On July 31, 2026, the New York Stock Exchange (NYSE) proposed a rule change that would give newly listed companies five years, instead of one, to establish the internal audit function required by Section 303A.07(c) of the NYSE Listed Company Manual. The proposal (SR-NYSE-2026-37) is still under review by the Securities and Exchange Commission (the SEC). If approved, the change would benefit companies listing on the NYSE in connection with an initial public offering (IPO), carve-out or spin-off.

What the Rule Requires Today

Unlike The Nasdaq Stock Market (Nasdaq), which has no internal audit requirement, the NYSE requires every listed company to have an internal audit function. Its job is to give management and the audit committee ongoing assessments of the company’s risk management and internal controls. The function can be outsourced, but not to the company’s independent financial statement auditor. Under current NYSE rules (Sections 303A.00 and 303A.07 of the Listed Company Manual), newly listed companies must have it in place by the first anniversary of their listing date.

What Would Change

The proposal extends the transition period to implement an internal audit function from one year to five years. The NYSE reported that newly public companies have in the past expressed concern over the current one-year deadline. They point to competing business and regulatory demands on management’s attention and to the challenges of building an internal audit function while a company is still in its early stages as a listed company and continuing to grow. The NYSE adds that newly listed companies are typically in the process of upgrading their accounting systems and internal controls and hiring additional staff to meet the greater demands of being public. The NYSE continues to view internal audit as a key part of sound governance, but believes more time will produce a more effective function and give new directors time to understand the business.

The NYSE frames this as a practical adjustment that it believes will lead to more effective internal audit programs. It also notes that other protections stay in place during the transition period: a fully independent audit committee, management’s annual internal control assessment under Section 404(a) of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley), auditor attestation under Section 404(b) where applicable, and the chief executive officer and chief financial officer certifications required by Sections 302 and 906 of Sarbanes-Oxley. Those SEC-driven obligations would continue unaffected.

Looking Ahead

Until the SEC acts, nothing changes. The SEC extended its deadline to November 16, 2026, by which it must approve the proposal, disapprove it or institute proceedings to determine whether to disapprove it, and the public comment file remains open. A final decision may not come on November 16: if the SEC institutes proceedings, any approval or disapproval would be pushed further out.

If approved, the change would be welcome news for IPO candidates and would narrow, though not eliminate, a long-standing difference between the NYSE and Nasdaq that companies weigh when choosing where to list.

In the meantime, companies planning an NYSE listing should monitor the SEC’s action and build their internal audit readiness plans accordingly. Recently listed companies remain subject to the one-year deadline, and the proposal does not address how the longer period would apply to them, such as whether a company only a few months into listing should keep building its internal audit function, or whether a company past its first anniversary but not yet at five years could pause and re-implement later. Unless a final rule or NYSE guidance resolves those questions, any such company should weigh the costs and anticipated investor feedback carefully and confirm its approach with NYSE staff before changing course.