On June 6, 2013, the NYSE filed a proposed rule change that would amend Section 303A.00 of its Listed Company Manual to provide a one-year transition period for compliance with the internal audit requirement of Section 303A.07(c). The transition period would be available to companies that are listing at the time of:

Companies subject to Section 303A.07 must have an internal audit function to provide management and the audit committee with ongoing assessments of the company's risk management processes and internal control system. Under the current Section 303A.00, any company listing on the NYSE after transferring from another exchange that does not have an internal audit requirement (such as NASDAQ or NYSE MKT) has one year from the date of listing to comply with the NYSE's internal audit requirement. The proposed rule change would extend the same transition period to other newly listed companies.

The NYSE noted that newly listed companies often appoint a completely new audit committee. The transition period would give a newly appointed audit committee an opportunity to familiarize itself with the company's internal controls and risk management and determine what kind of internal audit function is suitable for the company.

The NYSE is also proposing to amend certain provisions of Section 303A.07 that set the duties of the audit committee regarding the internal audit function. The amendments apply to a listed company that does not yet have an internal audit function because it is relying on the transition period. The provisions clarify the duties of the audit committee during the transition period by requiring that, among other things:

The proposed rule change would also make explicit in Section 303A.07 that all listed companies would need an internal audit function in place no later than the first anniversary of the company's listing date.

The NYSE previously proposed similar rule changes in April 2012 and June 2012 but withdrew each proposal shortly after its release. The current re-proposal follows the recent withdrawal of a proposal by NASDAQ that would have newly applied an internal audit requirement to NASDAQ-listed companies without any transition period for IPOs or carve-out or spin-off companies (see Legal Update, NASDAQ Withdraws Proposal to Require All Listed Companies to Establish and Maintain an Internal Audit Function).

For information on the two prior withdrawn versions of this rule change, see Legal Updates, NYSE Proposes One-Year Internal Audit Transition Period for IPO Companies and Other New Registrants and NYSE Re-proposes One-year Internal Audit Transition Period for IPO Companies and Other New Listings.

To learn more about NYSE corporate governance standards, see Comparative Corporate Governance Standards Chart: NYSE vs. NASDAQ.