Source: http://clio.lib.olemiss.edu/cdm/ref/collection/aah/id/484
Timestamp: 2019-04-25 13:52:47+00:00

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of whether the "investor" (who is assumed to have some basic knowledge of investment ac-tivities) is held to a higher or lower standard than the "reasonable man" is specific to case facts. In some situations, a layman might re-quire a more thorough explanation of the activi-ties of a company. An example of the court adopted definition of materiality for whether a "reasonable man" would attach importance to misrepresented financial information was stated in Smallwood v. Pearl Brewing Company [489 F.2d 579, 604 (Cir. 5 ,1974) cert. den. 419 U.S. 873]. At other times, a knowledgeable investor might demand that more information be dis-seminated, as indicated in such cases as Escott v. BarChris Construction Corporation [283 F.Supp. 643 (S.D.N.Y. 1968)], Osofsky v. Zipf, [645 F.2d 107 (2d Cir. 1981)], and Flamm v. Eberstadt [814 F.2d 1169 (7th Cir.), cert, de-nied, 484 U.S. 853 (1987)]. The emerging trend of more current materiality cases show greater application of the securities laws' standard of the "average prudent investor."
A third trend focuses on average prudent investments versus speculative investment ac-tivities and indicates movement toward an even higher standard of materiality that is applied in special cases. This distinction focuses on the reliance placed on securities by a speculative investor, who has different needs and risks than the average prudent investor in balancing both the probability that an event will occur and the anticipated magnitude of the event in the total-ity of company activity for decisions of buying, selling, and holding stocks. Examples of this unusual but important definition of materiality applied by the courts are presented in United States Securities and Exchange Commission v. Texas Gulf Sulphur Company, supra, and Ba-sic, Inc. v. Levinson, 108 S. Ct. 978, 983 (1988).
All judicial trends indicate an application of qualitative standards and an examination of the use of the information by the readers of fi-nancial statements. For the courts, the magni-tude of an item may be one factor to consider in determining materiality, but not the control-ling factor.
accountant's judgment is questioned, today's litigious society demands the ultimate determi-nation be made by the courts. Avoiding legal liability will require accountants to comply with the evolving common-law definition of materi-ality, where the courts do not consider applica-tion of generally accepted accounting principles and the FASB conceptual framework to be full and fair disclosure.
"Qualitative Characteristics of Account-ing Information." Statement of Financial Accounting Concepts No. 2. Stamford, CT: FASB, 1980. Pattillo, J.W. The Concept of Materiality in Financial Reporting. Financial Execu-tives Research Foundation, 1976. Reckers, P.M.J., D.C. Kneer, and M.M. Jennings. "Concepts of Materiality and Disclosure," CPA Journal, December 1984, pp. 20, 22-24, 27-28, 30.
The contributions of Richard V. Mattessich to the discipline and practice of accounting are varied and fundamental. Among others, the formalization of basic accounting conventions, the heralding of computer spreadsheets, the consideration of the representational signifi-cance of financial statements, the categorization and critique of modern accounting research, and the inquiries into early Sumerian recording techniques are of important consequence. In all such efforts, Mattessich insists on the need to examine accounting in its full economic and social aspects. As a consequence of the need for this, he brings to his work an enormous knowl-edge of the related disciplines and skills of the humanities and the social and physical sciences.

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