NASDAQ Proposed Rule Would Require All Listed Companies to Establish and Maintain an Internal Audit Function | Practical Law

NASDAQ Proposed Rule Would Require All Listed Companies to Establish and Maintain an Internal Audit Function | Practical Law

The SEC's Division of Trading and Markets issued a notice of a proposed rule requiring NASDAQ-listed companies to have an internal audit function.

NASDAQ Proposed Rule Would Require All Listed Companies to Establish and Maintain an Internal Audit Function

by PLC Corporate & Securities
Published on 07 Mar 2013 • USA (National/Federal)
The SEC's Division of Trading and Markets issued a notice of a proposed rule requiring NASDAQ-listed companies to have an internal audit function.
On March 4, 2013, the SEC's Division of Trading and Markets (Division) published a notice to solicit comments on NASDAQ's proposed rule change requiring listed companies to have an internal audit function. If approved, this would conform NASDAQ standards to the requirements of the NYSE.
The proposed rule permits listed companies to outsource the internal audit function to a third party service provider other than their independent auditor. However, the audit committee is still solely responsible for overseeing the internal audit function and may not allocate or delegate this responsibility to another board committee. Companies listed on NASDAQ on or before June 30, 2013 would have to establish an internal audit function by December 31, 2013. Companies that list after June 30, 2013 would need to have an internal audit function before listing.
The purpose of the proposed rule is to:
  • Ensure that listed companies have a mechanism in place to regularly review and assess their system of internal control to help identify any weaknesses.
  • Ensure that the listed company's management and audit committee are provided with ongoing information about risk management processes and the system of internal control.
  • Assist NASDAQ-listed companies' efforts to comply with federal securities laws, including Rules 13a-15 and 15d-15 under the Exchange Act.
The Division originally had until April 22, 2013 to take action on the proposed rule change. However, on April 13, 2013, the Division extended the date to June 6, 2013.
NASDAQ also issued a rules update alert to listed companies regarding the proposed rule and encouraging companies to submit comments on the proposal to the SEC staff. In the alert, NASDAQ noted that the rule proposal originated with a request from the SEC for NASDAQ to consider adopting an internal audit rule similar to the NYSE's.
For more on audit committees, see Practice Note, Corporate Governance Standards: Audit Committee and Standard Document, Audit Committee Charter