Emerson 2015 Annual Report Download - page 38

36 | 2015 Annual Report
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.
In the first quarter of 2015, the Company adopted updates to ASC 205, Presentation of Financial Statements, and
ASC 360, Property, Plant and Equipment, regarding the reporting of discontinued operations. These updates raised
the threshold for reporting discontinued operations to a strategic business shift having a major effect on an entity’s
operations and financial results. The updates also added disclosures for disposals of business units qualifying for
discontinued presentation, and for some dispositions that do not qualify as discontinued operations but are still
considered individually significant components of the entity.
In the first quarter of 2014, the Company adopted revisions to ASC 220, Comprehensive Income, which require
disclosure of 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:
2014 2015
Finished products $ 741 680
Raw materials and work in process 1,316 1,167
Total inventories $2,057 1,847
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,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS