The NASDAQ Internal Audit RequirementThe NASDAQ has recently proposed a new rule to require listed companies to establish and maintain an internal audit function. The proposed rule is currently under review by the Securities and Exchange Commission (SEC).
An internal audit function reviews and assesses the integrity of internal controls in financial reporting, as well as compliance, operations, information technology, and other risk areas of the business. Any identified internal control weaknesses are remediated to strengthen risk management. The proposed rule is intended to protect investors and public interest by increasing the integrity of a listed company’s financial reports. This is a similar rule that was imposed by the NYSE a number of years ago on NYSE listed companies.
The proposed NASDAQ Internal Audit Rule includes four key points:
- 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 the function to a third party service provider other than its independent auditor.
- The audit committee must meet periodically with the internal auditors and assist the board in its oversight of the function.
- The audit committee should also discuss with the outside auditor the responsibilities, budget and staffing of the internal audit function.
The SEC is currently seeking comments on the proposed rule.
- The proposal can be viewed at the following link: http://www.sec.gov/rules/sro/nasdaq/2013/34-69030.pdf
- To submit a comment: http://www.sec.gov/rules/sro.shtml