Most Non-Profits, Pvt Cos Abide By Sarbanes-Oxley -Survey
By Judith Burns
Of DOW JONES NEWSWIRES
592 words
9 March 2006
00:01
Dow Jones News Service
English
(c) 2006 Dow Jones & Company, Inc.

WASHINGTON (Dow Jones)--Non-profit organizations and private firms are choosing to abide by a 2002 law intended to clean up corporate accounting and governance, according to a survey to be released Thursday.

Although only public companies are subject to strict new requirements adopted by Congress to curb corporate scandals, the survey found fully 86% of the private companies and non-profits are complying with it.

The survey, sponsored by the law firm of Foley & Lardner LLP, found a majority of non-profits and private firms have made or plan to make changes to comply with the 2002 Sarbanes-Oxley Act. The law requires that executives certify the accuracy of financial results, that outside auditors examine clients' internal controls and that directors oversee outside auditors and approve any non-audit services they provide. It also calls for firms to adopt ethical codes and establish procedures to protect whistleblowers.

According to the survey, 80% of non-profits and 64% of private firms have acted on their own to meet such standards - a gap the survey called logical given that non-profits tend to answer to more people than private firms, which typically are closely held.

Auditors are exerting pressure in some cases. More than half of the larger private firms surveyed said they are complying with the Sarbanes-Oxley law because their outside auditors recommended doing so. The study suggested auditors may pressure larger clients to comply because they perceive them to pose greater risks than smaller companies.

Some private companies simply are looking ahead, saying they want to be "SOX-ready" in case they decide to go public, seek outside investors, or merge with or be acquired by a public company.

Others said complying with a law they could ignore bolsters their reputation with potential customers.

"While they're ridiculous requirements for a closely held corporation, compliance helps us to be competitive," said one survey participant.

For others, the requirements set by the Sarbanes-Oxley Act represent a new standard for best management practices, making compliance a smart business decision.

"It's the right thing to do," a survey participant commented.

Costs for voluntary compliance with the law added around $120,000 of annual expenses at private companies that took part in the survey, a 26% increase from outlays before the 2002 law, the survey said. Non-profits reported additional annual costs of $75,000, up 21%.

Survey participants were split on the subject of whether compliance costs are too high relative to the benefits. About 32% said the benefits outweigh the costs, while 29% said the costs outweigh the benefits. Another 38% termed the costs and benefits about equal.

Grousing drops dramatically when compliance with the law is voluntary, the survey found. About 84% of private organizations said they believe their corporate governance reforms are "about right," in contrast to 82% of public company officials surveyed last year, who called them "too strict." The survey attributes that to the fact that private firms were able to pick and choose the reforms that made sense for their organization, while public companies had no such choice.

The survey was conducted in January and is based on responses from corporate executives, compliance officers, directors and other corporate officials at 36 private, for-profit companies and 20 non-profit organizations. No margin of error was assigned to the results.

-By Judith Burns, Dow Jones Newswires; 202-862-6692; Judith.Burns@dowjones.com [ 03-09-06 0001ET ]