In February 2013, the NASDAQ Stock Market proposed a rule that would require that NASDAQ-listed companies 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 of internal control. The proposal makes clear that companies may elect to outsource the internal audit function to a third party service provider (other than its independent auditor), provided that the audit committee retains sole oversight responsibility over the internal audit function. As proposed, NASDAQ-listed companies must establish an internal audit function no later than December 31, 2013. Through the end of the comment period, the SEC received 38 comments on the proposal.
On April 18, 2013, the SEC extended the time period for action on the proposal so that it has sufficient time to consider the NASDAQ proposal and the comments received. Thus, this proposal remains “on hold” at the current time.
Although many larger NASDAQ-listed companies already maintain a compliant internal audit function, such function is less common for smaller cap issuers. NASDAQ companies should continue to monitor developments concerning the proposal (and the related deadline for implementation) so that they can ensure they can implement an internal audit function timely if the NASDAQ proposal is ultimately adopted.