The basic role of an internal auditor is to provide an objective evaluation of the company’s internal controls, identify actual and potential problems, and recommend corrective action. The internal auditor may also monitor compliance with policies, procedures and regulations, assess the efficiency of business processes, and perform other audit functions. NYSE rules have long required IPO companies to have an internal audit function. Now Nasdaq is about to impose the same requirement.
Nasdaq has proposed a new rule requiring all Nasdaq-listed companies to “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 function may be provided internally or outsourced to a third party service provider other than the company’s independent auditor. The Nasdaq proposal closely mirrors the NYSE’s existing requirement of an internal audit function, including requirements that the audit committee meet periodically with the internal auditor and that the audit committee discuss with the outside auditor the responsibilities, budget and staffing of the internal audit function.
If approved by the SEC, IPO companies listing on Nasdaq after June 30, 2013 will be required to establish the internal audit function before listing. Companies listed on Nasdaq before June 30, 2013 will be required to establish this function no later than December 31, 2013.