The SEC's original estimate (, pages 6804/6805) of 125 hours for the face financials seems well in line with the results in the survey. The interesting thing is that the SEC estimates were based on actual participants in the Voluntary Filing Program. So it appears that when the SEC relies on the experience of real companies to estimate the costs, they got it pretty close (the time effort at least).

Unfortunately the SEC has, some years ago, made at least one serious error in cost estimates, but we'll get to that in a moment. There was no VFP for detailed tagged footnotes, as no taxonomy existed for the footnotes. The SEC's estimate was that it would required an additional 70 hours for tagging footnotes, at $250/hr for an estimated total of $17,500. The SEC has been very generous in their potential range of costs.

Now lets look at the new estimates (that I have already said I think are bogus at best) of 200 - 250 hours to detail tag the footnotes, keeping in mind that the face financials - the "easy part" are taking an average of more than 120 hours. At $250/hr, the new estimated cost is between $50,000 and $62,500 to tag the footnotes.

Now lets apply a multiplier from estimated face financials tagging time (from the "experts") of an average of "less than 80 hours" to 120+ hours. We get a 1.5 times multiplier, at least. Applying that the the detail tagged footnotes estimates, and we get between 300 and 375 hours, or $75,000 - $93,500.

Personally I hope that tagging processes and software will result in significantly faster tagging of footnotes, and fully expect that kind of quantum leap in software to happen quickly. But existing processes and software do not give my huge confidence that the first wave of filers will have an easy time tagging footnotes at detail.

So now - the SEC's estimate of cost for SOX section 404.

Using our PRA burden estimates, we estimate the aggregate annual costs of implementing Section 404(a) of the Sarbanes-Oxley Act to be around $1.24 billion (or $91,000 per company).174 We recognize the magnitude of the cost burdens and we are making several accommodations to address commenters' concerns and to ease compliance, including:

l          Requiring quarterly disclosure only of any change that has materially affected, or is reasonably likely to materially affect, a company's internal control over financial reporting; and

l          An extended transition period for the new internal control reporting requirements.

l          I think it is fair to say that SOX section 404 cost businesses significantly more than the SEC's estimated $91,000.

So, the message (to me anyway) is clear - when the SEC asks a sample of participants how much it actually cost them to do something (the VFP), they are excellent at using that information to estimate more general costs to accomplish the same or a very similar task (face financials using the US GAAP taxonomy).

When estimating effort for tasks that there is no history to review, the SEC, like most of us, is very optimistic. In this case they estimated 70 hours for footnotes with the latest estimates now being 200 - 250 hours, with a likelihood that even those numbers significantly underestimate the actual effort.