Alix Nyberg of CFO magazine has written an excellent article on the costs involved in complying with Sarbanes-Oxley. Among other things, the article brings to light the SEC's "lowball" estimates of the costs involved with both SOX and Regulation FD.

The SEC is required to estimate the burdens associated with its information requests under the Paperwork Reduction Act of 1995. The article states that in connection with Regulation FD, the SEC's estimate of a maximum of $49.5 million in additional costs was way short of the actual increase of between $250 million and $450 million. Why? Because the SEC assumed, somehow, that the hourly legal fees involved would be $85 (!!!) to $175, compared with actual hourly fees of $450 to $550. As relates to Sarbanes-Oxley, the SEC has bumped its assumption to $300 per hour.

The article also highlights this classic comment letter sent to the SEC in November 2002 by Cary Klafter, director of corporate affairs for Intel's legal department. In response to the SEC's original estimate that compliance with SOX 404 (Management Assessment of Internal Controls) would require an additional five hours' worth of work per annual and quarterly filing, Klafter commented that

[b]ased on our actual experience to date, we believe that the Commission has underestimated the time and effort involved in complying with these rules by at least a factor of 100, if not a greater order of magnitude. We can only hope that the Commission's burden estimates are not used for any substantive governmental purpose, since they are completely incorrect.

In response to this and other comments on this point, the SEC's Final Rule regarding Section 404 raised its estimate to an average 383-hour workload per company.