Inflationsredovisning i USA

FASBs rekommendation om inflationsredovisning har satt sina spår redan i 1979 års årsredovisningar.

För drygt ett år sedan publicerades FAS 33 ”Financial Reporting and Changing Prices” i USA. Effekterna har redan börjat märkas. Även om företagen inte behöver tillämpa den nya anvisningen förrän nästa år har ändå många följt den redan i årsredovisningarna för 1979.

Vidstående diagram utgör ett sammandrag baserat på 157 industriföretag gjord av Price Waterhouse.

Industrial companies composite

(Källa: Price Waterhouse)

%				%
100	100 %			100
80				80
60		60 %	63 %	60		53 %	53 %
40				40	39 %
20				20
0				0
	Income from Continuing				Operations Effective Tax Rate

%				%
20				150
16	17 %			120
12				90
8		8 %	8 %	60		65 %	65 %
4				30	33 %
0				0
	Return on Net Assets				Dividend payout Ratio

%
100
			90 %
80
	76 %				74 %
60
40				41 %
		33 %				24 %
20
0
– 20
– 40
– 60
– 80
– 100
	Sales		Dividend		Stock price
	5 Year Growth Rate

= Historical Cost

= Constant Cost

= Current Cost

När det gäller enskilda företags redovisningar varierar standarden kraftigt. Vissa företag är påtagligt negativa. Ett exempel är telefonjätten AT & T vars justerade vinst är lägre än årets utdelning.

The disclosure called for by Statement No 33 is misleading by its incorrect inference that the Company may have paid out more in dividends than its net income justified. The Company’s dividend policies comply with legal requirements applicable to all businesses and are based on many considerations including the desire of its share owners to receive a cash return on their investment.

Bland de klart bästa årsredovisningarna vad gäller presentationen av inflationens effekter märks två av ”generalerna” – General Motors och General Electric.

Som framgår av bifogade utdrag ur årsredovisningarna är uppställningarna relativt likartade. Båda företagen tar tillfället i akt att framhålla att årets skatt i förhållande till den justerade vinsten är orimligt hög.

En intressant skillnad mellan företagen gäller 5-årsöversikten. GM har där valt att redovisa alla uppgifter i 1967 års penningvärde. GE däremot har utgått från 1979 års priser, vilket framstår som naturligare. Å andra sidan innebär det att GE nästa år tvingas räkna om tidigare år för att få alla värden angivna i 1980 års priser etc.

Utdrag ur General Electrics årsredovisning 1979: Financial issues: the impact of inflation

Inflation is commonly defined as a loss in value of money due to an increase in the volume of money and credit relative to available goods and services, resulting in a rise in the level of prices. Inflation in the U.S. is generally recognized to be caused by a combination of factors, including government deficits, sharp increases in energy costs, and low productivity gains including the effect of proliferating government regulations.

Although loss of purchasing power of the dollar impacts all areas of the economy, it is particularly onerous in its effect on savings – of both individuals in forms such as savings accounts, securities and pensions, and of corporations in the form of retained earnings.

For the individual, with inflation of 6 % a year, the dollar saved by a person at age 50 will have lost three-fifths of its value by the time the person is age 65. With a 10 % inflation rate, almost four-fifths of the dollar’s value is lost in 15 years. This problem affects almost everyone, including those presently working and especially those who are on fixed incomes.

The situation is rendered even more difficult by the progressive income tax system. A Congressional staff study reports that a family of four with an income of $ 8,132 in 1964 would need a 1979 income of $ 18,918 to have kept pace with the increase in the Consumer Price Index over the years. However, the 1979 income of $ 18,918 puts the family into a higher tax bracket which, when coupled with increased Social Security taxes, reduces real aftertax income $ 1,068 below the equivalent 1964 level.

Your Company and all U.S. businesses face a similar problem. Business savings are in the form of retained earnings – the earnings a company keeps after paying employees, suppliers and vendors, and after payment of taxes to government and dividends to share owners. If a company is to continue in business, much less grow, it must be able to save or retain sufficient earnings, after providing a return to its share owners, to fund the cost of replacing – at today’s inflated prices – the productive assets used up. Retention of capital in these inflationary times under existing tax laws is a challenge facing all businesses.

U.S. tax regulations permit recognition of the impact of inflation on a company’s inventory costs by use of the LIFO (last-in, first-out) inventory method. In general, under the LIFO method, a company charges off to operations the current cost of inventories consumed during the year. With inflation averaging over 11 % last year, the negative impact on operations of using current costs with respect to a supply of goods is substantial. Financial results are portrayed more accurately when the LIFO method is used in periods of high inflation, and GE has used LIFO for most of its U.S. manufacturing inventories for a quarter-century. The Statement of Earnings on page 32 is on that basis. As supplementary information to that Statement of Earnings: use of the LIFO method increased 1979 and 1978 operating costs by $430.8 million and $224.1 million (to $20,330.7 million and $17,695.9 million), respectively, with a corresponding reduction of reported pre-tax profits.

Unfortunately, U.S. tax regulations fail to provide an equivalent to LIFO for the impact of inflation on a company’s costs of property, plant and equipment. Instead, deductions for wear and tear on these assets are based on original purchase costs rather than today’s replacement costs. In general, the resulting shortfall must be funded from after-tax earnings.

The supplementary information shown in Table 1 restates operating results to eliminate the major effects of inflation discussed above. Table 1 compares GE operating results as reported on page 32 with results adjusted in two ways. First, results are restated to show the effects of general inflation – the loss of the dollar’s purchasing power – on inventories and fixed assets. The second restatement shows results restated for changes in specific prices – the current costs of replacing those assets. Your management feels that the last column in Table is the more meaningful and has therefore shown, in Table 2 on page 30, five years of results on that basis, also adjusted to equivalent 1979 dollars to make the years comparable. While the techniques used are not precise, they do produce reasonable approximations.

Table 1: supplementary information – effect of changing prices (a)

(In millions, except per-share amounts)

The notes on page 30 are an integral part of this statement.

For the year ended December 31, 1979	As reported in the traditional statements	Adjusted for general inflation	Adjusted for changes in specific prices (current costs) (b)
Sales of products and services to customers	$22,461	$22,461	$22,461
Cost of goods sold	15,991	16,093	16,074
Selling, general and administrative expense	3,716	3,716	3,716
Depreciation, depletion and amortization	624	880	980
Interest and other financial charges	258	258	258
Other income	(519)	(519)	(519)
Earnings before income taxes and minority interest	2,391	2,033	1,952
Provision for income taxes	953	953	953
Minority interest in earnings of consolidated affiliates	29	16	13
Net earnings applicable to common stock	$ 1,409	$ 1,064	$ 986
Earnings per common share	$ 6.20	$4.68	$ 4.34
Share owners’ equity at year end (net assets) (c)	$ 7,362	$10,436	$11,153

Use of each dollar of earnings

Based on total earnings before taxes 1975–1979

As reported

Retained for growth 32c		Taxes 41c
	Dividends 26c
		Minority interest 1 c

Adjusted for changes in specific prices (current costs)

Retained for growth 16 c
		Taxes 51 c
Dividends 32 c
	Minority interest 1 c

Table 2: supplementary information – effect of changing prices (a)

(In millions, except per-share amounts)

Current cost information in dollars of 1979 purchasing power (b)

(All amounts expressed in average 1979 dollars)	1979	1978	1977	1976	1975
Sales of products and services to customers	$22,461	$21,867	$20,984	$20,015	$19,022
Cost of goods sold	16,074	15,548	14,793	14,145	13,914
Selling, general and administrative expense	3,716	3,566	3,606	3,360	3,018
Depreciation, depletion and amortization	980	1,000	986	979	1,006
Interest and other financial charges	258	249	238	222	251
Other income	(519)	(466)	(467)	(350)	(235)
Earnings before income taxes and minority interest	1,952	1,970	1,828	1,659	1,068
Provision for income taxes	953	995	926	853	620
Minority interest in earnings of consolidated affiliates	13	13	20	26	26
Net earnings applicable to common stock	$ 986	$ 962	$ 882	$ 780	$ 422
Earnings per common share	$ 4.34	$ 4.22	$ 3.88	$ 3.45	$ 1.88
Share owners’ equity at year end (net assets) (c)	$11,153	$11,020	$10,656	$10,526	$10,056
Other inflation information
Average Consumer Price Index (1967 = 100)	217.4	195.4	181.5	170.5	161.2
(Loss)/gain in general purchasing power of net monetary items	$(209)	$(128)	$(61)	$(20)	$ 19
Dividends declared per common share	2.75	2.78	2.52	2.17	2.16
Market price per common share at year end	47 7/8	50 1/2	58 1/4	69 3/8	60 1/4

In these earnings statements, specific adjustments are made to (1) cost of goods sold for the current cost of replacing inventories and (2) depreciation for the current costs of plant and equipment. The restatements for inventories are relatively small because GE’s extensive use of LIFO accounting already largely reflects current costs in the traditional statements. However, a substantial restatement is made for the impact of inflation on fixed assets, which have relatively long lives. The $624 million of depreciation as traditionally reported, when restated for general inflation, increases to a total of $880 million. But the restatement necessary to reflect replacement of these assets at current costs grows to $980 million. The net effect of these restatements lowers reported income of $6.20 a share to $4.68 on a general inflation-adjusted basis and $4,34 on a specific current cost basis.

It is significant to note that for the five years 1975–1979, even after adjustment for inflation, your Company has shown real growth in earnings and a steady increase in share owners equity over the entire period. After adjusting earnings for current costs and restating all years to equivalent 1979 dollars, your Company’s average annual growth rate in real earnings was 21 % since 1975 and 8 % since 1976. This means that the growth in GE’s earnings has been real, not just the product of inflation.

An important insight from these data is depicted in the pie charts at right. These show that, over the five years 1975–1979, because of inflation 10 % more of GE’s earnings were taxed away than appeared to have been the case using traditional financial statements. While the traditional earnings statements indicated an effective tax rate of 41 % over this period, the ”real” tax rate averaged 51 % of profits before taxes. Consequently, earnings retained for growth were cut in half to 16 % of income before tax, not 32 % as reflected in the traditional financial statements. Over the period, share owners received a measure of protection against inflation’s impact as about two-thirds of after-tax earnings were distributed – equivalent to an average annual growth rate of about 8 % in real dividends.

An area receiving Special attention by management is experimentation with the use of inflation-adjusted measurements at the individual business and project level for capital budgeting. Since 1973, your Company has been experimenting with various techniques to measure the impact of inflation, to incorporate the perspectives provided by such measurements into decision-making, and to stimulate awareness by all levels of management of the need to develop constructive business strategies to deal with inflation. The objective is to ensure that investments needed for new business growth, productivity improvements and capacity expansions earn appropriate real rates of return commensurate with the risks involved. Such supplemental measurements can assist in the entire resource allocation process, starting with initial project approval, implementation and subsequent review.

Improving productivity to offset inflationary forces is a primary goal established by top management that is being stressed throughout General Electric. As discussed on the back cover of this Annual Report, the Company has committed significant levels of resources to research and development activities to accelerate innovation and increase productivity. In addition, General Electric’s production base continues to be expanded and modernized through increasing investments in plant and equipment. For example, $1,262 million and $1,055 million were spent on strengthening General Electric’s production base in 1979 and 1978, respectively. Imaginative and diligent coupling of production techniques and equipment is critical to the maintenance and improvement of your Company’s profitability.

Utdrag ur General Motors årsredovisning 1979

In recent years, the accounting profession has given a great deal of consideration to the question of reporting the impact of inflation on financial data. Many complex theories have been proposed and studied but none has received general acceptance. Nevertheless, all interested parties agree that inflation has an impact on financial data. Thus, in September 1979 the Financial Accounting Standards Board (FASB) issued Statement No. 33, Financial Reporting and Changing Prices. Statement No, 33 establishes standards for reporting certain effects of price changes on financial data. No one method is required by the Statement; instead, alternative methods are required in order to display various effects. The Statement is intended to help renders of financial data assess results in the following specific areas:

The erosion of general purchasing power,
Enterprise performance,
The erosion of operating capability, and
Future cash flows.

The accompanying Schedules display the basic historical cost financial data adjusted for general inflation (constant dollar) and also for changes in specific prices (current cost) for use in such assessments.

In reviewing these Schedules, the following comments may be of assistance in understanding the reasons for the different ”income” amounts’ and the uses of the data.

Financial statements – historical cost base

The objective of financial statements, and the primary purpose of accounting, is to furnish, to the fullest extent practicable, objective, quantifiable summaries of the results of financial transactions to those who need or wish to judge management’s ability to manage. The data are prepared by management and independently verified by the independent public accountants.

The present accounting system in general use in the United States and the financial statements prepared by major companies from that system were never intended to be measures of relative economic value, but instead are basically a history of transactions which have occurred and by which current and potential investors and creditors can evaluate their expectations. There are many subjective, analytical, and economic factors which must be taken into consideration when evaluating a company. Those factors cannot be quantified objectively. Just as the financial statements cannot present in reasonable, objective, quantifiable form all of the data necessary to evaluate a business, they also should not be expected to furnish all the data needed to evaluate the impact of inflation on a company.

Data adjusted for general inflation – constant dollar base

Financial reporting is, of necessity, stated in dollars. It is generally recognized that the purchasing power of a dollar has deteriorated in recent years, and the costs of raw materials and other items as well as wage rates have increased and can be expected to increase further in the future. It is not as generally recognized, however, that profit dollars also are subject to the same degree of reduction in purchasing power. FAR too much attention is given to the absolute level of profits rather than the relationship of profits to other factors in the business and to the general price level. For example, as shown in the accompanying Schedule A, adjusting the annual amount of sales and net income to a constant 1967 dollar base, using the U.S. Bureau of Labor Statistics’ Consumer Price Index for Urban Consumers, demonstrates that constant dollar profits have not increased in recent years in line with the changes in sales volume. This is reflected in the general decline in the net income as a percent of sales over that period as well as the decrease in the dividend paid in terms of constant dollars of purchasing power.

Data adjusted for changes in specific prices – current cost

Another manner in which to analyze the impact of inflation on financial data (and thus the business) is by adjusting the historical cost data to the current costs for the major balance sheet items which have been accumulated through the accounting system over a period of years and which thus reflect different prices for the same commodities and services.

The purpose of this type of restatement is to furnish estimates of the impact of price increases for replacement of inventories and property on the potential future Det income of the business and thus assess the probability of future cash flows. Although these data may be useful for this purpose, they do not reflect specific plans for the replacement of property. A more meaningful estimate of the impact of such costs on future earnings is the estimated level of future capital expenditures which is set forth in the Letter to Stockholders on page 3.

Summary

In the accompanying Schedules, the effects of the application of the preceding methods on the past five years’ and the current year’s operations are summarized. Under both the constant dollar and the current cost methods, the net income of the business is lower than that determined under the historical cost method. What does this mean? It means that business, as well as individuals, is affected by inflation and that the purchasing power of business dollars also has declined. In addition, the costs of maintaining the productive capacity, as reflected in the current cost data (and estimate of future capital expenditures), have increased. Of particular concern is the effect of a fixed income tax rate on such data. Since present tax laws do not allow deductions for the current costs of depreciation, the taxes levied on the company exceed statutory rates after the data are adjusted for the impact of inflation. This is reflected on Schedule B in which the effective tax rate rises from 44.9 % under the historical cost base to 58.4 % and 57,9 % under the 1979 constant dollar and current cost bases, respectively. Management must seek ways to cope with the impact of inflation on accounting through accounting methods such as the last-in, first-out (LIFO) method of inventory valuation, which matches current costs with current revenues, and through accelerated methods of depreciation.

In comparing these data to those of other companies for the current year, it should be kept in mind that under the Federal income tax law, the LIFO basis for inventory valuation is recognized only if it is also followed in the financial statements, Since Statement No. 33 specifically prohibits the restatement of taxes in the current year, the effective tax rates for those companies using first-in, first-out (FIFO) and straight-line depreciation in their accounts will be even higher than those companies that use the LIFO and accelerated depreciation methods in their accounting.

Another significant adjustment is the restatement of stockholders’ equity – the investment base. The adjustment for general inflation (constant dollar) puts all the expenditures for these items on a consistent purchasing power basis – the average 1967 dollar, This adjustment decreases the historical stockholders’ equity, as represented by net assets in Schedule A, of about $19.2 billion to a constant dollar basis of $12.2 billion. In other words, the $19.2 billion represented in the financial statements has only $12.2 billion of purchasing power expressed in 1967 dollars. The net assets adjusted for specific prices (current cost restated in 1967 dollars), as shown in Schedule A, amounted to $13.0 billion. This is $0.8 billion higher than that shown on a constant dollar basis due to the fact that the CPI-U index is accelerating more rapidly than the indices of specific prices applicable to General Motors.

Finally, it must be emphasized that there is a critical need for national monetary and fiscal policies designed to control inflation and to provide adequate capital for future business growth which, in turn, will mean increased productivity and employment.

Schedule A

Comparison of Selected Data Adjusted for Effects of Changing Prices

(Dollars in Millions Except Per Share Amounts)

Historical cost data adjusted for general inflation (constant dollar) and changes in specific prices (current cost).1

	1979	1978	1977	1976	1975
Net Sales
–as reported	$66,311.2	$63,221.1	$54,961.3	$47,181.0	$35,724.9
– in constant 1967 dollars	30,501.9	32,354.7	30,281.7	27,672.1	22,161.8
Net Income
– as reported	$ 2,892.7	$ 3,508.0	$ 3,337.5	$ 2,902.8	$ 1,253.1
– in constant 1967 dollars	817.02	1,384.5	1,580.9	1,485.4	283.9
– in current cost 1967 dollars	829.52
Earned per share of common stock
– as reported	$ 10.04	$ 12.24	$ 11.62	$ 10.08	$ 4.32
– in constant 1967 dollars	2.832	4.83	5.50	5.15	0.96
– in current cost 1967 dollars	2.872
Dividends per share of common stock
– as reported	$ 5.30	$ 6.00	$ 6.80	$ 5.55	$ 2.40
– in constant 1967 dollars	2.44	3.07	3.75	3.26	1.49
Net income as a percent of sales
– as reported	4.4%	5.5%	6.1%	6.2%	3.5%
– in constant 1967 dollars	2.7	4.3	5.2	5.4	1.3
– in current cost 1967 dollars	2.7
Net income as a percent of stockholders’ equity
– as reported	15.1%	20.0%	21.2%	20.2%	9.6%
– in constant 1967 dollars	6.7	11.2	13.1	14.8	3.2
– in current cost 1967 dollars	6.4
Net assets at year-end
– as reported	$19,179.3	$17,569.9	$15,766.9	$14,385.2	$13,082.4
– in constant 1967 dollars	12,163.4	12,351.3	12,041.4	10,007.7	8,921.8
– in current cost 1967 dollars	12,982.7
Unrealized gain from decline in purchasing power of dollars of net amounts owed	$ 83.8
Increase in specific prices of inventory and property over increase in the general price level
– net decrease	($ 221.8)
Market price per common share at year-end
– unadjusted	$ 50.00	$ 53.75	$ 62.88	$ 78.50	$ 57.63
– in constant 1967 dollars	23.00	27.51	34.64	46.04	35.75
Average Consumer Price Index	217.4	195.4	181.5	170.5	161.2

Scedule B

Schedule of Income Adjusted for Changing Prices

For The Year Ended December 31,1979

(Dollars in Millions Except Per Share Amounts)

	As Reported in the Financial Statements (Historical Cost)	Selected Data Adjusted for General Inflation (1979 Constant Dollar)	Adjusted for Changes in Specific Prices (1979 Current Cost)
Net Sales	$66,311.2	$66,311.2	$66,311.2
Cost of sales	55,848.7	56,462.2	56,107.5
Depreciation and amortization expense	3,187.3	3,690.4	4,017.8
Other operating items – net	2,199.1	2,199.1	2,199.1
United States and other income taxes	2,183.46	2,183.46	2,183.46
Total costs and expenses	63,418.5	64,535.1	64,507.8
Net Income	$ 2,892.7	$ 1,776.19	$ 1,803.49
Earned per share of common stock	$ 10.04	$ 6.159	$ 6.249
Effective income tax rate	44.9%6	58.4%6	57.9%6
Unrealized gain from decline in purchasing power of dollars of net amounts owed		$ 182.2	$ 182.2
Increase in specific prices of inventory and property over increase in the general price level – net decrease			($ 482.1)16

Adjusted data have been determined by applying the Consumer Price Index – Urban to the data with 1967 (CPI-100) as the base year as specified by SFAS No. 33. Depreciation has been calculated on a straight-line basis for this calculation.

These amounts will differ from those shown for constant dollar and current cost in Schedule B because a different base year has been used (1967 in Schedule A and 1979 in Schedule Bin order to illustrate the impact of changing prices in alternative forms.

In accordance with SFAS No. 33, no adjustment has been made to the provision for income taxes. The effect is to increase the effective tax rate as shown.

These amounts will differ from those shown for constant dollar and current cost in Schedule A because a different base year has been used (1967 in Schedule A and 1979 in Schedule Bin order to illustrate the impact of changing prices in alternative forms.