By Jessica Dye 

(Reuters) - A New York City bar group is calling on the New York Stock Exchange to revise a rule that gives audit committees a role in overseeing risk management at companies listed on the exchange.

The NYSE Rule 303A.07 requires audit committees at companies listed on the exchange to "discuss policies with respect to risk assessment and risk management."

The rule creates "significant disadvantages" for companies by expanding audit committees' purview beyond risks associated with financial reporting and disclosure, the New York City Bar Association's Committee on Financial Reporting said in a March 5 letter to NYSE chief regulatory officer Claudia Crowley.

The association suggested that the NYSE revisit the rule and consider vesting authority for broad risk supervision in a company's board of directors, which could in turn delegate certain aspects of risk control to the audit committee or other groups.

A spokesman for the NYSE declined to comment.

The rule was proposed by NYSE regulators amid the fallout from a series of high-profile corporate accounting scandals at companies like Enron in 2001 and WorldCom in 2002. The rule is not designed to put risk management solely in the hands of the audit committee, but rather to have that committee discuss and review the policies and guidelines aimed at limiting major financial risk exposure, according to commentary on the rule from the NYSE.

The letter argues that the rule is problematic because it appears to give audit committees a degree of responsibility over a wide range of risks beyond those stemming from financial reporting, from credit and liquidity to legal and compliance, and even operational or environmental risks.

According to the letter, this exceeds the parameters for audit committees laid out in the Sarbanes-Oxley Act, which describes the committee as overseeing "accounting and financial reporting processes."

The letter was written by Michael Young, chairman of the Financial Reporting Committee and a partner at Willkie Farr & Gallagher. It also argues that the level of responsibility given to audit committees over risk management is "ambiguous."

In the wake of the financial crisis, risk management has become increasingly important for publicly traded companies, Young said in an interview. As a result, audit committees have sometimes found themselves stretched thin by demands from directors, shareholders and regulators, he said.

The bar committee's solution is designed with the idea that "there's no single best practice" for risk management, Young said. Instead, the board of directors should have the flexibility to design an approach that best utilizes the company's resources, he added.

"A better allocation of risk management would free up the audit committee to move its attention to where it should be, which is financial reporting," Young said.

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