NYSE Re-proposes One-year Internal Audit Transition Period for IPO Companies and Other New Listings | Practical Law

NYSE Re-proposes One-year Internal Audit Transition Period for IPO Companies and Other New Listings | Practical Law

The NYSE re-proposed a rule change that would amend Section 303A.00 of its Listed Company Manual to provide a one-year transition period for companies listing in connection with an IPO, among others, to comply with the internal audit requirements of Section 303A.07(c). A similar rule change had been proposed in April 2012 but was withdrawn.

NYSE Re-proposes One-year Internal Audit Transition Period for IPO Companies and Other New Listings

by PLC Corporate & Securities
Published on 03 Jul 2012 • USA (National/Federal)
The NYSE re-proposed a rule change that would amend Section 303A.00 of its Listed Company Manual to provide a one-year transition period for companies listing in connection with an IPO, among others, to comply with the internal audit requirements of Section 303A.07(c). A similar rule change had been proposed in April 2012 but was withdrawn.
Update: This proposed rule change has been withdrawn from consideration by the NYSE. In August 2012, the NYSE advised that it did not have any plans to re-propose the rule at a later date.
On June 27, 2012, the NYSE filed a proposed rule change that would amend Section 303A.00 of its Listed Company Manual to provide a one-year transition period for compliance with the internal audit requirement of Section 303A.07(c).
Update: This proposed rule change has been withdrawn from consideration by the NYSE. In August 2012, the NYSE advised that it did not have any plans to re-propose the rule at a later date.
The transition period would be available to companies that are listing at the time of:
Companies subject to Section 303A.07 must have an internal audit function to provide management and the audit committee with ongoing assessments of the company's risk management processes and internal control system. Under the current Section 303A.00, any company listing on the NYSE after transferring from another exchange that does not have an internal audit requirement (such as NASDAQ or NYSE MKT) has one year from the date of listing to comply with NYSE's internal audit requirement. The proposed rule change would extend the same transition period to other newly listed companies.
The NYSE noted that newly listed companies often appoint a completely new audit committee. The transition period would give a newly appointed audit committee an opportunity to familiarize itself with the company's internal controls and risk management and determine what kind of internal audit function is suitable for the company.
The NYSE is also proposing to amend certain provision of Section 303A.07 that set the duties of the audit committee regarding the internal audit function. The amendments apply to a listed company that does not yet have an internal audit function because it is relying on the transition period. The provisions clarify the duties of the audit committee during the transition period by requiring that, among other things:
  • The audit committee charter provide that the committee will assist board oversight of the design and implementing of the internal audit function.
  • The audit committee meet periodically with the company personnel primarily responsible for the design and implementing of the internal audit function.
For more information on NYSE corporate governance standards, see Comparative Corporate Governance Standards Chart: NYSE vs. NASDAQ.
For information on the April 2012 withdrawn version of this rule change, see Legal Update, NYSE Proposes One-Year Internal Audit Transition Period for IPO Companies and Other New Registrants.