $1,389,083,497 $3,429,836 -0.4% $1,497,613,440 $3,697,811 -1.1%

2007 405 $1,338,232,563 $3,304,278 -3.7% $1,451,948,267 $3,585,057 -3.0%

Notes1) The research above is based on a population comprised of registrants that filed a SOX 404 disclosure all 4 years and, during that time, declared in at least one disclosure that their internal

controls over financial report were not effective.




Registrants with an Adverse 404





A18




2004 346 $1,156,983,918 $3,343,884 N/A $1,304,721,816 $3,770,872 N/A

2005 346 $1,186,468,052 $3,429,098 2.5% $1,296,043,403 $3,745,790 -0.7%

2006 346 $1,206,493,098 $3,486,974 1.7% $1,304,468,372 $3,770,140 0.7%

2007 346 $1,179,840,856 $3,409,945 -2.2% $1,284,457,026 $3,712,304 -1.5%

Notes1) The research above is based on a population comprised of registrants that meet the following criteria for each of the 4 years presented above: (1) filed a SOX 404 disclosure all 4 years and,

during that time, declared in at least one disclosure that their internal controls over financial report were not effective and (2) avoided an auditor change.




Registrants with an Adverse 404(Excluding Registrants with Auditor Changes)


Registrants with an Adverse 404(Excluding Registrants with an Auditor Change or Negative Restatement)




A19




2004 150 $280,606,409 $1,870,709 N/A $316,092,683 $2,107,285 N/A

2005 150 $282,181,429 $1,881,210 0.6% $306,016,534 $2,040,110 -3.2%

2006 150 $286,349,196 $1,908,995 1.5% $311,490,364 $2,076,602 1.8%

2007 150 $291,554,867 $1,943,699 1.8% $320,916,503 $2,139,443 3.0%

Notes1) The research above is based on a population comprised of registrants that meet the following criteria for each of the 4 years presented above: (1) filed a SOX 404 disclosure all 4 years and,

during that time, declared in at least one disclosure that their internal controls over financial report were not effective and (2) avoided an auditor change and negative restatement.








A20




2004 1405 $186,848,210 $132,988 N/A $225,871,706 $160,763 N/A

2005 1405 $218,263,470 $155,348 16.8% $251,314,854 $178,872 11.3%

2006 1405 $226,647,930 $161,315 3.8% $257,292,398 $183,126 2.4%

2007 1405 $257,473,797 $183,255 13.6% $291,914,010 $207,768 13.5%

Notes1) The research above is based on a population comprised of registrants that did not file a SOX 404 disclosure while also meeting the following criteria for each of the 4 years presented above: (1)

disclosed with the SEC audit fees greater than zero and (2) earned revenue greater that 1 million.




Non-404 Registrants(Revenue Greater than 1 Million and Fees Greater than 0)





A21




2004 1139 $141,738,866 $124,441 N/A $172,947,398 $151,841 N/A

2005 1139 $167,037,396 $146,653 17.8% $193,276,562 $169,690 11.8%

2006 1139 $176,471,301 $154,935 5.6% $201,320,957 $176,752 4.2%

2007 1139 $203,085,062 $178,301 15.1% $231,079,888 $202,880 14.8%


disclosed with the SEC audit fees greater than zero, (2) earned revenue greater that 1 million and (3) avoided an auditor change.




Non-404 Registrants with Revenue Greater than 1 Million and Fees Greater than 0(Excluding Registrants with Auditor Changes)





A22




2004 914 $108,453,088 $118,658 N/A $132,817,379 $145,314 N/A

2005 914 $124,945,135 $136,701 15.2% $143,668,504 $157,187 8.2%

2006 914 $128,763,338 $140,879 3.1% $147,878,208 $161,792 2.9%

2007 914 $151,521,226 $165,778 17.7% $174,437,530 $190,851 18.0%


disclosed with the SEC audit fees greater than zero, (2) earned revenue greater that 1 million and (3) avoided an auditor change and negative restatement.




Non-404 Registrants with Revenue Greater than 1 Million and Fees Greater than 0(Excluding Registrants with an Auditor Change or Negative Restatement)

August 2008

Appendix BSOX 404 Year Audit Fee Review

B1


on or after Nov. 15, 2004. SInce Year 4 begins on Nov. 14, 2007, the data in the table is based on a partial Year 4.

2) For backup tables that support the data shown above, (one table per row), see Appendix B.

3) The research above is based on disclosed fees in SEC filings retrieved from an Audit Analytics database download of April 30, 2008 (allowing for a large sample, but not complete list, of fees to be disclosed for Year 4).

SOX 404 Year Audit Fee Review(of Registrants that Disclosed Fees All 4 Years)


Appendix B SOX 404 Year Audit Fee Review






Audits


Clean SOX 404s for Four Years, excluding Auditor Change and/or Negative Restatements 1121 -2.4% -5.6% 7.3% 5.8% 4.9% 4.8%

Adverse SOX 404 in One or more of the Four Years 405 -6.7% -8.8% 0.3% -0.5% -2.7% -2.1%

Non 404 Registrants with Revenue Greater than 1 Million and Fees Greater than 0 all Four Years 703 15.7% 9.2% 4.6% 2.4% 8.6% 10.0%

Excluding Registrants with an Auditor Change in One or more of the Four Years 561 14.0% 6.7% 7.6% 4.9% 9.2% 10.5%

Excluding Registrants with an Auditor Change or Negative Restatements in One or more of the Four Years 442 11.8% 2.1% 5.4% 4.7% 10.0% 12.1%

Audit & Total Fee Analysis by SOX 404 Year (Offset Year)



B2



SOX 404 Year Total Audits

Year 1 1799 $5,666,692,454 $3,149,912 N/A $6,608,410,357 $3,673,380 N/A

Year 2 1799 $5,459,011,044 $3,034,470 -3.7% $6,162,153,467 $3,425,322 -6.8%

Year 3 1799 $5,777,250,278 $3,211,368 5.8% $6,442,645,583 $3,581,237 4.6%

Year 4 1799 $5,933,444,465 $3,298,190 2.7% $6,631,660,753 $3,686,304 2.9%


on or after Nov. 15, 2004. Since Year 4 begins on Nov. 14, 2007, the data for Year 4 is from a partial year and the population analyzed is based on the partial year.

2) The research above is based on a population comprised of registrants that meet the following criteria for each of the 4 years presented above: (1) filed a SOX 404 disclosure and (2) disclosed with the SEC audit fees greater than zero and (2) earned revenue greater that 1 million.


SOX 404 Filers that Disclosed Fees all Four Years(with Fees Greater than 0 and Revenue Greater than 1 Million)





B3





Year 1 1121 $3,368,365,954 $3,004,787 N/A $4,008,474,033 $3,575,802 N/A

Year 2 1121 $3,288,487,883 $2,933,531 -2.4% $3,784,947,978 $3,376,403 -5.6%

Year 3 1121 $3,528,203,162 $3,147,371 7.3% $4,004,587,020 $3,572,335 5.8%

Year 4 1121 $3,700,172,266 $3,300,778 4.9% $4,197,164,240 $3,744,125 4.8%



2) The research above is based on a population comprised of registrants that meet the following criteria for each of the 4 years presented above: (1) filed a SOX 404 disclosure declaring effective internal controls over financial reporting, (2) disclosed with the SEC audit fees greater than zero, (3) earned revenue greater that 1 million and (4) avoided an auditor change and negative restatement.


Registrants with 4 Years of Clean SOX 404s, Fees Greater than 0, and Revenue Greater than 1 Million(Excluding Registrants with an Auditor Change or Negative Restatement)




B4




Year 1 405 $1,466,091,939 $3,619,980 N/A $1,627,229,094 $4,017,850 N/A

Year 2 405 $1,367,157,809 $3,375,698 -6.7% $1,484,558,654 $3,665,577 -8.8%

Year 3 405 $1,370,737,311 $3,384,537 0.3% $1,477,334,513 $3,647,740 -0.5%

Year 4 405 $1,333,490,906 $3,292,570 -2.7% $1,446,436,675 $3,571,449 -2.1%



2) The research above is based on a population comprised of registrants that meet the following criteria for each of the 4 years presented above: (1) filed a SOX 404 disclosure all 4 years and, during that time, declared in at least one disclosure that their internal controls over financial report were not effective and (2) disclosed with the SEC audit fees greater than zero, and (3) earned revenue greater that 1 million.


Registrants with an Adverse 404(Fees Greater than 0 and Revenue Greater than 1 Million)





B5




Year 1 703 $100,693,765 $143,234 N/A $123,251,480 $175,322 N/A

Year 2 703 $116,525,222 $165,754 15.7% $134,647,815 $191,533 9.2%

Year 3 703 $121,917,920 $173,425 4.6% $137,932,397 $196,205 2.4%

Year 4 703 $132,441,955 $188,395 8.6% $151,778,714 $215,901 10.0%



2) The research above is based on a population comprised of registrants that did not file a SOX 404 disclosure while also meeting the following criteria for each of the 4 years presented above: (1) disclosed with the SEC audit fees greater than zero and (2) earned revenue greater that 1 million.


All Non-404 Registrants(with Fees Greater than 0 and Revenue Greater than 1 Million)





B6





Year 1 561 $77,696,281 $138,496 N/A $96,753,667 $172,466 N/A

Year 2 561 $88,566,302 $157,872 14.0% $103,238,750 $184,026 6.7%

Year 3 561 $95,332,088 $169,932 7.6% $108,304,848 $193,057 4.9%

Year 4 561 $104,099,713 $185,561 9.2% $119,633,198 $213,250 10.5%





All Non-404 Registrants with Fees Greater than 0 and Revenue Greater than 1 Million(Excluding Registrants with Auditor Changes)




B7





Year 1 442 $62,698,707 $141,852 N/A $78,856,713 $178,409 N/A

Year 2 442 $70,088,299 $158,571 11.8% $80,548,653 $182,237 2.1%

Year 3 442 $73,905,916 $167,208 5.4% $84,294,829 $190,712 4.7%

Year 4 442 $81,263,474 $183,854 10.0% $94,480,555 $213,757 12.1%





All Non-404 Registrants with Revenue Greater than 1 Million and Fees Greater than 0(Excluding Registrants with an Auditor Change or Negative Restatement)

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