CASE 8.11
REPUBLIC OF THE SUDAN
Synopsis
Since the 8th century, the large central African country of Sudan has been a battleground
between Christian and Muslim fundamentalists. The country has been ruled since 1989 by Omar
Hassan al-Bashir. Allegedly, al-Bashir’s government has perpetrated atrocities on a massive scale in
Sudan. As many as two million citizens of southern Sudan and the large western region of the
country known as Darfur may have perished under al-Bashir’s regime. Another four million
Sudanese have been displaced under that regime. The atrocities in Sudan resulted in the U.S. State
Department placing that nation on its list of state sponsors of terrorism (SSTs) and in President
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Republic of the Sudan—Key Facts
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1. The Republic of Sudan is among those countries identified by the U.S. State Department as a
state sponsor of terrorism (SST).
2. In 2004, the U.S. House recommended that SEC registrants be required to disclose any business
4. In June 2007, the SEC created an Internet search tool to identify companies with links to SSTs.
6. Many prominent third parties in the investment community were extremely critical of the SEC’s
new SST disclosure policy.
8. A focal issue of the controversy stemming from the SST disclosure policy was whether the
SEC’s regulatory mandate included deciding what disclosures of SEC registrants were so “material”
that they should be highlighted for the benefit of the investing public.
Instructional Objectives
Case 8.11 Republic of the Sudan 365
1. To examine an important financial reporting issue in the current global economy, namely, the
disclosure of reporting entities’ links to state sponsors of terrorism (SSTs).
Suggestions for Use
Since September 2001, terrorism has been a major concern, if not preoccupation, of U.S.
citizens, politicians, and government officials. No doubt, your students will be aware of the
terrorism phenomenon and the impact that it has had on our nation, which should heighten their
interest in this case. Surprisingly, the SEC’s effort to contribute to the “war against terrorism”—the
Suggested Solutions to Case Questions
1. These questions may trigger unruly debates between and among your students. Of course, the
purpose here is not to arrive at definitive answers to these questions—since there are no such
answers—but rather to allow students to explore and debate the overall purpose and nature of
financial reporting.
2. The catch phrase most commonly associated with the SEC’s overall role in the U.S. economy is
“full and fair disclosure.” Since its inception, the watchdog agency for the capital markets has
focused on ensuring that registrants disclose all “material” information to investors, lenders, and
other interested third parties. For the most part, the agency has not attempted to identify disclosures
that are more (or less) “material” than other disclosures, leaving that assessment to individual users
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3. Ironically, the SEC does not have its own “materiality standard.” Instead, the SEC invokes the
following definition of materiality applied by the U.S. Supreme Court: “Information is material if
there is a substantial likelihood that a reasonable investor would consider the information in making
an investment decision or if the information would significantly alter the total mix of available
information.”
The FASB’s definition of materiality closely parallels that applied by the Supreme Court and the
SEC. FASB Statement of Financial Accounting Concepts No. 2, “Qualitative Characteristics of
Accounting Information” (pre-codification) includes the following definition of materiality: “The
One observation that you may want to make for your students’ benefit is that accountants of
reporting entities are charged with making initial materiality decisions, while auditors have the task
of analyzing the reasonableness or acceptability of those decisions ex post. Quite often intervening
circumstances or events will provide auditors with considerably more information or insight on
materiality issues than that which was available to the accountants who made the original materiality
determinations.