Part B - Definition of assets
In GFS, assets are defined as instruments or entities over which ownership rights must be able to be enforced, and from which economic benefits may be derived by holding them, or using them, over a period of time. In GFS, only two types of ownership of assets are recognised, legal ownership and economic ownership. Paragraph 7.5 of the IMF GFSM 2014 states:
- The legal owner of resources (such as goods and services, natural resources, financial assets, and liabilities), is the institutional unit entitled in law and sustainable under the law, to claim the benefits associated with the resources. Only if such resources have a legal owner (either on an individual or collective basis), are they recognised in macroeconomic statistics.
- The economic owner of resources (such as goods and services, natural resources, financial assets, and liabilities) is the institutional unit entitled to claim the benefits associated with the use of the resource by virtue of accepting the associated risks. Examples of where the economic owner is different to the legal owner of resources include financial lease arrangements (where the lessee is the economic owner but not the legal owner for the life of the lease).
Only economic assets are included within the asset boundary in the GFS framework, and they appear in the balance sheet of the unit that is the economic owner of the asset. Paragraph 7.6 of the IMF GFSM 2014 defines economic assets as:
- Resources over which economic ownership rights are enforced by institutional units, individually or collectively; and
- From which economic benefits may be derived by their owners by holding them or using them over a period of time.
In the GFS framework, economic assets provide benefits by functioning as a store of value. Paragraph 7.7 of the IMF GFSM 2014 indicates that some benefits are derived by using assets (such as buildings or machinery) in the production of goods and services; and some benefits consist of income from property (such as interest, dividends, and rents received by the owners of financial assets, land, and certain other assets).
In GFS, resources are not considered to be economic assets if ownership rights over them have not been established, or are not (or cannot be) enforced. Paragraph 7.10 of the IMF GFSM 2014 states that in some cases, ownership rights may be established but it may not be feasible to enforce them. An example of this is for land that is so remote or inaccessible that the government cannot exercise effective control over it. In such cases, it is a matter of judgment as to whether the degree of control exercised by the government is sufficient for the land to be classified as an economic asset. Even if ownership rights can be enforced, if the assets are not capable of bringing economic benefits to their owners, then they should be excluded from GFS.
In some cases, governments can create economic assets by exercising the powers delegated to them. An example given in paragraph 7.12 of the IMF GFSM 2014 is where a government uses its authority to assert ownership rights over naturally occurring assets that otherwise would not be subject to ownership (such as the electromagnetic spectrum), or natural resources in international waters subject to designation as an exclusive economic zone. These assets are classified as economic assets only if the government uses its authority to establish and enforce ownership rights over them.
Types of assets owned by government
Governments use assets to produce goods and services (albeit primarily as non-market producers), much like corporations do. An example given in paragraph 7.11 of the IMF GFSM 2014 is that of government office buildings (together with the services of government employees, office equipment, and other goods and services) that are used to produce collective or individual services, such as general administrative services. Governments often own assets whose services are consumed directly by the general public, and assets that require preservation because of their historic or cultural importance. Thus, when the asset boundary is applied to the general government sector, it often incorporates a wider range of assets than is normally owned by a private organisation. Government units frequently own:
- General-purpose assets - assets that other units would be likely to possess and use in similar ways, such as schools, road-building equipment, fire engines, office buildings, furniture, and computers;
- Infrastructure assets - immovable non-financial assets that generally do not have alternative uses and whose benefits accrue to the community at large. Examples are streets, highways, lighting systems, bridges, communication networks, and canals; and
- Heritage assets - assets that a government intends to preserve indefinitely because they have unique historic, cultural, educational, artistic, or architectural significance.
In the GFS framework, assets are identified as either financial assets or non-financial assets, rather than current and non-current as is the case in commercial accounting.
Financial assets are assets that are in the form of financial claims on other economic units. They are the counterparts of liabilities of the units on which the claims are held (with the exception of monetary gold in the form of gold bullion held as reserve assets). All other assets in GFS are described as non-financial assets. Financial assets are further discussed in paragraphs 8.148 to 8.201 of this manual.
Non-financial assets are stores of value which provide benefits to owners either through their use in the production of goods and services, or in the form of property income. Non-financial assets are all economic assets other than financial assets. Paragraph 7.17 of the IMF GFSM 2014 states that unlike financial assets, non-financial assets have no counterpart liability (that is, the owner of the non-financial asset does not have a claim on another institutional unit). Non-financial assets come into existence as outputs from a production process, or in ways other than through processes of production, such as through natural occurrences. The production of non-financial assets may occur over two or more accounting periods depending on the type of non-financial asset. The recording of non-financial assets over two or more accounting periods is further discussed in Chapter 13 Part S.
In GFS, non-financial assets are described as non-financial produced assets, and non-financial nonproduced assets.
Non-financial produced assets
In GFS, non-financial produced assets are described as fixed produced assets, inventories, or valuables.
Fixed produced assets
Fixed produced assets are those types of non-financial produced assets that are used repeatedly or continuously in production processes for more than one year. The key feature of fixed produced assets are that they are used repeatedly or continuously in production over a long period of time, rather than the physical durability of the asset itself. Some goods may be used repeatedly or continuously in production over many years but may be small, inexpensive, and used to perform relatively simple operations. Small hand tools such as saws, spades, knives, axes, hammers, screwdrivers, and spanners or wrenches are excluded from the non-financial produced asset boundary. If the expense on such tools takes place at a fairly steady rate and if their value is small compared with amounts payable on more complex machinery and equipment, the tools are treated as use of goods and services (ETF 1233). Non-financial produced assets are further discussed in paragraphs 8.55 to 8.117 of this manual.
Inventories are defined in paragraph 7.18 of the IMF GFSM 2014 as non-financial produced assets consisting of goods and services, which came into existence in the current period or in an earlier period, and that are held for sale, use in production, or other use at a later date. Paragraph 7.76 of the IMF GFSM states that the concept of inventories consist of stocks of:
- Goods that are still held by the units that produced them prior to their being further processed, sold, delivered to other units, or used in other ways;
- Products acquired from other units for use in the production of market and non-market goods and services by units, or for resale without further processing;
- Strategic stocks that are goods held for strategic and emergency purposes, goods held by market regulatory organisations, and other goods of special importance to the nation, such as grain, military inventories, and petroleum; and
- Services such as architectural drawings in the process of completion.
In GFS, inventories include materials and supplies, work in progress, finished goods, goods for resale and military inventories. It is important to note that military inventories are separately identified in Australian GFS. Inventories are further discussed in paragraphs 8.97 to 8.112 of this manual.
Valuables are defined in paragraph 7.18 of the IMF GFSM 2014 as non-financial produced assets of considerable value that are not used for the purpose of production or consumption, but are held primarily as stores of value over time. Paragraph 7.88 of the IMF GFSM 2014 notes that the concept of valuables includes:
- Non-monetary gold and other precious stones and metals that are not intended to be used as materials and supplies in the processes of production;
- Paintings, sculptures, and other objects recognised as works of art, or antiques held primarily as stores of value over time; and
- Jewellery of significant value fashioned out of precious stones and metals, collections, and miscellaneous other valuables.
Valuables are further discussed in paragraphs 8.112 to 8.115 of this manual.
Non-financial non-produced assets
Non-financial non-produced assets are defined in paragraph 7.19 of the IMF GFSM 2014 as naturally occurring assets and constructs of society. Naturally occurring assets include tangible non-financial nonproduced assets such as land, mineral and energy resources, non-cultivated biological resources and water resources. Non-financial non-produced assets also include intangible assets that are constructs of society, such as a licence to use an electromagnetic spectrum. In GFS, non-financial non-produced assets include tangible and intangible non-produced assets.
Tangible non-produced assets
Tangible non-produced assets are assets that occur in nature and over which ownership may be acquired and transferred. Examples include assets such as land, mineral and energy resources, non-cultivated biological assets, water resources, radio spectra, and other types of natural resources. Tangible nonproduced assets are further discussed in paragraphs 8.118 to 8.133 of this manual.
Intangible non-produced assets
Intangible non-produced assets are defined in paragraph 7.104 of the IMF GFSM 2014 as constructs of society as evidenced by legal or accounting actions. In GFS, these include assets such as marketable operating leases, permits to use natural resources, permits to undertake specific activities, entitlement to future goods and services on an exclusive basis, goodwill and marketing assets and other intangible assets. Intangible non-produced assets are further discussed in paragraphs 8.134 to 8.144 of this manual.