Finance chiefs are preparing for changes in one of their most fundamental tasks: figuring out what’s important enough to tell shareholders.

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(Illustration:Jon Krause)

Regulators in the U.S. and abroad are tinkering with the concept of “materiality,” or how to determine what information is necessary for companies to disclose publicly.

For companies, the sorting process is costly and complex, partly because what’s considered “material” varies from regulator to regulator. Congress and the Supreme Court also have their own ideas.

“A lot of [companies] find it difficult to work with the concept of materiality,” said Hans Hoogervorst, chairman of the London-based International Accounting Standards Board. Last week the board proposed allowing corporate executives to exercise more of their own judgment on what’s crucial to include in public filings.

At least a half-dozen standard setters, including accounting rule makers, the Securities and Exchange Commission and various stock exchanges, have guidelines on the subject. Some of them want companies to sharpen their focus to avoid overwhelming investors with useless information.

The U.S. Financial Accounting Standards Board announced plans in September to do away with its own standard and instead defer to one set by the U.S. Supreme Court in 1976. The board said it wanted to clarify that “materiality is a legal concept.” The SEC is also working on its own project to improve the usefulness of corporate disclosures and is seeking input from the public through the end of November.

Business groups including the U.S. Chamber of Commerce say they plan to press the issue this year because of the growing complexity of deciding what information is crucial to keeping shareholders in the loop.

“Disclosure may be straying from its core purpose,” said John Hayes, chief executive of packaging company Ball Corp, who heads the Business Roundtable’s corporate governance group. “If we thought these things were material to having our investors make informed decisions, we’d be talking about them already. But it actually gets in the way.”

Honeywell International Inc. started its own “disclosure simplification” project last year, taking a “fresh, critical view” of what it includes in filings. Three Honeywell executives met with the SEC last month to discuss the project, as well as changes planned by the agency, according to a memo made public by the SEC.

Honeywell told the SEC that it is trying to slim down financial footnotes and eliminate duplicative and boilerplate information. A company spokesman said Honeywell continues to “enhance the quality” of financial documents, but wouldn’t say if it had consulted investors as part of the process.

The price tag for complying with disclosure rules is rising. For many companies, the cost of researching, writing and submitting filings can “run into the millions of dollars, or even tens of millions,” said Michael Hermsen, a securities attorney at law firm Mayer Brown in Chicago. Still, it’s a necessary expense, he said. “You want to avoid lawsuits for bad disclosures because those can be even costlier in terms of reputation.”

At the same time, companies say much of what they now are required to report isn’t relevant to investors.

About 1,300 companies file annual reports on whether their supply chains include even trace amounts of certain minerals linked to financing violence in central Africa, a requirement stemming from the Dodd-Frank Act of 2010.

“It’s a frustrating process; it is a time-consuming process. And, at the end of the day, I’m not sure how much value it brings,” said Kathy McDermott, chief financial officer of LRAD Corp., which makes acoustic devices. Like many other companies, LRAD hasn’t been able to determine conclusively whether its supply chain contains the minerals, even after polling its suppliers. Shareholders haven’t pressed the issue, she said.

The Iran Threat Reduction and Syria Human Rights Act of 2012 requires companies to publicly disclose their activities with those nations. AXA Group said in an SEC filing this year that it provides car insurance to the Iranian Embassy in Berlin, and some of the embassy’s staff—taking in annual premiums of about $13,000. AXA didn’t reply to requests for comment on the effort it took to turn up those details.

Some investors and analysts say they are worried companies could take advantage of changes in the rules and guidelines to significantly reduce the information they provide. “There is a lot of gray area,” said Sandra Peters, head of the Financial Reporting Policy Group at the CFA Institute, which represents securities analysts.

But others want disclosures that are more succinct.

In analyzing financial reports and quarterly conference calls at some 3,000 companies over the past 50 years, Baruch Lev, an accounting professor at New York University’s Stern School of Business, found that analysts have all but stopped asking about information in financial reports, like sales and earnings figures. They are now asking more questions about strategy and nonstandard metrics, such as customer churn or the impact of foreign currencies.

“The usefulness of financial information to investors decreased tremendously over the last 20 to 30 years,” Mr. Lev said, adding that companies don’t say enough about intangible assets, such as patents and brands, that can drive their business.

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