300 companies to miss deadline.
WASHINGTON — Hundreds of companies have delayed filing annual reports in recent weeks, citing stringent new rules imposed under a 2002 corporate-responsibility law.
Nearly 300 publicly traded firms said they will miss deadlines for filing their annual reports, up from 70 during January to mid-March last year, according to Securities and Exchange Commission (SEC) filings.
Many companies said they are having trouble reviewing and vouching for the strength of their financial controls, a new step required under the Sarbanes-Oxley Act to help prevent fraud and mistakes.
Announcements of delayed filings are breathing new life into complaints by companies that the law is too cumbersome and expensive.
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Financial Executives International, a trade group for corporate-finance executives, released a study last week suggesting the average cost of complying with the law rose to $4.3 million a company, a 39 percent increase from a survey last year.
Investor advocates said the reviews are doing what Congress intended: catching mistakes before blowups such as those at Enron and WorldCom occur. Preventing another major corporate bankruptcy is a substantial benefit that is difficult to quantify, experts said.
“The council believes internal controls are the backbone of good financial statements,” said Ann Yerger, executive director of the Council of Institutional Investors. “Hopefully we can all have a better sense of security in the reported numbers.”
In a speech to the National Association of Business Economics this week, Daniel Goelzer, a member of the Public Company Accounting Oversight Board, said: “The importance of strong controls is beyond question.”
The controls are intended to safeguard financial information and to ensure, among other things, that employees and suppliers do not collude to defraud companies. Corporations have been required to review their internal controls since the 1970s, but the new law’s requirement that chief executives vouch for their adequacy has triggered more intensive reviews.
Accounting-oversight-board officials and other regulators said they are open to suggestions about how to streamline the rules. The SEC has scheduled a meeting next month to listen to corporate concerns about the cost and effectiveness of the law.
So far, fears that investors would punish companies that report weaknesses in financial controls have not been realized.
Reaction to disclosures by companies — including WorldCom (now known as MCI), Eastman Kodak and Audible — has been mixed.
A study by the CFO Executive Board indicates that chief financial officers may be suffering negative consequences. The study, released last week, said more than half of the chief financial officers at companies reporting control weaknesses had changed jobs just before or within a few months of the disclosures.