LIBERTY UNIVERSITY SCHOOL OF BUSINESS
Case 8.4 Republic of the Sudan
Discussion Board
Submitted to Professor James Shelton,
In partial fulfillment of the requirement for the completion of
ACCT 622: Advanced Auditing (B02)
By
Lubov Beliveau-Dubois
February 18, 2024
Case Summary:
This is a unique case and unlike most that I have read so far. This case is about the SEC and its
involvement with the Republic of Sudan. The first part of this case gives us a brief summary of
Sudan and how it won its independence from Great Britain in 1956. Although it was
independent, Sudan was two countries within one. It was separated in two: Northern Sudan and
Southern Sudan. Northern Sudan was controlled by Islamic fundamentalists white Southern
Sudan was controlled by Christian fundamentalists. What started in 1989 and led into the
twentieth century, became the primary battleground in Sudan as the largest western region of the
country known as Darfur. The atrocities witnesses by United Nations and the Internal Criminal
Court were the worst ever seem by either. During this war, between Darfur and Southern Sudan,
millions of Sudanese were killed and millions of others were displaced out of their homes. Colin
Powell and General Kofi Annan both mentioned is so many words a similar sentiment, “The
worst humanitarian crisis or catastrophe ever!” Politicians from the Western side accused Sudan
government of war crimes and military dictatorship organized Janjaweed to decimated entire
villages within the Sudanese country borders. The question that’s on everyone’s mind is how are
these war crimes funded. Mercenaries or Janjaweed need to get paid for their crimes on behalf
of the Sudanese government. Well, the question was answered reports came out that the
government used revenues produced by the nation’s oil industry to finance their criminal
campaign of terror against their citizens. While terrorist fascists are being funded by the
Sudanese government, President Bill Clinton, imposed an economic embargo on Sudan in 1998,
preventing U.S. companies form doing business with Sudanese government or businesses.
Sudan, within that time frame was also put on the “state sponsor of terrorism” or SST list. A
few years later, in 2004, the U.S. House of Representatives calling for the SEC to require
publicly traded companies to self-report doing business with any companies on the SST list.
SEC established the Office of Global Security Risk to monitor these companies. While this
blacklist was meant for good, many companies who did business with Sudanese companies were
hesitant to self-report because the business dealings were not material to the business or the
overall revenue. Many critics of the SST disclosure policy said that it was inappropriate for the
SEC to single out registrants involved in one type of questionable business activity while
ignoring companied involved in other type of criminal activities. The main problem was
whether the SEC should be allowed to decide what information in registrant statements is
particularly material and should be highlighted or otherwise brought specifically to the attention
of the investing public. From a political point-of-view, any U.S company doing business with
Sudan, a company that funds terrorists, should be questioned. How do these American
companies know whether their money is not going directly to terrorist groups or extremists. We
don’t know for sure, so we have to be extremely careful, especially now. U.S> companies are
under more stringent regulations and have to be careful with who they are doing business with.
QUESTIONS:
1. How does the SEC define “materiality”?
Materiality has been the cornerstone of the federal securities laws since Congress incorporated
this principle in the first of these laws in the 1930s. It subsequently has been incorporated in SEC
rules and pronouncements and interpreted by the U.S. Supreme Court. Congress first included
the concept of materiality in the Securities Act of 1933 (the “Securities Act”). Section 17(a)(2) of
that Act provides, for example, that “it shall be unlawful for any person in the offer or sale of any
securities . . . to obtain money or property by means of any untrue statement of a material fact or
any omission to state a material fact necessary in order to make the statements, in light of the
circumstances under which they were made, not misleading.” In 1982, the SEC amended the
definition of material in Rule 405 in keeping with U.S. Supreme Court decisions (as discussed
below): “when used to qualify a requirement for the furnishing of information as to any subject,
[materiality] limits the information required to those matters to which there is a substantial
likelihood that a reasonable investor would attach importance in determining whether to
purchase the security registered” (RoundTable, 201%). There are three types of materiality:
overall materiality, overall performance materiality, and specific materiality. Overall materiality
determines benchmarks, apply benchmark percentages, and apply weighting factors. Overall
performance materiality applies performance materiality percentage. Specific materiality
determines items requiring specific materiality and specific materiality percentage. The highest
amount of information that if omitted, misstated or not disclosed, then that information has the
potential to affect the economic decisions of users of the financial report or the discharge of
accountability by management or those charged with governance (Roger & Steer, 2015). The
SEC and FASB both have definitions of materiality that are used in the context of financial
reporting and decision-making. The SEC's definition focuses on the importance of information to
a reasonable investor's decision-making process. If there's a substantial likelihood that the
information would be considered significant by a reasonable investor, or if the information could
significantly alter the total mix of available information, then it's considered material. On the
other hand, FASB's definition of materiality focuses on the impact of omissions or misstatements
in accounting information. If the omission or misstatement is of such a magnitude that it would
likely influence the judgment of a reasonable person relying on the information, then it's
considered material (FASB, 2015). The SEC's definition is broader, extending beyond financial
statements to include qualitative information. This is because the SEC's role involves disclosing
information about registrants that investors rely on to make investment decisions.
2. Do you agree with the assertion that any and all associations that SEC registrants have
with SSTs quality as “material information” for financial reporting purposes and thus
should be disclosed in their SEC filings? Are there other “Sensitive” or questionable
business activities that SEC registrants should be required to disclose? Defend your
answer.
When President Clinton imposed an economic embargo against Sudan, it started a chain of
events with the SEC, requesting U.S. Publicly traded companies to report any material
involvement with blacklisted companied such as Sudan. I agree with the assertion that any and
all associations that SEC registrants with SSTs qualify as “material information”. In my opinion
any information that an investor can use to determine whether or not to do business is material.
Material information is any information that can be considered significant by investors when
making investment decisions. As a business owner, I would want to know if a potential business
partner has connections or linked to any terrorist groups as I would not want my business
involved, even if it’s just in name. The exceptional public interest that has been demonstrated in
reading company disclosures on this topic indicates that it is an important subject for investors.
Federal law and SEC regulations will continue to require public companies to report on their
activities, if material, in a country the Secretary of State has formally determined to be a State
Sponsor of Terrorism. Our role is to make that information readily accessible to the investing
public, and we will continue to work to find better ways to accomplish that objective (SEC,
2007). Companies should provide all and any information that could be relevant to investors, no
matter how little or pertinent. Investors should be the ones to decide how pertinent or relevant
the information is. James 1:5 says, “If any of you lack wisdom, let him ask God, who gives
generously to all without reproach, as it will be given him.” This means that God doesn’t make
our decisions, we make them ourselves as we are given free will so that we can make decisions
and choose for ourselves. But in order to make good decisions, we cannot rush the decisions as
we need all the information upfront so that we can make educated decisions.
3. Should the SEC have the authority to highlight or bring special attention to certain
disclosures made by SEC registrants? Why or why not?
I believe that the SEC should have the authority to highlight or bring special attention to certain
disclosures made by the registrants to the SEC. SEC is governed by law to disclose publicly
traded companies’ information and bring awareness to the public or to the investors. Creating
the reporting tool on the SEC website was wise and all investors should know if their future
partners are in bed with criminals, terrorists or countries that support terrorism and war crimes.
While investors and the public are beneficiaries of the information provides, the SEC does not
benefit from it apart from educating the public. The SEC is accountable to8Congress8as it
operates under the authority of federal laws including the Securities Act of 1933, the Securities
Exchange Act of 1934, the Investment Company Act of 1940, the Investment Advisers Act of
1940, and the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act), among others. SEC’s mission
speaks for itself: “we work together to make a positive impact on the U.S. economy, our capital
markets, and people’s lives” (SEC, 2023).
References:
FASB. (2015). FASB Proposal of guidance on applying material to disclosures.
English Standard Bible.8(2016). https://esv.literalword.com/ (Original work published 2001)
Materiality Whitepaper. (RoundTable, 2015,).
ttps://www.researchgate.net/publication/326534038_httpss3amazonawscomacademiaedud
ocuments37429789JMAA_20142pdfAWSAccessKeyIdAKIAIWOWYYGZ2Y53UL3AEx
pires1532157751Signaturehngqjb6bj7ynk51EuyIMIYglJRA3Dresponse-content-
dispositioninline3B20filename3DJMA
Rogers, H., & Steer, S. (2015).
File:///C:/users/user/downloads/NEW_INDIAS_INFLEXIBLE_WORKFORC...
MATERIALITY GUIDE - 2015.
https://www.researchgate.net/publication/326832079_fileCUsersUserDownloadsNew_Indi
as_Inflexible_Workforce-Caring_ipdf
SEC. (2007b). Statement by Securities and Exchange Commission chairman Christopher Cox
concerning companies’ activities in countries known to sponsor terrorism. Press Release:
Statement by Securities and Exchange Commission Chairman Christopher Cox Concerning
Companies’ Activities in Countries Known to Sponsor Terrorism; 2007-138; July 20,
2007. https://www.sec.gov/news/press/2007/2007-138.htm
SEC. (2023, August 9). SEC Mission Statement. SEC Emblem.
https://www.sec.gov/about/mission
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