Assessing Materiality: Focusing on the Reasonable Investor When Evaluating Errors

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Mar 09, 2022

Under US federal securities laws, public companies are required to disclose certain financial and other information to investors. The basic premise of this disclosure-based regulatory regime is that if investors have timely, accurate, and complete financial and other information, they can make informed, rational investment decisions.

Accordingly, providing investors with high quality financial information, including financial statements prepared in compliance with generally accepted accounting principles (“GAAP”), should be the focus of all those involved in financial reporting. Management is responsible for providing investors with GAAP-compliant financial statements, so whenever a material error is identified in previously-issued financial statements, investors must be notified promptly and the error must be corrected. The determination of whether an error is material is an objective assessment focused on whether there is a substantial likelihood it is important to the reasonable investor.

Review the statement on the SEC's website.

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