“Materiality” Definition May Change, Investor Groups Livid

The Financial Accounting Standards Board has proposed revising the definition of “materiality,” an important concept for serious investors and often a pivotal one in public company disclosure litigation. Per the new version, information would be material if it was likely to be seen by a reasonable person as significantly altering the total mix of facts about a company. This, explains New York Times business writer Gretchen Morgenson, is a higher bar than the old definition: information that could influence decision-making by shareholders, prospective shareholders and lenders. The FASB maintains the revision would reduce the amount of immaterial information that clutters disclosures, at the same it’s more consistent with terminology adopted by the Supreme Court and the SEC. Many public companies are said to favor the change, but critics, and there seem to be many, consider it pernicious. The claim of disclosure overload is “a paper bogeyman,” says one.