The Integrated Reporting Movement: Meaning, Momentum, Motives, and Materiality

Chapter 5Materiality

Materiality forms the conceptual bedrock of corporate reporting, yet no authoritative definition of it exists. In “Securities Regulation,”¹ Louis Loss points out that the legal field offers no specific definition of the word. Court opinions on materiality have merely sketched its conceptual contours. Every time materiality has been relevant to a legal case in the United States, the court has opined that it must be decided on a case-by-case basis.² The U.S. Supreme Court has also asserted that this determination must be based on both qualitative and quantitative factors based on the “total mix” of information made available.³ Further complicating the “total mix” standard set by the Supreme Court for evaluating potentially material omissions or misstatements, the Court left open the issue of “circularity” in its definition of materiality.⁴ Finally, the courts have also made clear that materiality must be determined with complete clarity. These opinions do not discuss “degrees” of materiality; materiality is binary. A fact is either material, in which case it should be reported, or is not material, in which case it does not need to be reported.

These “delicate assessments” are to be made by the corporation itself. Since investors have no voice in a company's materiality determination process other than through lawsuits (which lead to further guidance instead of specific answers), it is management's, and ultimately the board's, responsibility to ascertain what ...