March 27, 2013
Dear Sir or Madam,
As the Chief Financial Officer of Peregrine Semiconductor Corporation (NASDAQ: PSMI) (Peregrine) I would like to express my concerns with the proposed requirement for all NASDAQ listed companies to have an internal audit function. Peregrine is an emerging growth company, as outlined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act) , which has allowed us to take advantage of certain exemptions from reporting requirements that are applicable to other public companies. For example we are not yet required to comply with Section 404 of the Sarbanes Oxley Act of 2002 (SOX), and have reduced disclosure obligations regarding executive compensation, etc.
Overall I believe that having an internal audit function is beneficial to companies that have large, complex, and decentralized operations, in order for them to identify weaknesses and develop appropriate remedies. However, as is the case with many emerging growth companies, our operations are not overly complex, the vast majority of our workforce is located in the same geographic location under the same supervision, and management is actively involved in the day-to-day running of all aspects of the company. As such, the benefit of adding an internal audit function would not justify the additional cost burden to the company. A further concern is that the proposed rule will cause us to dedicate additional time and effort to technical debates over risk assessment and control assessment, requiring substantial resources to be re-allocated from running the business to corporate compliance. Due to these two concerns, it is my recommendation that this proposed rule be modified for application consistent with the JOBS Act. That is, to allow emerging growth companies such as ourselves, to be exempt from the requirement of having an internal audit function until such time that they no longer qualify under the exemption. Should this proposed requirement come into effect as presented, it would significantly negate the advantages of the JOBS Act and cause other non-public companies to give pause before deciding to become a public company in the US, due to these significant hurdles and added costs.
As a public company, we already incur significant additional legal, accounting and other expenses that we did not incur as a private company, including the costs associated with public company reporting requirements, corporate governance requirements, and other new rules implemented by the SEC or NASDAQ. It seems likely the proposed rule will put an additional undue burden on companies with revenues less than $1 billion which cannot easily absorb the added costs. This is especially true in the wake of the newly issued compliance and regulatory requirements, such as reporting for conflict minerals, associated with the Dodd-Frank Act.
Finally, as part of our selection process of which exchange to list our shares, a cost element we considered was the fact that the NASDAQ did not require an internal audit function. By requiring an internal audit function, NASDAQs competitive advantage might be diminished for companies anticipating going public in the future.
For the above noted reasons I respectfully request that the proposed rule requiring an internal audit function be withdrawn or appropriately modified.
CFO, Peregrine Semiconductor Corporation