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THE 1993 SYSTEM OF NATIONAL ACCOUNTS
A1.2 The system is built around a sequence of interconnected accounts that record various types of economic activity (e.g. production, distribution of income, consumption) and the value of the economy’s assets and liabilities at the end of an accounting period. The system has an integrated design that requires the closing value of assets and liabilities to be equal to the opening values plus the value of economic flows that occur in the accounting period.
A1.3 The accounts in the system are designed to record each of the major economic flows in sequence, as follows:
A1.4 The central framework of the system contains supply and use tables in which flows of commodities can be recorded in the form of input-output tables. As well, the SNA provides guidance on methodologies for compiling an integrated set of price and volume indexes and a chain index method that enables compilation of data from which the effects of price inflation have been removed.
A1.6 Production is defined as ‘activity carried out under the control and responsibility of an institutional unit that uses inputs of labour, capital, and goods and services to produce outputs of goods and services’ (SNA93, paragraph 6.15). Institutional units are the fundamental accounting units in the system. Although household activities such as preparing meals, caring for children, etc. meet the definition of production and are sometimes provided as paid services, the production boundary used in the SNA is narrower than implied by the foregoing definition and omits domestic and personal services produced for own final consumption within households.
A1.7 Output consists of goods and services that are produced within an establishment and become available for use outside that establishment (establishments are components of institutional units and are the basic units for which production is recorded). Goods and services produced and consumed within an establishment are not included in output. Finished goods and work in progress that are part of inventories and have not yet left the establishment are included in output. Three kinds of output are recognised in the system:
A1.8 In the system, a large part of the output of financial institutions has to be imputed because part of the interest received by the institutions is deemed to arise from production (i.e. payment for services rendered by the institutions) and part is deemed to be property income, which does not arise from production and is recorded in the allocation of primary income account (see discussion ahead). The imputed output is called ‘financial intermediation services indirectly measured’ (FISIM). The imputed amounts are deducted from the interest receivable by financial institutions and included in their output, and are also deducted from the interest payable by users of the institutions’ services and included in their intermediate consumption (see next paragraph).
A1.9 Intermediate consumption consists of the value of goods (other than fixed assets) and services consumed as inputs by a process of production. It includes FISIM (see previous paragraph). Consumption of fixed assets is recorded separately in the system (see next paragraph). Intermediate consumption does not include expenditure on valuables, which are assets acquired as stores of value (e.g. works of art, precious stones).
A1.10 Consumption of fixed capital is a cost of production that is defined as ‘the decline, during the course of the accounting period, in the current value of the stock of fixed assets owned and used by a producer as a result of physical deterioration, normal obsolescence, or normal accidental damage’ (SNA93 paragraph 6.179). Losses of fixed assets by events such as natural disasters, acts of war, etc. do not constitute consumption of fixed capital and are recorded in the system as other changes in the volume of assets.
A1.11 Final consumption consists of ‘the use of goods and services for the satisfaction of individual or collective human needs or wants’ (SNA93, paragraph 9.39). In the system, final consumption occurs only in households, non-profit institutions serving households and governments. The goods and services provided by non-profit institutions and governments are usually made to benefit the community at large (collective goods and services) or individual households (individual goods and services).
A1.12 An economic asset is defined (SNA93, paragraph 13.12) as an entity functioning as a store of value:
A1.13 Liabilities are financial obligations that are the counterparts of financial claims held against the recording entity by other institutional units. In the system, the equity of corporations and quasi-corporations is treated as a liability as it represents a claim of owners on the assets of the corporations or quasi-corporations.
INSTITUTIONAL UNITS AND SECTORS
A1.14 The institutional unit is the fundamental accounting unit in the system. An institutional unit is defined as ‘an economic entity that is capable, in its own right, of owning assets, incurring liabilities and engaging in economic activities and in transactions with other entities’ (SNA93, paragraph 4.2). Institutional units are of two main types: (i) persons or groups of persons in the form of households; and (ii) legal or social entities the existence of which is recognised by law or society independently of the persons, or other entities, that own or control them.
A1.15 In the system, households are treated as one type of institutional unit and social and legal entities are divided into three other types of institutional units: corporations and quasi-corporations, government units, and non-profit institutions. The broad characteristics of each type of institutional unit are as follows:
A1.17 A distinction is made between units that mainly engage in market or non-market production (called ‘market’ and ‘non-market’ units respectively). Market units mainly produce market output which, as previously noted, is output that is sold at ‘economically significant’ prices, which are prices that have a significant influence on the amounts that producers are willing to supply and purchasers wish to buy. Conversely, non-market units produce mainly non-market output, which is output that is provided free or at prices that are not economically significant. By definition, corporations and quasi-corporations mainly produce market output. NPIs can mainly produce either market or non-market output, and government units mainly produce non-market output. Households, in their capacity as owners of unincorporated enterprises, can produce market output.
A1.18 A further distinction is made between market units that mainly have either ‘financial’ or ‘non-financial’ output. Financial units are mainly engaged in financial intermediation or provision of auxiliary financial services. Financial intermediation is defined as ‘productive activity in which an institutional unit incurs liabilities on its own account for the purpose of acquiring financial assets by engaging in financial transactions on the market’ (SNA93, paragraph 4.78). Financial auxiliary services are services that facilitate financial intermediation but do not involve incurring liabilities or acquiring financial assets. They include functions such as security broking, company flotation, loan broking, guaranteeing loans, and arranging financial transactions such as hedging. Non-financial units are units mainly engaged in all forms of productive activity other than financial intermediation or provision of auxiliary financial services.
A1.19 The institutional sectors in the system represent groupings of resident institutional units, as follows:
A1.22 The subsectors of the general government sector shown in paragraph A1.20 represent one of two alternative subsectorings of the general government sector; the second consists of only the first three of the listed subsectors and combines each social security fund with the level of government by which it is controlled. Social security funds, which do not exist in Australia, are defined as ‘social insurance schemes covering the community as a whole or large sections of the community that are imposed and controlled by government units’ (SNA93, paragraph 4.111). Social insurance schemes provide social benefits (e.g. retirement benefits, medical benefits) to members of the community out of funds derived from contributions made compulsorily or voluntarily by the beneficiaries or their employers.
A1.23 The system also includes a rest of the world sector which consists of all non-resident institutional units that enter into transactions with resident institutional units or have other economic links with resident units. It is not a sector for which a complete set of accounts has to be compiled but, for convenience, is described as a sector.
FLOWS, STOCKS AND ACCOUNTING RULES
A1.24 Economic flows are described in the system as resulting from the creation, transformation, exchange, transfer or extinction of economic value; they involve changes in the volume, composition, or value of an institutional unit’s assets and liabilities. Economic flows are of two kinds:
A1.26 The stipulation in the definition of a transaction that an interaction between institutional units must be by mutual agreement does not mean that both units necessarily enter a transaction voluntarily because some transactions are imposed by law, such as payments of taxes or other compulsory transfers. Although individual institutional units are not free to fix the amounts of taxes they pay, there is nevertheless collective recognition and acceptance by the community of the obligation to pay taxes. Thus, payments of taxes are considered transactions despite being compulsory.
A1.27 Other economic flows are of two main types, holding gains and losses and other changes in the volume of assets. Holding gains and losses (or ‘revaluations’) are the result of changes in market prices of assets and liabilities over the accounting period. The term ‘holding gains/losses’ is preferred to the term ‘capital gains/losses’ because it emphasises that the gains or losses accrue over time without transforming the assets or liabilities in any way. Other changes in the volume of assets fall into three main categories:
A1.29 The system’s accounting rules relate to valuation, time of recording, and aggregation, netting and consolidation. Each of these is discussed briefly in the following paragraphs.
A1.30 In principle, the system values all economic flows and stocks at market value. The system ‘does not attempt to determine the utility of the flows and stocks which come within its scope. Rather, it measures the current exchange value of the entries in the accounts in money terms, i.e. the values at which goods and other assets, services, labour or the provision of capital are in fact exchanged or else could be exchanged for cash (currency or transferable deposits)’ (SNA93, paragraph 3.70).
A1.31 When items are exchanged between institutional units for cash, the market values required are directly available. Such transactions are recorded at the actual exchange value agreed upon by the two parties. The SNA recognises that, for other flows and stocks, no actual exchange values are at hand and states that their values must be assessed indirectly. The values should be taken from an appropriate reference market in which similar items are traded currently for cash in sufficient quantity and in similar circumstances.
A1.32 If there is no appropriate market from which the value of a particular non-monetary flow or stock item can be taken, the SNA states that its valuation could be derived from prices that are established in less closely related markets. However, the SNA also says that ‘ultimately, some goods and services can only be valued by the amount that it would cost to produce them currently’ (SNA93, paragraph 3.73).
A1.33 The SNA recognises that sometimes it may be necessary to value stocks at their estimated written down current acquisition value. The write-down should include all changes which have occurred to the item since it was purchased or produced (such as consumption of fixed capital, partial depletion, exhaustion, degradation, unforeseen obsolescence, exceptional losses and other unanticipated events).
A1.34 Finally, the SNA states that if none of the methods mentioned above can be applied, flows and stocks are to be recorded at the discounted present value of expected future returns.
A1.35 Flows and stocks concerning foreign currency are converted to their value in national currency at the rate prevailing at the moment they are entered in the accounts; the midpoint between the buying and selling rate should be used so that any service charge is excluded.
TIME OF RECORDING
A1.36 Rules for the time of recording are required for economic flows (which occur over a period of time), but not for economic stocks (which are recorded at a point of time). An exact timing of individual flows within the accounting period is seen as crucial to making the distinction between changes in net worth due to transactions and those due to holding gains or losses. Timing rules are necessary because, for many economic flows, there are many stages (e.g. production point, delivery point, cash flow point) at which the flows could be recorded and rules ensure that the same stage is specified for all flows.
A1.37 The SNA recommends that an accrual basis of recording be adopted throughout the system. Accrual recording is recommended because it is widely used and is in full agreement with the way economic activities are recorded in the system (i.e. it records flows at the time that economic value is created, transformed, exchanged, transferred or extinguished). It also has the advantage that it can be applied to non-monetary transactions.
A1.38 Guidance is provided in the SNA on the application of accrual recording to particular types of economic flows. The treatment of particular flows of most relevance to the GFS system is as follows:
A1.39 In the SNA, the term ‘aggregation’ refers to the process of arranging the large number of individual transactions, other flows and assets within the scope of the SNA in a manageable number of analytically useful groups. Such groups are constructed by crossing two or more classifications. As a minimum, institutional sectors or industries are cross classified with the classification of transactions, other economic flows, or assets and liabilities. Resources (inflows) are distinguished from uses (outflows) and changes to assets are distinguished from changes to liabilities. The aggregates thus generated may be further subdivided (for example) by kind of product or asset, by function or by counterparty.
A1.40 Netting refers to the process whereby the values of some elementary items are offset against items on the other side of the account. The system recommends gross recording, but a high degree of netting is inherent in the system’s classifications. For example, netting is inherent in the item ‘changes in inventories’, which reflects the overall change rather than tracking daily additions and withdrawals. Similarly (with few exceptions), the financial account and other changes in assets account record increases in assets and in liabilities on a net basis, bringing out the final consequences of these types of flows at the end of the accounting period. Of course, all balancing items involve netting as well. To avoid confusion, the system uses the words ‘gross’ and ‘net’ in a very restrictive sense. Apart from a few headings (‘net premiums’, ‘net equity of households on life insurance reserves and pension funds’, ‘net worth’ and ’net lending/net borrowing’), the system’s classifications employ the word ‘net’ exclusively to indicate the value of variables after deduction of consumption of fixed capital.
A1.41 Consolidation is described in the SNA as a special kind of cancelling out of flows and stocks which should be distinguished from other kinds of netting. It is described as involving the elimination of those transactions or debtor/creditor relationships which occur between two transactors belonging to the same institutional sector or subsector. The SNA recognises that consolidation may be relevant for certain purposes, including compilation of statistics for the public sector, but states that ‘as a rule, however, the entries in the System are not consolidated’ (SNA93, paragraph 3.121). As discussed ahead, consolidation is an important process in the GFS system even though it is not recommended for compilation of national accounts.
A1.42 In this section, the main sectoral accounts of the SNA are discussed and outlines of the accounts are presented. In the SNA, some of the accounts are broken out into other accounts that are not particularly relevant to the public sector and are not shown here. The rest of world account is not presented or discussed as it relates to the economy as a whole.
A1.43 The system of accounts applies to the economy as a whole and to each of the institutional sectors. The content of the accounts varies only marginally between sectors. The account outlines presented in this section include all items relevant to the public sector (public non-financial corporations, public financial corporations and general government). Where useful for explanatory purposes, some items relevant only to other sectors have also been included.
A1.44 The accounts of the system can be grouped into four main categories:
A1.45 Each account in the system is balanced (the total of items on each side have the same value) by the use of derived ‘balancing items’ that are often carried forward to the next account in the sequence. In the accounts presented here, balancing items are shown in bold to distinguish them. Balancing items are important because they are designed as summary measures of economic activity. Thus, the primary summary measure of an economy’s production, gross domestic product (GDP), is a balancing item in the production account.
THE PRODUCTION ACCOUNT
A1.46 An outline of the SNA production account as it applies to institutional sectors is presented in Table A1.1. The production account records output as a resource and intermediate consumption and consumption of fixed capital as uses, giving two balancing items: value added (which is derived as output less intermediate consumption) and net value added (which is equal to value added less consumption of fixed capital). The sum of value added for all sectors less taxes on products plus subsidies payable on products is equal to gross domestic product (GDP) for the economy as a whole (because Table A1.1 relates to individual sectors, GDP does not appear). Output is divided between market output, output for own final use and other non-market output. Other non-market output does not apply to the non-financial and financial corporations sectors. The concept of production and the items in the production account are explained in the foregoing section entitled 'Basic concepts'.
Table A1.1. SNA PRODUCTION ACCOUNT
THE GENERATION OF INCOME ACCOUNT
A1.47 An outline of the SNA generation of income account is presented in Table A1.2. The generation of income account represents an extension of the production account in which the primary incomes accruing to producers are recorded. Value added is brought forward from the production account as the single resource recorded in the generation of income account.
A1.48 The uses of value added by producers comprise compensation of employees and other production taxes payable less subsidies receivable. Compensation of employees is defined as ‘the total remuneration, in cash or in kind, payable by an enterprise to an employee in return for work done by the latter during the accounting period’ (SNA93, paragraph 7.21). It includes social contributions payable by employers to social insurance schemes to obtain future social benefits (e.g. retirement, sickness, accident, redundancy benefits) for their employees. It also includes imputed contributions to unfunded benefit schemes in which employers pay benefits directly from their own resources when payment of the benefits falls due and do not make regular payments into a fund to finance benefits payable in the future. Other production taxes and subsidies are payable in relation to production processes such as taxes on labour, machinery, buildings or other assets used in production. They are distinguished from taxes payable and subsidies receivable on products, which are recorded as a use in the production account (they are not shown in Table A1.1 because they are only recorded for the economy as a whole and not for individual sectors).
A1.49 The balancing item in the generation of income account, net operating surplus, represents the surplus or deficit generated by production before account is taken of property incomes payable and receivable. Because non-market output of government units and NPIs is valued at cost of production, these units do not generate a net operating surplus.
Table A1.2. SNA GENERATION OF INCOME ACCOUNT
THE ALLOCATION OF PRIMARY INCOME ACCOUNT
A1.50 An outline of the SNA allocation of primary income account is presented in Table A1.3. The account focuses on institutional units as recipients of net income rather than as producers. In the account, operating surplus (the balancing item from the generation of income account) is brought forward as a resource. The other items on the resources side include taxes on production and imports, which are receivable only by general government units, subsidies (as a negative resource), which are payable only by government units, and property income receivable, which applies to public corporations and government units alike. The uses side of the account records property income payable and the account's balancing item, which is called the balance of primary incomes.
A1.51 Property income is a form of primary income that is received by the owners of financial assets and tangible non-produced assets in return for making the assets available for use by other institutional units.
A1.52 Interest is property income receivable by owners of financial assets who make funds available to other economic units. Interest is defined as ‘the amount that the debtor becomes liable to pay to the creditor over a given period of time without reducing the amount of principal outstanding’ (SNA93, paragraph 7.93). Interest is recorded after deduction of imputed payments for the services rendered by financial intermediaries (or FISIM; see previous discussion under ‘Basic concepts’). For certain types of securities such as zero-coupon bonds, interest does not fall due for payment until the security matures. Under the accrual basis of recording used in the SNA, the interest is accrued over the life of the security and recorded as interest payable by the debtor and as incurring an additional liability of the same type as the original security. Conversely, the creditor records accrual of interest receivable and acquisition of an additional asset of the same type as the original security. Interest excludes net cash settlement payments associated with interest rate swaps and forward rate agreements (both are forms of financial derivatives). Such payments were treated as interest payments in SNA93 but, following a review of that treatment, are now treated as financial transactions and included in the financial account (see paragraph A1.73).
A1.53 Dividends are a form of property income to which shareholders become entitled as a result of owning shares in a corporation. Withdrawals of income from quasi-corporations by their owners are identical in concept to dividends and are grouped with dividends in the classification of property incomes.
A1.54 Reinvested earnings on direct foreign investment refers to the imputed remittance to direct foreign investors of their share of a direct foreign investment enterprise’s retained earnings. Such earnings are treated in the system as if they were distributed to direct investors and reinvested in the enterprises. Direct foreign investment enterprises are either: (i) branches of non-resident corporations; or (ii) corporations in which at least one foreign investor owns sufficient shares to have an effective voice in management. The imputation of the remittances is based on the investors’ proportion of shares on issue. A remittance is imputed because the retention of earnings in direct investment enterprises is a deliberate decision by the direct investors, who are entitled to receive the retained property income. The resources side to the allocation of primary incomes account records imputed receipts of remittances by resident direct investors (including any in the public sector) from foreign direct investment enterprises and the uses side records imputed remittances to foreign direct investors by resident direct investment enterprises (which are rare in the public sector).
A1.55 Property income attributable to insurance policy holders is another imputed item that arises because the system treats the technical reserves of insurance enterprises as having two components: (i) actuarially determined reserves to service policy holders’ claims; and (ii) investments of policy holders from which they are entitled to property income. The latter component is treated as assets of policy holders and liabilities of insurance enterprises and property income is imputed that represents policy holders’ returns on these assets.
A1.56 Rent that is included in property income is restricted to rent on non-produced assets such as land and subsoil assets. Rentals payable on produced assets are treated as payment for the lessor’s services in making the assets available for use by the lessee, and as part of the lessor’s output.
Table A1.3. SNA ALLOCATION OF PRIMARY INCOME ACCOUNT
A1.57 An outline of the SNA secondary distribution of income account is presented in Table A1.4. In the account, the balance of primary incomes from the allocation of primary incomes account is carried forward and recorded as a resource. The account records current transfers, which are non-capital transactions between resident institutional units for which the paying unit receives nothing directly in return. On the resources side, such transfers include taxes on income and wealth (which are receivable only by government units) and social security contributions receivable by social insurance schemes. As discussed in relation to the generation of income account, social contributions are amounts payable by employers to social insurance schemes to obtain future social benefits (e.g. retirement, sickness, accident, redundancy benefits) for their employees, including imputed contributions to unfunded benefit schemes. The uses side of the account records taxes on income and wealth payable by taxpayers, and social benefits payable by general government and social insurance schemes. Other current transfers receivable are recorded on the resources side of the secondary distribution of income account and other current transfers payable are recorded on the uses side.
A1.58 Social benefits are divided between those payable in cash by government units and non-profit institutions serving households (NPISHs), and those payable in cash or in kind by funded and/or unfunded social insurance schemes. The former are further subdivided between social security benefits, which are payable by social security funds (which are defined as part of the general government sector, but do not exist in Australia) and social assistance benefits in cash, which are payable by general government units and NPISHs.
A1.59 Other current transfers consist of: (i) non-life insurance premiums payable by holders of non-life insurance policies; (ii) non-life insurance claims payable by providers of non-life insurance; (iii) current transfers within the general government sector, which appear only because they are not recorded on a consolidated basis; and (iv) other current transfers. Other current transfers include transfers received by NPISHs from donors and government, transfers between households, fines and penalties payable to government units, amounts payable to winners of lotteries, and payments made by one institutional to another in compensation for injury or property damage.
A1.60 The balancing item of the secondary distribution of income account is called disposable income.
Table A1.4. SNA SECONDARY DISTRIBUTION OF INCOME ACCOUNT
A1.61 An outline of the SNA redistribution of income in kind account is presented in Table A1.5 (the account applies to the general government sector, but is not applicable to the public corporations). In the account, disposable income is brought forward as a resource from the secondary distribution of income account. The account records social transfers in kind made by the general government and NPISH sectors. Social transfers in kind are goods and services provided to individual households free of charge or at nominal prices. They are subdivided between: (i) social security benefits in kind, which are subdivided between goods and services provided direct and those bought by the households for which they are reimbursed; (ii) social assistance benefits; and (iii) transfers of individual non-market goods or services. Individual non-market goods and services (e.g. education), are provided to individual households rather than to the community in general.
Table A1.5. SNA REDISTRIBUTION OF INCOME IN KIND ACCOUNT
THE USE OF DISPOSABLE INCOME ACCOUNT
A1.62 An outline of the SNA use of disposable income account is presented in Table A1.6. The account shows how households, general government and NPISHs allocate their disposable income between consumption and saving. The only item on the resources side of the account is disposable income, which is brought forward from the secondary distribution of income account. Consumption expenditure is recorded on the uses side of the account, along with the balancing item 'saving'. Consumption expenditure excludes capital expenditure, which is financed from saving and is recorded in the capital account (see next section).
A1.63 In the system, final consumption expenditure is confined to households, general government and NPISHs. Corporations record only intermediate consumption. Final consumption expenditure comprises expenditure incurred by resident households and NPISHs on individual consumption goods and services, and expenditure incurred by general government on individual and collective consumption goods and services. Individual goods and services are provided to individual households; collective goods and services are provided collectively to the community as a whole. Examples of individual goods and services given in the SNA include education, health, and social security and welfare (SNA93, paragraph 9.87). However, expenditures on administration of education, health and social security programs are collective expenditures, as are expenditures on defence, economic policy development, etc. Only general government incurs consumption expenditures on collective goods and services; households’ and NPISHs’ consumption expenditures are all deemed to be on individual goods and services (although the SNA recognises that some NPISHs’ expenditures are collective in nature).
A1.64 In the use of disposable income account the item ‘adjustment for the change in net equity of households in pension funds’ arises from the system’s treatment of the reserves of private funded pension schemes as collectively owned by households with claims on the funds. The households’ payments of contributions and receipt of benefits therefore constitute the acquisition and disposal of financial assets. However, to reflect commonly held perceptions, the system records the contributions and benefits as determinants of disposable income. The adjustment ensures that this treatment does not affect saving which, to be consistent with the treatment of households as owners of the pension fund reserves, must not reflect the contributions to the funds and pension payments from the funds.
Table A1.6. SNA USE OF DISPOSABLE INCOME ACCOUNT
THE CAPITAL ACCOUNT
A1.65 An outline of the SNA capital account is presented in Table A1.7. The account records the value of acquisitions and disposals of non-financial assets and the change in net worth arising from saving and capital transfers. In the account, saving is brought forward from the use of income account and recorded as a change in net worth. Capital transfers receivable are recorded as a resource and capital transfers payable are recorded as a negative resource to give a total representing change in net worth due to saving and capital transfers. The uses side of the account records acquisitions and disposals of non-financial assets, consumption of fixed capital and change in inventories to give the balancing item net lending(+)/net borrowing(-), which equals the change in financial assets and liabilities resulting from saving, net acquisition of non-financial assets and capital transfers.
A1.66 Capital transfers are defined as ‘transactions in which the ownership of an asset (other than cash and inventories) is transferred from one institutional unit to another, in which cash is transferred to enable the recipient to acquire another asset or in which the funds realised by the disposal of another asset are transferred’ (SNA93, paragraph 10.29). In this context, ‘transferred’ refers to a situation when nothing is given in exchange for the items transferred. A capital transfer is also recorded when a creditor cancels the liability of a debtor by mutual agreement (unilateral cancellation of the liability by the creditor, e.g. by writing off the debt, is not a transaction and is recorded in the other changes in assets account).
A1.67 Capital transfers include capital taxes, which are taxes levied at irregular or infrequent intervals such as gift and inheritance taxes. Investment grants are capital transfers in cash or kind made by governments to other resident or non-resident institutional units to finance their acquisition of non-financial assets. Other capital transfers include debt cancellation (see previous paragraph) and all other capital transfers not included with capital taxes and investment grants.
A1.68 Gross fixed capital formation is distinguished from other net acquisitions of non-financial assets by the fact that it is confined to fixed assets, which are defined as ‘produced assets that are themselves used repeatedly, or continuously, in processes of production for more than one year’ (SNA93, paragraph 10.7). Fixed assets do not include: (i) valuables (e.g. works of art, gemstones), which are held as a store of value and are not used in production; (ii) inventories, which are stocks of outputs held for sale or further processing, or purchased products intended for use in intermediate consumption or for resale; and (iii) non-produced assets (e.g. native forests, mineral deposits), which may be used in production but were not created by a production process. Net acquisitions of these three categories are recorded separately in the capital account. However, additions to the value of non-produced assets (such as land reclamation, clearance of forests to bring land into production, draining of marshes, etc.) are included in gross fixed capital formation.
A1.69 The costs of transfers of ownership of assets are included in the value of asset acquisitions. Major improvements to assets are included as gross fixed capital formation; repairs and maintenance to restore assets to working order are excluded. Expenditures on destructive weapons are excluded from capital formation because they are not used continuously in production. By extension, expenditures on vehicles and equipment (e.g. warships, submarines, military aircraft) used to launch such weapons are also excluded unless they can also be used for a civilian purpose.
A1.70 The classification of assets distinguishes between tangible and intangible assets. Tangible fixed assets include buildings and other structures, transportation equipment and other machinery and equipment, cultivated assets in the form of livestock and plantations of trees yielding repeat products such as orchards and vineyards. Intangible fixed assets include capitalised mineral exploration expenditures, computer software, and entertainment, literary and artistic originals. Tangible non-produced assets include land, subsoil assets, and non-cultivated biological and water resources such as fish stocks, native forests, and natural water sources. Intangible non-produced assets include assets, such as patents, leases and exploration rights, that entitle their owners to engage in specific activities or produce certain goods to the exclusion of other institutional units. Also included is purchased goodwill.
Table A1.7. SNA CAPITAL ACCOUNT
THE FINANCIAL ACCOUNT
A1.71 An outline of the SNA financial account is presented in Table A1.8. The account records transactions involving financial assets and liabilities. Net transactions in liabilities are recorded on the right-hand side of the account, along with the balancing item net lending(+)/net borrowing(-) which is the same in concept as the item of the same name in the capital account. Net acquisition of financial assets is recorded on the left-hand side of the financial account.
A1.72 Net transactions in financial assets and liabilities are both classified according to the financial instruments used in the transactions, which are defined as follows:
A1.73 The treatment of financial derivatives has been officially revised since the publication of SNA93. Financial derivatives are described as ‘financial instruments that are linked to a specific financial instrument or indicator or commodity, and through which specific financial risks can be traded in financial markets in their own right’ (‘The Statistical Measurement of Financial Derivatives’, IMF, November 1997). Examples of derivatives include swaps, options, and forward rate agreements. Derivatives are treated as assets, but only if they have an observable market price. They are recorded (at market value) when created, traded or extinguished. When a derivative contract is settled through a net cash payment, both parties record a transaction equal to the value of the payment and record no transaction in any underlying instrument. The transaction does not represent property income and is recorded in the Financial Account as changes to financial assets and liabilities.
Table A1.8. SNA FINANCIAL ACCOUNT
THE OTHER CHANGES IN VOLUME OF ASSETS ACCOUNT
A1.74 An outline of the SNA other changes in volume of assets account is presented in Table A1.9. The account records changes to the value of assets, liabilities and net worth arising from events other than transactions and revaluations. The various categories of other volume changes are defined as follows:
Table A1.9. SNA OTHER CHANGES IN VOLUME OF ASSETS ACCOUNT
A1.75 The account records positive or negative holding gains accruing during the accounting period to owners of assets and liabilities. The gains and losses are summarised in the balancing item of the account, change in net worth due to nominal holding gains/losses. The holding gain on a given quantity of an asset is defined as ‘the value of the benefit accruing to the owner of that asset as a result of a change in its price or, more generally, its monetary value, over time’ (SNA93, paragraph 12.63). Holding gains and losses are recorded in the revaluation account for previously described broad classes of assets and liabilities.
Table A1.10. SNA REVALUATION ACCOUNT
THE BALANCE SHEET ACCOUNTS
A1.76 An outline of the SNA balance sheet accounts (i.e. the opening balance sheet, the changes in balance sheet account, and the closing balance sheet) is presented in Table A1.11. The opening and closing balance sheets record the values of assets, liabilities and net worth at the beginning and end respectively of the accounting period. The changes in balance sheet account records the total change (arising from transactions and other economic flows) in the values of assets, liabilities and net worth over the accounting period.
A1.77 Net worth is the balancing item in the opening and closing balance sheets and is equal to the value of all assets less the value of all liabilities. As discussed under ‘Basic concepts’ above, liabilities are defined broadly as financial claims and therefore include the value of the equity of corporations and quasi-corporations, which represent the financial claims of owners on the assets of the corporations and quasi-corporations. Because the equity of quasi-corporations is defined as the value of their assets less the value of their liabilities, the value of their net worth is always zero.
A1.78 The balancing item in the changes in balance sheet account is change in net worth. The SNA recommends that change in net worth should be decomposed into change in net worth due to savings and capital transfers, change in net worth due to revaluations, and change in net worth due to other changes in the volume of assets, each of which are balancing items that are also recorded in other accounts.
A1.79 All three balance sheet accounts use the classification of assets and liabilities that is used in the accumulation accounts. The variation in the degree of classification detail shown in each of the tables in this chapter reflects the variation shown in SNA93. However, national compilers can choose the level of detail that they present in each account. The classifications shown in Table A1.11 have already been explained in preceding discussion of other accounts and that discussion is not repeated here.
Table A1.11. SNA BALANCE SHEET ACCOUNTS
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