SASB Chapter 6 Vocab Flashcards
FASB Materiality
“The omission or mistatement of an item in a financial report is material if, in light of surrounding circumstances, the magnitude of the item is such that it is probable that the judgement of a reasonable person relying upon the report would have been changed or influenced by the inclusion or correction of the item.”
User of Information
For traditional materiality, the user of the information is identified as an investor or provider of capital. However, within investor audiences and beyond, different users have different priorities, and thus can have a different view about what information is material.
The materiality of information depends on who uses it.
Reasonable in Materiality
The term reasonable or the concept of reasonable expectation, evoking the concept of a hypothetical reasonable investor as the standard for determining what to disclose. NDRC did a petition: SEC if information is material when a sufficiently large percentage of investors and/or assets under management consider it to be relevant and decision useful - further sustainability disclosure would be justified when the reasonable investor views that information as decision-usfeul - reasonableness is not a static trait.
Dynamic Materiality
The markets understanding of sustainability information is not static. In the same way that sustainability information never (or rarely) used to be considered financially material, the materiality of information can shift over time. Known as Dynamic Materiality, information that is material today may not be material tomorrow and vice versa, has already been seen in the NDRC case shown above. Dynamic materiality illustrates the interplay between environmental and social issues and financial materiality.
