Faced with the costs to comply with the Sarbanes-Oxley Act, some public companies are looking at going private, even though the costs fell slightly in 2005.

Fed up with the Sarbanes-Oxley burden, 21% of companies that responded to law firm Foley & Lardner's latest study said they are considering going private. Other options respondents are considering include selling the company (10%) and merging with another company (8%).

Meanwhile, costs associated with corporate governance reform dropped 16% for companies with less than $1 billion in annual revenue and 6% for companies with greater than $1 billion in annual revenue, reports Foley & Lardner in its fourth annual Sarbanes-Oxley study, released Thursday.

The savings stem from decreased productivity losses, legal fees and initial setup costs. However, audit fees increased, as did the cost of board compensation and liability insurance for directors and officers.

Many industry watchers expected audit fees would drop during public companies' second year of complying with Sarbanes-Oxley Section 404, which requires companies to attest to the effectiveness of controls put in place to protect financial reporting systems and processes. Instead, they increased: Audit fees rose 22% for small companies, 6% for midsize companies and 4% for large companies (as defined by Standard & Poor's indices).

Smaller public companies, in particular, felt the burden of increased audit costs, said Tom Hartman, corporate governance study director and business law partner at Foley & Lardner, in a teleconference. "The increase is disproportionately impacting smaller companies," he said.

The fees companies pay their directors also have climbed considerably as a result of corporate governance and public disclosure reforms implemented since the enactment of Sarbanes-Oxley. Overall annual director fees have increased an average of 71% for small companies, 64% for midsize companies, and 58% for large companies between 2001 and 2005.

When all the expenses are tallied, companies with under $1 billion in revenue spent an average of $2.9 million to comply with Sarbanes-Oxley in 2005, and companies with greater than $1 billion in revenue spent $11.5 million.

For companies of all sizes, audit fees represent the biggest portion of those expenses, followed by the cost of lost productivity. While down from 2004 levels, lost productivity nonetheless cost each small company $563,000 and each large company $2.5 million in 2005, on average, Hartman said.

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