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Valuation of transactions and stocks of financial assets and liabilities

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

Transactions

15.17    In the financial accounts, transactions are recorded at the value actually exchanged; that is, market value. Exchange of value implies a change of ownership of an asset, and this is a central principle in classifying a change in value to either a transaction or other economic flow. Examples of changes of ownership include purchase/sale of shares, issue/take up of debt securities, deposit of cash in an ADI, and provision of funds in exchange for a mortgage for a housing loan. In the case of the financial accounts these transactions take place in formally organised financial markets (such as the stock exchange) or in informally organised markets (often referred to as over-the-counter markets), such as the market for ADI deposits.

15.18    The market value may differ from the contractual value of claims arising from the transaction. Examples include the sale value of shares compared to the par value of the shares, or the proceeds value of a debt security issue rather than the nominal value of the debt securities.

15.19    Transaction values are recorded without deducting transaction costs such as brokerage fees or commissions. This ensures that debtors and creditors record the same amount for the financial instrument. Such fees or commissions are treated as sales of services, which are current account transactions rather than financial account transactions. The valuation of financial instruments (excluding commission charges) differs from the valuation of non-financial assets, which includes any cost of ownership transfer.

15.20    The payments required under a contract relating to financial assets and liabilities almost always represent more than one transaction in the sense used in the 2008 SNA. Payments of interest on loans and deposits, as specified by financial institutions, involve both interest and a service fee, which is the service payment to the financial institution for making the loan available, or safeguarding the deposit. For some financial instruments, such as bonds, the increase in value over time is taken to represent interest, not simply a price increase in the value of the asset. Therefore, the value of the transactions in financial instruments recorded in the financial account excludes these service charges and interest payments.

15.21    The exchange of value is recorded on an accrual basis; that is, in the period when ownership changes. This may be different to when cash relating to the transaction is paid or falls due for payment. For example, an enforceable contract for the purchase/sale of shares comes into existence when a deal is struck on the stock exchange. This has to be settled two days later, and the settlement date may be in a different quarter to when the deal was made, giving rise to a further financial claim in the form of an account payable/receivable to bridge the settlement period.

15.22    Exchanges of financial assets are requited in the sense that the provision of a resource (say cash) is exchanged for an obligation or claim (share, deposit account balance, debt security or mortgage documentation). These claims are legally enforceable according to general commercial law or specific agreements between the parties. In some cases, the legal nature of the transaction and the economic effect of the transaction may be different. The 2008 SNA makes a small number of exceptions to the legal change of ownership principle to an economic change of ownership basis. For the financial accounts, the major exception is financial leasing, where the legalities of the transaction are modified such that the leased asset is deemed to have been sold to the lessee in exchange for a loan, or the financial lease. Commercial accounting standards also treat financial leasing in this manner.

15.23    Transactions for any particular class of transactor are recorded on a net basis in the financial accounts. For example, ADI deposit transactions are the net of new deposits less withdrawals, transactions in shares are the net of purchases and sales. For some economic analysis, the components of net transactions are of interest, and there are some limited data on gross transactions available on request, such as new share issues.

Stocks, revaluation and other changes in volumes

15.24    Stocks of financial assets and liabilities are 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.

15.25    A key principle for 2008 SNA, as outlined above, is to record financial transactions and stock at market valuation. A consequence of this is the role that the Revaluations account has in reconciling price changes in financial assets and liabilities during a period with stock values at the end of each period.

15.26    Revaluations occur when the price of financial assets and/or liabilities changes causing an increase or decrease in the stock value. Revaluations are an economic flow that does not result from a change of ownership. Examples of the causes of revaluation are share price changes and the impact of exchange rate changes on assets denominated in foreign currency. While not transactions, revaluations have a significant impact on stock values from period-to-period and may have a significant impact on economic behaviour. For example, the run-down in valuation of superannuation assets in response to a fall in the price of shares may result in employees deferring retirement.

15.27    Values of stocks of financial assets and liabilities may change over time through causes other than transactions and price changes. These changes in value are classified as Other changes in volumes (OCV). For financial assets and liabilities, the most significant OCV result from phenomena such as bad debt write-offs or corporate failures. In such cases, it is often difficult to distinguish between price changes (debt write down, share price fall) and OCV. In practice, the ASNA combines the known OCV with revaluations to account for non-transaction changes in stock value for financial assets and liabilities.

15.28    OCVs also record statistical artefacts; for example, sectoral classification changes that might occur through privatisation of a public sector corporation. Although the change in classification may be the result of transactions (such as share sales), treating the reclassification of all the assets and liabilities represented by the share value as transactions is not a satisfactory explanation of what has occurred. Another statistical artefact arises in discontinuities in time series that arise because of the workloads involved in maintaining consistency over the full period of long time series. At some point in the time series, the inconsistency in treatment between opening and closing stocks will be allocated to OCV, rather than being allowed to contaminate the transaction series.

15.29    See Chapter 16 for more information on revaluation and other changes in volumes.