SASB FSA Level I: Check Your
Understanding Questions
1.1 Why do investors demand quality sustainability information? - ANSInvestors express
demand for and source quality sustainability information to meet their investment goals. While
investors are generally defined as people or organizations that allocate financial capital with the
goal of achieving a profit, not all investors are the same. Investment goals and accompanying
strategies may include using the information to achieve above-market returns, assessing risk to
protect against diminished returns and major losses, or evaluating the predictability of
investment outcomes. Whether operating in public or private markets, the ability of investors to
use financially material sustainability information to achieve enhanced outcomes is evidenced
by an increasingly robust body of independent research.
1.2 What factors drive demand for quality sustainability information within companies? -
ANSSustainability data, both qualitative and quantitative, can contribute to company success in
the near, medium, and long term by improving the management of sustainability-related risks
and opportunities. Where sustainability-related risks and opportunities are measured and
managed, companies may be better equipped to identify and mitigate risks, reduce costs,
optimize efficiencies, and even increase market share and revenue growth through new
products and services. Indeed, by demonstrating an ability to manage sustainability-related risks
and opportunities to bolster company performance, companies can leverage sustainability
disclosure to effectively communicate with investors and improve cost of capital. Simply put,
demand for sustainability information within companies is often (though not always) driven by
the goal to improve bottom-line performance
1.3 Besides companies and their investors, what other institutions influence demand for
sustainability information across capital markets? - ANSThe performance benefits that investors
and companies experience when integrating sustainability information into their decision-making
processes are not the only factors driving demand for sustainability information. Other
organizations, both public and private, influence the global sustainability dialogue. International,
national, and local policy-based initiatives stimulate sustainability disclosure by passing
recommendations and guidance, as well as regulatory requirements, for the disclosure of
sustainability information from publicly-listed companies. Non-policy efforts, particularly those
initiated by securities exchanges and industry associations, increasingly encourage
sustainability disclosure among listees and members.
2.1 Why was disclosure the basis of regulatory reform in the wake of the 1930's stock market
crash? - ANSThe stock market crash of 1929 sent shockwaves throughout global markets,
leading to global economic declines and the onset of the Great Depression in the United States.
The event provides perhaps the most striking example of how lack of transparency in capital
, markets can have disastrous consequences - harming socioeconomic well-being, bankrupting
companies, and eroding investors' confidence in the information they rely on from companies to
make investment decisions. Disclosure was the basis of regulatory reform in this defining period
because disclosure is a means to promote transparency, and transparency is essential to
fostering sound and efficient capital markets. As evidenced by the formation of the first
securities regulators, mandatory and standardized corporate disclosures is an effective
mechanism to protect the investing public and positively influence corporate behavior.
2.2 How has the purpose of accounting changed since the 1930s, and why did financial
reporting move toward standardization? - ANSIn early years, accounting practices centered
around accurate recordkeeping via historical cost accounting. This founding purpose shaped the
accounting profession, where accuracy and reliable record keeping are paramount. However, to
serve their own unique goals, firms began accounting and reporting financial information using a
range of methodologies, ultimately inhibiting the comparability of financial statements. This
fragmentation of accounting practices necessitated a push by accounting associations to come
to a consensus regarding the true purpose of accounting and to promote standardization. The
profession ultimately determined that accounting exists to provide information for the purpose of
making economic decisions, which can include both historical records and forward-looking
information. High levels of adoption of standards such as the International Financial Reporting
Standards (IFRS) and US GAAP allow investors around the world to efficiently source and use
the information yielded through the standards. With higher levels of standardized disclosure
comes more consistent, comparable, and reliable information across markets, allowing investors
to equally assess and compare companies' performance and prospects.
3.1 Why did materiality emerge in early regulations governing financial reporting? What purpose
does it serve? - ANSThe concept of materiality emerged in early disclosure regulation to
communicate disclosure requirements to companies and to establish a standard against which
companies with disclosures regulation can be assessed. Materiality supports the premise that
investors are entitled to the information that is reasonably likely to affect their decision to buy
shares in a company, and that companies are the therefore responsible for identifying and
disclosing that information. Materiality establishes a boundary around the information
companies are required to disclose and that which they are not obligated to disclose, so that
companies are not overburdened with disclosure obligations.
3.2 What concepts underpin investor-focused materiality? - ANSFour concepts underpin early
definitions of investor-focused or 'financial' materiality:
• Materiality is a function of the report user. Users include 'prudent' or 'informed' investors.
Information is material if it can influence the judgments investors and other providers of capital
make when deciding to provide financial resources to a company.
• Materiality is not about every investor or any one investor. Investors are not universally the
same. They bring different objectives and levels of expertise. Rather than attempt to
Understanding Questions
1.1 Why do investors demand quality sustainability information? - ANSInvestors express
demand for and source quality sustainability information to meet their investment goals. While
investors are generally defined as people or organizations that allocate financial capital with the
goal of achieving a profit, not all investors are the same. Investment goals and accompanying
strategies may include using the information to achieve above-market returns, assessing risk to
protect against diminished returns and major losses, or evaluating the predictability of
investment outcomes. Whether operating in public or private markets, the ability of investors to
use financially material sustainability information to achieve enhanced outcomes is evidenced
by an increasingly robust body of independent research.
1.2 What factors drive demand for quality sustainability information within companies? -
ANSSustainability data, both qualitative and quantitative, can contribute to company success in
the near, medium, and long term by improving the management of sustainability-related risks
and opportunities. Where sustainability-related risks and opportunities are measured and
managed, companies may be better equipped to identify and mitigate risks, reduce costs,
optimize efficiencies, and even increase market share and revenue growth through new
products and services. Indeed, by demonstrating an ability to manage sustainability-related risks
and opportunities to bolster company performance, companies can leverage sustainability
disclosure to effectively communicate with investors and improve cost of capital. Simply put,
demand for sustainability information within companies is often (though not always) driven by
the goal to improve bottom-line performance
1.3 Besides companies and their investors, what other institutions influence demand for
sustainability information across capital markets? - ANSThe performance benefits that investors
and companies experience when integrating sustainability information into their decision-making
processes are not the only factors driving demand for sustainability information. Other
organizations, both public and private, influence the global sustainability dialogue. International,
national, and local policy-based initiatives stimulate sustainability disclosure by passing
recommendations and guidance, as well as regulatory requirements, for the disclosure of
sustainability information from publicly-listed companies. Non-policy efforts, particularly those
initiated by securities exchanges and industry associations, increasingly encourage
sustainability disclosure among listees and members.
2.1 Why was disclosure the basis of regulatory reform in the wake of the 1930's stock market
crash? - ANSThe stock market crash of 1929 sent shockwaves throughout global markets,
leading to global economic declines and the onset of the Great Depression in the United States.
The event provides perhaps the most striking example of how lack of transparency in capital
, markets can have disastrous consequences - harming socioeconomic well-being, bankrupting
companies, and eroding investors' confidence in the information they rely on from companies to
make investment decisions. Disclosure was the basis of regulatory reform in this defining period
because disclosure is a means to promote transparency, and transparency is essential to
fostering sound and efficient capital markets. As evidenced by the formation of the first
securities regulators, mandatory and standardized corporate disclosures is an effective
mechanism to protect the investing public and positively influence corporate behavior.
2.2 How has the purpose of accounting changed since the 1930s, and why did financial
reporting move toward standardization? - ANSIn early years, accounting practices centered
around accurate recordkeeping via historical cost accounting. This founding purpose shaped the
accounting profession, where accuracy and reliable record keeping are paramount. However, to
serve their own unique goals, firms began accounting and reporting financial information using a
range of methodologies, ultimately inhibiting the comparability of financial statements. This
fragmentation of accounting practices necessitated a push by accounting associations to come
to a consensus regarding the true purpose of accounting and to promote standardization. The
profession ultimately determined that accounting exists to provide information for the purpose of
making economic decisions, which can include both historical records and forward-looking
information. High levels of adoption of standards such as the International Financial Reporting
Standards (IFRS) and US GAAP allow investors around the world to efficiently source and use
the information yielded through the standards. With higher levels of standardized disclosure
comes more consistent, comparable, and reliable information across markets, allowing investors
to equally assess and compare companies' performance and prospects.
3.1 Why did materiality emerge in early regulations governing financial reporting? What purpose
does it serve? - ANSThe concept of materiality emerged in early disclosure regulation to
communicate disclosure requirements to companies and to establish a standard against which
companies with disclosures regulation can be assessed. Materiality supports the premise that
investors are entitled to the information that is reasonably likely to affect their decision to buy
shares in a company, and that companies are the therefore responsible for identifying and
disclosing that information. Materiality establishes a boundary around the information
companies are required to disclose and that which they are not obligated to disclose, so that
companies are not overburdened with disclosure obligations.
3.2 What concepts underpin investor-focused materiality? - ANSFour concepts underpin early
definitions of investor-focused or 'financial' materiality:
• Materiality is a function of the report user. Users include 'prudent' or 'informed' investors.
Information is material if it can influence the judgments investors and other providers of capital
make when deciding to provide financial resources to a company.
• Materiality is not about every investor or any one investor. Investors are not universally the
same. They bring different objectives and levels of expertise. Rather than attempt to
