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5216.0 - Australian National Accounts: Concepts, Sources and Methods, 2000  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 15/11/2000   
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Contents >> Chapter 25: Financial accounts

Introduction

25.1 This chapter describes the sources and methods used in compilation of the financial accounts and the financial asset/liability components of the balance sheets. The financial accounts record information about transactions in financial assets and liabilities, while the balance sheets provide information about the values of stocks of financial assets and liabilities at particular points in time. Information on the structure of the financial accounts and balance sheets is provided in Chapter 8. Financial accounts statistics are sometimes referred to as 'flow-of-funds' statistics.

25.2 On a quarterly basis, information on transactions in and stocks of financial instruments is provided in Australian National Accounts: Financial Accounts (Cat. no. 5232.0). These data are classified by institutional sector/subsector and by type of financial instrument. Annual financial data are provided in Australian System of National Accounts (Cat. no. 5204.0). In that publication, financial accounts are provided for each sector as well as for the economy as a whole. Information on stocks of financial assets and liabilities is included as part of the national and sectoral balance sheets. Information on the financial transactions and positions of non-residents vis-a-vis residents is also provided in the ABS publications relating to the balance of payments and the international investment position. In these publications the statistics are presented from the point-of-view of the Australian residents. In the national accounts publications, statistics for the rest of the world sector are presented from the non-residents' perspective.

25.3 In theory, data for compilation of the financial accounts and the financial components of the balance sheets could be obtained from both parties to every financial transaction and position. Under such circumstances, two views would be obtained of each transaction and position (i.e. a creditors' view and a debtors' view). The views should be identical, but may not be in practice. However, costs prevent such an exhaustive approach, and reliance is often placed on reporting by only one of the parties to a financial transaction and/or position. Advantage is taken of the fact that financial transactions of numerous transactors, such as households, are mostly channelled through a much smaller number of other units, such as banks and other financial institutions. Thus, for example, the financial transactions and position of households can be determined by obtaining information from other institutions that engage in financial transactions with households. The information for households so derived is described as 'counterpart' information.

25.4 The compilation of the financial accounts is mainly based on surveys of financial and other institutions which obtain balance sheet information. This information is used to estimate the value of financial assets and liabilities of the institutions concerned and certain counterparts. Some transactions and other flows involving financial assets and liabilities are estimated by 'differencing', which involves subtracting opening balance sheet values from closing balance sheet values, and using other information to distinguish transactions from non-transaction flows, such as write-offs and holding gains and losses. In other cases, information on transactions is available from the data sources used to compile the financial account estimates.

25.5 In some cases, information that cannot be obtained directly is derived residually. This is possible because for each financial instrument, other than monetary gold and SDRs, the sum of the net acquisitions of financial instruments for each sector (including the rest of the world) must equal the sum of the net incurrences of liabilities.


Classifications

25.6 The institutional sector classification used in the financial accounts is the same as that used in the rest of the national accounts. Five broad sectors are identified:

      • general government;
      • financial corporations;
      • non-financial corporations;
      • households (including non-profit institutions serving households); and
      • rest of the world.

25.7 In Cat. no. 5232.0 the general government, financial corporations and non-financial corporations sectors are broken down into subsectors, as shown in the table below:


25.1 SUBSECTORS SHOWN IN AUSTRALIAN NATIONAL ACCOUNTS: FINANCIAL ACCOUNTS (CAT. NO. 5232.0)
NON-FINANCIAL CORPORATIONS SECTORFINANCIAL CORPORATIONS SECTORGENERAL GOVERNMENT SECTOR

Private non-financial corporationsCentral bankNational general government

National public non-financial corporationsBanksState and local general government

State and local public non-financial corporationsOther depository corporations
Life insurance corporations
Pension funds
Other insurance corporations
Central borrowing authorities
Financial intermediaries nec.



25.8 In Cat. no. 5232.0 the institutional sector classification is also used to classify the counterparty transactions and positions shown for each institutional sector/subsector.

25.9 Chapter 5 provides a description of the sectors and subsectors used in the financial accounts.

25.10 Financial instruments are classified in the national accounts as follows:
      • monetary gold and SDRs;
      • currency and deposits;
      • short-term securities other than shares;
      • long-term securities other than shares;
      • derivatives;
      • loans and placements;
      • shares and other equity;
      • insurance technical reserves; and
      • other accounts payable/receivable

25.11 Chapter 6 provides a description of each of these types of financial instruments. In certain financial account and balance sheet tables, securities are further classified by domicile of issuer (i.e. issued in Australia/issued offshore).


Sources of data

25.12 Most of the data used in the compilation of the financial components of the national accounts are derived from statistical surveys conducted by the ABS. Of particular importance are the Survey of Financial Information (SFI) and the Survey of International Investment (SII), both of which are conducted quarterly. Other data sources are used to supplement the ABS sources, particularly for estimating for certain types of financial corporations and for deriving valuation adjustments. The specific information sources for each of the sectors and subsectors are described below.

Non-financial corporations

Private non-financial corporations

25.13 Balance sheet data for the largest groups, as well as for those property trusts which are open to the general public, are obtained from the SFI. Estimates for the remainder of units that make up this subsector are derived from data coming from several different sources, including counterpart information from banks, market capitalisation information from the Australian Stock Exchange, and data from the SII.

25.14 Estimates of the value of notes and coin held by this subsector are derived by halving the estimate of notes and coin held outside the banking system, which is in turn derived by subtracting the notes and coins held by the banking system from the total notes and coin in circulation.

National public non-financial corporations

25.15 The largest of these units report balance sheet information in the SFI. Estimates for the remainder of units that make up this subsector are derived from several different sources, including counterpart information from banks and data from the ABS's quarterly SII.

State and local public non-financial corporations

25.16 The largest State corporations provide quarterly balance sheet information to the ABS in the SFI. For State and Territory housing commissions, Annual Reports are used as a data source. For the remaining State and local public non-financial corporations, counterpart information from the central borrowing authorities (which report to the ABS) is used, as the financing for most of these units is arranged through the central borrowing authorities.

Financial corporations

Central bank

25.17 The Reserve Bank of Australia (RBA) provides a full balance sheet to the ABS each quarter. However, some items on the RBA’s balance sheet are valued as at the Wednesday closest to the end of the quarter. This is inconsistent with information provided by the Commonwealth Department of Finance and Administration and the commercial banks, both of which close off their accounts on the last working day of the quarter. As the latter timing basis is closer to the conceptual requirements of the financial accounts, counterpart information is substituted for the relevant items. Also, the RBA records entries in the Commonwealth Government's account when cheques are presented for payment, but the Commonwealth Department of Finance and Administration makes these entries in its books when the cheques are drawn, which is likely to be several days earlier. Because of the large amounts involved, this 'float' is a serious problem from time to time, and counterpart information is used to make the necessary adjustments.

Banks

25.18 Each bank provides quarterly, as part of the SFI, a full balance sheet showing the consolidated position of its domestic banking businesses. Data reported by banks in the SII are used to supplement the SFI data.

Other depository corporations

25.19 All cash management trusts report balance sheet data to the ABS monthly. Estimates for building societies and credit unions are derived using data collected by the Australian Prudential and Regulation Authority (APRA). The RBA provides the ABS with information for the remaining depository corporations derived from statutory balance sheet returns. However, these returns do not include information about shareholders’ funds. This information is collected quarterly by the ABS from the larger corporations.

Life insurance offices

25.20 The SFI collects balance sheet, transactions and valuation information from the large life insurers. This information is supplemented by data provided by APRA, which requires all privately owned life insurance offices to provide it with assets and liabilities information quarterly. Large friendly societies provide quarterly balance sheet information to the ABS.

Pension funds

25.21 The largest pension funds (both public and private sector) provide quarterly balance sheet, transaction and valuation information in the APRA/ABS Survey of Superannuation Funds. These data are supplemented by an ABS collection from professional fund managers, in which an asset breakdown is reported of the pension funds they manage. This collection is designed to enable the elimination of double counting of pension fund assets. APRA and the ABS jointly estimate the assets of small (‘excluded’) pension funds.

Other insurance corporations

25.22 All private general insurance companies are required to provide a quarterly statement of assets and liabilities to APRA. The ABS uses this information, which is supplemented by its own quarterly survey of government-owned general insurers. Data for health insurance companies are estimated from annual statistics provided by the Private Health Insurance Administration Council (PHIAC).

Central borrowing authorities

25.23 All central borrowing authorities provide balance sheet data to the ABS on a quarterly basis as part of the SFI.

Financial intermediaries nec.

25.24 Financial Corporations Act Category J financial corporations (credit union leagues and other financial corporations n.e.c.) report quarterly to the RBA, which provides this information in aggregate form to the ABS.

25.25 Balance sheet data for listed and unlisted unit trusts that are open to the general public, and are not cash management, trading or property trusts, are obtained from an ABS quarterly survey of public unit trusts.

25.26 Issuers of asset-backed securities provide quarterly balance sheet data to the ABS as part of the SFI.

25.27 The various government-owned financial institutions included in this sector provide quarterly balance sheet information to the ABS as part of the SFI.

25.28 Security brokers’ own-account holdings of financial assets are estimated by investigating residuals in securities statistics.

General government

National general government

25.29 Information on the Commonwealth Government's assets is mostly obtained from counterpart information. Information on the Commonwealth Government's coin liability is provided by the RBA. Information about Treasury notes is provided by the Commonwealth Treasury. Data for Treasury bonds are provided by the Commonwealth Treasury and the RBA. Other liabilities of the Commonwealth Government are estimated using published annual balance sheet data.

25.30 Data for universities are obtained from counterpart information, as most of the funding for these units is provided by government agencies or financial institutions that report to the ABS.

State and local general government

25.31 Quarterly data for the State and Territory Governments are obtained from the relevant Treasuries as part of the SFI. Data for local government is obtained from counterpart information, as most of the funding for these units is provided by government agencies that report to the ABS.

Households (including unincorporated enterprises)

25.32 Estimates of the value of notes and coin held by this sector are derived by halving the estimate of notes and coin held outside the banking system, which is in turn derived by subtracting the notes and coins held by the banking system from the total notes and coin in circulation. Other estimates for this sector are generally obtained from counterpart information. Estimates for transactions and holdings of securities are derived residually.

Rest of the world

25.33 The main source of data on the financial position of non-residents vis-a-vis residents is the SII, which measures the investment position, financial transactions and other changes in position (price changes, exchange rate changes and other adjustments), and investment income associated with claims on and liabilities to non-residents by Australian residents. The publication Balance of Payments and International Investment Position, Australia, Concepts Sources and Methods (Cat. no. 5331.0) provides further information on this survey.


Compilation methods

25.34 Estimates of stocks (levels) are prepared by gathering together balance sheet information from various sources and selecting the most reliable estimates. As noted previously, a choice is often possible because different data sources provide alternative or counterpart measures of the same item. For example, most borrowing by State-owned non-financial corporations will be reported by the State central borrowing authorities or Treasuries as assets and by the non-financial corporations themselves as liabilities. The data will generally not agree because the ABS does not survey all State owned non-financial corporations. In this case, the data from the central borrowing authorities and Treasuries are therefore used to estimate both the asset and liability aspects of these borrowings.

25.35 In many cases financial transactions are derived by taking the difference between closing and opening levels of balance sheet items and, where possible, eliminating the component of the change caused by valuation effects such as exchange rate movements and changes in financial instrument prices. For example, the opening stock of securities denominated in foreign currencies (which is reported in Australian dollars) is first revalued using the exchange rates prevailing at the end of the period. The recalculated opening stock is subtracted from the reported closing stock to obtain an estimate of the value of transactions (in Australian dollars). The estimated value of transactions is then subtracted from the difference between the actually reported opening and closing stocks to obtain an estimate of the valuation effect.

25.36 In other cases, transactions are estimated using directly collected data rather than by differencing levels. Most of the estimates of transactions involving non-residents are based on directly collected data from the SII. Likewise, transactions data are directly collected for life insurance offices and pension funds.

25.37 After the initial estimates of stocks and transactions have been prepared, estimates of valuation changes are calculated as a residual. These estimates are then used to test the plausibility of the initial estimates of stocks and transactions and, if necessary, adjustments may be made to these initial estimates.


Accounting issues

25.38 The national accounts should record transactions on an accrual basis (as opposed to a cash or ‘due for payment’ basis), to reflect the time when economic value is transferred rather than when cash relating to the transaction is paid or falls due for payment. For practical reasons complete implementation of accrual accounting in the financial accounts is not possible. Two affected areas are:

      • accrual of income tax - refunds and additional payments as a result of ATO assessments are recorded in the periods in which amounts are due to be paid, and not in the periods in which the income underlying the assessments was actually earned; and
      • accrual of certain employee entitlements, including recreation and long service leave - these entitlements are recorded when they are actually paid, and not when they are accrued.

25.39 Accordingly, assets and liabilities associated with income tax and employee entitlements are not recorded in the financial accounts.

25.40 Furthermore, non-financial corporations are likely to report balance sheet information on a complete accrual basis for the quarter that coincides with the end of their tax year (usually June), but may be less likely to do so for the other quarters. This may cause some distortion in the data for the two quarters surrounding the end of the tax year.

25.41 Stocks of financial assets and liabilities should be valued using prices that are current on the date to which the balance sheet relates and that refer to specific assets. These prices should be observable prices on markets whenever such prices are available. In practice there are some cases where the prices of analogous assets are used to estimate prices for assets where there are no observable prices.

25.42 Tradable securities, which include shares listed on the Australian Stock Exchange (ASX) and debt securities traded on organised markets, are valued at actual market prices. Other securities are assigned estimated market values. For example, equity not listed on ASX is valued on the basis of the value of total assets of the enterprise in question less the value of any repayable liabilities.

25.43 For derivatives, respondents to ABS surveys are asked to mark each derivative contract to its net market value. This may result in a net asset or liability value being recorded for the contract. It is possible for a derivative contract to change from a net liability position to a net asset position (or vice versa) from one period to the next.

25.44 Deposits, loans and other accounts payable/receivable are recorded at their face value. As these instruments are not traded, this valuation basis is considered to be an acceptable proxy for market valuation.

25.45 Insurance technical reserves funds are valued on the basis of the market value of the total assets (including non-financial assets) of the funds and companies less the sum of any repayable liabilities and (in the case of companies) shareholders' funds.


Quality

25.46 The ABS is aware of the following deficiencies in its financial accounts data:

      • balance sheet information is not collected from small non-financial corporations, solicitors’ and similar trust funds, and financial auxiliaries (such as stock brokers), some of which buy securities on their own account. Estimates are made for these unreported assets using the partial information reported by fund managers;
      • there are some classification and timing problems in the data being reported by some large banks;
      • the quality of the data for the other depository corporations subsector is only fair;
      • the quality of data for the rest of the world sector is affected by deficiencies in coverage, classification and valuation;
      • stock lending, repurchase agreements, and short selling in securities markets - and inconsistent treatment of these practices by respondents - are causing some double counting of asset records for some types of securities;
      • derivative and synthetic financial products are generally not reported in non-ABS data sources;
      • the estimates of the stock of issued shares of unlisted private non-financial corporations are very poor; and
      • the estimates of other accounts payable/receivable for small corporations and the households sector are very poor.

25.47 The dissection of changes in balance sheet positions into transaction and non-transaction components is most important for tradable securities, as these instruments are most likely to be affected by valuation changes. The data used to estimate the effect of valuation changes on frequently traded securities, which include listed shares and Commonwealth and State government bonds/bills, are of good quality. The data available for securities that are less frequently traded, such as unlisted shares, are of only fair quality.

25.48 Despite the above-mentioned problems, the ABS considers that the financial accounts statistics are of an acceptable standard for the purposes they are intended to serve. An indication of the overall quality of the data can be gained by considering the households sector, which is judged to have the poorest quality data in the financial accounts. Most of the liabilities data are based on good quality counterpart data from the asset records of financial institutions. In addition, households’ deposit and loan assets are based on good quality counterpart data. Household holdings of tradable securities are derived residually, and so reflect errors and omissions in the estimates for the other sectors. Household positions in other accounts payable/receivable are also derived residually.


Comparison with previous RBA estimates

25.49 The ABS's financial accounts estimates were first compiled in respect of the September quarter 1989. Prior to then, the RBA had produced annual flow-of-funds statistics for the reference years 1953–54 to 1988–89. The two sets of statistics, however, are not directly comparable for the following reasons:

      • the ABS statistics are compiled mainly from specially conducted statistical surveys, whereas the RBA’s series were compiled mainly from administrative sources. These administrative by-product data were different in scope, coverage, timing and classification from the survey data used by ABS;
      • the ABS statistics use the same institutional sectors as in other parts of the national accounts, whereas the RBA’s sectoring was different. The RBA combined Commonwealth public non-financial corporations with Commonwealth general government, and State and local public non-financial corporations with State and local general government. Also, the RBA’s statistics had a more detailed classification of financial corporations than that presented in the ABS's financial accounts; and
      • the ABS statistics use a more extensive classification of financial instruments than that used by the RBA, although the RBA’s classification can be constructed from the ABS statistics.

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