October 25, 2014

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NASDAQ Proposes Internal Audit Function Requirement for Listed Issuers

On March 4, the Securities and Exchange Commission published notice that The NASDAQ Stock Market LLC (NASDAQ) had filed a proposed new rule that would require each NASDAQ-listed issuer to maintain an internal audit function. The internal audit function would be tasked with providing the issuer’s management and audit committees with an ongoing assessment of the issuer’s risk management processes and system of internal control. Under the proposed rule, an issuer would be permitted to outsource the internal audit function to any third party other than its independent auditor. Additionally, the audit committee would be required to meet periodically with the persons performing the internal audit function and should discuss the role of the internal audit function with the issuer’s outside auditors.

NASDAQ stated in its rule proposal that the purpose of the new rule is to ensure that a listed issuer has a mechanism in place to regularly review and assess its system of internal control, and to ensure that the listed issuer’s management and audit committees are provided with current information about risk management processes and systems of internal control. Additionally, NASDAQ believes that the rule will assist listed issuers in complying with their federal securities law obligations to maintain and evaluate, with the participation of their principal executive and financial officers, the effectiveness of the internal control over financial reporting.

Under its proposal, an issuer that is listed on NASDAQ on or before June 30, 2013 would be required to establish an internal audit function no later than December 31, 2013. An issuer that becomes listed after June 30, 2013 would be required to establish an internal audit function prior to listing on NASDAQ.

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About this Author

Mark D. Wood, Energy Attorney, Katten Muchin Law firm
Partner

Mark D. Wood is head of Katten's Securities practice and concentrates in corporate and securities law. Mark represents public companies, issuers and investment banks in initial public offerings (IPOs) and other public offerings, private investment in public equity (PIPE) transactions, debt securities and other securities matters.

312-902-5493
David S. Kravitz, Corporate Attorney, Katten Muchin Law firm
Associate

David S. Kravitz concentrates his practice in corporate matters.

212-940-6354