5517.0 - Information Paper: Accruals-based Government Finance Statistics, 2000  
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 13/03/2000   
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Contents >> Chapter 3. New GFS conceptual framework

3.1. The ABS’s revised accrual GFS is based on a new conceptual framework derived from the System of National Accounts 1993. The new GFS framework is harmonised with the SNA93 to the extent possible. Harmonisation in this context means that the same concepts and definitions are used in the two systems or, when different concepts are used, that the relationships between them are known so that it is possible to link one to the other.

3.2. Whilst the new framework has been derived from SNA93, it also reflects the needs of fiscal analysts and other technical users who may be interested in an analysis of government operations. Such operations tend to be somewhat different from the market-oriented sectors of the economy, for example, in respect of taxation and regulatory functions of governments.

3.3. Only those aspects of the revised conceptual framework that are necessary for a broad understanding of the subject-matter have been included in this Information Paper. A more extensive coverage will be included in a comprehensive concepts, sources and methods manual which the ABS expects to release in late 2000.

3.4. Readers are especially requested to note that the first GFS publication on the revised basis, Government Financial Estimates (Cat. no. 5501.0), expected to be released on 3 April 2000, will only contain a limited subset of the information implied by the description of the framework below. Australian governments are at various stages in their implementation of accrual accounting and the detail required for the full framework will not be available consistently across all jurisdictions at the time of publication. For a description of the output which will be available in the forthcoming Cat. No. 5501.0, please refer to chapter 5.


Stocks and flows

3.5. The central feature of the new conceptual framework is that it is based on an integrated recording of stocks and flows. Stocks refer to the holdings of assets and liabilities, at a point in time, valued at market prices prevailing at that time. Flows, on the other hand, are economic events and other occurrences that cause changes in the value of stocks through the creation, transformation, exchange, transfer or extinction of value, recorded in the relevant period on an accrual basis. Thus, the stock of assets and liabilities recorded at the beginning of a period change, as a result of flows over the period, to a new level of stocks at the end of the period. Stocks are therefore a ‘point in time’ concept while flows relate to a ‘period of time’.

Time of recording

3.6. In the revised framework, flows are recorded on an accrual basis, that is, they are recorded at the time economic value is created, transformed, exchanged, transferred, or extinguished. In other words, flows are recorded in the period in which the economic events occur, irrespective of whether there were associated cash flows or not.

Classification of stocks

3.7. Stocks are classified into assets and liabilities which, in turn, are further classified into a number of finer categories according to their detailed nature and type. Assets, for example, are classified into financial and non-financial, and the latter are further classified as produced assets, i.e. assets which have come into existence as a result of production and have therefore impacted on the Gross Domestic Product, and as non-produced assets. Liabilities are classified into deposits held, advances received, borrowing, superannuation, other employee liabilities and other liabilities. Shares and other contributed capital of public corporations are grouped with liabilities in the framework.

Classification of flows

3.8. Flows, too, are classified on the basis of their economic characteristics into transaction flows and other flows. Other flows are further classified into revaluations and other changes in the volume of assets.

3.9. In essence, transactions represent changes to stocks that come about as a result of mutually agreed interactions between institutional units, for example, the sale of a good or service by one unit and its purchase by another. The framework also includes as transactions items such as depreciation that do not involve interaction with other institutional units. The recording of such ‘internal’ transactions recognises that an institutional unit can act in two capacities of economic interest. For example, by recording depreciation, there is recognition that the unit is both the owner of a fixed asset and the consumer of the services provided by that asset.

3.10. Despite their compulsory nature, taxes are considered to be transactions as they are deemed to occur, for the purposes of this framework, by mutual agreement between the government and the taxpayer.

3.11. Other flows represent changes to stocks that come about not as a result of transactions. More specifically, revaluations (which are also sometimes referred to as holding gains and losses) represent changes to stocks that arise from price movements, including exchange rate movements. Other changes in the volume of assets relate to changes to stocks arising from events such as discoveries of new assets (e.g. mineral deposits) and depletion or destruction of existing assets.

Integration of stocks and flows

3.12. As the value of stocks at the beginning of a period (the opening balance sheet) can only change through the cumulative effect of flows, to a new value at the end of the period (the closing balance sheet), the new conceptual framework is said to be fully integrated.

The new framework — a schematic view

3.13. A schematic presentation of the new conceptual framework is provided in diagram 3.1 which highlights the integrated relationship between stocks and flows.

       Diagram 3.1 – GFS Integrated Statement of Stocks and Flows (outline)
         No items are logically classifiable to the shaded areas.

         *  This item is zero for the general government sector.
3.14. By breaking down the total assets and total liabilities into their constituents and establishing the changes in them from one period to another in terms of transactions and other flows as defined above, the framework provides a strong statistical explanation of the factors causing the change in the Net Worth of government. The total change in Net Worth may occur either as a result of transactions or as a result of other flows or, as would be the case most often, a combination of the two.

3.15. The change in the Net Worth of government due to transactions may be established by calculating the movements (due to transactions) in assets and liabilities. It may also be established by calculating the Net Operating Balance which is the excess of revenues over expenses (again, due to transactions). The change in Net Worth due to transactions is conceptually equivalent to the Net Operating Balance of government. It may be said that the Net Operating Balance focuses on the ‘activity’ side (by considering transactions in revenues and expenses) whereas the Net Worth focuses on the ‘financing’ side (by considering transactions in financial assets and liabilities which change Net Worth).

3.16. It should be noted that the Net Operating Balance (and the equivalent change in Net Worth due to transactions) as defined here excludes gains and losses resulting from changes in price levels, including interest and exchange rate movements. That component of the change in Net Worth which is due to transactions can be attributed directly to government policies since governments have control over their transactions in both revenues and expenses. The same however cannot be said for the other component of the total change in Net Worth as Australian governments do not control prices directly as such.


3.17. The conceptual framework, as represented by diagram 3.1, is physically too large and unwieldy for normal publication purposes, especially if each of the major aggregates of revenues, expenses, assets, etc is to be included at its most detailed level of classification. It is expedient therefore to divide the framework into a number of separate statements, each of which focuses on analytical aggregates or balances of particular user attention. These statements are the Operating Statement, Statement of Stocks and Flows, Balance Sheet and the Cash Flow Statement. A brief description of the structure of these statements is provided below.

Operating Statement

3.18. The Operating Statement presents details of transactions in GFS revenues, GFS expenses and the net acquisition of non-financial assets. In a broad conceptual sense, GFS revenues are defined as transactions that increase net worth and GFS expenses as transactions that decrease net worth. Whilst this definition applies at a broad conceptual level, in practice it is quite possible to have some revenue items, such as the sale by a government hospital of medication at below cost, that actually decrease net worth. Net acquisition of non-financial assets equals gross fixed capital formation, less depreciation, plus changes in inventories and other transactions in non-financial assets. An outline of the Operating Statement and the main relationships within it are provided in diagram 3.2.

      Diagram 3.2 – GFS Operating Statement (outline)

3.19. Two important analytical balances are derived in the Operating Statement. Transactions in revenues less transactions in expenses equals the Net Operating Balance. The subsequent deduction of transactions in the net acquisition of non-financial assets results in the GFS Net Lending(+)/Borrowing(–), which is also equal to the net result of transactions in financial assets and liabilities.

3.20. The Net Operating Balance is a summary measure of the on-going sustainablity of government operations. It is conceptually intended to be equivalent to the national accounting concept of Savings plus Capital Transfers, but in practice a reconciliation to the ASNA measure will be required to account for some differences in methodology and valuation used in the Australian GFS.

3.21. Net Lending(+)/Borrowing(–) is a summary measure which in essence indicates the extent to which government is either putting financial resources at the disposal of other sectors in the economy or utilising the financial resources generated by other sectors. It may therefore be viewed as an indicator of the financial impact of government activity on the rest of the economy. It is conceptually equivalent to the national accounting concept of Net Lending, but in practice GFS Net Lending(+)/Borrowing(–) will differ due to the different treatment and valuation of some component items.

Statement of Stocks and Flows

3.22. The Statement of Stocks and Flows shows the opening balances of assets and liabilities, the related flows during the reporting period and the closing balances. The preferred valuation basis for all stocks and flows is current market prices. Where current market prices are not observable, a best indicator (such as net present value) should be used. Furthermore, where assets or liabilities that are not regularly measured at current values are to be disposed of, they need to be revalued just prior to their disposal and the revaluation recorded in the Statement of Stocks and Flows, not as a gain (revenue) or loss (expense) in the GFS Operating Statement. An outline of the Statement of Stocks and Flows and the relationships within it are provided in diagram 3.3.

      Diagram 3.3 – Statement of Stocks and Flows (outline)
      Notes:  * This item is zero for the general government sector.

3.23. Assets represent instruments or entities over which ownership rights are enforced by institutional units and from which economic benefits may be derived by holding them, or using them, over a period of time. Assets are distinguished between non-financial and financial.


3.24. Liabilities represent obligations to provide economic value to other institutional units. The classification of liabilities and financial assets needs to be symmetrical for consolidation purposes.


3.25. GFS Net Worth is defined as assets less liabilities less shares and other contributed capital. For the general government sector, Net Worth is simply assets less liabilities since shares and other contributed capital are zero. For listed public corporations, shares and other contributed capital are recorded at current market values and for those which are unlisted, it is set equal to the value of assets less liabilities. The GFS Net Worth for unlisted public corporations is therefore zero.

Balance Sheet

3.26. The Balance Sheet shows assets, liabilities and GFS Net Worth similar to the presentation in the first and last columns of diagram 3.3. However, it brings together into a single statement data for several years to provide an analytical time series.

Cash Flow Statement

3.27. The Cash Flow Statement identifies how cash is generated and applied. Cash is classified as arising from operating, investing and financing activities of government. An outline of the Cash Flow Statement is provided in diagram 3.4.

        Diagram 3.4 – Cash Flow Statement (outline)

        Notes:  * The Surplus/Deficit is not structurally part of the Cash Flow Statement. As it is derived mainly from data items in this statement, it has been included here as supplementary information for analytical purposes.
3.28. Cash held refers to cash on hand and cash equivalents. Cash on hand refers to notes and coins held, and deposits held at call with a bank or financial institution. Cash equivalents are highly liquid investments which are readily convertible to cash on hand at the investor’s option and overdrafts considered integral to the cash management function.

3.29. Unlike the Operating Statement, the Cash Flow Statement reflects a cash basis of recording where the information has been derived indirectly by accounting units from underlying accrued transactions and movements in balances. This in effect means that transactions are captured when cash is received or when cash payments are made. Such cash transactions have been included because it allows the compilation of the cash-based Surplus(+)/Deficit(–) and because the management of cash is often considered an integral function of accrual accounting.

3.30. The two main analytical balances measures in the Cash Flow Statement are the Net Increase/Decrease in Cash Held which is a summation of net cash from operating, investing and financing activities and the Surplus(+)/Deficit(–) which is calculated as follows:
        Net cash flows from operating activities
        plus Net cash flows from investments in non-financial assets
        less Distributions paid
        less Acquisitions of assets acquired under finance leases and similar arrangements
        equals Surplus(+)/Deficit(–)


3.31. The above definition of the Surplus(+)/Deficit(–) is the same as that used prior to the changeover to accrual accounting and maintains, as far as possible, a consistent time series. However, users should note that the move to an accrual basis of recording has required a change in some jurisdictions’ data sources and methodologies from 1998–99 onwards. Therefore, the Surplus(+)/Deficit(–) series from 1998–99 will no longer be directly comparable to the ‘deficit’ series previously published in GFS publications. There is also a change in the sign convention which now shows a surplus as a positive value.


3.32. Readers may find that the terminology used in the revised GFS in some instances appears to be similar to that in general purpose financial statements produced under Australian Accounting Standards by jurisdictions. As the statistical treatment in GFS can in some instances be quite different, the prefix ‘GFS’ has been used in the names of some GFS items to avoid possible confusion. Chapter 6 outlines the reconciliations required to account for differences between the statistical and accounting treatment of items.

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