Sarbanes' Pain Getting Sharp for Some

Most companies already have such systems in place in one form or another. But many have never completely documented their internal controls.

To date, few companies have echoed UTStarcom's warning. But some corporate representatives believe that will change as the deadline nears.

Allied Defense Group (ADG Quote), for instance, plans to comply with the internal controls provision, but CEO John Meyer has some concern about whether the company can do so in time. Of particular concern is what happens if Allied's auditor tells the company at the end of the year that its internal controls need more work, he said.

"I don't know if we're going to have enough time," Meyer said. "I will submit to you that there will be a lot of companies that don't get it finished or don't get it right."

Mounting Expense

Regardless of how many companies have trouble with complying, many already are finding their costs rising sharply.

In a July survey of 224 public companies, financial executives estimated that conforming with the internal controls rule will cost their companies about $3.14 million each, according to Financial Executives International, a professional organization representing corporate CFOs, treasurers and controllers. That estimate is up 62% from one made in January by FEI, which attributed the rise both to internal costs and external fees paid to auditors and consultants.

"Both internal and external costs are ballooning," said Grace Hinchman, senior vice president at FEI.

Those costs are hitting smaller companies especially hard, critics of the provision charge. Such companies typically have small accounting departments, meaning that they may have to hire extra employees or outside consultants just to get their systems up to speed.

At Allied, for instance, each of its six subsidiaries typically has just two or three people in its accounting department, Meyer said. Those employees already are working full time on their standard duties, such as preparing financial reports, he said.