Steve Job’s health, accounting materiality and disclosure..   2 comments

We know already bout what happened to Apple’s Steve Job’s current health. What is seemingly intriguing to me is the impact of his condition to what happened on the stock floor. According to the SEC’s Regulation Fair Disclosure (Reg FD), public companies are required to disclose “material information” to all investors simultaneously. Obviously, this rule attempts to limit insider trading that occurred because of the information leak that might lead to action imbalances due to information asymmetry of selective disclosure.

The disclosure of SJ’s health made Apple shares plumed to $192.24 from May 2008. Following to the story, rumors over the need to have SEC further investigation arises. The question is, does Apple screw up the investors with this health information? Here comes accounting practice on materiality and disclosure to play the role. From my viewpoint, determining whether Apple violates the rule should be considered from two consecutive factor, putting aside that the information is potentially misleading (validity). First, identify the level of materiality and second, examine what level of disclosure taken to respond the materiality.

Materiality
The definition of “material information” is somewhat subjective, but it’s essentially anything that investors would likely thing as important driving forces on every investment decision will be taken. In Apple case, though materiality is quite subjective, it’s more black and white conclusion that its disclosure cousin. Anything that has substantial effect on corporate’s earning, and off course eventually owner’s wealth, is material. And to me, for company like Apply, SJ figure is determining, hence material to accounting reporting. Bottom line, if you’re not sure, disclose it. Ok, done with materiality. Did Apple disclose it? sure they did..but how they disclose?…let’s jump to disclosure.

Disclosure
Disclosing a particular information is more tricky than materiality. Say you wanna disclose this health problem to the dance floor, but in what ways?. Article by Steve Tobak from bnet.com provides a nice way of doing disclosure in one sentence, “how long can a company keep material information confidential before it leaks?”. So, if company feels that the leak to become reality is highly likely, it better discloses the information sooner than later. But be careful not to think that disclosure should be done after the information is leak. I’m not saying that disclosure equivalent with the leak of information.

So, question should be posed first is whether leak takes place in relation to SJ’s email to his employee? if yes, is it intentional? The answer should be seen to the action that follows the leak. If the time the leak precedes the disclosure is long,than violation of Reg FD happens. But if the disclosure is issued immediately, Apple’s hand should be clean.

Anyone wants to comment?

Posted January 23, 2009 by hamzahritchi in Business

2 responses to “Steve Job’s health, accounting materiality and disclosure..

Subscribe to comments with RSS.

  1. I don’t agree with the mix of material information with Job’s health condition or any other company’s CEO/executives’ health condition. We cannot think Apple as Jobs, vice versa. It’s true that Jobs started Apple with Woz 25 years ago. Without Jobs, Apple wouldn’t exist in the first place. But it doesn’t mean Apple will no longer exist if Jobs no longer exist. Should Jobs report his condition even if he’s just suffer a light diarrhoea? I don’t think so.

  2. Thank for the comment though. I believe that accounting standard was built upon pre set environment in which the profession can detect (or professionally judge)on which event/information fall into materiality construct. That’s what peer reviewed accounting journals are for.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: