3.38 The ASNA's accounting rules cover the quadruple entry accounting principle, valuation, time of recording and grouping by aggregation, netting and consolidation of individual stocks and flows.
3.39 The accounting system underlying the ASNA derives from broad bookkeeping principles. To understand the accounting system for the ASNA, three bookkeeping principles should be outlined:
- Vertical double-entry bookkeeping, also known simply as double-entry bookkeeping used in business accounting - each transaction leads to at least two entries, traditionally referred to as a credit entry and a debit entry, in the books of the transactor. It ensures the total value of assets equals the total value of liabilities plus net worth of a unit’s balance sheet;
- Horizontal double-entry bookkeeping - is useful for compiling accounts that reflect the mutual economic relationships between different institutional units in a consistent way. It ensures the consistency of recording for each transaction category by counterparties; and
- Quadruple-entry bookkeeping - the simultaneous application of both the vertical and horizontal double-entry bookkeeping, which is the accounting system underlying the recording of transactions in the ASNA.
3.40 Quadruple- entry bookkeeping deals in a coherent way with multiple transactors or groups of transactors, each of which satisfies vertical double-entry bookkeeping requirements. A single transaction between two counterparties thus gives rise to four entries. In contrast to business bookkeeping, national accounts deal with interactions among a multitude of units in parallel, and thus require special care from a consistency point of view. As a liability of one unit is mirrored in a financial asset of another unit, for instance, they should be identically valued, allocated in time and classified to avoid inconsistencies in aggregating balance sheets of units by sectors or for the total economy. The same is also true for all transactions and other flows that affect balance sheets of two counterparties.
3.41 The underlying principle of valuation in the system of national accounts is that all entries are recorded, in money terms, at the exchange value current during the accounting period; that is, the value at which flows and stocks are, or could be, exchanged for cash (including transferable deposits). The system does not attempt to determine the utility of the flows and stocks within its scope.
3.42 When goods and services are exchanged for cash or its equivalent, the required values are directly available. In addition, values are directly observable for flows and stocks that concern financial instruments, such as cash holdings or liabilities. The majority of flows and stocks in the national accounts fall into these categories.
3.43 In other cases, where no actual exchange values are available, the preferred method of valuation is by reference to the market value of similar goods, services, or assets. This method is used to estimate the value of the services of owner-occupied dwellings, and of 'backyard' production by households for their own use.
3.44 When no prices for similar products exist, it may be necessary to value goods or services by the amount that it costs to produce them. This is the case for most non-market goods and services produced by general government units and non-profit institutions serving households.
3.45 For some assets, it is necessary to estimate a value by writing down (depreciating) the initial acquisition costs. The value of such assets at a given point in their life is equal to their acquisition cost less the accumulated value of these write-downs. Typically, the current value of fixed assets is estimated by writing down current market prices for the accumulated consumption of fixed capital.
3.46 Where none of the above valuation methods is feasible, flows and stocks can be recorded at the net present value of expected future returns. This method is not generally recommended, as it involves a number of assumptions and the possibility of substantial future revisions to estimates. However, 2008 SNA recognises that it is the most appropriate method of valuation in circumstances where returns from assets are either delayed (as is the case with timber plantations) or spread over a lengthy period (as for mineral and energy resources).
3.47 Flows and stocks concerning foreign currency are converted to their value in national currency at the exchange rate prevailing when the transaction or flow takes place, or in the case of balance sheet items, the date to which the balance sheet applies. The exchange rate used for conversion to national currency is the mid-point between the buying and selling rate, so as to exclude any implicit foreign exchange service charge.
3.48 Valuations contained in business accounts, tax returns and other administrative records, which are widely used sources of data for national accounts purposes, often do not conform to the national accounting valuation standard. This is especially so in the case of depreciation, where rates of depreciation for tax purposes normally deviate from those underlying the national accounting concept of the consumption of fixed capital. In particular, depreciation for tax purposes is based on the historical cost of the assets whereas consumption of fixed capital in the national accounts is based on the current cost of the assets involved.
3.49 In some cases, invoice values may not accord with prices paid in the market for similar items. Where transactions are between affiliated enterprises under common management, the prices adopted for bookkeeping purposes - referred to as transfer prices - may not correspond to prices that would be charged to independent parties. By using artificially high or low prices, transfer pricing could be used as a device for shifting profits among enterprises within a group for taxation (or other) purposes. In principle, such transactions should be identified and re-valued if they are likely to significantly affect the interpretation of the accounts. Instances of transfer pricing are difficult to identify, and subsequently adjust for. In the ASNA, transactions prices are used as there is no current data on transfer pricing.
3.50 To maximise concordance with 2008 SNA accounting rules, surveys of businesses conducted by the ABS request data, where possible on a national accounts basis. Adjustments are made to source data that are not recorded on the required basis.
Special valuations concerning products
3.51 The producer and the user of a given product usually perceive its value differently, because of intervening transport costs, trade margins, taxes, and subsidies on products. In order to keep as close as possible to the views of the transactors, 2008 SNA recommends that outputs of products be valued at basic prices, while inputs, or final purchases, should be valued at purchasers' prices.
3.52 The basic price is the amount receivable by the producer from the purchaser for a unit of a good or service, minus any tax payable (including deductible value added taxes such as the GST) plus any subsidy receivable, as a consequence of production or sale of the unit. Subsidies artificially reduce the sale price, so they are included in the basic price to obtain a measure of the true value of the goods or services produced. Taxes on products, if included, would artificially increase the price, and so are deducted. The basic price also excludes any transport charges invoiced separately by the producer. The basic price therefore measures the amount retained by the producer in respect of the good or service that is produced as output.
3.53 The major output of the wholesale and retail trade industries is the value of the service provided in selling goods (i.e. goods purchased and resold are not treated as part of intermediate consumption). The value of the service is equal to the trade margins realised on the goods sold. The measurement of this service at basic prices is analogous to that for goods producing industries: output at basic prices is the value of the trade margins, including the value of any subsidies received by the wholesaler or retailer, and excluding taxes on production of the service.
3.54 The purchaser's price is the amount paid by the purchaser in order to take delivery of goods or services. Purchasers' prices include any taxes payable (less any subsidies receivable) on production and imports, and any transport charges paid separately by the purchaser to take delivery of goods. Value added taxes, such as the GST, are included in purchasers' prices unless they are allowable as deductions from the purchaser's value-added tax liability. Purchasers' prices are also referred to as market prices.
3.55 Imports and exports of goods are valued free-on-board (f.o.b.); that is, at the exporter's customs frontier.
3.56 The ASNA follows the 2008 SNA recommendations with respect to the valuation of products: in the I-O tables and the associated measures of value added by industry, gross output is measured at basic prices and intermediate inputs are measured at purchasers' prices. Expenditure items are recorded at purchasers' prices. Imports and exports of goods are valued f.o.b.. Details of other aspects of the valuation of imports and exports are contained in the ABS publication, Balance of Payments and International Investment Position, Australia: Concepts, Sources and Methods.
Valuation of other flows
3.57 For the valuation of the other changes in the volume of assets, it is usual to take the value of the asset before and after the change in volume and then to take the difference that is not explained by any transaction as the value of the other change.
3.58 Holding gains and losses accrue continuously and apply to both non-financial and financial assets and liabilities. In general, they are estimated by deducting from the total change in the value of assets those that can be attributed to transactions and to other changes in volumes. Since most financial assets are matched by liabilities, either within the domestic economy or with the rest of the world, it is important that holding gains in one are matched by holding losses in the other and vice versa.
Valuation of positions of financial assets and liabilities
3.59 Stocks of financial assets and liabilities should be valued as if they were acquired in market transactions on the balance sheet reporting date (or on the closest preceding date if the markets are closed on that date). Valuation according to market-value equivalent is needed for valuing financial assets and liabilities that are not traded in financial markets or are traded only infrequently. For these assets and liabilities, it will be necessary to estimate fair values that, in effect, approximate market prices. The present value of future cash flows can also be used as an approximation to market prices provided an appropriate discount rate can be used.
Time of recording
3.60 Flows in the national accounting system are ideally recorded on an accrual basis. Accrual accounting records flows at the time economic value is created, transformed, exchanged, transferred, or extinguished. Accrual accounting enables the profitability of productive activities to be evaluated without the disturbing influences of leads and lags in cash flows, and net worth to be calculated correctly at any given point. In terms of entries in the national accounts this means that:
- flows which imply a change of ownership are entered when legal ownership changes (this applies to financial assets as well as goods);
- services are recorded when provided;
- distributive transactions, such as compensation of employees, interest, rent on land, and social contributions and benefits are recorded in the period during which the amounts payable are built up. Interest on debt is recorded in the accounting period in which it accrues, regardless of whether or not it is actually paid in that period;
- output is recorded at the time products are created (not when paid for by a purchaser); and
- intermediate consumption is recorded in the period when the materials are used.
Change of ownership
3.61 In transactions involving the purchase of goods, accrual accounting usually arises naturally from the nature of the transaction. When goods are exchanged for financial assets (e.g. cash), accounting entries reflecting the change of ownership will be recorded at the same time for both the seller and the purchaser. However, the identification of the time of change of ownership is not always straightforward where exports and imports are concerned. In the absence of sources specifying the date of change of ownership, the time at which goods cross the frontiers of countries concerned (obtained from customs records) is usually taken as a proxy for this date. However, for certain exports and imports timing adjustments are made where supplementary information is available to more accurately reflect the time that ownership changes.
3.62 To accord with accrual accounting principles, transactions in financial assets should also be recorded on a change of ownership basis. Financial transactions are shown in the ASNA in the financial accounts.
Acquisition of services
3.63 Services are to be recorded when they are provided. While in most cases this is straightforward, there are types of services that require special treatment. The main types falling into this category are insurance, where the payments of premiums are made in advance, and housing, where the services provided by home ownership are continuous. In the ASNA, provisions are made to account for the services of insurance and housing in each accounting period.
3.64 Distributive transactions can be difficult to record on an accrual basis, as the accounting practices of the units involved are not always consistent with national accounting requirements. The most important item (in terms of size) affected in this way in the ASNA is wages and salaries, a component of compensation of employees. In addition, provisions for employee entitlements which qualify as liabilities should also be included, rather than the cash payments of these entitlements. Such liabilities include provisions for long service leave and annual leave, and contributions by employers to unfunded superannuation schemes. Interest on debt is recorded in the period during which the interest accrues. Dividend levels, however, are not unambiguously attributable to a particular earning period, and are therefore recorded when they are declared payable.
Output, intermediate input, changes in inventories, and consumption of fixed capital
3.65 The principle of recording on an accrual basis implies that output is recorded over the period in which the process of production takes place, and the intermediate consumption of goods or services is recorded at the time when the goods or services enter the process of production. Additions to inventories are recorded when products are purchased, produced or otherwise acquired, and deductions from inventories are recorded when products are sold, used up as intermediate consumption or otherwise relinquished.
3.66 In general, the collection methods used in the ASNA result in estimates on an accrual basis, although the extent to which this is possible depends upon the information received from the respondents to ABS economic statistics collections. Consumption of fixed capital is a cost which accrues over the whole period the fixed asset is available for productive purposes. The apportioning to accounting periods depends on the rate of depreciation used to estimate the using up of the asset. To be consistent with other entries in the accounts, consumption of fixed capital must be valued at the prices prevailing during the current accounting period (unlike depreciation for tax purposes, which is based on the historical cost of the assets).
3.67 Other changes in the volume of assets are usually discrete events that accrue at precise moments or within fairly short periods of time (e.g. assets being destroyed in a natural disaster such as a bush fire).
Holding gains and losses
3.68 Changes in prices often have a more continuous character, particularly in respect of assets for which active markets exist. In practice, nominal holding gains or losses will be computed between two points in time:
- The moment at which:
- The accounting period begins; or
- Ownership is acquired from other units (through purchase or a transaction in kind); or
- An asset is produced; and
- The moment at which:
- The accounting period ends; or
- The ownership of an asset is relinquished (through sale or a transaction in kind); or
- An asset is consumed in the production process.
Timing adjustments for international transactions
3.69 Differences in the time of recording by partner economies may occur due to various factors. One of the intrinsic problems with recording international transactions is the difference in time zones as well as from delays in mail deliveries or settlement clearing processes. In most cases, data at some aggregate level rather than individual records are used in the compilation of international accounts. Several data sources may often only approximate the required basis. It is important to make timing adjustments where there are major divergences from the required basis.
Aggregation netting and consolidation
3.70 The vast number of individual transactions, other flows and assets within scope of the national accounts have to be arranged in a manageable number of analytically useful groups. Such groups are formed by crossing two or more classifications. For example, the classification of institutional sectors or industries is crossed with the classification of transactions, other accumulation entries or assets. In addition, incomes need to be distinguished from uses and assets from liabilities.
3.71 Individual units or sectors may have the same kind of transaction both as a receivable and as a payable (e.g. they both pay and receive interest) and the same kind of financial instrument as both an asset and a liability. Where all the items are shown at their full values, the recording is on a gross basis. Where the values of some items are offset against items on the other side of the account, or against items which have an opposite sign, the recording is on a net basis. Gross recording is applied in most cases, except where a degree of netting is inherent in the classifications themselves. Within the ASNA, an example of net recording is the aggregate for changes in inventories. Rather than record all individual additions to and withdrawals from inventories, the resulting overall changes are recorded in order to show the final effect on gross capital formation. Similarly, the financial accounts record increases in assets and liabilities on a net basis (i.e. acquisitions and disposals are offset) to bring out the final consequences of these types of flows at the end of the accounting period.
3.72 Consolidation refers to the elimination of transactions which occur between two transactors belonging to the same institutional sector or subsector. Consolidation within sectors or subsectors can be useful for the kinds of analysis which focus on the interactions between subsectors of the economy and between resident sectors and the rest of the world, where the overall final position is more significant than the details of gross transactions within sectors. Consequently, in the sector income, capital and financial accounts, transfer flows are generally consolidated. Likewise, the national income, capital and financial accounts are prepared on a consolidated basis; however, non-consolidation is the general rule in some parts of the national accounts, such as the I-O tables.