On February 20, 2013, the NASDAQ Stock Market LLC (NASDAQ) filed with the SEC a proposed rule change to require that listed companies establish and maintain an internal audit function, which could be outsourced to a third-party service provider other than its independent auditor. However, the audit committee would have the sole responsibility to oversee the internal audit function and would not be able to allocate or delegate this responsibility to other committees of the company's board of directors.
Under the proposed rules, each company must establish and maintain an internal audit function to provide management and the audit committee with ongoing assessments of the company's risk management processes and system of internal control. The company may choose to outsource this function to a third-party service provider other than its independent auditor. The audit committee must meet periodically with the internal auditors (or other personnel responsible for this function) and assist the board of directors in its oversight of the performance of this function. The audit committee should also discuss with the outside auditor the responsibilities, budget and staffing of the internal audit function.
A company listed on NASDAQ on or before June 30, 2013, must establish an internal audit function by no later than December 31, 2013. A company listed after June 30, 2013, must establish an internal audit function prior to listing.
Purpose for Proposed Rule Change
NASDAQ proposes the new rule to:
- ensure that listed companies have a mechanism in place to regularly review and assess their internal controls system
- identify any weaknesses and develop appropriate remedial measures
- ensure that company management and audit committees are provided with ongoing information about risk management process and internal controls
- ensure compliance with federal securities laws that require companies to maintain and evaluate the effectiveness of the internal controls over financial reporting, including compliance with Rules13a-15 and 15d-15
Solicitation of Comments
You may submit comments on your views and arguments concerning the proposed rule change to the SEC electronically as follows:
- via the SEC's Internet comment form: http://www.sec.gov/rules/sro.shtml
- via email with the subject line: File Number SR-NASDAQ-2013-032 to firstname.lastname@example.org
For additional information, the SEC's notice of the proposed rule change is available at: http://www.sec.gov/rules/sro/nasdaq/2013/34-69030.pdf