Accounting: Sarbanes-Oxley Sparks A Software Boom

When the auditors from PricewaterhouseCoopers come to visit him in snowy Minneapolis, Kyle Didier believes he will be ready for them. Didier, vice-president for finance at hair-salon giant Regis Corp. (RGS ), is using new software that helps his company comply with the long-dreaded Sarbanes-Oxley regulations -- new reporting rules that require stringent maintenance of financial records. The rules have proved a bane for accounting departments and a boon to software companies that have tailored products to help companies deal with them.

Faced with a June deadline for compliance with the new rules, publicly traded companies such as Regis are scrambling to make sure their data-collection and reporting capabilities are up to snuff. Depending on who's counting, the market for Sarbanes-Oxley software could be worth from $1 billion to $4 billion a year within three years.

The new software packages organize corporate data in a way that's easily understood by auditors and ensures that employees are retaining all the records they need to comply. Didier says his company will end up handing over more than $100,000 to Movaris Inc. in Campbell, Calif. Its software sends out notifications to line managers to collect important data, organizes that information -- which may arrive as e-mail messages or payment receipts -- and makes it easier for outside auditors to hit all the items on their compliance checklists.

Unfortunately, at many companies money spent on the new software will probably come out of other software projects. Martin Brauns, CEO of Interwoven Inc. (IWOV ), which is selling Sarbanes-Oxley software in addition to its Web site content-management software, says most of the customers he's working with aren't increasing their technology spending to deal with the new regulations. "Instead, they're putting other projects on hold because this has become a pressing item for them," says Brauns. "They have to deal with it."

A host of startups, along with older companies such as Interwoven, PeopleSoft (PSFT ), and Oracle (ORCL ), are chasing the Sarbanes-Oxley business. "There is a huge, huge market opening here," says Michael Duffy, CEO of OpenPages Inc. in Waltham, Mass., which specializes in the software. And it won't be a one-year phenomenon. Analysts expect that less than 10% of the companies that are potential customers will buy Sarbanes-Oxley software in the coming year. What about the rest? Perhaps after a year of struggling with their old manual data-gathering methods, they'll be ready to jump on board as well.

By Jim Kerstetter in San Mateo

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