Insights

Nasdaq withdraws internal audit rule proposal

May 28, 2013

Management Liability/D&O

In a previous blog post, I discussed the proposed Nasdaq internal audit rule and how it would have impacted Nasdaq-listed organizations. While the potential changes weren’t the regulatory game-changers many made them out to be, they would still have required listed businesses to establish and maintain an independent internal audit function. Businesses would have been required to comply by the end of 2013.

Pushback leads to rule withdraw
The rule was initially scheduled to be submitted to the SEC and decided upon by April 22. Deluged by comments, the SEC pushed its decision date back until June 6. Now, however, it appears that no decision will be made any time soon: Nasdaq withdrew its proposal.

“In light of the breadth and nature of the comments from our issuer community, and others, Nasdaq has determined to withdraw the proposal so that we may adequately consider these comments,” read a statement released by the exchange.

One of the main concerns listed organizations expressed were the costs associated with full compliance, especially as businesses would be required to have all new functions in place by the end of 2013. Others voiced the opinion that the proposal was too “one-size-fits-all” and didn’t take into account the need and capabilities of smaller firms.

Resubmission likely in the future
While withdrawn for now, it seems likely that the Nasdaq will resubmit an internal audit requirement in the future, perhaps sooner rather than later. No doubt the regulation will be redesigned to take into consideration some of the objections raised against the initial proposed rule. For example, a future rule might relax requirements for smaller companies, and it seems likely that the potential transition period will be longer.

Even if a company is not required by the Nasdaq listing rules to have an independent internal audit function, it’s worth considering implementing one. Internal audits can serve an important enterprise risk management function. In addition, publicly traded companies bear a significant burden when it comes to the accuracy of the financial statements that they report to their shareholders and regulators. As such, and of course taking into account the costs of implementing such a function, boards are advised to assess the pros and cons of implementing an internal audit function regardless of what the listing rules require.

The views expressed in this blog are solely those of the author. This blog should not be taken as insurance or legal advice for your particular situation. Questions? Comments? Concerns? Email: phuskins@woodruffsawyer.com.

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All views expressed in this article are the author’s own and do not necessarily represent the position of Woodruff-Sawyer & Co.

Priya Cherian Huskins

Senior Vice President, Management Liability

Editor, Management Liability/D&O

Priya is a recognized expert and frequent speaker on D&O liability risk and its mitigation. In addition to consulting on D&O insurance, she counsels clients on corporate governance matters, including ways to reduce their exposure to shareholder lawsuits and regulatory investigations. Priya serves on the board of an S&P 500 public company and a large private company and has an impressive list of publications, speaking engagements, and awards for her influence and expertise in the industry. 

415.402.6527

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Priya Cherian Huskins

Senior Vice President, Management Liability

Editor, Management Liability/D&O

Priya is a recognized expert and frequent speaker on D&O liability risk and its mitigation. In addition to consulting on D&O insurance, she counsels clients on corporate governance matters, including ways to reduce their exposure to shareholder lawsuits and regulatory investigations. Priya serves on the board of an S&P 500 public company and a large private company and has an impressive list of publications, speaking engagements, and awards for her influence and expertise in the industry. 

415.402.6527

LinkedIn