March 11, 2013
I am the Chief Financial Officer of FEI Company (NASDAQ FEIC) and would like to outline my objections to the proposed requirement for all NASDAQ listed companies to have an internal audit function. FEI Company has employed an out-sourced internal audit function for the past seven years. This function reports directly to the Audit Committee of our Board of Directors. The Audit Committee appoints the firm, sets their agenda, establishes the budget, reviews the annual internal audit plan, receives and reviews their reports and meets with them separately from management on a regular basis. The firm is not our independent auditing firm and is an accounting firm of national reputation, so on the surface we already meet the requirement.
My concern with the proposed rule is that it sets the scope of work for the internal audit organization to include "providing management and the audit committee with ongoing assessments of the Companys risk management process and system of internal control". I believe the scope of the proposed rule is over-reaching and would likely require extensive reviews, audits, tests, documentation and effort, resulting in large scale costs to the company. FEI, like so many NASDAQ listed companies, is under $1 billion in revenue and cannot easily absorb added costs. This is especially true when considerable effort and costs are already being directed at compliance with the new reporting for conflict minerals, other recent regulatory requirements in the wake of Dodd-Frank, and ongoing cost of compliance with the requirements of Sarbanes-Oxley (SOX).
In addition to the costs, I believe the proposed rule will change the flexibility of our Audit Committee to direct our internal audit function. Currently, the bulk of this effort is focused on operational reviews and follow-up on issues raised as part of our normal audit process and which are value-added, as opposed to compliance. The proposed rule appears duplicative and costly, as it forces us to direct the effort at assessing controls and risk management, both items already reviewed by management and our board of directors under current SOX rules.
I also serve on the Board of Directors of two smaller companies: one is a NASDAQ listed company with revenues of approximately $110 million and the other is a private venture-backed technology company with revenues of approximately $70 million. I am the Chairman of the Audit Committee for both companies. Neither company has an internal audit function. Requiring the NASDAQ listed company to have an internal audit function would be a significant cost for which I do not see the benefit. For the venture-backed firm with a desire to become a NASDAQ listed public company in the future, the proposed rule is just another difficult hurdle to overcome for a successful IPO.
For the above noted reasons I believe that the proposed rule requiring an internal audit function and outlining its role should be withdrawn.
Sincerely,
Raymond A. Link
Executive Vice President and Chief Financial Officer
FEI Company