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Focus on Internal Audit: Proposed Rule Change Would Require Internal Audit Function for NASDAQ Listed Companies

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On February 20, 2013, NASDAQ submitted a proposed rule change to the U.S. Securities and Exchange Commission (SEC) that would require NASDAQ listed companies to establish and maintain an internal audit function.

The proposed rule, open for comment through March 29, 2013, would bring the NASDAQ into alignment with the New York Stock Exchange (NYSE), which already requires its listed companies to have an internal audit function.
March 29, 2013

On February 20, 2013, NASDAQ submitted a proposed rule change to the U.S. Securities and Exchange Commission (SEC) that would require NASDAQ listed companies to establish and maintain an internal audit function.

The proposed rule, open for comment through March 29, 2013, would bring the NASDAQ into alignment with the New York Stock Exchange (NYSE), which already requires its listed companies to have an internal audit function.

If the SEC approves the rule, companies listed on the NASDAQ, on or before June 30, 2013, must establish an internal audit function by December 31, 2013.

Companies listed after June 30, 2013, must establish an internal audit function prior to listing. Under the proposed rule, a listed company would have the option to outsource the internal audit function to a third party other than its financial statement auditor; however, the audit committee would maintain the responsibility of overseeing the internal audit function.

The impact of the rule change is not expected to be significant for those companies subject to audits of internal control over financial reporting, as many of those companies have already established and implemented an internal audit function.

However, smaller companies not subject to audits of internal control over financial reporting may be subject to increased costs to comply with the proposal. The proposed rule change also will mean those charged with oversight of the internal audit function would be responsible for ensuring that the following is in place and operating effectively:

  • A mechanism to regularly review and assess their system of internal control over financial reporting;
  • A framework to identify and evaluate any weaknesses identified in the system of internal control and to ensure appropriate remedial measures are taken to close any gaps;
  • A communication plan that provides management and the audit committee with ongoing information about risk management processes and the system of internal control; and
  • A structure in which management maintains responsibility for the risk management processes

Click here to read the proposed rule change.

Click here for additional information.

 

Under U.S. Treasury Department guidelines, we hereby inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used by you for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service, or for the purpose of promoting, marketing or recommending to another party any transaction or matter addressed within this tax advice. Further, RubinBrown LLP imposes no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.

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