Overview of sources and methods

Introduction

15.36    The compilation of the financial accounts and financial balance sheets are mainly based on administrative data collected by the Australian Prudential Regulation Authority (APRA) under the Financial Sector (Collection of Data) Act 2001, and ABS statistical surveys. Of particular importance are the ABS 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 and APRA sources, such as market capitalisation for different sector and subsector share issuance from the Australian Securities Exchange; information on Commonwealth Government from ledgers obtained from Government Finance Statistics; and bond price indexes from private financial market analysts.

Data sources for sectors and subsectors

Non-financial investment funds

15.37    Balance sheet information:

  • from the ABS Survey of Financial Information – Non-Market Investment Funds; and
  • supplementary counterparty and market capitalisation information from the Australian Securities Exchange (ASX), annual company reports and the ABS Survey of International Investment.

Other private non-financial corporations

15.38    Balance sheet information:

  • from the ABS Survey of Financial Information – Non-Market Investment Funds; and
  • supplementary counterparty and market capitalisation information from the Australian Securities Exchange (ASX), annual company reports and the ABS Survey of International Investment

Public non-financial corporations

15.39    Balance sheet information:

  • from the ABS Survey of Financial Information – Government and Other Entities; and
  • supplementary counterparty information from Central Borrowing Authorities (CBAs), the ABS Survey of International Investment and annual reports of State and Territory housing authorities.

Central bank

15.40    Balance sheet information:

  • from the ABS Survey of Financial Information – Reserve Bank of Australia (RBA); and
  • supplementary counterparty information from the ABS Survey of International Investment.

Authorised deposit-taking institutions

15.41    Balance sheet information:

  • from the suite of returns submitted by banks, credit unions and building societies under the monthly APRA Economic and Financial Statistics (EFS) collection; and
  • supplementary counterparty information from the ABS Survey of International Investment.

Other broad money institutions

15.42    Balance sheet information:

  • from the suite of returns submitted by Registered Financial Corporations (RFCs) under the monthly APRA Economic and Financial Statistics (EFS) collection (only units with total assets greater than $50 million are required to submit a return to APRA); and
  • supplementary counterparty information from the ABS Survey of International Investment.

Pension funds

15.43    Balance sheet information:

  • from returns submitted by registrable superannuation entities under the quarterly APRA Superannuation Reporting Standards (SRF 320.0 Statement of Financial Position) and;
  • from annual returns submitted by regulated self-managed superannuation funds to the Australian Taxation Office (ATO), to which the ABS-modelled quarterly estimates are benchmarked.

Life insurance corporations

15.44    Balance sheet information:

  • from the ABS Survey of Financial Information – Life Insurance Companies and Friendly Societies; and
  • supplementary information for total assets submitted under the quarterly APRA Statement of Financial Position.

Non-life insurance corporations

15.45    Balance sheet information:

  • from returns submitted by private general insurers under the quarterly APRA Statement of Financial Position – General Insurance;
  • from the ABS Survey of Financial Information – Government and Other Entities for public insurers; and
  • from the quarterly APRA private health insurance statistics publication

Money market investment funds

15.46    Balance sheet information from the ABS Survey of Financial Information – Money Market Funds.

Non-money market investment funds

15.47    Balance sheet information from:

  • the ABS Survey of Financial Information – Non-Money Market Funds;
  • Supplementary counterparty information from market capitalisation information from the Australian Securities Exchange, and the ABS Survey of International Investment; and
  • counterparty information from domestic investors (such as pension funds, life insurance corporations and other investment funds) of wholesale trusts with assets of wholesale trusts modelled using the ABS Survey of Financial Information – Investment Managers.

Central borrowing authorities

15.48    Balance sheet information:

  • from the ABS Survey of Financial Information – Government and Other Entities;
  • quarterly data on semi-government bonds on issue from State government Treasury Corporations; and
  • supplementary counterparty information from ADIs and the ABS Survey of International Investment.

Securitisers

15.49    Balance sheet information from:

  • the ABS Survey of Financial Information – Securitisers; and
  • supplementary counterparty information from the ABS Survey of International Investment.

Other financial corporations

15.50    Balance sheet information:

  • for financial auxiliaries, from the ABS Survey of Financial Information – Investment Managers;
  • for public sector units, from the ABS Survey of Financial Information – Government and Other Entities; and
  • supplementary counterparty and market capitalisation information from the Australian Securities Exchange (ASX); ADIs; securitisers; Sydney Futures Exchange (SFE); and the ABS Survey of International Investment.

National general government

15.51    Balance sheet information from:

  • the ABS Survey of Financial Information – Government and Other Entities;
  • Commonwealth government ledgers from Government Finance Statistics (GFS);
  • Australian Office of Financial Management (AOFM); and
  • supplementary counterparty information from the RBA; ADIs; and the ABS Survey of International Investment.

State and local general government

15.52    Balance sheet information from:

  • from the ABS Survey of Financial Information – Government and Other Entities;
  • State and local general government balance sheet estimates from Government Finance Statistics (GFS); and
  • supplementary counterparty information from central borrowing authorities, National general government and ADIs.

Households

15.53    Information from:

  • supplementary counterparty information from RBA; ADIs; securitisers; National general government; and the ABS Survey of International Investment;
  • residual allocation of transactions and holdings of securities; and
  • allocation of insurance technical reserves from compilation models.

Rest of the World

15.54    Balance sheet information from:

  • from the ABS Survey of International Investment; and
  • supplementary counterparty information from domestic sectors (such as pension funds, life insurance corporations and non-money market investment funds).

Data issues

Undercoverage of some sectoral data

15.55    There is no balance sheet source data from small non-financial corporations; solicitors and similar trust funds; and financial auxiliaries (such as stockbrokers), some of which buy securities on their own account.

''Exposure accounting'' or ''hedge accounting''

15.56    Certain market practices result in commercial accounting data that are difficult to interpret within a 2008 SNA accounting framework. Under 'exposure' or 'hedge' accounting, the emphasis is on the net effect of various contractual obligations on profits and net worth; the practice is extended by bundling together contracts associated with a particular deal or strategy, and recording the net results at that level of detail.

15.57    This accounting practice for contracts involves foreign-exchange risk. An example is the issue of debt security liabilities which are (a) denominated in US dollars; (b) issued to investors in the USA; and (c) bundled with the contracts hedging foreign currency risk, such as a USD-AUD derivative, negotiated with an Australian bank. The outcome of this bundling is that there is no foreign currency exposure resulting from the combination. The problem that bundling poses for recording in the financial accounts is that it is netting two contracts with different contractual parties in different sectors. In this example, they are in different countries where one contract is a liability, and the other is in an asset position potentially. The bundled result cannot be sensibly aggregated with any particular asset class or under any sector classification, and, hence, cannot contribute usefully to economic analysis.

15.58    Another example of bundling of contracts for a net result is the notion of structured finance, where various combinations of debt, equity and derivatives can be bundled to give a tailored outcome, quite often associated with tax effective outcomes. The results can also be represented as ''hybrid'' or ''synthetic'' securities. Another practice with similar aims is ''stapled securities''.

15.59    For the financial accounts, the data in respect of structured products, bundled products and contracts reported under exposure methods is to unbundle and classify the components on the basis of the legalities of the situation, not the economic effect. The overall economic effect of such contracts will be reflected in the aggregate balancing items in the national accounts, reflecting accurately the operating surplus; property income flows; financial transactions; revaluations and net worth that result and also provide the basis for how those outcomes evolved.

Compilation methodology

15.60    Most of the information obtained from the APRA collections and surveys is financial balance sheet information. It is used to estimate sectoral (and subsectoral) transactions and stocks of financial assets and liabilities by financial instrument and counterparty:

  • The compilation methodology ensures that the most reliable estimates are used. As the APRA collections and surveys collect information from both parties to a financial transaction, a choice is often possible because the different data sources provide alternative or counterpart measures of the same item. For example, private non-financial corporation loans data collected from ADIs is used and not the estimates collected for private non-financial corporations from the ABS Survey of Financial Information.
  • 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 actual reported opening and closing stocks to obtain an estimate of the valuation effect.
  • Some transactions are recorded using directly collected data. Most of the estimates of transactions involving non-residents are based on directly collected data from the Survey of International Investment.
  • In some cases, it is possible to undertake validation for some estimates. 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.
  • The compilation methodology ensures that the best estimates for rest of the world assets and liabilities are used. A data confrontation process selects the best estimates amongst the ABS Survey of Financial Information (SFI); the APRA administered collections; and the ABS Survey of International Investment. Estimates for some sectors are derived from SFI and APRA data over the ABS’ Survey of International Investment, for example, pension funds and life insurance corporations. A balancing process is undertaken to ensure that the major aggregates (such as Australia's international investment position) and sub-aggregates derived in the ASNA are the same as is published in Balance of Payments and International Investment Position, Australia.

ASNA financial accounts and balance sheets divergence from 2008 SNA

Creditor and debtor principle to valuing debt securities

15.61    The 2008 SNA recommends that interest on debt securities be recorded in accordance with the ''debtor principle''. Under this principle, interest payments are the contractual payments evidenced by the ''coupon'' payable in these contracts. To the extent that coupon interest is not aligned with market yields, the market value of the debt securities will adjust downwards if coupon is less than market yield, and upwards if coupon is greater than market yield. There are some difficulties implementing the debtor principle for securities where the contractual interest is variable through referencing external indicators.

15.62    The alternative to the debtor principle is to use market values and interest yields consistently, which is called the ''creditor principle''. The creditor principle is conceptually coherent, and it also copes with variable interest instruments. If market valuations of debt securities' stocks are undertaken (as recommended by the 2008 SNA) by discounting future cash flows by the prevailing interest rate, then it makes sense to use the same interest rate to value the associated flows, including interest transactions. Using another interest rate (e.g. the rate at the time the debt instrument was issued) to calculate interest transactions would mean that stocks and flows are calculated using different prices. The adjustment in value of debt securities is seen as a financial transaction (new issue if value increases and repayment if value decreases) under this scenario. Sometimes, interpretation of creditor principle data conflicts with an interpretation derived from accounting standards; for example, debt value and interest expenditure can change not through the activity of debt issuers (such as government) but by variations in the market. The ASNA applies the creditor principle in the national accounts, including the financial accounts.

Repurchase agreements

15.63    A repurchase agreement (repo) involves the sale of securities or other assets with a commitment to repurchase equivalent assets at a specified date. The buyer may on-sell these securities to another party. The 2008 SNA treats repos as collateralised loans, or as other deposits if repos involve liabilities classified under national measures of broad money. The collateralised loan treatment is not supported by the ABS. The ABS maintains that the best statistical representation of a repo is that of a sale of securities, with the obligation to sell/buy-back similar securities recorded as a forward contract; that is, a form of derivative. This treatment has the advantage of unduplicated recording of securities assets whereas the collateralised loan approach requires recording of negative security assets to maintain equality between total securities' asset holdings and total securities' liabilities on issue. The ASNA treatment will impact on compositional aspects (e.g. securities versus loans, classification of asset holders) but will have no impact on analytical aggregates (e.g. net assets, net lending/borrowing).

Valuation of loans and placements

15.64    Financial institutions make a general provision for loan losses based on known characteristics of the loan portfolio and its performance over time. Because the provision is general, the specific loan contracts and the counterpart liability incurred are not identifiable, making it conceptually difficult to record such a provision in the 2008 SNA accounting structure. By contrast, specific provisions for impairment arising from poor performance (non-performing) of an individual loan contract are more certain as to likely occurrence and counterparty identification.

15.65    The 2008 SNA recommends valuation of loans in the balance sheet at nominal value, with non-performing loans identified and two memorandum items concerning them included in the balance sheet of the creditor. The first is the nominal value of the loans so designated, including any accrued interest and service charges. The second is the market equivalent value of these loans.

15.66    The ABS considers that market valuation of loans or a close approximate should be recorded in order to maintain consistency regarding the valuation of all financial instruments. The ASNA takes into account specific loan loss provisions in valuing loan portfolios and their counterparts, and, as a result, the closest approximation to market value or fair value is recorded in the ASNA. The ASNA does not take account of general loan loss provisions. Valuation of loans at nominal values is produced in supplementary tables in the ASNA.

Monetary gold

15.67    The 2008 SNA definition of monetary gold is gold to which the monetary authority has title and is held as reserve assets. All monetary gold is included in reserve assets or is held by international financial organisations and is treated as a financial asset even though the holders do not have a claim on other designated units.

15.68    The ASNA treatment of monetary gold departs slightly from the treatment outlined in the 2008 SNA in that a liability of the rest of the world is imputed. The reason for not adopting the 2008 SNA treatment is to preserve consistency with the international investment position (IIP) for Australia within the Financial Accounts. The IIP according to BPM6 permits recording of assets in the form of monetary gold as assets of the domestic economy (i.e. external claims). In re-presenting external claims data in a 2008 SNA framework, the major presentation is to show cross-border positions as assets and liabilities of rest of world. The external assets of BPM6 are thus represented as foreign liabilities, and external liabilities are represented as foreign assets in the financial accounts. The international investment position — external assets less external liabilities — should be derivable from the Rest of World accounts in the ASNA; that is, foreign liabilities less foreign assets. Omitting monetary gold from liability positions of the rest of the world will not produce this result. This treatment in ASNA has been adopted mainly to minimise confusion among the users of the statistics.

Holding companies

15.69    A holding company is a unit which holds the assets of subsidiary corporations but does not undertake any management activities. According to 2008 SNA, such units receive the sectoral classification of captive financial institutions and money lenders. This treatment would result in the creation of additional enterprises in situations where there are currently no financial intermediary enterprises in the group. The ASNA treatment for holding companies in the financial accounts and balance sheets is that they receive a sector classification reflecting the major economic activities of the controlled entities.