Materiality Under the SEC’s Climate Risk Rule

By Tom Riesenberg August 12, 2024 by renholding

The concept of materiality has been called the “bedrock” or the “cornerstone” of the corporate disclosure system established by Congress in the federal securities laws.[1] But, despite its importance, determining how to use or apply the concept can be …

Skadden Discusses a Board’s Role in Oversight of Cybersecurity Risks

By Anita B. Bandy, Brian V. Breheny, Raquel Fox, William Ridgway and David A. Simon February 28, 2024 by renholding

Key Points

New SEC rules from 2023 require public companies to report material cybersecurity incidents promptly and detail their cybersecurity risk management strategies in annual reports — requirements that increase the risk of litigation over misstatements relating to cybersecurity.
The

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Comparing Auditors’ and Users’ Materiality Judgments

By Marcus Doxey and Chez Sealy February 20, 2023 by renholding

Materiality is a ubiquitous concept in accounting and auditing. Accounting and disclosure rules, with few exceptions, are bounded by materiality, meaning that if a matter is immaterial, it is often exempted from the accounting rules. In respect to audits, the …

Wachtell Lipton Discusses Board Oversight of ESG and the 2022 Proxy Season

By David M. Silk, Sabastian V. Niles and Carmen X.W. Lu April 4, 2022 by renholding

Last year’s proxy season saw investor support for an unprecedented number of ESG proposals, on issues ranging from climate change to human capital management to diversity, equity and inclusion. Proxy advisory firms increasingly recommended that shareholders vote for such proposals. …

“Shadow Trading” Becomes Insider Trading

By Stephen J. Crimmins March 28, 2022 by renholding

On January 14, 2022, the U.S. District Court in San Francisco denied a motion to dismiss charges filed by the Securities and Exchange Commission under an expansive new theory of insider trading liability. In a matter of first impression, the …

When Should You Abstain? A Call for a Global Rule of Insider Trading

By Ido Baum and Dov Solomon November 9, 2021 by renholding

The core concepts of securities regulation tend to be similar across jurisdictions. However, there are differences that may seem small and insignificant at first glance but in fact generate the potential for arbitrage by the kind of sophisticated actors that …

SEC Commissioner Lee Speaks on Myths and Misconceptions about “Materiality”

By Allison Herren Lee May 26, 2021 by renholding

Thank you, Neil [Stewart] for the introduction and for having me today as you discuss the important and timely topic of climate and ESG disclosures. I very much look forward to hearing from Janine [Guillot] and Julie [Bell Lindsay]. You

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Cravath Discusses Board and Management Responses to ESG Considerations

By John W. White, Matthew Morreale and Michael Arnold April 8, 2021 by Nisha Chandra

Environmental, social and governance, or “ESG”, considerations are seemingly ubiquitous in the current financial, corporate and regulatory landscape. In parallel with the socio-economic upheaval of 2020 and a continuing academic debate around corporate purpose and the efficacy and forms of …

SEC Commissioner Speaks at Asset Management Advisory Committee Meeting

By Hester M. Peirce March 22, 2021 by renholding

Good morning to you all and thank you Ed [Bernard]. It is always a pleasure to welcome the hard working volunteers of AMAC back to the Commission. I also want to thank Sarah ten Siethoff and the staff of the

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Wachtell Lipton on Whether the SEC Is Pushing the Boundaries of Regulation FD

By John F. Savarese and Wayne M. Carlin March 15, 2021 by renholding

On March 5, the SEC brought an enforcement action charging a public company and three of its investor relations personnel with violations of Regulation FD, alleging that the company’s IR personnel had fed non-public information to sell-side research analysts in …

How Material Are Disclosures in Annual Reports?

By Jenna D’Adduzio January 22, 2021 by renholding

The Financial Accounting Standards Board (FASB) and the Securities Exchange Commission (SEC) (collectively, “regulators”) have expressed concern over “disclosure overload,” or the concern that the sheer volume of disclosure in annual reports makes it difficult for investors to identify and …

Changing Expectations for Financial Disclosure of Climate-Related Information

By Hana V. Vizcarra May 1, 2020 by renholding

In early 2020, State Street Global Advisors, BlackRock, and other investment firms announced their plans for persuading companies to address financially-material environmental, social, and governance (ESG) issues. The high-profile announcements followed moves in recent years by Wellington Management, CalPERS, and …

Do Firms Conceal Material Misstatements by Reporting Revisions Rather than Restatements?

By Rachel Thompson October 15, 2019 by renholding

Disclosure of financial reporting errors is vital to maintaining investors’ trust in the capital markets. Yet, in recent years the number of misstatements corrected in restatements of financial reports has declined dramatically, and misstatements are now more likely to be …

How Do Auditors Determine What’s Material?

By Preeti Choudhary, Kenneth Merkley and Katherine Schipper October 2, 2019 by renholding

U.S. public company audits all include a simple step to determine whether an amount is large or significant for their clients, otherwise known as materiality. This decision influences the planning and procedures of the other facets of the audit as …

New York Attorney General Overreaches in Climate-Change Complaint Against Exxon

By Merritt B. Fox December 10, 2018 by renholding

The New York Attorney General (“NYAG”) recently filed a complaint against ExxonMobil alleging that the company violated the Martin Act, New York State’s securities law, by making material misstatements concerning how it was accounting for the possibility of increasingly stringent …

How the Level of Blame Affects Companies’ Willingness to Disclose

By Jason D. Schloetzer, AyungTseng, Teri Lombardi Yohn and Yeo Sang Yoon August 21, 2018 by renholding

What motivates a firm to disclose information rather than remain silent following a material, negative economic event? For example, why did oil companies issue multiple, detailed disclosures about oil spills caused by Hurricane Katrina and Hurricane Rita but not disclose …

Cleary Gottlieb Discusses Second Circuit’s Reversals of RMBS Trader’s Fraud Conviction

By Robin M. Bergen, Joon H. Kim, Rishi N. Zutshi, Nowell D. Bamberger and Alex Janghorbani May 11, 2018 by renholding

On May 3, the Second Circuit vacated on evidentiary grounds Jesse Litvak’s conviction – after a second trial – on a single count of securities fraud related to trades of residential mortgage backed securities (“RMBS”) and remanded the case to …

Materiality Disclosures and Their Effect on Investors’ Decisions

By Brant E. Christensen, Aasmund Eilifsen, Steven M. Glover and William F. Messier, Jr February 5, 2018 by renholding

Auditors consider misstatements or omissions in financial statements to be material if they could influence the economic decisions of financial statement users. Additionally, materiality affects how auditors plan and perform an audit and evaluate identified misstatements. Regulators in the UK …

Cahill Gordon discusses FASB’s Recent Exposure Drafts on Determinations of Materiality

By Charles A. Gilman, Jon Mark, John Schuster and Tyler A. O'Reilly October 28, 2015 by jbarrowscls

The Financial Accounting Standards Board (the “Board”) recently issued two exposure drafts that recommend a series of amendments related to determinations of materiality.¹ These efforts form part of the Board’s ongoing disclosure framework project, an initiative dedicated to improving …

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materiality