Someone has to be enabled to make an informed decision about an enterprise…


Traditionally it has been assumed that this is an economic decision, to be taken by someone with a commercial or material interest in the performance of the organization being addressed. The decision may be made with the shorter or the longer term in mind. The decision-maker will be deciding on the basis of a certain disclosure venue or form of text, applying preferred criteria or thresholds to prioritise and weigh various topics involved. Our decision-maker may also want to consider the context of the enterprise operations involved, assessing information that may be quantitative or qualitative, financial or non-financial. All of these dimensions are reflected in a range of definitions and different interpretations of “materiality”. The following pages take you through all these dimensions, including highlights of where new approaches are heading.


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ScrabbleHistorically companies have to disclose material information to investors in terms of Generally Accepted Accounting Principles (GAAP) and rules set by regulatory bodies such as the Securities and Exchange Commission (SEC) in the US and stock exchanges world-wide. The aim is to serve the public interest (including that of investors as owners) and build trust in financial markets. Increasingly, companies also have to disclose information that is material from a broader sustainability or social responsibility perspective, requirements set by EU directives and new or revised laws enforced by governments world-wide.

With lack of clarity on the meaning of materiality, it is often unclear whether information to be disclosed mandatorily or by law is material by definition. With requirements to report on certain subject areas, it is often also unclear what level of depth of information is sufficiently material to disclose. Do you assume “more is better”, and eventually face accusations of “clutter” and “information carpet bombing”? Or do you assume “less as safer”, and face accusations of lack of transparency and accountability? What are the building blocks of efficient, effective, quality and strategic disclosure?

The following page on “Definitions” gives an indication of how materiality is defined in a range of internationally recognized regulatory and self-regulatory or voluntary standards as well as court judgments. Behind them are various incentives for disclosure, involving carrots and sticks.

Professional accounting organizations, assurance providers and investors have in recent years often made the case for “standard terms and definitions” as one key step in improving the efficiency and effectiveness of annual reporting. Yet definitions of materiality can vary between different professions and interest groups. Historical analysis has shown differences in how materiality is defined and applied by the financial accounting profession, by stock exchanges, by courts and regulators, by voluntary standards and social responsibility experts. Furthermore, definitions may confuse what is commonplace, the current normal versus the idealized norm (e.g. what would be the interest of an “average prudent, reasonable investor”?). As will be evident throughout this platform, societal expectations around environmental, social and governance (ESG) issues continue to further raise the idealized or expected norm of what should be the interest of a “reasonable provider of financial capital”.

Rather than seeking an ideal-type definition, some prefer to focus on current practice and define situations where information has been judged to be material. In the process, a number of related terms are often used in any discussion of “materiality”:

  • Relevance
  • Significance
  • Context
  • Control
  • Influence
  • Boundary
  • Scope
  • Comprehensiveness
  • Inclusiveness
  • Responsiveness
  • Conciseness
  • Comparability
  • Benchmarkability
  • Proportionality

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