Illusions from a SALN


Anyone who relies on the statement of assets, liabilities and net worth (SALN) as an accurate or even a descriptive indicator of a public official’s wealth either does not understand accountancy or has an insidious agenda in mind.

The SALN is really nothing more than a document that shows what a person owns and owes at a particular point in time. Net worth is simply assets minus liabilities. What is shown is a static picture, accurate only on the exact day stated.

As cash, which is a part of what one owns, is dynamic, constantly earned and spent, and therefore changes value on a daily basis, then the amount recorded on a SALN is inaccurate the day after the SALN is filed. Depending on the movements of accounts, cashflows or the changing values of other assets and liabilities, the veracity of a SALN may be just as dynamic.
Or, as we suggest, illusory.

One example of an inherent illusion is the one created by a SALN requirement to record real property at acquisition cost. While this does not present any problem at the time of acquisition, in subsequent periods this tends to bloat other asset entries such as cash.

When real property or fixed assets are liquidated their valuation is based either on replacement, assessed values or market values. To the untrained the difference between purchase values and the liquidated values would appear to bloat cash.

When a seriously myopic eye focuses on what might seem as inordinate increases in the cash account he should have taken into account two things that a SALN fails to show — reduction in fixed assets in the case of a single SALN, and the unrecorded market, assessed or replacement values, in the case of a series of SALN.

Another illusion created by the requisite to record assets at their purchase value is when liabilities are incurred and assets are securitized.

Creditors value assets in ways other than acquisition cost and extend credit as a function of their valuation. This valuation does not necessarily conform with a SALN’s acquisition cost. Again, this tends to increase the cash account upon credit drawdowns relative to the value of the underlying asset used as collateral. Hence, the illusion of bloated unexplained cash.

Such illusions come to fore where valuations are variable. Note how these can create a mirage under the non-current assets category. Among current assets, which include cash and investments, the latter’s value is just as changeable. Under equity accounting, investments can change drastically and affect cash and even the retained earnings entry right above the net worth line.

Here’s another illusion. The untrained eye might see unexplained increases in wealth or net worth as it relates to the meager salaries of a civil servant.

Increases in net worth in a SALN do not necessarily come from income. Debts paid off, condonations, accounts receivables increases or fixed asset revaluation and a host of other non-cash flows can increase net worth.

Full appreciation requires an income statement as well as a statement of cashflows. A SALN is neither.

For instance, net worth increases when debts are retired. To appreciate the impact of retired debt, this requires a forensic analysis of aging and debt retirement schedules. The same for assets under accounts receivables. All these impact on changes in the cash account where they create illusions of inflating or deflating which a cursory arithmetical analysis of the SALN does not show.

The SALN by itself is a benign document. Nothing in it is definitive especially since the laws allow belated adjustments. Unfortunately, under Benigno Aquino III, the SALN was weaponized for partisan political harassment. When filed correctly and on a timely basis, the SALN cannot by itself be damaging ordnance. Other documents are needed. Cases need to be filed.

Critics however bet on ignorance and use it as fodder. The people who weaponized the SALN in the case of a former presidential frontrunner and a former Chief Justice are reprising their gambit, albeit with more innuendo now than real analysis.