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11.5. The general principles covering valuation and time of recording are set out in Chapter 2. These state that:
11.6. Ownership changes when transactions are entered in transactors’ books. These should be recorded on an accrual basis, which means that certain items should be capitalised in the appropriate component of the financial account and international investment position. For example, income in the current account is recorded when earned. The difference between income earned and cash settlement when payment becomes due is included in the accounts as a net financial transaction in the underlying instrument (see box 11.1 for a description). Similarly, the prepaid premiums and unpaid claims on insurance (i.e. the difference between premiums earned and claims payable on the one hand, and premium and claim payments on the other) should be recorded as financial transactions. Every effort is made in data collections to adhere to these principles, and data in the financial account and international investment position are considered to approximate them. However, the valuation of portfolio investment transactions in shares and debt securities issued in Australia, which are compiled for recent years using data models, may in practice only approximate the true market transaction value. Some difficulty is also encountered in valuing the stock of investment, because survey reporters may not provide actual market values (especially for direct investment), or data models are used (in inward and outward portfolio investment) to estimate market values. Because of the relative newness of financial derivatives, data providers also experience some problems in reporting them.
Valuation of the stock of direct investment in equity capital
11.7. In measuring the value of equity capital (including equity in branches), much of which is never traded or is traded infrequently, the following principles are applied:
11.8. The net asset value of an enterprise is equal to total assets, including intangibles, less non-equity liabilities and less paid up value of non-voting shares. Ideally, assets and liabilities should be valued at the market value. If this is the case, the net asset value may be regarded as providing a good approximation of the market value. Even in such cases, the net asset value may still be less than a willing buyer would be prepared to pay for the equity, as the enterprise may have a higher perceived value as a going concern. Often, historical costs (as distinct from current values) are used by enterprises to value assets and liabilities on balance sheets. To the extent that assets are not revalued to reflect market values, the calculation of net asset value based on such balance sheets will have further deficiencies as a proxy for market value. However, Australian accounting standards require fairly frequent asset revaluations, particularly when valuations are likely to change significantly, and there is evidence indicating that reported valuations have improved progressively since the market value principle was first introduced into the statistics.
Valuation of the stock of portfolio investment
11.9. Survey reporters are asked to report market values at the reference date (the end of a quarter) when reporting portfolio investment. For equity securities the method of valuation is the same as in paragraph 11.7. For debt securities survey reporters are asked to report traded price at the date specified. If that value is not available, they are asked to report in order of preference one of the following methods: yield to maturity; discounted present value; face value less written value of discount; issue price plus amortisation of discount; or another mark to market basis. Where data models are used for measuring either the stock of portfolio investment in equity capital (shares) and debt securities issued in Australia and held by nominees, or debt securities issued abroad, or the transactions in these instruments, market values are used based on market prices recorded on Australian or foreign stock exchanges or appropriate stock indexes at the reference date. Again, when reporting the value of financial derivatives, survey reporters are asked to report market value.
Valuation of the stock of other instruments
11.10. Notes and coins, trade credits, loans and deposits are examples of instruments which cannot be readily transferred from one transactor to another. In principle, they are valued at market value; in the Survey of International Investment, survey reporters are asked to ‘use nominal (face) value as an approximation for market value, unless book values have been devalued'.
Valuation of the stock of official reserve assets
11.11. Official reserve assets consist of a number of instruments such as monetary gold, Special Drawing Rights, reserve position in the IMF, foreign currency notes and coins, foreign currency deposits, bonds and notes, money market instruments, financial derivatives and other claims. Monetary gold is valued at the current market price of commodity gold, debt securities and derivatives are valued at market value as described in the previous paragraphs, Special Drawing Rights are valued at an administrative rate determined by the IMF. The reserve position in the IMF is valued at a rate which reflects the current market value of the currency that can be accessed (under certain conditions) or of the loans outstanding by the IMF to the creditor. Other instruments are valued according to the principles, appropriate to the instrument, described above.