Emerson 2014 Annual Report Download - page 38

2014 Emerson > 34
EMERSON ELECTRIC CO. & SUBSIDIARIES
Years ended September 30 | Dollars in millions, except per share amounts or where noted
(1) Summary of Significant Accounting Policies
FINANCIAL STATEMENT PRESENTATION
The preparation of the financial statements in conformity with U.S. generally accepted accounting principles
(U.S. GAAP) requires management to make estimates and assumptions that affect reported amounts and related
disclosures. Actual results could differ from these estimates. Certain prior year amounts have been reclassified to
conform with current year presentation.
Effective October 2013, the Company adopted revisions to ASC 220, Comprehensive Income, which require entities
to disclose reclassifications into earnings from accumulated other comprehensive income (AOCI) and other current
period activity. There is no change to the items reported in AOCI or when those items should be reclassified into
earnings. The revisions did not materially impact the Company’s financial statements.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its controlled affiliates.
Intercompany transactions, profits and balances are eliminated in consolidation. Investments of 20 percent
to 50 percent of the voting shares of other entities are accounted for by the equity method. Investments in
publicly-traded companies of less than 20 percent are carried at fair value, with changes in fair value reflected in
accumulated other comprehensive income. Investments in nonpublicly-traded companies of less than 20 percent
are carried at cost.
FOREIGN CURRENCY TRANSLATION
The functional currency for most of the Company’s non-U.S. subsidiaries is the local currency. Adjustments
resulting from translating local currency financial statements into U.S. dollars are reflected in accumulated other
comprehensive income.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original maturities of three months or less.
INVENTORIES
Inventories are stated at the lower of cost or market. The majority of inventory is valued based on standard costs
that approximate average costs, while the remainder is principally valued on a first-in, first-out basis. Cost standards
are revised at the beginning of each fiscal year. The annual effect of resetting standards plus any operating variances
incurred during each period are allocated between inventories and cost of sales. Following are the components of
inventory as of September 30:
2013 2014
Finished products $ 678 741
Raw materials and work in process 1,217 1,316
Total inventories $1,895 2,057
FAIR VALUE MEASUREMENT
ASC 820, Fair Value Measurement, establishes a formal hierarchy and framework for measuring certain financial
statement items at fair value, and requires disclosures about fair value measurements and the reliability of
valuation inputs. Under ASC 820, measurement assumes the transaction to sell an asset or transfer a liability
occurs in the principal or at least the most advantageous market for that asset or liability. Within the hierarchy,
Level 1 instruments use observable market prices for the identical item in active markets and have the most
reliable valuations. Level 2 instruments are valued through broker/dealer quotation or other approaches using
market-observable inputs for similar items in active markets, including forward and spot prices, interest rates
and volatilities. Level 3 instruments are valued using inputs not observable in an active market, such as company-
developed future cash flow estimates, and are considered the least reliable. Valuations for all of the Company’s
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS