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ASNA financial accounts and balance sheets divergence from 2008 SNA

Australian System of National Accounts: Concepts, Sources and Methods
Reference period
2020-21 financial year

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.