January 23, 2018

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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, corporate securities lawyer Katten Muchin Chicago Law firm

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.

Mark also represents clients in complex corporate transactions, including tender offers, mergers, acquisitions, dispositions, going-private transactions, private equity investments, joint ventures and...

David S. Kravitz, Corporate Legal Specialist, Katten Muchin Law firm

David S. Kravitz concentrates his practice on a broad range of transactional, securities and general corporate matters. He regularly advises private equity sponsors, public and privately held companies and their boards of directors and committees of independent directors in a variety of transactions such as mergers and acquisitions, corporate financings, joint ventures, unsolicited takeovers, proxy contests and other contested transactions, including auctions and leveraged buyouts. His experience spans a broad range of asset classes and industries, including pharmaceutical, fashion, Great Lakes shipping, technology, energy, gaming, restaurants and insurance, among others.

David also serves as general counsel for a number of his public and private clients, providing advice on a wide range of matters including growth initiatives, capital formation, securities and regulatory matters. For his public company clients, he also regularly advises on corporate governance issues and Securities and Exchange Commission reporting and disclosure.