Public Comments Overwhelmingly Oppose NYSE Plan To Delay Internal Audits

What the NYSE proposed

On July 31, the NYSE asked to extend the deadline for newly listed companies to establish internal audit controls from one year to as long as five years. In its filing, the exchange noted that Nasdaq does not require an internal audit control function to list. NYSE also pointed to an existing rule that companies must have audit committees when trading begins, saying that requirement "will continue to provide sufficient assurance that issuers listed on the Exchange are appropriately managing risk."

The exchange argued that meeting the one year timetable can be difficult for fresh listings managing day to day operations and other regulatory obligations, and that more time could lead to a better designed internal audit program. As the filing put it, "The Exchange believes it is appropriate to extend the transition period for compliance in order to provide a new slate of directors with sufficient time to assess an issuer's operations to help design a valuable internal audit function." Any revision would require the Securities and Exchange Commission to approve it.

Who weighed in and how they reacted

By Sept. 21, 128 comment letters had been filed. Only one supported the change, while 123 opposed it, according to analysis released Tuesday by Professor Tzachi Zach of The Ohio State University and Professor Sarah McVay of the University of Washington. Most of the responses came from internal audit professionals.

Mat Young, who serves as the Institute of Internal Auditors' executive vice president overseeing global advocacy, policy, and stakeholder relations, said internal audit supports a broad set of risk and governance needs and helps boards and management get ahead of problems. He stressed it goes beyond the ledger, citing areas like cybersecurity risk, management of data privacy, oversight of contractors, regulatory compliance, and the way companies deploy artificial intelligence. "It's much more holistic than when a company contracts with external auditors for just financial controls," he said.

Young also noted you do not build the function overnight. Foundational work happens in year one, then it becomes more advanced.

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Only one favorable letter was submitted, authored by John Heagy, a senior manager with Cherry Bekaert Advisory in its internal audit and risk advisory practice. He wrote that the internal audit function "has become an overwhelming 'check the box' exercise that has not added value to the organization."

Certified internal auditor Jason Odibi, writing on his own, backed the current one year requirement, saying it helps spot weaknesses early. "Regrettably but avoidably, a five-year delay in internal audit oversight could leave significant control deficiencies undetected, expose investors to unnecessary risks, and undermine public confidence in the integrity and reliability of our nation's securities markets," he wrote.

The fault lines in the debate

Some commenters said the NYSE did not make a persuasive case for lengthening the timeline. In his letter, Chris Broussard wrote that the exchange claims the one year implementation schedule is burdensome for new listings, but offers no evidence beyond general anecdotes from some issuers.

Others focused on the period right after an IPO as a risky time for investors, pointing to incentives for management and other pre IPO holders to conceal information when they stand to benefit from early trading. Internal audit practitioner Andrey Xavier argued that a proposal like this should be considered only if employees and owners of the company were prohibited from selling their shares until at least one year had passed after the internal audit requirement takes effect, adding, "I am 100% sure that they would not be interested in such restriction."

During the Trump administration, the SEC has spearheaded a wider push to scale down regulations on public companies, and SEC Chairman Paul Atkins has made a priority of loosening rules to spur more companies to go public and remain public. The SEC declined to comment, and an NYSE representative did not provide a comment right away when asked.

What it means for your money

If you own or are watching newly public stocks, this is about how quickly those companies build a team that pressure tests controls and risks beyond the financial statements. The NYSE wants to give newcomers five years instead of one. Supporters say that breathing room could produce a stronger design; critics warn it could open gaps and shake confidence. The SEC will decide whether the NYSE's plan moves forward, so the impact on your portfolio rides on what regulators do next.

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