Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698830006936.pdf (Saint Kitts and Nevis)
In the terms of an equation, GNI (1 864) equals GDP (1 854) plus compensation of employees receivable from abroad (6) plus property income receivable from abroad (44) plus taxes less subsidies on production and imports receivable from abroad (0) b. to replace gross capital formation by net capital formation in the expenditure measure of GDP, minus compensation of employees payable abroad (2) 333 System of National Accounts minus property income payable abroad (38) minus taxes less subsidies on production and imports payable abroad (0).
16.55 As mentioned above, an income concept is better measured after deducting consumption of fixed capital so Net national income (NNI) is defined as GNI less the consumption of fixed capital.

NNI (1 642) equals GNI (1 864) year) to be treated as resident elsewhere.

However, like compensation of employees payable from abroad, these transfers from non-residents can have a major impact on the resources available to the national economy.
Overseas assistance, other than development assistance for capital projects, is also shown here.

As before, transfers payable abroad must be deducted in moving from national income to national disposable income.

16.57 National disposable income, more often than domestic product and national income, is usually shown on a net basis.

Net national disposable income (NNDI) is defined as net national income (NNI) plus current transfers receivable from abroad less current transfers payable abroad.
In equation terms, minus consumption of fixed capital (222).

5.

National disposable income 16.56 A further step in examining the impact of the rest of the world on the national economy is to consider current transfers receivable from abroad and those payable abroad.

Transfers receivable from abroad include remittances from nationals working abroad for long enough (more than one NNDI (1 604) equals NNI (1 642) plus current transfers receivable from abroad (17) minus current transfers payable abroad (55).
D. An example set of integrated economic accounts 16.58 The T accounts shown in table 16.1 and 16.2 can be extended to cover all the sectors of the economy and as much detail as required in the accounts.

Such an extended presentation is referred to as a set of integrated economic accounts.
An example is tables 16.4 and 16.5 which show, simultaneously, the general accounting structure of the SNA and present a set of data for the individual institutional sectors, the economy as a whole and the rest of the world.

16.59 The table brings together in one presentation: the institutional sector accounts, the rest of the world accounts, and the goods and services account.
16.60 In order to simplify this table while still having it comprehensive, classifications of sectors, transactions and other flows, assets and liabilities are at the highest level of aggregation compatible with understanding the structure of the SNA.

However, columns and rows can be subdivided to introduce subsectors or more detailed classifications of transactions and other flows, assets and liabilities.

1.
1.

Institutional sector accounts Current accounts 16.61 As an example of the institutional sectors current accounts, consider the column for non-financial corporations.

16.62 The production account shows output (2 808) on the right- hand side, intermediate consumption (1 477) and value added (1 331 gross, 1 174 net, the difference referring to consumption of fixed capital (157), on the left-hand side).
Value added, the balancing item of the production account, appears again in the same row as a resource of the generation of income account.

16.63 The uses of income account the generation of (compensation of employees (986) and other taxes (88) less subsidies on production (35)) are shown on the left-hand side, the balancing item being net operating surplus (135), which appears again as a resource of the allocation of primary income account.
16.64 In the allocation of primary income account, property income receivable (96), along with operating surplus is recorded on the right-hand side, and property income payable (134) is recorded on the left-hand side.

The balancing item is the net balance of primary incomes (97), which appears again as a resource of the secondary distribution of income account.
The secondary distribution of income account shows current transfers, payable (98) and receivable (72), leading to the balancing item of net 334 disposable income (71).

This item, which can also be described as the undistributed income of non-financial corporations, appears as a resource in the use of income account.

16.65 The only transaction appearing in the use of income account for the corporations sectors is an entry for the change in pension entitlements.
In this case the entry has a value of zero so the balancing item of the use of income account, saving, has the same value as disposable income.

16.66 The accounts for other institutional sectors may be read the same way, the relevant transactions varying according to the sector involved.
The use of income account showing the other 16.67 The presentation of the two ways in which disposable income is associated with final consumption, one taking account of the redistribution of income in kind leading to final actual consumption and consumption expenditure to disposable income directly, is simplified in table 16.4.

The redistribution of income in kind account and the use of adjusted disposable income account are merged with the use of income account as follows.
Disposable income, net, is 317 for general government, 37 for NPISHs and 1 219 for households.

Final consumption expenditure is 352 for government, 32 for NPISHs and 1 015 for households.

Total consumption expenditure is 1 399.

Saving is given by disposable income less final consumption expenditure.

The accumulation accounts 16.68 The accumulation accounts follow the sequence of current accounts for the institutional sectors.

For example, net saving of households is 192.


Households receive 23 and pay 5 as capital transfers.

Thus the value of the changes in their net worth due to saving and capital transfers is 210.

Households have 48 as gross fixed capital formation (25 as net fixed capital formation after deduction of consumption of fixed capital (23)), changes in inventories of 2 and acquisitions less disposals of valuables of 5.

Their acquisitions less disposals of non-produced non-financial assets (land) are 4.
The net lending of households is 174.

They incur financial liabilities (net) of 15 and acquire financial assets (net) of 189.

Other changes in volume of assets are 2.


The value of the assets held by households increases by 96 due to changes in the prices of both non- financial assets (80) and financial assets (16); there are no nominal gains or losses on their liabilities, which means that all their liabilities are denominated in monetary terms and probably in the national currency of the economy in question.

The balance sheets 16.69 The balance sheets are also part of the integrated economic accounts.
In order to see the relationships between the accumulation accounts and balance sheets, take general government as the example.

The opening assets are 1 185 (789 non-financial assets and 396 financial assets) and the opening liabilities 687, net worth thus being 498.
The total value of non-financial assets increases by 57, which results Summarizing and integrating the accounts in in these assets recorded from all changes the accumulation accounts, gross fixed capital formation (35), consumption of fixed capital (-27), acquisitions less disposals of valuables (3), acquisitions less disposals of non-produced non-financial assets (2), other volume changes (0) and nominal holding gains (44).
Financial assets decrease by 9 (net disposal of financial assets, 10, other volume changes, 0, nominal holding gains, 1).

On the right-hand side, liabilities increase by 102, which results again from all changes in liabilities recorded in the accumulation accounts (net incurrence of liabilities (93), other volume changes (2), revaluation of liabilities (7)).

So the closing assets are 1 233 (846 + 387) and the closing liabilities are 789; closing net worth (444) shows a decrease over the year of 54.
The sources of this change in net worth are summarized on the right-hand side of the account showing the change in balance sheets, changes in net worth due to saving and capital transfers (-90, see also the right- hand side of the capital account), to other changes in volume of assets (-2, see also the right-hand side of the other changes in volume of assets account), and to nominal holding gains or losses (38, see also the right-hand side of the revaluation account).

2.
2.

The rest of the world account 16.70 As explained earlier, the rest of the world accounts are presented from the viewpoint of the rest of the world.

Imports of goods and services (499) are a resource for the rest of the world, even though they represent an outflow from the national economy and exports (540) are a use of the rest of the world.

Thus imports appear on the right-hand side of the table and exports on the left.
The external account of goods and services is shown at the same level as the production account for institutional sectors.

The external balance of goods and services is -41.

With a positive sign, it is a surplus of the rest of the world (a deficit of the nation) and vice versa.

16.71 As explained in connection with table 16.3, the external balance on primary income is -10 and on secondary income is 38, giving a current external balance of -13.
16.72 Transactions of the accumulation accounts appear in the columns for the rest of the world when relevant (mainly capital transfers and financial transactions).

The rest of the world columns show the assets and liabilities position of the rest of the world vis-à-vis the nation (external assets and liabilities account).

The row “changes in net worth due to saving and capital transfers” corresponds, for the rest of the world, to the current external balance and capital transfers.

3.
3.

The goods and services account the 16.73 In the integrated economic accounts, the goods and services account is shown in a column, not in a row.

It reflects the various transactions in goods and services that appear in the accounts of Intermediate consumption and final consumption appear as uses in the institutional accounts on the left-hand side of the accounts.
For the goods and services account, they appear in the right-hand side column, even though the right-hand side is generally reserved for resources and consumption is a use.

This device of using the opposite side of the account from institutional sectors.
335 System of National Accounts Table 16.4:Summary current account with sector details – uses Uses Transactions and balancing items Imports of goods and services Imports of goods Imports of services Exports of goods and services Exports of goods Exports of services Production account Output Market output Output for own final use Non-market output Intermediate consumption Taxes on products Subsidies on products (-) Value added, gross / Gross domestic product Consumption of fixed capital Value added, net / Net domestic product External balance of goods and services Generation of income account Compensation of employees Taxes on production and imports Taxes on products Other taxes on production Subsidies Subsidies on products Other subsidies on production Operating surplus, gross Mixed income, gross Consumption of fixed capital on gross operating surplus Consumption of fixed capital on gross mixed income Operating surplus, net Mixed income, net Allocation of primary income account Compensation of employees Taxes on production and imports Subsidies Property income Balance of primary incomes, gross / National income, gross Balance of primary income, net / National income, net Secondary distribution of income account Current transfers Current taxes on income, wealth, etc.
Net social contributions Social benefits other than social transfers in kind Social assistance benefits in cash Other current transfers Disposable income, gross Disposable income, net Use of disposable income account Final consumption expenditure Adjustment for the change in pension entitlements Saving, gross Saving, net Current external balance 336 l i a c n a n i f - 499 392 107 3 604 3 077 147 380 141 - 8 540 462 78 - 41 6 44 17 1 0 0 16 0 - 13 499 392 107 540 462 78 3 604 3 077 147 380 1 883 141 - 8 1 854 222 1 632 - 41 1 150 235 141 94 - 44 - 8 - 36 452 61 238 53 6 0 0 435 1 864 1 642 1 229 213 333 384 52 299 1 826 1 604 1 399 11 427 205 - 13 1 477 52 222 115 17 1 883 1 331 157 1 174 986 88 - - 35 - 62 11 0 - - 44 - 8 - 36 452 61 214 8 238 53 391 1 864 1 642 1 212 212 333 384 52 283 1 826 1 604 1 399 11 427 205 Table 16.4 (cont):Summary current account with sector details – resources Summarizing and integrating the accounts
 Transactions and balancing items Imports of goods and services Imports of goods Imports of services Exports of goods and services Exports of goods Exports of services Production account Output Market output Output for own final use Non-market output Intermediate consumption Taxes on products Subsidies on products (-) Generation of income account Value added, gross / Gross domestic product Value added, net / Net domestic product Compensation of employees Taxes on production and imports Taxes on products Other
 taxes on production Subsidies Subsidies on products Other subsidies on production Allocation of primary income account Operating surplus, gross Mixed income, gross Operating surplus, net Mixed income, net Compensation of employees Taxes on production and imports Subsidies Property income Secondary distribution of income account Balance of primary incomes, gross / National income, gross Balance of primary income, net / National income, net Current transfers Current taxes on income, wealth, etc.
Net social contributions Social benefits other than social transfers in kind Social assistance benefits in cash Other current transfers Use of disposable income account Disposable income, gross Disposable income, net Final consumption expenditure Adjustment for the change in pension entitlements Resources - - 8 1 331 1 174 94 82 126 99 155 132 15 12 1 854 1 632 452 61 238 53 1 154 235 - - - 8 1 854 1 632 452 61 238 53 1 156 235 - 44 435 0 0 1 864 1 642 1 229 213 333 384 52 299 1 826 1 604 1 399 11 337 System of National Accounts Table 16.5: Summary of the accumulation accounts and balance sheets with sector details – assets and changes in assets Changes in assets Transactions and balancing items Capital account Gross capital formation Net capital formation
 Gross fixed capital formation Consumption of fixed capital Gross fixed capital formation by type of asset Changes in inventories Acquisitions less disposals of valuables Acquisitions less disposals of non-produced assets Capital transfers, receivable Capital transfers, payable Net lending (+) / net borrowing (–) Financial account Net acquisition of financial assets Monetary gold and SDRs Currency and deposits Debt securities Loans Equity and investment fund shares Insurance, pension and standardized
 guarantee schemes Financial derivatives and employee stock options Other accounts receivable/payable Other changes in the volume of assets account Total other changes in volume Produced non-financial assets Non-produced non-financial assets Financial assets Revaluation account Nominal holding gains and losses Non-financial assets Financial assets/liabilities Neutral holding gains and losses Non-financial assets Financial assets/liabilities Real holding gains and losses Non-financial assets Financial assets/liabilities Stocks and changes in assets Opening balance sheet Non-financial assets Financial assets/liabilities Total changes in assets and liabilities Non-financial assets Financial assets/liabilities l i a c n a n i f - 308 151 280 - 157 26 2 - 7 8 - 4 8 - 12 0 0 0 38 11 35 - 27 0 3 2 55 32 48 - 23 2 5 4 - 56 - 1 - 103 174 189 64 10 3 66 39 3 4 0 0 0 0 80 16 56 36 83 39 7 19 10 1 3 4 14 - 2 14 2 144 8 101 18 43 - 10 172 - 1 10 66 53 28 7 8 1 - 1 - 2 0 1 4 57 3 71 1 - 14 - 10 - 26 4 3 3 1 0 5 0 - 3 3 0 44 1 32 8 12 - 7 24 - 20 2 - 1 y m o n o c e l a t o T 414 192 376 - 222 28 10 0 436 - 1 89 86 78 107 48 14 15 13 - 7 17 3 280 84 198 136 82 - 52 5 2 5 - 3 0 0 1 - 4 2 2 - - 2 230 57 - 9 116 205 11 4 482 523 10 - 10 47 1 11 9 4 12 0 0
 10 7 12 - 5 805 54 414 192 376 - 222 28 10 0 0 483 0 100 95 82 119 48 14 25 13 - 7 17 3 280 91 198 148 82 - 57 4 621 9 036 482 577 Closing balance sheet Non-financial assets Financial assets/liabilities 2 451 1 075 91 3 651 846 387 1 545 3 465 170 176 5 103 8 754 859 5 103 9 613 338 Table 16.5 (cont): Summary of the accumulation accounts and balance sheets with sector details – liabilities, net worth and changes in them Summarizing and integrating the accounts s n o i t a r o p r o c t n e m n r e v o g l
Changes in liabilities and net worth - n o N s n o i t a r o p r o c 71 2 - 62 192 2 205 Transactions and balancing items Capital account Saving, net Current external balance Gross capital formation Net capital formation Gross fixed capital formation Consumption of fixed capital Gross fixed capital formation by type of asset Changes in inventories Acquisitions less disposals of valuables Acquisitions less disposals of non-produced assets Capital transfers, receivable Capital transfers, payable Changes in net worth due to saving and capital transfers Financial account Net lending (+) / net borrowing (–) Net acquisition of liabilities Monetary gold and SDRs Currency and deposits Debt securities Loans Equity and investment fund shares Insurance, pension and standardized guarantee schemes Financial derivatives and employee stock options Other accounts receivable/payable Other changes in the volume of assets account Total other changes in volume Produced non-financial assets Non-produced non-financial assets Financial assets Changes in net worth due to other changes in volume of assets Revaluation account Nominal holding gains and losses Non-financial assets Financial assets/liabilities Changes in net worth due to nominal holding gains/losses Neutral holding gains and losses Non-financial assets
 Financial assets/liabilities Changes in net worth due to neutral holding gains/losses Real holding gains and losses Non-financial assets Financial assets/liabilities Changes in net worth due to real holding gains/losses Stocks and changes in liabilities and net worth Opening balance sheet Non-financial assets Financial assets/liabilities Net worth Total changes in assets and liabilities Non-financial assets Financial assets/liabilities Changes in net worth, total Saving and capital transfers Other changes in
 volume of assets Nominal holding gains/losses Neutral holding gains/losses Real holding gains/losses Closing balance sheet Non-financial assets Financial assets/liabilities Net worth 414 192 376 - 222 28 10 0 - 13 4 - 1 - 10 - 10 57 - 2 21 35 14 0 3 - 14 15 - 8 22 - 10 - 7 2 23 - 5 210 174 15 0 11 0 4 1 1 - 1 0 96 5 87 - 5 9 0 - 3 - 1 - 4 6 0 6 0 0 0 0 0 10 3 6 - 3 4 62 - 65 202 10 426 102 74 47 105 48 11 39 3 3 10 76 288 126 208 - 50 80 189 4 500 121 210 7 762 5 090 1 274 - 469 16 305 210 - 1 96 87 9 6 9 - 1 0 10 6 4 505 500 202 10 288 208 80 72 - 18 - 10 - 8 - 10 2 37 38 9 0 0 9 2 2 - 2 7 38 13 27 - 6 11 687 498 102 - 54 - 90 - 2 38 27 11 0 - 7 - 5 6 - 34 - 90 - 1 173 - 103 93 33 - 16 88 - 56 139 6 21 83 3 26 0 0 14 18 134 37 82 - 19 52 65 30 0 22 48 8 0 0 0 - 1 51 10 68 6 - 17 4 3 221 - 88 3 544 - 30 157 236 88 14 134 82 52 224 4 - 5 - 1 10 6 4 3 378 148 3 768 - 26 789 444 205 4 805 127 219 8 267 5 590 1 346 - 487 205 - 13 414 192 376 - 222 28 10 0 66 - 66 192 0 483 100 95 82 119 48 14 25 3 3 91 280 148 214 - 57 66 9 036 4 621 577 482 192 10 280 198 82 9 613 5 103 339 System of National Accounts normal gives a balance for the row for each of the items appearing in the goods and services account.
On the resources side of the table, the figures appearing in the column for goods and services are the counterparts of the uses made by the various sectors and the rest of the world: exports (540), intermediate consumption (1 883), final consumption expenditure or actual final consumption (1 399), gross fixed capital formation (376), changes in inventories (28) and acquisitions less disposals of valuables (10).
On the use side of the table, the figures in the column for goods and services are the counterparts of the resources of the various sectors and the rest of the world: imports (499) and output (3 604).

On the same side taxes less subsidies on products (133) are shown directly in the column for goods and services.

They are a component of the value of the supply of goods and services that has no counterpart in the value of the output of any institutional sector.

institutional sectors.


The production account for the total economy includes, as resources, output (that is, the total output of the economy (3 604)) and taxes less subsidies on products (133), the latter being the counterpart of the figure appearing on the left-hand side in the column for goods and services.

The uses side of the production account for the total economy shows intermediate consumption (1 883) and domestic product at market prices (1 854 gross, 1 632 net).
The latter is the sum of value added of the various sectors and taxes less subsidies on products.

Domestic product then appears on the right-hand side as a resource of the generation of income account for the total economy.

Taxes less subsidies on products are shown again on the left-hand side in the column for total economy and on the right-hand side as a resource of government (and the rest of the world if relevant).
This double routing of taxes less subsidies on products is made in order to get domestic product, gross and net, directly in the overall accounts, as explained above.

4.

The total economy column 16.74 The columns for the total economy remain to be explained.

Except for taxes less subsidies on products and gross and net domestic product, the figures in these columns are simply the sum of the corresponding figures for the 16.75 The other items in the columns for the total economy are self-explanatory.
Net national income at market prices (1 642) is shown directly as the sum of balance of primary incomes of the various sectors; national disposable income, national saving, etc.

are also obtained directly.

340 Chapter 17: Cross-cutting and other special issues Part 1: The treatment of insurance A.

Introduction 17.1 At its simplest, an insurance policy is an agreement between an insurance corporation and another institutional unit, called the policyholder.
Under the agreement, the policyholder makes a payment (a premium) to the insurance corporation and, if or when a specified event occurs, the insurance corporation makes a payment (claim) to the policyholder.

In this way, the policyholder protects itself against certain forms of risk; by pooling the risks the insurance corporation aims to receive more from the receipt of premiums than it has to pay out as claims.
However, simply recording the actual premiums and claims paid in the accounts of the SNA would not reflect the links between premiums and claims.

Instead, some actual transactions are partitioned and others are imputed in order to bring out the underlying economic processes actually taking place.
The most common form of insurance is called direct insurance whereby the policy is issued by an insurance corporation to another type of institutional unit but an important form of insurance is provided by one insurance corporation to another insurance corporation.

This sort of insurance is called reinsurance.

17.2 17.3 This part of chapter 17 is concerned with direct insurance and reinsurance.
It attempts to bring together all the entries in the accounts connected with insurance and explain their interconnection.

Part 2 deals with pension and non-pension benefits under social insurance schemes.

17.6 17.4 Defining some of the terms peculiar to the insurance industry is a helpful preliminary to further discussion.
For direct insurance, the term premiums is used for payment to the insurance corporation; payments by the insurance corporation are called claims in the case of non-life policies and benefits in the case of life policies.

The actual premium is the amount payable to the direct insurer or reinsurer to secure insurance cover for a specific event over a stated time period.

Actual premiums are measured by the amounts payable after all allowances, discounts or bonuses are taken into account.
Cover is frequently provided for one year at a time with the premium due to be paid at the outset though cover may be provided for shorter (or longer) periods and the premium may be payable in instalments, for example monthly.

17.5 The premium earned is the part of the actual premium that relates to cover provided in the accounting period.
For example, if an annual policy with a premium of 120 units comes into force on April 1 and accounts are being prepared for a calendar year, the premium earned in the calendar year is 90.

The unearned premium is the amount of the actual premium received that relates to the period past the accounting point.

In the example just given, at the end of the accounting period there will be an unearned premium of 30, intended to provide cover for the first three months of the next year.
A claim (benefit) is the amount payable to the policyholder by the direct insurer or reinsurer in respect of an event covered by the policy occurring in the period for which the policy is valid.

Claims generally become due when the event occurs, even if the payment is made some time later.

(The exception to the general rule is described in section C.) Claims that become due are described as claims incurred.
In some contested cases the delay between the occurrence of the event giving rise to the claim and the settlement of the claim may be several years.

Claims outstanding cover claims that have not been reported, have been reported but are not yet settled or have been both reported and settled but not yet paid.

1.

Direct insurance There are two types of direct insurance, life and non-life insurance.
Life insurance is an activity whereby a policyholder makes regular payments to an insurer in return for which the insurer guarantees to provide the policyholder (or in some cases another nominated person) with an agreed sum, or an annuity, at a given date or earlier if the policyholder dies beforehand.

The sum payable under the policy (benefit) may be fixed or may vary to reflect the income earned from the investment of premiums during the period for which the policy operates.
For policies with varying returns, the terms “with-profits” life insurance or endowment policy are generally used.

Although the date and sum may be variable, a claim is always paid in respect of a life policy.

Non-life insurance is an activity similar to life insurance except that it covers all other risks, accidents, sickness, fire, etc.
A policy that provides a benefit in the case of death within a given period but term in no other circumstances, usually called insurance, is regarded as non-life insurance because, as with other non-life insurance, a claim is payable only if a specified contingency occurs and not otherwise.
In practice, because of the way in which insurance corporations keep their accounts, it may not always be possible to separate 341 System of National Accounts insurance from other term these circumstances, term insurance may have to be treated in the same way as life insurance for purely practical reasons.

insurance.

In life 17.7 What life and non-life insurance have in common is that they both involve spreading risk.
Insurers receive many (relatively) small regular payments of premiums from policyholders and pay much larger sums to claimants when the contingencies covered by the policy occur.

For non-life insurance, the risks are spread over the whole population that takes out the insurance policies.

For example, an insurance corporation determines the premiums charged for vehicle insurance in a year by relating them to the amount of claims it expects to pay on vehicle insurance in the same year.
Typically, the number of claimants is much smaller than the number of policyholders.

For an individual non- life policyholder there is no relationship between the premiums paid and the claims received, even in the long run, but the insurance corporation establishes such a relationship for every class of non-life insurance on a yearly basis.

For life insurance, a relationship between premiums and claims over time is important both to the policyholders and insurance corporation.
For someone taking out a life policy, the benefits to be received are expected to be at least as great as the premiums paid up until the benefit is due and can be seen as a form of saving.

The insurance corporation must combine this aspect of a single policy with the actuarial calculations about the insured population concerning life expectancy (including the risks of fatal accidents) when determining the relationship between the levels of premiums and benefits.
Further, in the interval between the receipt of premiums and the payment of benefits, the insurance corporation earns income from investing the premiums received.

This income also affects the levels of premiums and benefits set by the insurance corporations.

to the 17.8 Despite the similarity of the activity of life and non-life insurance, there are significant differences between them that lead to different types of entries in the accounts of the SNA.
Non-life insurance consists of redistribution in the current period between all policyholders and a few claimants.

Life insurance mainly redistributes premiums paid over a period of time as benefits paid later to the same policyholder.

Essentially life insurance premiums and benefits are transactions and not current transactions.

financial 17.9 One way in which a regular income stream can be obtained in return for an upfront payment of a lump sum is via an annuity.
Annuities are usually offered by life insurance corporations and so a discussion of the recording for annuities in the SNA is given at the end of this part.

2.

Reinsurance 17.10 Just as an individual institutional unit protects itself against the financial consequences of loss or damage, so an insurance corporation may also protect itself against an unexpectedly large number of claims, or exceptionally heavy claims, by taking out a reinsurance policy with another insurance corporation.
All insurance corporations may take out some form of reinsurance but there tend to be a few issuing reinsurance policies.

Because these corporations are concentrated in a few financial centres, many of the flows associated with reinsurance involve transactions with the rest of the world.

It is common for reinsurers to take out reinsurance policies with other insurance corporations to spread their risks further.

This sort of reinsurance is called retrocession.


large corporations that specialize in 17.11 Reinsurance policies are most common for non-life policies but may also apply to life insurance policies.

There are two types of reinsurance, proportionate reinsurance and excess of loss reinsurance.

Under a proportionate reinsurance contract, the reinsurer accepts an agreed proportion of the risks; this proportion of the premiums is “ceded” to the reinsurer who then meets the same proportion of the claims.
In this case, any reinsurance commission paid by the reinsurer to the policyholder (either a direct insurer or another reinsurer) is treated as a reduction in reinsurance premiums payable.

In excess of loss reinsurance, the reinsurer undertakes to pay all losses over a given threshold.

If there are no or few claims above the threshold, the reinsurer may pass a share of his profits to the direct insurer.
By convention, profit-sharing is treated as a current transfer from the reinsurer to the direct insurer in a way similar to the payment of claims.

3.

The units involved 17.12 The institutional units involved in direct insurance and reinsurance are pre-eminently insurance corporations.
In principle it is possible for another type of enterprise to carry out insurance as a non-principal activity, but usually the legal regulations surrounding the conduct of insurance mean that a separate set of accounts covering all aspects of the insurance activity must be kept; thus in the SNA a separate institutional unit, classified to the insurance corporations and pension funds subsector, is identifiable.
Sometimes government may conduct other insurance activities, but again it is likely that a separate unit can be identified.

Having noted that exceptionally other sectors may be involved, in what follows it is assumed that all insurance is carried out by insurance corporations, either resident or non-resident.

B.
B.

Output of direct insurance 17.13 Under a non-life insurance policy, the insurance company accepts a premium from a client and holds it until a claim is made or the period of the insurance expires.

In the meantime, the insurance company invests the premium and the investment income is an extra source of funds from which to meet any claim due.

The investment income represents income foregone by the client and so is treated as an implicit supplement to the actual premium.
The insurance company sets the level of the actual premiums to be such that the sum of the actual premiums plus the 342 investment income earned on them less the expected claim will leave a margin that the insurance company can retain; this margin represents the output of the insurance company.

Within the SNA, the output of the insurance industry is determined in a manner intended to mimic the premium setting policies of the insurance corporations.

To that end, four separate items need to be defined.
These are premiums earned, premium supplements, claims (or benefits) incurred and reserves.

Each of these is discussed in turn before discussing the measurement of output for direct non-life insurance, direct reinsurance respectively.

insurance and life 1.


Premiums earned 17.14 As explained in section A, an important distinction is made between actual premiums, which are payable for cover in a given period and premiums earned that are the proportion of actual premiums, relating to the accounting period in question rather than to the period covered by the insurance policy.

2.
2.

Premium supplements this because 17.15 For life insurance in particular, but also to a lesser extent for non-life insurance, the total amount of claims payable in a given period often exceeds the premiums receivable.

The insurance corporation can accept the contingencies covered by the policies do not occur, even for the whole population covered, at the same time as the premiums are paid.
Premiums are usually paid regularly, often at the start of an insurance period, whereas claims fall due later, in the case of life insurance often many years later.

In the time between the premium being paid and the claim being payable, the sum involved is at the disposal of the insurance corporation to invest and earn income from it.

These amounts are called reserves.

The income earned on the reserves allows the insurance corporations to charge lower premiums than would be the case otherwise.
An adequate measure of the service provided must take account of the size of this income as well as the relative size of premiums and claims.

17.16 The income concerned comes from the investment of the reserves of the insurance corporations, which represent liabilities towards the policyholders.

For non-life insurance, even though a premium may be payable at the start of a period of cover, the premiums are only earned on a continuous basis as the period passes.
At any point before the end of the cover, the insurance corporation holds an amount due to the policyholder relating to services and possible claims to be provided in the future.

This is a form of credit extended by the policyholder to the insurance corporation described as unearned premiums.
Similarly, although claims become due for payment by the insurance corporation when the contingency specified in the policy eventuates, they may not be actually payable until some time later, often because of negotiation about the amounts due.

This is another similar form of credit, described as reserves against claims outstanding.
17.17 Similar reserves exist for life insurance but in addition there are two other elements of insurance reserves, actuarial reserves for life insurance and reserves for with-profit insurance.

They represent amounts set aside for payments Cross-cutting and other special issues of benefits in future.

Usually the reserves are invested in financial assets and the income is in the form of investment income (interest and dividends).
Sometimes, however, they may be used to generate net operating surplus either in a separate establishment or as a secondary activity.

The most common example is from real estate.

17.18 It is common with life insurance policies for amounts to be explicitly attributed by the insurance corporation to the policyholders in each year.

These sums are often described as bonuses.


The sums involved are not actually paid to the policyholders but the liabilities of the insurance corporation towards the policyholders increase by this amount.

This amount is shown as investment income attributed to the policyholders.

The fact that some of it may derive from holding gains does not change this designation; as far as the policyholders are concerned it is the return for making the financial asset available to the insurance corporation.
In addition, all the income from the investment of non-life reserves and any excess of income from the investment of life reserves over any amounts explicitly attributed to the policyholders, are shown as investment income attributed to policyholders, regardless of the source of the income.
17.19 All investment income attributed to policyholders, whether explicitly by the insurance corporation or implicitly within the SNA, is shown as payable to the policyholders in the distribution of primary income account.

For non-life insurance, the same amount is then repaid to the insurance corporation as premium supplements in the secondary distribution of insurance, income account.

For premiums and premium supplements as well as benefits are shown in the financial account.
life 17.20 For direct non-life insurance, the investment income attributed to the policyholders should, in principle, be made according to the proportion of reserves attributed to the different classes of insurance and policyholders.

In practice, the usual method is to distribute the investment income in proportion to the actual premiums payable.
For direct life insurance, all policyholders are individuals and so the investment income is attributed to households (possibly including some non-resident households).

3.

Claims and benefits Non-life insurance claims cover against 17.21 The level of claims made on non-life insurance policies varies from year to year and there may be exceptional events that cause a particularly high level of claims.
However, the concept of insurance service is the service of providing risk; production occurs continuously and not simply when the risk occurs.

As such, its measurement should not be affected by the volatility of the occurrence of the risk.

Neither the volume nor the price of insurance services is directly affected by the volatility of claims.

The insurance company sets the level of premiums on the basis of its own estimation of the likelihood of claims.
For this reason, the formula used in the SNA for the calculation of output should use not actual claims but a figure based on past experience and future expectations.

The term “adjusted claims” is used to describe the level of claims used in determining the value of output.

343 System of National Accounts 17.22 The figure for adjusted claims may be derived statistically in an expectations approach based on previous experience of the level of claims.
In considering the past history of claims payable, however, allowance must be made for the share of these claims that are met under the terms of the direct insurer’s reinsurance policy (if any).

For example, when the direct insurer has an excess of loss reinsurance, he sets the level of premiums to cover losses up to the maximum loss covered by his reinsurance policy plus the reinsurance premium he must pay.
Under a proportionate reinsurance policy, he sets his premiums to cover the proportion of claims he has to pay plus the reinsurance premium.

17.23 Alternatively, an approach using information from the accounts of the insurance corporation may be adopted.

These may include an equalization provision, which is an adjustment to reflect the variations in claims from one year to another.

Whichever method is used, therefore, the adjusted claim figure approximates the expected level of claims.
Life insurance benefits 17.24 Life insurance benefits are the amounts payable under the policy in the accounting period in question.

No adjustment for unexpected volatility is necessary in the case of life insurance.

4.

Reserves 17.25 The concept of reserves used in the formula for deriving the value of insurance output corresponds to the definition of non-life insurance technical reserves and life insurance and annuities entitlements as defined in chapter 13.
These cover provisions for unearned premiums, for unexpired risks, claims outstanding and reserves for bonuses and rebates, the latter applying in the main to life insurance only.

The coverage of unearned premiums and claims outstanding is given in section A.

5.

Defining insurance output Non-life insurance since premium supplements are less volatile than claims, in practice no such adjustment may be necessary.
If a statistical basis is to be used for estimating output, it is advisable to use information broken down by “line of business”, that is for motor insurance, buildings insurance, etc.

separately.

17.28 Alternatively, an accounting approach may be used whereby output is calculated as: Actual premiums earned; plus premium supplements; minus adjusted claims incurred; where adjusted claims are determined by using claims due plus the changes in equalization provisions and, if necessary, changes to own funds.
17.29 If the necessary accounting data are not available and the historical statistical data are not sufficient to allow reasonable average estimates of output to be made, the output of non-life insurance may be estimated as the sum of costs (including intermediate costs, labour and capital costs) plus an allowance for “normal profit”.

However, since any reasonable estimate for “normal profit” is likely to involve expected claims, this option is hardly different from the expectations approach.
Life insurance 17.30 The output of direct life insurance is calculated separately as: Actual premiums earned; plus premium supplements; minus benefits due; minus increases (plus decreases) in actuarial reserves and reserves for with-profits insurance.

17.26 The output of the insurance corporation represents the service provided to the policyholders.

The output of direct non-life insurance is based on the principle of adding premiums and premium supplements and deducting adjusted claims incurred.
17.31 If adequate data are not available for the calculation of life insurance according to this formula, an approach based on the sum of costs, similar to that described for non-life insurance, may be used.

As for non-life insurance, an allowance for normal profits must be included.
17.27 If an expectations approach is being used, the formula to calculate output takes the following form: Reinsurance Actual premiums earned; plus premium supplements; minus adjusted claims incurred; where adjusted claims are estimated from past experience.

In such a case, conceptually premium supplements should also be estimated on the basis of past experience.

However, 344 17.32 The formula to calculate the output of reinsurance services is exactly analogous to those for direct insurance.
However, because the primary motivation of reinsurance is to limit the direct insurer’s exposure to risk, a reinsurer deals with exceptionally large claims as a matter of normal business.

For this reason, and because the market for reinsurance is concentrated in relatively few large firms worldwide, it is less reinsurer will experience an unexpectedly large loss than a direct insurer does, especially in the case of excess of loss reinsurance.
likely that the 17.33 The output of reinsurance is measured in a way similar to that for direct non-life insurance.

However, there are some payments peculiar to reinsurance.

These are commissions payable insurer under proportionate reinsurance and profit sharing in excess of loss reinsurance.
Once these are taken into account the output of reinsurance can be calculated as: the direct to Cross-cutting and other special issues Total actual premiums earned less commissions payable; plus premium supplements; minus both adjusted claims incurred and profit sharing.

C. All the transactions associated with non-life insurance 17.34 This section describes the full set of entries needed in the accounts to record all the implications of a non-life taken out by insurance policy.
Policies may be corporations, government units, NPISHs, households and units in the rest of the world.

However, when a policy taken out by a member of a household qualifies as social insurance, the entries required are as described in part 2 of this chapter on social insurance and not as described here.

1.

Net premiums and consumption of insurance services 17.35 The actual premiums payable and the premium supplements are shown in the SNA divided between two types of transactions.
The first is the value of the output of insurance, which is shown as either consumption or export of insurance services.

The second is net premiums earned by the insurance corporations.

Net premiums are defined as actual premiums plus premium supplements less the insurance service charge payable by the policyholders.

Because of the way in which the value of the service output is defined, net premiums for non-life insurance are equal in total to adjusted, and not actual, claims.
Any variation between adjusted and actual claims represents a transfer between the policyholders and the insurance corporation.

Over time, a transfer in one direction is offset by one in the other.

17.36 Insurance services are consumed by those sectors (and the rest of the world) that pay premiums.

Estimates of the value of consumption by sector are usually made by allocating the total value of the service in proportion to the actual premiums payable.
Estimates of net premiums are then made by deducting the consumption of services from the total actual premiums payable plus the value of the premium supplements.

(Because premium supplements are also allocated in proportion to actual premiums, the net premiums are also in effect allocated in the same proportions as the actual premiums.)

2.

Recording non-life insurance claims 17.37 The time of recording claims incurred is generally in the period in which the event to which the claim relates took place.
This principle is applied even when, in the case of disputed claims, the settlement may take place years after the event concerned.

An exception is made in cases where the possibility of making a claim is recognized only long after the event has happened.

For example, an important series of claims were recognized only when exposure to asbestos was established as a cause of serious illness and was judged to give rise to claims under an insurance policy valid at the time of the exposure.
In such cases the claim is recorded at the time that the insurance company accepts the liability.

This may not be the same time as when the size of the claim is agreed on or when the claim is paid.

17.38 Because the formula for output uses adjusted claims and not actual claims, only when the actual claims happen to be the same value as expected claims will net premiums and claims be equal in a given period.
They should however be approximately equal over a period of years excluding a year in which a disaster is recorded.

17.39 Claims are normally recorded as current transfers payable by the insurance corporation to the policyholder.

In some circumstances, an insurance corporation may set the level of premiums so low that they are not expected to cover costs and the predicted level of claims.
This may happen when the surplus from one line of business, for example home insurance, is being used to cross-subsidise another line of business, for example, vehicle insurance.

17.40 There is one case where claims may be recorded as capital transfers rather than current transfers and that is in the wake of a major catastrophe.
The criteria for when the effects of a catastrophe should be treated like this must be determined according to national circumstances but these may involve the number of policyholders affected and the amount of the damage done.

The rationale for recording the claims as capital transfers in this case comes from the fact that many of the claims will relate to destruction or serious damage to assets such as dwellings, buildings and structures.
Damage corresponding to a normal level of claims is covered by, for example, consumption of fixed capital or losses from inventories.

These losses are thus captured as current expenditure elsewhere in the system.

However, major losses in the wake of a catastrophe are recorded as the result of unforeseen events in the other changes in assets accounts and omitted from current expenditures.

The recommendation is thus to record claims as current or capital transfers analogously.
17.41 It is recommended that following a catastrophe, the total value of the claims related to the catastrophe should be recorded as a capital insurance corporation to the policyholders.

Information on the level of claims to be met under insurance policies should be obtained from the insurance industry.
If the insurance industry cannot provide this information, one approach to estimating the level of the catastrophe-related claims is to transfer from the 345 System of National Accounts take the difference between the adjusted claims and the actual claims in the period of the catastrophe.
17.42 A consequence of recording such claims as capital transfers means that the disposable income of households and other policyholders does not increase counter-intuitively as would be the case if the claims were recorded, as normal, as current transfers.
The net worth of the policyholders will show the effects of both the destruction of assets (as an other volume change) and an increase (initially) in financial assets from is consistent with the recording of assistance by government of an NPISH to cover some or all of the costs of repairing or replacing the assets of those affected by the catastrophe who are not covered by an insurance policy.

transfers.

This recording the capital 3.


Insurance services provided to and from the rest of the world 17.43 Resident insurance corporations frequently provide insurance cover to households and enterprises in the rest of the world, and resident households and enterprises may purchase cover from insurance corporations in the rest of the world.

The investment income attributed by resident insurance corporations includes an allocation to policyholders in the rest of the world.
These non-resident policyholders then also pay premium supplements to the resident insurance corporation.

This information should be available for resident insurers and should be included in the rest of the world account.

to policyholders 17.44 Similar considerations also apply to the treatment of resident enterprises and households taking out policies with non-resident insurers.

They receive imputed investment income from abroad and pay premiums and supplements to abroad.
Estimation of the size of these flows is more difficult, especially when there is no resident insurer of the same type against which to make comparisons.

However, very often the country providing the service will be known and it may be possible to use counterpart data to make estimates for level of transactions by residents should be known and the ratio of the national economy.
The premium supplements to actual premiums in the economy providing the services could be used to estimate the investment income receivable and premium supplements payable.

4.

The accounting entries 17.45 Altogether six pairs of transactions need to be recorded in respect of non-life insurance that is not part of social insurance; two pairs relating to the measurement of the production and consumption of the insurance service, three pairs relating to redistribution and one in the financial account.
Under exceptional circumstances, a seventh transaction relating to redistribution may be recorded in the capital account.

The value of the output of the activity, the investment income to be attributed to the policyholders and the value of the service charge are calculated specifically for other non-life insurance in the manner described above.

17.46 The production and consumption transactions are as follows: a.
Since all such activity by resident institutional units is undertaken by insurance corporations, the output is recorded in the production account of insurance corporations; Insurance clearly associated with b.

The service may be consumed by any of the sectors of the economy or by the rest of the world; the value of the service is payable to insurance corporations.
Payments by non-financial corporations, financial corporations, general government or non-profit institutions constitute intermediate consumption, recorded in their production account.

the productive activity of a household unincorporated enterprise is also recorded as intermediate consumption in the production account of households.

Other insurance payments by households are part of final consumption expenditure, recorded in the use of income account.
Payments by the rest of the world are recorded as exports in the external account of goods and services.
Table 17.1:Accounts for non-life insurance - uses Uses Production account Intermediate consumption Output Allocation of primary income account Investment income attributable to non-life insurance policy holders Secondary distribution of income account Net non-life insurance premiums Non-life insurance claims Use of income account Final consumption expenditure Financial account Non-life insurance technical reserves of which unearned premiums claims outstanding Insurance Corporations corporations Households Other sectors Total economy 1.0 8.0 0.0 0.0 0.0 0.0 6.0 45.0 3.0 31.0 6.0 2.0 3.0 1.0 2.0 0.0 0.0 0.0 0.0 4.0 6.0 45.0 45.0 2.0 3.0 1.0 2.0 346 Cross-cutting and other special issues 17.47 The redistributive transactions cover investment income attributed to policyholders in respect of non-life insurance, net non-life insurance premiums, and insurance claims: d. If some claims are to be treated as capital rather than current transfers, these are recorded in the capital account as payable to policyholders by insurance corporations.
a.

Investment income attributed to policyholders in respect of non-life insurance is recorded as payable by insurance corporations.

It is recorded as receivable by all sectors and the rest of the world.

Both payables and receivables are recorded in the allocation of primary income account.

b.

Net non-life insurance premiums are calculated as premiums earned plus premium supplements (equal to the investment income attributed to policyholders) less the value of the services consumed.
These net premiums are payable by all sectors of the economy or the rest of the world and receivable by insurance corporations.

c. Insurance claims incurred are payable by insurance corporations and receivable by all sectors of the economy and the rest of the world.

Both net premiums and claims are recorded in the secondary distribution of income account.
17.48 Net non-life insurance premiums should be recorded on the basis of the amounts due to obtain cover in the period of account, not the amounts actually paid in the period.

Insurance claims should be recorded as payable on the date of the event concerned occurred, except in the type of case described above when the claim is recorded when the insurance company accepts that a liability exists.
An entry in the financial account records any difference between premiums payable and premiums earned and claims due and claims payable.

17.49 By convention, unearned premiums and reserves against outstanding claims are shown as a change in liabilities of insurance corporation (with a negative sign if necessary) and a change in assets of all sectors and the rest of the world.

17.50 An example of these flows is shown in table 17.1.
D. All the transactions associated with life insurance 17.51 This section describes the way in which recording of the entries for life insurance differs from non-life insurance.

As for non-life insurance, but more significantly in practice, a life policy that qualifies as social insurance is recorded not as described here but as described in part 2 of the chapter.
The major difference between a normal life insurance policy and one qualifying as social insurance is that under the former, the benefits from the policy are treated as mainly rundowns of wealth, recorded in the financial account.

For a policy qualifying as social insurance, the benefits (pensions) are recorded as income in the secondary distribution of income account.
The reason for the different treatment is that an individual policy other than social insurance is entered into entirely on the initiative of the policyholder.

Policies that qualify as social insurance reflect the intervention of a third party, usually the government or the employer, to encourage or oblige the policyholder to make provision for income in retirement.
Distinguishing all payments made under social insurance from qualifying schemes, individual policies, shows how far social policies to ensure income in retirement are successful.
those coming including Table 17.1 (cont):Accounts for non-life insurance - resources Insurance Corporations corporations Households Resources Total economy Other sectors Production account Intermediate consumption Output Allocation of primary income account Investment income attributable to non-life insurance policy holders Secondary distribution of income account Net non-life insurance premiums Non-life insurance claims Use of income account Final consumption expenditure Financial account Non-life insurance technical reserves of which unearned premiums claims outstanding 5.0 6.0 6.0 45.0 3.0 1.0 2.0 1.0 35.0 4.0 6.0 6.0 45.0 45.0 3.0 1.0 2.0 347 System of National Accounts 17.52 The holder of a life insurance policy is always an individual.
(If a company takes out an insurance policy on the life of an employee, this should be treated as term insurance and therefore as non-life insurance in the SNA.)

Life insurance transactions therefore take place only between insurance corporations and households, resident and non-resident.

The production of the insurance services is matched by the value of the services consumed by households as part of final consumption expenditure and exports.
The investment income attributed to insurance policyholders is treated as premium supplements.

However, premiums and claims are not shown separately in the case of life insurance and are not treated as current transfers.

Rather they constitute components of a net transaction recorded in the financial account, the financial asset involved being life insurance and annuities entitlements.
17.53 Four pairs of transactions are recorded in the accounts; two pairs relate to production and consumption of the insurance service, one pair shows the attribution of investment income to the property holders and one pair shows the change in life insurance and annuities entitlements: insurers.

Such payments are treated as imports of insurance services.

c. Investment to income attributed insurance policyholders in respect of life insurance is recorded in the allocation of primary income account.
Bonuses declared in connection with life policies are treated as being distributed to policyholders even if they exceed the investment income earned by the institution declaring the bonus.

The investment income is recorded as payable by insurance corporations and receivable by resident households or non-resident households in the rest of the world.
d. In the financial account, the item change in life insurance and annuities entitlements is shown as a change in assets of households and the rest of the world and a change in liabilities of insurance corporations.

It is equal to actual premiums plus premium supplements (equal to policyholders) less the value of the services consumed and less benefits due.

income attributed investment the to a.


The output of the life insurance activity is recorded in the production account for the insurance corporations.

17.54 An example of these flows is shown in table 17.2.

1.

Annuities b.

The value of the services consumed is recorded as final consumption expenditure payable by households in the use of disposable income account or as payable by the rest of the world (exports to non-resident households).
Households may also make payments to non-resident 17.55 Some life insurance policies yield a lump sum at a given date rather than a stream of payments.

The lump sum may be used to purchase an annuity that itself converts a lump sum into a stream of payments.
The recording of annuities is described in section F. E. All transactions associated with reinsurance 17.56 Before discussing how the various elements contributing to the measurement of output of reinsurance are recorded in the SNA, it is necessary to describe how reinsurance is measured and recorded.

17.57 The transactions between the direct insurer and the policyholder are measured as described in the previous section without any reference to the transactions between the direct insurer and the reinsurer.
The transactions between the direct insurer and the reinsurer are recorded as an entirely separate set of transactions and no consolidation takes place between the transactions of the direct insurer as issuer of policies to its clients on the one hand and the holder of a policy with the reinsurer on the other.
Table 17.2:Accounts for life insurance - uses Uses Production account Output Allocation of primary income account Insurance Corporations corporations Households Other sectors Total economy Investment income attributable to life insurance policy holders 7.0 Use of income account Final consumption expenditure Financial account Life insurance and annuity entitlements of which net premiums benefits 348 4.0 22.0 113.0 -91.0 7.0 4.0 22.0 113.0 -91.0 17.58 The direct policyholder does not know, or need to know, whether the direct insurer involves a reinsurer to protect it against loss on the policy.
The direct insurer receives actual premiums from its policyholders.

Some of these are ceded to a reinsurer.

The premiums are shown as being first payable to the direct insurer and then a lesser premium is is payable sometimes referred to as gross recording on the part of the direct insurer.
The alternative (net recording) would be to show part of the direct policyholders’ premiums being paid to the direct insurer and part to the reinsurer but this option is not recommended either in commercial accounting or in the SNA.

the reinsurer.

This non-consolidation to 17.59 The actual premium payable by the direct insurer to the reinsurer is used by the reinsurer to earn investment income.
This investment income is treated as investment income payable to the direct insurer and returned to the reinsurer as a premium supplement.

Thus a direct insurer pays investment income to its policyholders based on the whole of the premiums earned (or by approximation payable) but also receives investment income from the reinsurer corresponding to the amount of the premiums it has ceded to the reinsurer.
The investment income receivable by the direct insurer from the reinsurer may be used to offset some of the investment income payable by the direct insurer to its policyholders but is not recorded explicitly as such.

17.60 As with direct insurance, in exceptional cases for example following a catastrophic natural disaster, some part of reinsurance claims may be recorded as capital transfers rather than as current transfers.
17.61 The whole of the output of the reinsurer represents intermediate consumption of the direct insurer holding the reinsurance policy.

As noted above, many reinsurance policies are between insurance corporations resident in different economies.

Thus the value of the output in these cases represents imports by the insurance corporation taking out the reinsurance policy and exports by the reinsurance corporation.
17.62 The recording of flows associated with reinsurance resembles the recording for non-life insurance except that the policyholder of a reinsurance policy is always another insurance corporation.

Cross-cutting and other special issues 17.63 The production and consumption transactions are as follows: a.

Since all such activity by resident institutional units is undertaken by insurance corporations, the output is recorded in the production account of insurance corporations.
Reinsurance services may be, and often are, provided by non-resident units and thus are recorded in imports.

b.

The service may only be consumed by another insurance corporation, though this may be a non- resident unit, and is intermediate consumption of that unit unless the policyholder is non-resident in which case it is recorded as exports of the reinsurer.
17.64 The redistributive transactions cover investment income attributed to policyholders in respect of reinsurance, net reinsurance premiums and reinsurance claims: a. income receivable reinsurance Investment policyholders is payable by insurance corporations, resident or non-resident, and receivable by similar institutions either resident or non-resident.

by b.
by b.

Net reinsurance premiums are calculated as premiums earned plus premium supplements (equal to the investment income attributed to policyholders) less the value of the services consumed.

These net premiums are payable by insurance corporations and receivable by [other] insurance corporations.

(Either of the units due to make the payment or to receive it may be non- resident.)
c. Reinsurance claims are payable by insurance corporations and receivable by [other] insurance corporations, either resident or non-resident.

Both net premiums and claims are recorded in the secondary distribution of income account.

d. Commissions payable by reinsurers to the insurance corporation as the reinsurance policyholder are treated as reductions in the premiums payable to the reinsurers.

e. Profit sharing payable by the reinsurer to the direct insurer is recorded as a current transfer.
(Although they Table 17.2 (cont):Accounts for life insurance - resources Insurance Corporations corporations Households Resources Total economy Other sectors Production account Output Allocation of primary income account Investment income attributable to life insurance policy holders Use of income account Final consumption expenditure Financial account Life insurance and annuity entitlements of which net premiums benefits 7.0 4.0 22.0 113.0 -91.0 4.0 7.0 22.0 113.0 -91.0 349 System of National Accounts are recorded differently, both commissions payable and profit sharing serve to reduce the output of the reinsurer.)
relating to the same event should also be treated as capital transfers.

f. If some direct insurance claims are treated as capital and not current transfers, any reinsurance claims 17.65 An entry in the financial account records any difference between premiums payable and premiums earned and claims incurred and claims payable.
F. Annuities 17.66 The simplest case of a life insurance policy is one where a stream of payments is made by the policyholder to the insurance corporation over time in return for a single payment received as a claim at some point in the future.
With the simplest form of annuity, the equivalent to the policyholder, called the annuitant, pays a single lump sum to the insurance corporation and in return receives a stream of payments either for a nominated period or for the rest of the annuitant’s life (or possibly for the rest of the life of both the annuitant and a nominated other person).

17.67 Annuities are organized by insurance corporations and are a means of risk management.
The annuitant avoids risk by agreeing to accept a known payment stream (known either in absolute terms or subject to a formula, such as being index-linked) in return for parting with a considerable sum.

The insurance corporation takes the risk of making more from investing the sum than is due to the annuitant.

The rates of annuities are determined taking life expectancy into account.
The insurance corporation has to pay more than originally planned to long-lived annuitants who may receive more than their original payment and the income earned on it.

Those who die early receive less, possibly considerably less, and the insurance corporation receives more than expected.

1.

How an annuity works 17.68 It is simplest to explain the working of an annuity by means of an example.
Suppose an insurance corporation offers an individual payments of 600 for life in return for a lump sum payment of 10 000 and further suppose that the insurance corporation expects the individual concerned to live for 25 years and that the discount rate being used is five per cent.

As shown in figure 17.1, the net present value of 600 for 25 years is only 8 700.

Thus the remaining 1 300 represents the net present value of the service charges of about 90 per year the insurance corporation expects to make.
Thus, whether the annuitant recognizes it or not, the insurance corporation offer of 600 a year is a net figure.

The annuitant will actually be entitled to 690 a year but 90 is retained by the insurance corporation as a fee for its services.

a drawdown of the value of 1 300 to 1 275.

The remaining investment income (435) adds to the value of the net annuity reserve of 8 700.
At the end of the first year, therefore, the annuity reserve is 8 535; the original sum of 8 700 plus the interest of 435 and less the payment of 600.

The drawdown on the start of year amount of the net annuity reserve is thus 165 and the drawdown on the prepaid premiums is 25.

17.70 This process continues year by year.

As time progresses, the drawdown of the remaining reserves is an increasingly larger part of the payments due and the investment income payable a smaller part.
In principle, every year the insurance corporation can review its assumptions about the remaining life expectancy of the annuitant and recalculate the amount available as a service charge.

(In practice this is likely to be done at intervals and by cohort of annuitants.)

17.71 The detailed numerical example is intended to demonstrate the way an annuity functions but in fact it is not necessary to undertake all these calculations to determine the output of the insurance corporation.
The value of output can be determined more simply as the total investment income due to the annuitant (500) less the amount payable to him (600) less the change in the value of the reserves (a reduction of 190), or 90 (500-600-(-190)).

This result can be seen to be parallel to the measurement of life insurance except that there is no actual premium element.

2.
2.

The output associated with an annuity 17.72 The output of an insurance corporation associated with administering annuities is calculated as: the investment income attributable to the annuitants.

minus the amount payable to the annuitants (or surviving beneficiaries) under the terms of the annuity; minus the change in the annuity reserves but excluding the initial payments for new annuities.
17.69 Each year there is investment income payable to the annuitant equal to the unwinding of the discount factor of five percent on the remaining amount held by the insurance corporation.
In the first year, the proportion of the investment income relating to the prepaid premium (1 300) is 65 and the remaining 25 of the service charge is met from The amount of the investment income attributable to the annuitants is equal to the discount factor times the start of year reserves and is independent of actual investment income earned by the insurance corporation.

The item is parallel to the concept of premium supplement in the life insurance context.

350 3.
350 3.

All the transactions associated with annuities 17.73 There are three sets of transactions recorded for an existing annuity and further entries required for the initiation and termination of an annuity.

a.

A service charge associated with the annuity is payable every year.

It is recorded as output of the insurance corporation and final consumption expenditure of the household to which the beneficiary belongs.

This might be a non-resident household.

b.


Investment income equal to the discount factor times the level of annuity reserves at the beginning of the period is recorded in the primary distribution of income account as payable by the insurance corporation and receivable by the household.

c. The change in the value of the reserves for annuities is recorded in the financial account as payable by the household to the insurance corporation.
17.74 When an annuity is initiated, there is a transfer of funds from the household to the insurance corporation.

In many cases, however, this may simply be a “rollover” from a lump sum payable by that or another insurance corporation Cross-cutting and other special issues from the maturing of a normal life insurance policy immediately into an annuity.
In such a case there is no need to record the payment of the lump sum and the acquisition of the annuity; there will simply be a change from life insurance reserves to annuity reserves in the insurance corporation and pension fund subsector.

If an annuity is purchased independently of the maturing of a life insurance policy, this is recorded as a pair of financial transactions between the household and the insurance corporation.
The household makes a payment to the insurance corporation and receives in return an asset arising from the terms of the annuity.

The insurance corporation receives a financial asset from the household and incurs a liability towards it.

17.75 Annuities are normally terminated by death, at which point any remaining reserves for that annuitant are transferred to the the insurance corporation.
However, assuming insurance corporation has predicted life expectancy accurately, for the group of annuitants as a whole, the average funds remaining at death will be zero.

If life expectancies change, revisions to the reserves must be made.

For annuities in operation, an extension of life expectancies will reduce the amount available to the insurance corporation as a service charge, possibly making this negative.
In such a case, the insurance corporation will have to draw on its own funds and hope to build these up again in future by associating higher service charges with new annuities.
Figure 17.1:Example of an annuity Starting position Purchase price of annuity (A) NPV of 600 a year for 25 years at 5% (B) NPV of service charges (C ) Annualized rate (600*1300/8700) 10 000 8 700 1 300 90 First year Second year Investment income (interest) in respect of : Investment income (interest) in respect of : A B C Payments due A B C 500 435 65 690 600 90 A B C Payments due A B C Decline in value of stocks Decline in value of stocks A B C End year stocks A B C - 190 - 165 - 25 9 810 8 535 1 275 A B C End year stocks A B C Etc.
491 427 64 690 600 90 - 200 - 173 - 26 9 611 8 362 1 249 351 System of National Accounts G. Introduction Part 2: Social insurance schemes 17.76 Social insurance schemes are an important way in which individuals who participate in the scheme are paid benefits, described as social benefits, when certain conditions exist that would adversely affect their welfare.

Some social benefits, however, independently of are payable participation in a social insurance scheme.
It is the conditions under which the benefits are payable that identify a social insurance scheme, not the nature of the benefits in themselves.

17.77 A social insurance scheme is a form of contract and always involves at least one unit other than the beneficiary.

The other unit may be an employer, general government or a financial institution (often an insurance corporation) or sometimes a non-profit institution serving households (NPISH).
17.78 The objective of this part of the chapter is to describe how the various sorts of social benefits provided under social insurance schemes are recorded in the SNA.

In order to do this, it is necessary to clarify the identifying characteristics of a social insurance scheme, the nature of the other unit involved, the types of benefits payable and the ways in which these are funded.

H. Basic definitions 1.


Social benefits 17.79 Social benefits become payable when certain events occur, or certain conditions exist, that may adversely affect the welfare of the households concerned either by imposing additional demands on their resources or reducing their incomes.

Social benefits may be provided in cash or in kind.

There are a number of circumstances in which social benefits may be payable: a.
The beneficiaries, or their dependants, require medical, dental or other treatment, or hospital, convalescent or long-term care, as a result of sickness, injuries, maternity, chronic invalidity, old age, etc.

The social benefits may be provided in kind in the form of treatments or care provided free or at prices that are not economically reimbursing expenditures made by households.

Social benefits in cash may also be payable to beneficiaries needing health care.
significant, by or · · involuntary unemployment, including temporary lay- offs and short-time working; sickness, accidental injury, the birth of a child, etc., that prevents a person from working, or working full time.

d. The beneficiaries receive payments to compensate for suffering a reduction in income because of the death of the main income earner.
e. The beneficiaries are provided with housing either free or at prices that are not economically significant or by reimbursing expenditure made by households.

These are social benefits in kind.

f. The beneficiaries are provided with allowances to cover education expenses incurred on behalf of themselves or their dependants.

Occasionally education services may be provided in kind.

b.

The beneficiaries have to support dependants of various kinds: spouses, children, elderly relatives, invalids, etc.
The social benefits are usually paid in cash in the form of regular dependants’ or family allowances.

c. The beneficiaries suffer a reduction in income as a result of not being able to work, or to work full-time.

The social benefits are usually paid in cash regularly for the duration of the condition.

In some instances a lump sum may be provided additionally or instead of the regular payment.
People may be prevented from working because of: · voluntary or compulsory retirement; 17.80 The above are typical circumstances in which social benefits are payable.

However, the list is illustrative rather than exhaustive.

It is possible, for example, that under some social insurance schemes other benefits may be payable.

Conversely, by no means all schemes provide benefits in all the circumstances listed above.
In practice, the scope of social insurance schemes is liable to vary significantly from country to country, or from scheme to scheme within the same country.

2.

Social benefits provided by general government 17.81 Many social benefits are provided by general government.

They may appear in the accounts as payments under social security, social assistance or social transfers in kind.

352 17.82 Social security is the name give to the social insurance scheme operated by general government.
As will be explained below, in order to receive social security benefits, an individual must participate in a social security scheme.

17.83 Social assistance is not a scheme and thus does not require participation.

However, social assistance is frequently restricted to individuals with low incomes, disabilities or other particular characteristics.

In some countries, though, a universal pension may be paid without any need for participation in which case it is part of social assistance also.
There is a section discussing the difference between social insurance and social assistance at greater length in chapter 8.

17.84 The definition of social benefits includes the possible provision of health and education services.

Typically general government makes such services available to all members of the community without requiring participation in a scheme or qualifying requirements.

These services are treated as social transfers in kind and not as part of social security or social assistance.
Social transfers in kind are also discussed in chapter 8.

17.85 In addition to health and education services provided by general government, such services may also be provided to individuals by NPISHs.

These also are treated as social transfers in kind and not as part of social insurance schemes.

3.

Social benefits provided by other institutional units 17.86 Social benefits may also be provided by employers to the employees and their dependents or may be provided by other units such as a trades union.
All social benefits provided by units other than general government are made under a social insurance scheme.
Cross-cutting and other special issues b. at least one of the three conditions following is met: · · Participation in the scheme is obligatory either by law or under the terms and conditions of employment of an employee, or group of employees; The scheme is a collective one operated for the benefit of a designated group of workers, whether employed or non-employed, participation being restricted to members of that group; · An employer makes a contribution (actual or imputed) to the scheme on behalf of an employee, whether or not the employee also makes a contribution.
17.89 Those participating in social insurance schemes make contributions to the schemes (or have contributions made on their behalf) and receive benefits.

Contributions and benefits are defined in similar ways to insurance premiums and claims.

A social insurance contribution is the amount payable to a social insurance scheme in order for a designated beneficiary to be entitled to receive the social benefits covered by the scheme.
A social insurance benefit is a social benefit payable because the beneficiary participates in a social insurance scheme and the social risk insured against has occurred.

17.90 Social security is a form of social insurance scheme.

The relative importance of social security relative to other social insurance scheme varies considerably from one country to another depending on institutional arrangements.
In some countries, social security may be restricted to basic pension provision of the social safety net variety.

In such cases even the pension provision of general government employees may be dealt with other than via social security.

At the other extreme, almost all pension provision, including that accruing to employees in private enterprises, may be routed through social security.

4.
4.

Social insurance schemes 17.91 The two classes of social insurance schemes are: 17.87 A social insurance scheme is a form of contractual insurance scheme where the policyholder is obliged or encouraged to insure against certain contingencies by the intervention of a third party.
For example, government may oblige all employees to participate in a social security scheme; employers may make it a condition of employment that employees participate in an insurance scheme specified by the employer; an employer may encourage employees to join a scheme by making contributions on behalf of the employee; or a trades union may arrange advantageous insurance cover available only to the members of the trades union.
Contributions to social insurance schemes are usually paid by, or on behalf of employees, though under certain conditions non-employed or self-employed persons may also be covered.

17.88 A social insurance scheme is an insurance scheme where the following two conditions are satisfied: a. the benefits received are conditional on participation in the scheme and constitute social benefits as this term is used in the SNA; and a.
Social security, b. Employment-related social insurance schemes other than social security.

The schemes other than social security may be arranged with an insurance corporation as a group policy or series of policies or they may be managed by an insurance corporation in return for a fee.

Alternatively, the schemes may be managed by an employer directly on his own behalf.
Multiemployer schemes 17.92 An insurance corporation may, for a fee, agree not only to manage a pension scheme but to take on the risks associated with it.

This is done in the context of performing this service for a number of schemes collectively under what is called a multiemployer scheme.
Under many such schemes, the insurance corporation responsibility of managing the funds at its disposal so as to takes over the 353 System of National Accounts make sufficient funds available to meet pension liabilities and to make a surplus it can retain.

If it fails to make sufficient funds available for the pension entitlements, it is then the responsibility of this firm and not the original employers, to make good the difference from its own resources.
17.93 When government takes over the responsibility for providing pensions to large sections of the community, the social security function is in effect filling the role of a multiemployer scheme.

Like the insurance corporation, the government then takes on the responsibility for any shortfall in funds to meet the pension liabilities or may be entitled to retain any surplus generated.
It is often the case, though, that social security is funded on a pay-as-you-go basis so there is no question of a surplus arising and, if there is a shortfall in resources, government may have powers to change the entitlements not just relating to future employment but for the past also.

5.
5.

Individual insurance policies qualifying as social insurance 17.94 Many social insurance schemes are organized collectively for groups of workers so that those participating do not have to take out individual insurance policies in their own names.

In such cases, there is no difficulty distinguishing social insurance from insurance taken out on a personal basis.

However, some social insurance schemes may permit, or even require, participants to take out policies in their own names.
The determinants for the insurance to count as a social insurance policy are that the benefits must be of the social benefit type and an employer makes an actual or imputed contribution to the scheme on behalf of an employee.

17.95 The premiums payable, and claims receivable, under individual policies taken out under a social insurance scheme are recorded as social contributions and social insurance insurance benefits.
Contributions to social schemes are frequently paid on a monthly or even more frequent basis as they are often made directly when wages and salaries are payable.

17.96 Most individual policies that qualify as social insurance schemes are likely to be for pension provision but it is possible that they may cover other eventualities, for example to provide income if the policyholder is unable to work for a prolonged period because of ill-health.
17.97 Individual insurance policies that do not qualify as social insurance not insurance are described as qualifying as social insurance, or in short as other insurance.

They are recorded in the accounts of the SNA as described in part 1 of this chapter.

individual 6.

Benefits payable under social insurance schemes 17.98 In social the SNA, insurance benefits and the corresponding contributions are divided between those relating to pensions and those relating to all other forms of benefit.
The most important pension benefit covered by social insurance schemes is income in retirement but a number of other contingencies may be covered also.

For example, pensions may be payable to widows and widowers or to people who suffer an industrial injury and are no longer able to work.
All of these sorts of contingencies that give rise to payments because the main income earner is no longer able, through death or incapacity, to provide an income for himself or herself and dependants are treated as pensions.

17.99 All other benefits are grouped together as non-pension benefits.
The distinction between the two is important because the SNA recognizes liabilities for some pensions whether there are actually assets set aside to meet the entitlements or not but recognizes reserves for non-pension benefits only when these actually exist.

I.

Accounting for non-pension contributions and benefits 17.100 Non-pension benefits may be payable under social security and under employment–related schemes other than social security.
Although in many countries there may in fact be no non-pension benefits, a description is given of how these should be recorded if they exist.

For other social insurance schemes, the way of recording varies depending on whether reserves for provision of future benefits are set aside or not.

Although in many cases there may be no such reserves and the benefits are paid on a pay-as-you-go basis, a description of the appropriate recording in each case is given.

1.
1.

Non-pension benefits payable under social security 17.101 As is typical of social security schemes, there may be contributions payable by both the employer and the employee.

The costs of operating social security schemes are treated as part of the normal expenditure of general government and so the accounting for social security operations does not include measures of output.

17.102 In the SNA flows are recorded as follows.


a. Employers’ social security contributions are shown as payable by the sector in which the employer is located and receivable by households.

The sector of the employer may be any of non-financial corporations, financial corporations, general government (as an employer), employer households, NPISHs or the rest of the world (when a resident works for a non-resident institutional unit).
For resident employers the payables are shown in the generation of income account; payables by non-resident employers are shown in the primary distribution of income account for the rest of 354 the world.

Receivables by resident households are shown in the allocation of primary income account and by non-resident households in the primary distribution of income account for the rest of the world.

b.
b.

In the secondary distribution of income account, the sum of employers’ social security contributions and social security contributions by households in their capacities as employees is shown as payable by households and receivable by government.

Further, social security benefits in cash payable to households are shown as payable by government (or the rest of the world if from a foreign government) and receivable by households.

17.103 An example of these flows is shown in table 17.3.

2.
2.

Unfunded non-pension benefits other than from social security 17.104 In the SNA, an employer operating an unfunded scheme is regarded as making an imputed social contribution to the scheme on behalf of the employees.

In practice, the value of the employers’ and employees’ contributions is usually set equal in value to the benefits payable in the period under consideration (plus the cost of operating the scheme as described in the following paragraph).
The imputed contribution forms part of the compensation of employees and is also shown as being payable by the employees to the scheme the employees.

Even though the scheme is unfunded, the employee may still make a contribution; however, it is not uncommon for unfunded schemes to be non-contributory for the employees.

together with any actual payments by 17.105 Even if a scheme is unfunded, there are costs involved in administering it.
In principle, output equal to the sum of these costs should be treated as being paid for by the beneficiaries from an imputed element of contributions.

The imputed contribution to employees should include these costs as well as the value of the benefits received by employees.

A value equal to the amount of the costs of operating the scheme is then recorded in the use of income account as a purchase of a service by the employees from the employer.
17.106 There are two transactions recorded for the production and consumption of the services provided by the employer.

Because the scheme is unfunded, there are no investment income flows and no contribution supplements to be recorded.

There are two sets of redistributive transactions recorded.

17.107 The production and consumption transactions are as follows.

a.
a.

Output of services is imputed in the production account of the employer and the value of the output forms part of the imputed employers’ contributions to social insurance incorporated in compensation of employees.

Cross-cutting and other special issues account for resident households or as exports for non- resident households.

17.108 The redistributive transactions are as follows.
a. Employers’ imputed contributions to unfunded social insurance schemes are shown as a payable by the sector in which the employer is located in the generation of income account and a receivable by households in the allocation of primary income account.

b.

In the secondary distribution of income account, employers’ imputed contributions and any actual contributions by employees are shown as payable by households and receivable by the employer.
Further, benefits payable to households by the employer are shown as payable by the employer and receivable by households.

17.109 An example of these flows is shown in table 17.4.

3.

Funded social insurance other than pensions 17.110 As noted above, funded schemes for benefits other than pensions are not very common.

They may, however, exist in two circumstances.


The first is when an employer has a fund for such benefits and accumulates any underspend in one year to pay for possible overspends in future years.

Alternatively, an employer may the commitments to make payments in future are such that it is prudent to build reserves to be able to make such payments.

An example of such a scheme might be one that provides health cover to present and past employees.
Unlike in the case of pensions, estimates of possible future claims on social insurance benefits other than pensions are not necessarily included in the SNA.

Liabilities are recorded only when and to the extent that they exist in the employer’s accounts.

realize that 17.111 Funded social insurance covering benefits other than pensions may be carried out by insurance corporations or by employers on behalf of their employees.
The output of this activity is measured in the same way as the output of non-life insurance but the matching consumption of the services is payable only by the households of the beneficiaries.

These will be resident households except where a resident producer is liable to pay benefits to a present or former employee who is a non-resident or who has a non-resident family member entitled to the benefits.
The investment income attributed to the beneficiaries of the social insurance schemes can only be receivable by the same households.

17.112 Employers’ contributions relate only to employees.

However, both current and former employees who are now, or may in future be, beneficiaries may make contributions to the scheme and receive investment income from it.

This investment treated as contribution then supplements payable by those receiving it.

income is b.
income is b.

Consumption of the service is recorded as household final consumption expenditure in the use of income 17.113 All contributions to the schemes are recorded as payable by households.
These contributions include that part paid by the employer as part of compensation of employees in the 355 System of National Accounts Table 17.3:Accounts for non-pension benefits paid through social security - uses Uses Social security Employer fund Households Other sectors Total economy Generation of income account Employers' actual social security contributions (non-pension) 15.0 Allocation of primary income account Employers' actual social security contributions (non-pension) Secondary distribution of income account Social security contributions (non-pension) Employers' actual social security contributions (non-pension) Household actual social security contributions (non-pension) Social security non-pension benefits 25.0 15.0 10.0 22.0 15.0 25.0 15.0 10.0 22.0 Table 17.4:Accounts for non-pension social insurance benefits from unfunded other employment- related schemes - uses Uses Social insurance Employer fund Households Other sectors Total economy Generation of income account Employers' imputed non-pension contributions 9.0 Allocation of primary income account Employers' imputed non-pension contributions Secondary distribution of income account Household total non-pension contributions Employers' imputed non-pension contributions Unfunded non-pension benefits 9.0 9.0 9.0 9.0 9.0 9.0 9.0 Table 17.5:Accounts for non-pension social insurance benefits from funded other employment- related schemes - uses Uses Production account Output Generation of income account Employers' actual non-pension contributions Allocation of primary income account Employers' actual non-pension contributions Investment income Investment income payable on non-pension entitlements Secondary distribution of income account Household total non-pension contributions Employers' actual non-pension contributions Household actual non-pension contributions Household non-pension contribution supplements Social insurance scheme service charges Funded non-pension benefits Use of income account Final consumption expenditure Adjustment for the change
 in non-pension entitlements Saving Financial account Change in pension entitlements Social insurance Employer fund Households Other sectors Total economy 6.0 -6.0 4.0 -4.0 4.0 7.0 -2.0 10.0 14.0 6.0 5.0 4.0 -1.0 1.0 0.0 -2.0 6.0 4.0 4.0 14.0 6.0 5.0 4.0 -1.0 7.0 1.0 -2.0 0.0 2.0 356 Cross-cutting and other special issues Table 17.3 (cont):Accounts for non-pension benefits paid through social security - resources Generation of income account Employers' actual social security contributions (non-pension) Allocation of primary income account Employers' actual social security contributions (non-pension) Secondary distribution of income account Social security contributions (non-pension) Employers' actual social security contributions (non-pension) Household actual social security contributions (non-pension) Social security non-pension benefits Social Employer security fund Households Resources Total economy Other sectors 15.0 22.0 25.0 15.0 10.0 15.0 25.0 15.0 10.0 22.0 Table 17.4 (cont):Accounts for non-pension social insurance benefits from unfunded other employment-related schemes - resources Generation of income account Employers' imputed non-pension contributions Allocation of primary income account Employers' imputed non-pension contributions Secondary distribution of income account Household total non-pension contributions Employers' imputed non-pension contributions Unfunded non-pension benefits Social insurance Employer fund Households Resources Other
 sectors Total economy 9.0 9.0 9.0 9.0 9.0 9.0 9.0 9.0 Table 17.5 (cont):Accounts for non-pension social insurance benefits from funded other employment- related scheme - resources Production account Output Generation of income account Employers' actual non-pension contributions Allocation of primary income account Employers' actual non-pension contributions Investment income Investment income payable on non-pension entitlements Secondary distribution of income account Household total non-pension contributions
 Employers' actual non-pension contributions Household actual non-pension contributions Household non-pension contribution supplements Social insurance scheme service charges Funded non-pension benefits Use of income account Final consumption expenditure Adjustment for the change in non-pension entitlements Saving Financial account Change in pension entitlements Social insurance Employer fund Households Resources Other sectors Total economy 1.0 4.0 14.0 6.0 5.0 4.0 -1.0 -2.0 6.0 4.0 7.0 -2.0 1.0 6.0 4.0 4.0 14.0 6.0 5.0 4.0 -1.0 7.0 -2.0 0.0 357 System of National Accounts generation of income account as well as contributions paid directly by the employee funded from wages and salaries or by others including former employees.
Further, households receive investment income attributable to policyholders in respect of these contributions and this is treated, in total, as contribution supplements.

Two items of contributions appear in the secondary distribution of income account.

The first, the employers’ actual social contributions, is exactly equal in value to the amount receivable by households from the employer in the generation of income account.
The second item, called households social contributions, includes the direct payment by households plus the contribution supplements less the service charge payable to the social insurance schemes.

17.114 Eight transactions must be recorded, one each relating to production and consumption of the insurance service, three relating to contributions and benefits, one to the investment income attributable to policyholders and two relating to the difference between contributions and benefits: a.
The activity by resident units is undertaken by insurance corporations or by an employer; the output is recorded in the production account of the insurance corporations or in the sector of the employer as appropriate; b. Employers’ actual social contributions to employment- related social insurance schemes are shown as payable by the sector in which the employer is located in the generation of income account and receivable by income households account; the allocation of primary in c. Investment income attributed to policyholders (beneficiaries) in respect of these schemes is payable insurance corporations and employers, and by receivable by households.
Both payables and receivables are recorded in the allocation of primary income account; d. Net social contributions are shown in the secondary distribution of income account as payable by households and receivable by insurance corporations or the sector of the employer as appropriate; e. Employment-related social benefits other than pensions are also shown in the secondary distribution of income account as payable by insurance corporations or the sector of the employer and receivable by households; f. The value of the service is payable by households as part of final consumption expenditure and is recorded in the use of income account, except for non-resident employee households where it is payable by the rest of the world; g. The excess of net contributions over benefits represents an increase in the liability of the insurance scheme towards the beneficiaries.
This item is shown as an adjustment in the use of income account.

As an increase in a liability, it is also shown in the financial account.

As noted, the item is likely to occur only rarely and, for pragmatic reasons, changes in such non-pension entitlements may be included with those for pensions.

17.115 An example of these flows is shown in table 17.5.

J.
J.

Accounting for pension contributions and pensions 17.116 Pensions are provided to individuals in an economy under one of three mechanisms, via social security, via employment-related schemes other than social security or via social assistance.

Together, social security and employment-related pension schemes other than social security constitute social insurance schemes.
Although the benefits provided under social assistance and some social insurance schemes may be very similar, the key distinction is that social insurance benefits are only paid if the beneficiary participates in the social insurance scheme, participation being normally evidenced by the beneficiary or another on his behalf having made qualifying contributions.

Social assistance is paid without qualifying contributions having been made though means-testing may be applied to applicants.
17.117 The means by which pensions are provided to persons in retirement varies considerable from one country to another.

This part of chapter 17 describes the most common forms of pension provision made under social insurance schemes though not all aspects may apply to all countries.

Pensions provided under social assistance are not discussed in this chapter but in chapters 8 and 9.
17.118 Social insurance pensions in all countries are provided, if at all, in part by general government and in part by employers.

The part provided by general government is called social security and the part by employers is called employment- related schemes other than social security.
The division between which pensions are provided by social security and which by other employment-related schemes varies considerably from country to country with the consequence that the coverage and therefore national perceptions of what security” designates also vary the considerably.

In order to make clear the recommendations in the SNA, it is necessary to consider the types of coverage provided in different countries.

term “social 17.119 The narrowest form of social security pension is very basic.
The level may be fixed independently of the size of contributions (though not of the fact that contributions have been made for a given period of time).

An employee’s right to a pension under social security is often transferable (“portable”) from one employer to another, which is an advantage not always applying to other pension provisions, but for many people in low paid jobs, working temporarily or intermittently, it may be the only form of pension provision they can expect to receive.
358 17.120 By contrast, in some countries most or all pension provision may be made via social security.

In this case, government acts as an intermediary relative to the employer so that once the government has received the contributions to the scheme paid by the employer and the households, the government then takes on the risk of making the eventual payment.
Government relieves the employer of the risk that the cost of pensions may be too great for his enterprise to meet and assures the population that pensions will be paid, though it may do so with the qualification that it may alter the amount of pensions payable, even retrospectively, if economic conditions so dictate.
17.121 Pension schemes run by private employers are usually not subject to retrospective adjustments of the amounts payable, but there is a risk that the employer may be unable to pay because he has gone out of business.

Increasingly, though, protection for the pension entitlements of individuals is becoming more common.

Equally, the pension built up with one employer may not be transferable to a new employer though this too is undergoing change.
While social security may be, and very often is, financed on a pay-as-you-go basis, without building up reserves for future liabilities, other employer schemes are increasingly likely to have reserves set aside.

Even if there are no reserves, accounting conventions may require them to recognize pension entitlements of present and past employees in their accounts.
17.122 Employment-related pensions, other than the most basic form of social security, are seen as part of the compensation package and negotiations between employees and employers may focus on pension entitlements as much as on current conditions of service and pay scales.

Often pensions are provided by private employers from funds that the employers control or contract to a third party such as an insurance corporation.
These funds may also provide social benefits other than pensions, for example private medical coverage.

It is sometimes possible for a specialized unit to agree to assume responsibility for providing pensions for a number of employers in return for assuming the risk of ensuring adequate funding is available to make the promised pensions.

Such an arrangement is called a multiemployer pension scheme.
17.123 As with non-pension social benefits, both current employees and former employees who are current or future beneficiaries may make contributions to the scheme and receive investment income from it.

This investment income is then treated as contribution supplements by those receiving it.

1.
1.

Social security pensions Cross-cutting and other special issues recognized in the main accounts of the SNA although concern is often expressed that benefits may exceed contributions and this situation is likely to worsen in an ageing population.

For this reason, estimates of the liabilities of social security as well as any other pension schemes not included in the main accounts are included in a supplementary table described below in section J.
17.125 The recording of the flows for social security pension schemes is simple.

Any contribution made by the employer is treated as part of compensation of employees.

It is recorded as payable by the employer in the generation of income account and receivable by the employee in the distribution of primary income account.

The employee then pays an amount equal to what he receives from the employer together with any contribution he is liable to make on his own behalf to the social security fund.
This amount is recorded as payable by households in the secondary distribution of income account and receivable by the government in the same account.

Any contributions made by self-employed or non-employed people are also included with the contributions payable by households to government.

Social security benefits are also recorded as payable by government and receivable by households in the secondary distribution of income account.

17.126 An example of these flows is shown in table 17.6.
It is similar in content to table 17.1 except that table 17.1 relates to non-pension benefits and table 17.6 to pension benefits.

2.

Employment-related pension schemes other than social security 17.127 There are two forms of employment-related pension schemes other than social security.

One is called a defined contribution scheme, sometimes referred to as a money purchase scheme.

(The expression “defined contribution pension scheme” is not intuitive but is widely used in the pension industry.)
The other is a defined benefit scheme, sometimes referred to as a final salary scheme, though this term does not accurately describe all defined benefit schemes.

Typically both schemes are contributory, often by both the employer and the employee.
17.128 A defined contribution scheme is one where the benefits payable to an employee on retirement are defined exclusively in terms of the level of the fund built up from the contributions made over the employee’s working life and the increases in value that result from the investment of these funds by the manager of the scheme.

The entire risk of the scheme to provide an adequate income in retirement is thus borne by the employee.
17.124 It is common but not essential for both employers and employees to make contributions towards a social security pension.

It is also common for the contributions to be compulsory.

Social security pensions are frequently funded on a pay-as-you-go basis.

The normal assumption in the main accounts of the SNA is that this is how social security pensions are funded.

That is the contributions receivable in a period are used to fund the benefits payable in the same period.
There is no saving element involved, either for the government operating the scheme or for the individuals participating in it.

No liabilities for the scheme are 17.129 A defined benefit scheme is one where the benefits payable to an employee on retirement are determined by the use of a formula, either alone or as a minimum amount payable.

In this case the risk of the scheme to provide an adequate income in retirement is borne either by the employer or is shared between the employer and employee.
In certain cases, the employer’s risk may be borne by the multiemployer scheme that operates the defined benefit pension scheme on behalf of the employer.

A scheme that may be defined in terms similar to a defined contribution scheme but with a guaranteed minimum, say, 359 System of National Accounts or other such hybrid schemes are grouped with defined benefit pension schemes in the SNA.

account and receivable by the employee in the distribution of primary income account.
17.130 For both types of schemes, pension entitlements of the participants are recorded as they build up.

In both cases, there is investment income earned on existing entitlements and this is recorded as being distributed to the beneficiaries and reinvested by them in the pension scheme.

There are, though, a number of different features of the two schemes, so the transactions relating to each are described in detail separately before turning to other changes in the levels of pension entitlements.
The recording of transactions for a defined contribution scheme is less complicated than the defined benefit scheme and is described first.

17.131 For both types of schemes, a pension fund is assumed to exist.

For a defined contribution pension scheme, a fund must exist.

For a defined benefit pension scheme a fund may exist in reality or it may be a notional fund.
If it exists, it may be part of the same institutional unit as the employer, it may be a separate institutional unit (an autonomous pension scheme) or it may be part of another financial institution, either an insurance corporation or a multiemployer pension scheme.

In describing the recording of transactions, transactions with the pension fund must be attributed to the sector where the fund is located.
Defined contribution pension schemes 17.132 Recording the transactions related to a defined contribution pension scheme presents no conceptual problems.

There are no associated the flows concerned or for the values appearing in balance sheets for the pension entitlements of the beneficiaries nor any doubt as to which unit has a liability and which an asset.
imputations either for Transactions recorded for a defined contribution pension scheme 17.133 The contribution made by an employer to a defined contribution pension scheme on behalf of his employee is treated as part of compensation of employees.
It is recorded as payable by the employer in the generation of income 17.134 The includes investment investment income on the cumulated pension entitlements is also recorded as being distributed to (receivable by) households in the allocation of primary income account and is shown as payable by the pension fund.

The interest and income dividends payable plus the distributed income of collective investment schemes if the pension fund holds shares in them.
It is possible that the pension fund may own property and generate net operating surplus on this which is also included along with the investment income as being distributed to the pension beneficiaries.

In this case, the term investment income is to be interpreted as being elastic enough to include this source of income if it exists.

Holding gains and losses generated by the investment of the cumulated pension entitlements are not in investment income.
included 17.135 Part of the income distributed to households is used to meet the costs of operating the pension fund.

This cost is shown as the output of the pension fund in the production account and as an element of consumption expenditure by households in the use of income account.

The remaining part of the distributed income is treated as pension contribution supplements paid back by households to the pension funds.
17.136 In the secondary distribution of income account, social contributions are shown as payable by households and receivable by the pension fund.
The total amount of the social contributions payable is made up of the actual contributions payable by the employers as part of compensation of employees, actual contributions by employees and possibly by other individuals (individuals formerly participating in a scheme, self-employed and non- employed persons as well as retirees) plus the contribution supplements just specified.
For clarity, and to enhance the comparison with defined benefit schemes, the supplements are shown at full value in both the allocation of primary income account where they appear as investment income and in the secondary distribution of income account where they appear as contribution supplements.
However, the service charge is shown as an offsetting negative element to Table 17.6:Accounts for pension benefits paid through social security - uses Uses Social security Employer fund Households Other sectors Total economy Generation of income account Employers' actual social security contributions (pension) 139.0 Allocation of primary income account Employers' actual social security contributions (pension) Secondary distribution of income account Social security contributions (pension) Employers' actual social security contributions (pension) Household actual social security contributions (pension) Social security pension benefits 226.0 139.0 87.0 210.0 139.0 226.0 139.0 87.0 210.0 360 total household contributions in the secondary distribution of income account.
The total contributions made by households to the pensions scheme are net in the same way that insurance premiums are net, that is to say they are the total of all contributions made less the service charge appearing in the use of income account.
17.137 Those other than employees who contribute to a defined contribution pension scheme may be self-employed persons participating in a defined contribution pension scheme or may be persons not employed who participate in a defined contribution pension scheme by virtue of their profession or former employment status, for example.

17.138 Also in the secondary distribution of income account, the pension benefits payable to households by the pension fund are shown.
However, the benefits payable under a defined contribution pension scheme take the form of a lump sum payable at the moment of retirement.

It may be a requirement of the scheme that these sums are to be immediately converted to an annuity with the same or another financial institution but this is not a universal requirement.
The appropriate recording of the benefits is not to show the benefit as payable immediately on retirement and then, where appropriate, reinvested in terms of an annuity or other forms of financial assets but insurance notionally as a reclassification from entitlements to annuities entitlements.

However, since no distinction is normally made between these two sets of entitlements, no actual classification change will show in the accounts.

The recording of annuities is discussed in part 1 of this chapter.
life 17.139 In the use of income account, there is an entry for the payment of the service provided by the pension fund (equal to the value of the pension fund’s output) payable by households to the pension fund.
Cross-cutting and other special issues entitlement of participants in a defined contribution pension scheme, and thus ultimately the funding for the benefits, come from holding gains that are not included in the contribution supplements of participants in defined contribution pension schemes, the adjustment for the change in pension entitlements for these individuals will frequently be negative.
17.141 The adjustment for the change in pension entitlements that is included in the use of income account as payable by the pension fund to households is shown in the financial account as payable by households to the pension fund.

The effect of any transfer of the obligations to meet pension entitlements from a unit in one sector to another are also reflected in the financial account item.
17.142 The other factors affecting the change in the balance sheet entry for the change in pension entitlements are shown in the other changes in assets accounts.

In particular, the liabilities of the scheme to the beneficiaries show holding gains or losses in the revaluation account corresponding exactly to those on the assets held by the scheme to meet these obligations.
When payments under a defined contribution scheme are made via annuities, other volume changes may need to be recorded as explained in paragraph 17.136.

17.143 Table 17.7 illustrates the entries necessary to record the transaction related to a defined contribution scheme.

It is simpler than the corresponding table for a defined benefit scheme, which is described in the following section, because of the absence of any imputed transactions.
Defined benefit pension schemes Differences between a defined benefit and a defined contribution pension scheme 17.140 In the same account there is an entry showing the increase (or decrease) in pension entitlements caused by the excess (or deficit) of contributions payable less benefits receivable in the secondary distribution of income account.

This amount is shown as payable to households by the pension fund.
Because much of the increase in the pension 17.144 The fundamental difference in accounting for a defined benefit pension scheme as compared with a defined contribution pension scheme is that, for the defined benefit pension scheme, the benefit to the employee in the current period is determined in terms of the undertakings made by Table 17.6 (cont):Accounts for pension benefits paid through social security - resources Generation of income account Employers' actual social security contributions (pension) Allocation of primary income account Employers' actual social security contributions (pension) Secondary distribution of income account Social security contributions (pension) Employers' actual social security contributions (pension) Household actual social security contributions (pension) Social security pension benefits Social security fund Employer Households Other sectors Total economy Resources 139.0 210.0 226.0 139.0 87.0 139.0 226.0 139.0 87.0 210.0 361 System of National Accounts the employer about the level of pension ultimately receivable, whereas for the defined contribution pension scheme the benefit to the employee in the current period is determined entirely by the contributions made to the scheme and the investment income and holding gains and losses earned on these and previous contributions.
Thus while there is (in principle) exact information available on the benefits for the participant in the defined contribution pension scheme, the benefits for the participants in a defined benefit pension scheme must be estimated.

The source of these estimates is the actuarial estimates the employer is faced with in drawing up his own accounts.

17.145 There are four sources of changes in pension entitlements in a defined benefit pension scheme.
The first of these, the current service increase, is the increase in entitlement associated with the wages and salaries earned in the current period.

The second source, the past service increase, is the increase in the value of the entitlement due to the fact that for all participants in the scheme, retirement (and death) are one year nearer.

The third change in the level of entitlement is a decrease due to the payment of benefits to retirees of the scheme.
The fourth source of change comes from other factors, factors that are reflected in the other changes in assets account.

17.146 As with a defined contribution pension scheme, both employer and employee may make actual contributions to the scheme in the current period.

However, these payments may not be sufficient to meet the increase in the benefits accruing from the current year’s employment.
Therefore an additional contribution from the employer is imputed to bring equality between the contributions and the increase in current service entitlements.

These imputed contributions increase are usually positive but it is possible for them to be negative if the sum of the contributions received exceeds in current service entitlements.

The the implications of this case are discussed below when examining the relationship between the employer and the fund.
17.147 At the end of an accounting period, the level of the pension entitlements due to past and present employees can be calculated by estimating the present value of the amounts due to be paid in retirement using actuarial estimates of the expected life length of the beneficiaries.

This is the amount that appears in the balance sheet as the liability towards the employees.
One element in the increase of this amount year by year is the fact that the present value of the entitlements existing at the beginning of the year and still due at the end of the year have increased because the future is one year nearer and so one fewer discount factor must be used to calculate the present value.

It is this unwinding of the discount that accounts for the past service increase in entitlements.
17.148 A further basic difference between a defined benefit pension scheme and a defined contribution pension scheme concerns the payment for the cost of operating the pension scheme.

As already noted, under a defined contribution pension scheme all the risk is borne by the beneficiaries.

The pension scheme is operated on their behalf and they pay for the cost of it.
Since the fund may be operated by a unit other than the employer, it is appropriate to treat the operating cost as part of the investment income that is retained by the fund to meet its costs (and generate a profit).
In keeping with accounting for insurance, the investment income is treated as being attributed in full to Table 17.7:Accounts for pension benefits payable under a defined contribution scheme - uses Uses Production account Output Generation of income account Employers' actual pension contributions Allocation of primary income account Employers' actual pension contributions Property income Property income payable on pension entitlements Secondary distribution of income account Household total pension contributions Employers' actual pension contributions Household actual pension contributions Household pension contribution supplements pension scheme service charges Defined contribution pension benefits Use of income account Final consumption expenditure Adjustment for the change in pension entitlements Saving Changes in assets Financial account Net borrowing/lending Change in pension entitlements Other financial assets Pension Employer fund Households Other sectors Total economy 11.0 -11.0 16.2 26.0 11.3 -11.8 37.3 11.0 11.5 16.2 -1.4 1.4 0.0 25.8 3.0 -3.0 11.0 0.0 0.0 3.0 16.2 0.0 37.3 11.0 11.5 16.2 -1.4 26.0 0.0 1.4 11.3 0.0 -11.0 -0.5 11.3 14.5 -3.0 11.3 0.0 362 Cross-cutting and other special issues the beneficiaries, part being used to meet the cost and the remainder being reinvested with the fund.
Transactions recorded for a defined benefit pension scheme 17.149 For a defined benefit pension scheme, the situation is somewhat different.

The risk that the fund may be insufficient to meet the promises of entitlement is met in part or in whole by the pension manager (either the employer or a unit that has assumed the risk of meeting the pension obligations) and not by the beneficiaries alone.
The fund may be directly controlled by the employer and be part of the same institutional unit or may be purely notional.

Even in this case, there are costs associated with operating the scheme.

Although these are initially borne by the employer, it is appropriate to regard this as a form of income in kind provided to the employees and for convenience it may be included with the employers’ contributions.
There is an element of pragmatism in this since this assumes all the costs are borne by current employees and none by retirees.

It also assumes that the attribution that must be made in the case of notional schemes can be applied in other circumstances also.
17.150 For a defined benefit scheme, it is unlikely that self- and non-employed persons currently contribute though it is possible if they were previously in employment giving rise to a defined benefit pension and have the right to continue to participate.

Those previously in employment (whether currently in receipt of a pension or not) receive investment income and pay contribution supplements.
17.151 The initial discussion assumes that the employer retains the whole responsibility for meeting the pension payments.

Alternatives involving the use of a multiemployer scheme or where government assumes responsibility on behalf of the employer are discussed subsequently.
17.152 The total contribution made by an employer to a defined benefit pension scheme on behalf of his employee must be sufficient that, together with any actual contribution by the employee and excluding the cost of operating the scheme, it exactly matches the current service increase in the employee’s pension entitlements.
The contribution by the employer is divided into an actual and an imputed part, the latter being calculated so as to meet the need of an exact match between all contributions to the fund adding to the entitlements of the employee and the current service cost of these entitlements.
17.153 The contribution by the employer should be calculated in relation to the pension entitlement earned in the period regardless of any investment income earned by the scheme in the same period or any overfunding of the scheme.

The current period entitlement is part of compensation of employees and not to include the full value of the employer’s contribution understates compensation of employees and therefore overstates operating surplus.
An extreme case has occurred in the past when the investment of the pension entitlements has done so well that the employer has taken a “contribution holiday”, that is he has not made an actual contribution towards new entitlements.
Table 17.7 (cont):Accounts for pension benefits payable under a defined contribution scheme - resources Production account Output Generation of income account Employers' actual pension contributions Allocation of primary income account Employers' actual pension contributions Property income Property income payable on pension entitlements Secondary distribution of income account Household total pension contributions Employers' actual pension contributions Household actual pension contributions Household pension contribution supplements pension scheme service charges pension benefits Use of income account Final consumption expenditure Adjustment for the change in pension entitlements Saving Financial account Net borrowing/lending Change in pension entitlements Other financial assets Resources Other sectors Total economy Households Employer Pension fund 1.4 1.4 11.0 3.0 16.2 37.3 11.0 11.5 16.2 -1.4 26.0 11.3 3.0 37.3 11.0 11.5 16.2 -1.4 11.0 16.2 26.0 11.3 Changes in liabilities -11.0 -11.8 11.3 25.8 -3.0 0.0 11.3 0.0 363 System of National Accounts It is important that contributions continue to be recorded even in the event of a contributions holiday, the benefit to the employer being regarded as a change in liabilities between the pension fund and the employer.
This leaves the net worth of both the same as when contributions are not recorded under a contributions holiday without reducing compensation of employees artificially.

17.154 Under many defined benefit schemes, there is a qualifying period before an employee does in fact become eligible to receive a pension in retirement.
Despite this qualifying period, both contributions and entitlements should be recorded from the start of employment adjusted by a factor reflecting the probability that the employee will in fact satisfy the qualifying period.

17.155 The sum of employers’ actual and imputed pension contributions is treated as part of compensation of employees.

It is recorded as payable by the employer in the generation of income account and receivable by the employee in the allocation of primary income account.
17.156 The increase in the present value of the entitlements of continuing employees and those who no longer contribute but remain eligible for pensions in future (the past service increase) represents the investment income distributed to the employees.

No deduction is made for any amount that may be funded from holding gains or that is not actually matched by existing funds.
It matches the amount that is unequivocally due to the employee under the prevailing agreements; the means by which the employer may ultimately match this obligation is not relevant for the recording of this as investment income any more than the means by which interest or dividends are actually financed affect income.

The investment income is recorded as payable by the pension fund and receivable by households.
It is immediately reinvested by the households in the fund and in this guise is described as pension contribution supplements.

recording as investment their 17.157 In the secondary distribution of income account, social contributions are shown as payable by households and receivable by the pension fund.
The total amount of the social contributions payable is made up of the actual and imputed contributions payable by the employers as part of compensation of employees (excluding the amount of the costs of running the pension scheme), plus actual the contribution contributions by employees plus supplements just specified.
As explained in the discussion under defined contribution schemes, the accounts show the full value of the contributions and contribution supplements with an offsetting item representing the service charge payable.

The amount actually payable is thus a net contributions figure.
Table 17.8:Accounts for pension benefits payable under a defined benefit scheme - uses Uses Production account Output Generation of income account Employers' actual pension contributions Employers' imputed pension contributions Allocation of primary income account Employers' actual pension contributions Employers' imputed pension contributions Property income Property income payable on pension entitlements Secondary distribution of income account Household total pension contributions Employers' actual pension contributions Employers' imputed pension contributions Household actual pension contributions Household pension contribution supplements Pension scheme service charges Pension benefits Use of income account Final consumption expenditure Adjustment for the change in pension entitlements Saving (actual) Saving (imputed) Changes in assets Financial account Pension Employer fund Households Other sectors Total economy 10.0 4.1 -10.0 -4.1 4.0 16.0 3.0 -5.3 4.1 10.0 4.1 2.2 4.0 19.0 10.0 4.1 1.5 4.0 -0.6 16.0 0.6 3.0 0.0 0.0 3.0 4.1 0.0 2.2 -2.2 -2.2 19.0 10.0 4.1 1.5 4.0 -0.6 0.6 17.5 3.0 14.5 Net borrowing/lending (actual) Net borrowing/lending (imputed) Change in pension entitlements Claim of pension fund on pension manager (current service) Other financial assets -10.0 4.1 -2.3 364 Cross-cutting and other special issues 17.158 Also in the secondary distribution of income account, the pension benefits payable to households by the pension fund are shown.
When the benefits are taken in terms of an annuity, it is the annuity payments that are shown here, not the lump sums payable at the time of retirement.

(Unless the demographics of the retirees changes dramatically, the two figures will be very similar in any case.)
17.159 In the use of income account, there is an entry for the payment of the service provided by the pension fund (equal to the value of the pension fund’s output plus the output of the enterprises operating annuities bought with pension entitlements) payable by households to the pension fund and recorded as final consumption expenditure.
17.161 The same amount that is included in the use of income account as the adjustment for the change in pension entitlements is included in the financial account as a claim by households on the pension fund.

(The other part of this item reflects any change in responsibility for pension entitlements recorded as part of capital transfers.
)The other factors affecting the change in the balance sheet entry for the change in pension entitlements are shown in the other changes in assets accounts and are discussed below in section 4.

Defined benefit pension schemes operated by other than employers 17.160 Also in the use of income account, there is an entry showing the increase (or decrease) in pension entitlements caused by the excess of contributions payable less benefits receivable in the secondary distribution of income account.
This amount is shown as payable to households by the pension fund.

In the case of a defined benefit pension scheme, the amount is unlikely to be negative unless it is a scheme for a defunct employer and it is only paying benefits and not receiving new contributions.

17.162 It is possible that some other organization, such as a trades union, may operate a defined benefit pension scheme for its members that is in all respects parallel to an employer’s the same defined benefit pension scheme.
Exactly recording is followed as just described except that references to the employer should be understood to refer to the scheme organizer and references to the employee should be understood to refer to the participant in the scheme.
Table 17.8 (cont):Accounts for pension benefits payable under a defined benefit scheme - resources Production account Output Generation of income account Employers' actual pension contributions Employers' imputed pension contributions Allocation of primary income account Employers' actual pension contributions Employers' imputed pension contributions Property income Property income payable on pension entitlements Secondary distribution of income account Household total pension contributions Employers' actual pension contributions Employers' imputed pension contributions Household actual pension contributions Household pension contribution supplements Pension scheme service charges Pension benefits Use of income account Final consumption expenditure Adjustment for the change in pension entitlements Saving (actual) Saving (imputed) Employer Pension fund Households Resources Other sectors Total economy 0.6 2.2 19.0 10.0 4.1 1.5 4.0 -0.6 10.0 4.1 4.0 16.0 3.0 0.6 10.0 4.1 2.2 4.0 19.0 10.0 4.1 1.5 4.0 -0.6 16.0 3.0 Financial account Net borrowing/lending (actual) Net borrowing/lending (imputed) Change in pension entitlements Claim of pension fund on pension manager (current service) Other financial assets -10.0 -4.1 4.1 -5.3 4.1 3.0 Changes in liabilities 17.5 -2.2 0.0 0.0 3.0 4.1 365 System of National Accounts The relationship between the employer and the pension fund to administer 17.163 As noted above, an employer may contract with another unit fund and arrange the pension disbursements to the beneficiaries.
There are two ways in which this may happen.

The operator of the pension fund may simply act as the responsibility for any shortfall in the fund (or the benefit of any excess) remains with the employer.

In this case the unit handling the day to day running of the pension fund is called the pension administrator.
the employer’s agent and fund accepts the multiemployer pension 17.164 However, it is not uncommon for a single unit to contract with several employers to manage their pension funds as a multiemployer pension fund.

The arrangements are such the that responsibility for any shortfall in the funds to meet the liabilities in return for the right to keep any excess funds.
By pooling the risks over a number of employers the multiemployer fund expects to balance under- and over- funding so as to emerge with an excess over all the funds taken as whole in a similar way that an insurance corporation pools risk for many clients.

In such a case, the unit assuming responsibility for meeting the pension obligations becomes the pension manager in place of the employer.
17.165 In the case where the employer retains the liability for any underfunding or the benefit of any overfunding, a claim on (or liability towards) the employer (the pension manager) by the pension fund should be recorded for any deficit or surplus.
This claim is equal to the difference between the increase in pension entitlements and the sum of the contributions and contributions supplements in the period, plus the investment income earned on the entitlements, plus the holding gains made on them, less the pensions payable, less the fee charged by the pension administrator.

When the amount accruing to the pension fund exceeds the increase in entitlements, there is an amount payable by the pension fund to the employer as pension manager.
In this way the net worth of the pension fund remains exactly zero at all times.

17.166 The amount due to the pension manager by the pension fund is where the impact of a contribution holiday shows up since it includes the amount of the employer’s contributions that would normally be payable.

A numerical example Transactions for a defined benefit schemes 17.167 In order to illustrate the recording of transactions connected with a defined benefit pension scheme, table 17.8 shows a numerical example.
Figures that are imputed are shown in bold; those that result from re-routing are shown in italics.

employer must provide 14.1.

He actually contributes 10 so the remaining 4.1 is an imputed contribution.

The output of 0.6 is shown in the production account; the contributions by the employer are shown as payable by the employer in the generation of income account and receivable by the households in the allocation of primary income account.
17.169 In the allocation of primary income account, investment income is also shown.

The increase in pension entitlement coming from past service, due to the unwinding of the discount factor because retirement is one year nearer, is 4.

This is shown as an imputed flow of investment income from the pension fund to households.

At the same time, the pension fund actually earns 2.2 from investment income of the funds they manage.
At this point, therefore, there is a shortfall of 1.8 in the pension fund resources but it is not shown in the current accounts.

17.170 In the secondary distribution of income accounts, the payments from households to the pension fund are shown.

This can be viewed in one of two ways.

The sum of the contributions paid by households should be equal to the increase in entitlements coming from current service (15) plus that coming from income on past entitlements (4) or 19 in total.
The amounts actually paid are 10 received as the employers’ actual contributions, 4.1 as the imputed contributions, 1.5 of the households own contributions, contribution supplements of 4 less the service charge of 0.6; again 19 in total.

In the same account pensions of 16 are also shown as payable by the pension fund to households.
17.171 In the use of income account, as well as the purchase of the service charge as part of household final consumption expenditure, the change in pension entitlement is shown as payable by the pension fund to households.

In this example, the amount of household contributions of 19 is set against pension benefits of 16.

There is thus an increase in pension entitlements of 3 owing to households.

17.172 Households have saving of 17.5 of which 3 is the increase in their pension entitlements.
This means that they have acquired other financial assets (or reduced liabilities) by 14.5.

This figure is the difference between the benefits received (16) and households’ actual contributions of 1.5. routed via households, 1.5 17.173 For pension funds, saving is -1.2 but this can be seen as the composite of the actual and imputed elements.

In terms of actual flows, pension funds receive contributions of 10 from from employers households and pay out benefits of 16.
In addition, they receive investment income of 2.2.

Their disposable income is thus -2.3.

When the change in pension entitlements of 3 is taken into account, saving is -5.3.

In addition, employers make an imputed contribution of 4.1.

This is routed via households but adds 4.1 to the saving of the pension fund and reduces saving of the employer by the same amount.
17.168 Actuarial calculations show that the increase in pension entitlement coming from current service, that is the pension “earned” in the year in question is 15.

Households (the employees) contribute 1.5.

The employer therefore is obliged to provide 13.5.

In addition the cost of operating the scheme is estimated at 0.6.
In total therefore the 17.174 In the financial account of the pension fund, the figure of 4.1, which was the imputed contribution, is shown as the claim of the pension fund on the employer.

There is a claim by households on the pension fund of the change in pension entitlements of 3.

In addition the pension fund either runs down financial assets or increases liabilities by 2.3, the 366 figure corresponding to disposable income excluding the imputed contribution element from the employer.
Defined contribution pension schemes promotion means that the total pension entitlements accrued to date are increased to take account of the new salary level.

This is a significant benefit for the individual being promoted but what are the consequences for the employer’s pension liabilities?

Cross-cutting and other special issues 17.175 Table 17.7 shows the similar flows for a defined contribution scheme.
The accounts are simpler, compared to the defined benefit case, because there are no imputed contributions.

Further, the investment income payable by the pension fund to households reflects only investment income received by the pension fund and does not involve calculations about increases in entitlement from the operation of a formula.

17.176 The investment of the entitlements of defined contribution pension schemes leads to holding gains (and possibly losses).
These come about through the management of the assets held by the fund but an amount exactly equal to the holding gains and losses should be attributed as an increase in the pension entitlement of the beneficiaries.

The holding gains appear under entries for the relevant assets in the revaluation account for the pension fund with a matching entry for the increase in the liability of the pension fund towards households.
Other flows for a defined benefit pension scheme 17.177 At first sight it would seem that there are no entries to be made in the other changes in assets accounts for a defined benefit pension scheme since the two components recorded as the pension contributions and investment income are matched exactly to the increase in entitlements.
However, because the nature of a defined benefit pension scheme is that the amounts due are determined by a formula, there are other factors that may intervene to change the level of entitlements.

These factors include a price escalation clause, changes in the formula used to determine benefits and demographic assumptions about life length.

The special case of the impact of promotions on entitlements is discussed separately below.

17.178 A pension fund invests the funds at its disposal.
If they work on a fully funded basis, the investment income should be more than enough to cover any price escalation clause in the pension agreement.

The excess may also be sufficient to cover some other adjustments to entitlements.

However, a major source of revenue comes from holding gains on investments.

These were assumed to be sufficient to cover most or all changes in entitlements.
It has become clear that many schemes were underfunded in the expectation that holding gains would make up this shortfall also.

17.179 Given these adjustments are funded in large part by holding gains which appear in the revaluation account, it seems reasonable to record the contingencies that they are assumed to cover in the other changes in the volume of assets account except for the price escalation factor which should appear in the revaluation account.
The issue of promotions 17.180 Many defined benefit pension schemes use a formula to set benefits that involves either the final salary or average salary as a key determinant.

This implies that any 17.181 The accounting profession uses two actuarial terms that bear on this discussion.

The accrued benefit obligation (ABO) records, as it name implies, only the benefits actually accrued to date.
It represents the amount the employee could walk away with if he left the firm tomorrow and may be the basis of assessing a person’s net worth in the case of a divorce settlement, for example.

A projected benefit obligation (PBO) is a more prudent measure of what the eventual level of entitlement is likely to be.

For an individual, the PBO makes assumptions about how many future promotions the person is likely to receive and calculates his final salary accordingly.
Then, if he has in fact only worked 20 out of an expected 40 years, it halves the final salary and calculates pension entitlement for the individual as if this were his current salary.

Where an individual’s ABO increases in steps as he is promoted, the PBO increases steadily over time.

For the individual, PBO is always higher than ABO until the moment of retirement when the ABO catches up with the PBO.
17.182 It would seem at first sight that the level of pension entitlements for a corporation should be the sum of all the pension entitlements of each of the employees and that therefore the sum of the PBO estimates would be considerably higher than that of the sum of the ABO estimates and would evolve more smoothly over time.

However, what is true for the individual is not necessarily true for the cohort of employees.
Suppose the employer has five classes of people for whose pensions he is responsible, four grades of employees and one set of retirees, and for simplicity there are the same number of each.

Consider the situation where in a year the retirees die; the most senior set of employees retire, the next three sets of employees are all promoted and a new set of employees is recruited at the lowest level.

Every current employee is better off after promotion but the overall liability of the employer has not changed.
The effect of aggregating ABOs is to smooth the total entitlement and while it will still be lower than the aggregate PBOs, it will not necessarily be more volatile.

Indeed it may be more stable.

17.183 While the profile of the ABO of an individual will show step changes when promotions occur, for a cohort of employees, the effect is much smoother.
For a cohort of the same age remaining with the corporation for the whole of their working lives, the ABO estimates will be considerably lower than PBO estimates in the early years but the rate of increase of the ABOs will be faster than that of the PBOs so that at the point immediately before retirement, the two sets of estimates will be equal.

Merging cohorts of employees with different periods of service with the corporation will bring the ABO estimates for all employees closer to the PBO ones also.
17.184 As long as the grade structure of the corporation stays the same, ABO and PBO will move roughly in step.

If the firm expands and takes on many new employees at the lower grades, the PBO will be increase noticeably faster than the ABOs because the PBOs make estimates of how long the 367 System of National Accounts new employees will stay and how far they will be promoted while the ABOs record simply the pension accrued in their first year.
If the firm decides to downsize and reduces the number of their managerial staff, this will reduce the promotion prospects of the employees and a downward revision in PBO will be necessary.

Because ABOs reflect simply the “locked-in” pension, this estimate is not affected.

17.185 The question arises, though, of how to record the impact of promotion on the employee if an ABO recording is used.
Any version of treating the increase as a form of compensation of employees or investment income falls back into the assumption that the aggregate of entitlements is the sum of the individual entitlements but without looking at other individual impacts on the aggregates such as when someone leaves and loses pension entitlement because not enough time has been served or when someone dies before retirement age.
A simpler and adequate solution is to treat the impact of promotions for the unit as a whole as a price change and record the change in the revaluation account.
Table 17.9:Detailed transactions concerning social insurance Intermediate consumption Output (Output shown as negative use for compactness) Employers' actual social insurance contributions Table number 17.1 Non-life insurance Non-life insurance Life insurance 17.1 17.2 17.5 Other employment-related schemes - funded non-pension benefits 17.7 Other employment-related schemes - DC pension benefits 17.8 Other employment-related schemes - DB pension benefits Social security non-pension benefits 17.3 17.5 Other employment-related schemes - funded non-pension benefits 17.6 17.7 Other employment-related schemes - DC pension benefits 17.8 Other employment-related schemes - DB pension benefits Social security pension benefits Employers' imputed social contributions Household actual contributions 17.4 Other employment-related schemes - unfunded non-pension benefits 17.8 Other employment-related schemes - DB pension benefits Social security non-pension benefits 17.3 17.4 Other employment-related schemes - unfunded non-pension benefits 17.5 Other employment-related schemes - funded non-pension benefits 17.6 17.7 Other employment-related schemes - DC pension benefits 17.8 Other employment-related schemes - DB pension benefits Social security pension benefits Investment income Non-life insurance Life insurance 17.1 17.2 17.5 Other employment-related schemes - funded non-pension benefits 17.7 Other employment-related schemes - DC pension benefits 17.8 Other employment-related schemes - DB pension benefits Insurance service
 charges paid by households 17.1 17.2 Non-life insurance Life insurance Social insurance scheme service charge Social security pension benefits 17.5 Other employment-related schemes - funded non-pension benefits 17.6 17.7 Other employment-related schemes - DC pension benefits 17.8 Other employment-related schemes - DB pension benefits Social insurance benefits Social security non-pension benefits 17.3 17.4 Other employment-related schemes - unfunded non-pension benefits 17.5 Other employment-related schemes - funded non-pension benefits 17.6 17.7 Other employment-related schemes - DC pension benefits 17.8 Other employment-related schemes - DB pension benefits Social security pension benefits Adjustment for the change in pension entitlements 17.5 Other employment-related schemes - funded non-pension benefits 17.7 Other employment-related schemes - DC pension benefits 17.8 Other employment-related schemes - DB pension benefits Claim by pension fund on pension manager 17.8 Other employment-related schemes - DB pension benefits 368 Insurance corporation/ Social insurance Employer fund Households Other sectors Total economy 1 1 181 15 6 139 11 10 13.1 9 4.1 3 3 4 4 -13 -6 -4 -1 -1.4 -0.6 37.2 6 7 4 16.2 4 290 22 9 7 210 26 16 -2 - -2 11.3 3 4.1 4.1 Cross-cutting and other special issues 17.186 If
 the PBO method of recording entitlements is chosen as the preferred valuation, an adjustment in the other changes in volume of assets account is needed only if the structure of the enterprise changes so the chances of promotion change.
On the other hand, the regular estimates of the employer’s contributions to social insurance schemes included in compensation of employees will be systematically higher than those made under an ABO regime because the increase in pension entitlement that determines the size of the contributions will be based on a notional salary calculated on a PBO basis rather than the actual one.

3.
3.

Transferring pension entitlements 17.187 One characteristic of the changing environment of pensions is the increasing possibility of having “portable pensions”.

Until recently it was often the case that a person leaving one employer had his pension frozen at that point and had to start a new pension with the new employer.

It is becoming more common now for a person moving jobs to be able to convert the pension entitlement with the former employer to one with the new employer.
When this happens, the household concerned is unaffected but there is a transaction between the two pension funds as the new one assumes the liability of the former.

In addition there will be a counterpart transaction in some assets to match these liabilities.

If the new employer is running a scheme that is actually unfunded, he may receive cash from the former employer.
If this cash is then used by the employer for purposes other the pension entitlement of than the pension fund, his liability to the fund increases and his use of the cash appears as net borrowing.

17.188 If government assumes the responsibility for pension provision for the employees of a non-government unit through an explicit transaction, a pension liability should be recorded in the balance sheet of government.
If the government does not receive matching assets in return, the difference between the increase in the government’s liability and the assets received is shown as a capital transfer to the non-government employer.

There is further discussion of this type of arrangement in chapter 22.

17.189 Another way in which pension entitlements may be transferred between funds is when one corporation takes over another.
If the pension fund is a separate institutional unit, all that changes is control of the pension fund.

If there is no separate institutional unit, assuming the takeover does not change the terms of the pension plan for existing participants, the corporation being taken over passes both the pension liabilities and the corresponding assets to the new owner.

4.
4.

A note on the tables 17.190 For cross-reference with tables in other chapters, table 17.9 shows the itemized components of transactions pertaining to social and other insurance in tables 17.1 to 17.8 inclusive.

K. The special case of government providing pensions via social security 17.191 In recognition of the fact that social security is normally financed on a pay-as-you-go basis, entitlements accruing under social security (both pensions and other social benefits) are not normally shown in the SNA.
If all countries had similar benefits provided under social security and under private international comparisons would be relatively straightforward.

However, as pointed out at the beginning of this part, this is far from being the case and national perceptions of exactly what is covered by social security vary considerably.

schemes, 17.192 There are two problems with simply suggesting that entitlements from social security should be shown in the SNA.
The first is that reliable estimates of the entitlements may not be readily available whereas it is increasingly the case that such estimates exist for private schemes.

Secondly, there is an argument that such estimates are of limited usefulness where government has the possibility of changing the basis on which entitlements are determined in order to keep the entitlements within the bounds of what is budgetarily feasible.
However, the consequence of simply accepting that entitlements for private schemes are shown and for social security are not is that some countries would include the greater part of pension entitlements in the accounts and some would show almost none.

17.193 In recognition of this dilemma, some flexibility regarding the recording of pension entitlements of unfunded pension schemes sponsored by government for all employees (whether private sector employees or government’s own employees) is provided.
Given the different institutional arrangements in countries, only some of these pension entitlements may be recorded within the main sequence of accounts (here referred to as the “core accounts”).

In addition, however, a further table is to be presented that provides information disclosing the proportion of pension provision covered the core accounts with some approximate estimates for the remaining schemes.
It is a requirement, though, that a set of criteria be provided to explain the distinction between those schemes carried forward to the core accounts and those recorded only in the supplementary table.
in 17.194 The sort of criteria that might be considered are the following: The closer a government employer pension scheme is to the prevailing social security scheme, the less likely it is to appear in the core accounts; the less the benefits are tailored to the specific characteristics of the individual and the more they are applicable to the population at large, the less likely it is to appear in the core accounts; the greater the ability of government to alter the benefit formula, the less likely it is to appear in the core accounts.
However, none of these criteria alone is 369 System of National Accounts necessarily decisive in determining whether the scheme is treated in the core accounts or not.

the entitlements are where the supplementary table is to be part of the SNA research agenda.
shown only in 17.195 By making this supplementary table and annotation a standard requirement for international reporting, analysts have the possibility of ensuring that cross country comparisons are not unduly clouded by the institutional variations from country to country.

Further work on refining the criteria for the distinction between the pension schemes fully recorded in the core accounts and those 17.196 The supplementary table is shown in table 17.10.
As well as the possibility of including less robust estimates for countries with large social security sectors, the possibility will also exist of working back to a narrower coverage of private pensions for all countries being analysed.
Table 17.10:A supplementary table showing the extent of pension schemes included and excluded from the SNA sequence of accounts Liabilities appear in the core national accounts Liabilities do not appear in the core national accounts Non-general government General government General government employee defined benefit schemes Position / transaction / other flow Column number Opening balance sheet 1 Pension entitlements Transactions 2 2.1 2.2 2.3 2.4 Social contributions relating to pension schemes Employer actual social contributions Employer imputed social contributions Household actual social contributions Household social contribution supplements Other (actuarial) accumulation of pension entitlements in social security funds Pension benefits Adjustment to the change in pension entitlements Change in pension entitlements due to transfers of entitlements Changes in entitlements due to negotiated changes in scheme structure Other economic flows Revaluations Other
 changes in volume 10 Pension entitlements Closing balance sheet Related indicators Output Assets held by pension schemes at end-year Empty cells show where entries appear in the main ("core") accounts.
Black cells show where no entry is appropriate.

Grey cells show where information is provided in the supplementary table only.
Row 2 is the sum of rows 2.1 to 2.4 Row 3 is the analogue of employer's imputed contributions in the case where government has assumed the ultimate responsibility for any shortfall in pension provision Row 5 is the sum of rows 2 and 3 less 4 More information on the components underlying rows 8 and 9 to be shown in a further supplementary table to allow an assessment of the degree of uncertainty in these estimates.
370 17.197 As noted above, providing detail on defined contribution schemes is relatively straightforward since full accounts must be available and no actuarial estimation is involved.

Most of these are in the corporations sectors (column A) but it is possible that some government employees may be covered by them (column D).

All defined contribution pension schemes should be included in the core accounts.
Estimates for all defined benefit pension schemes outside social security should also be included (column B).

17.198 Government schemes for their own employees where separate accounting information, distinct from social security, is shown in the main accounts appear in columns E and F. Column E shows schemes managed by an insurance corporation and column F those managed by government itself.
Any government schemes for their own employees distinct from social security that do not appear in the main accounts, are shown in column G. The sum of columns E, F and G therefore show the total responsibility of government for pension provision for their own employees.

(Column F shows that part of all defined benefit schemes of government that are retained within the government accounts as distinct from being moved into separate units or managed for government by another institutional unit.
Column H relates to social security schemes.

Column C shows the total of all non-government schemes and column I the total of all schemes including social security.

17.199 For the most part, the beneficiaries of pension schemes are likely to be resident households.

In some countries, though, the number of non-resident households receiving pension benefits may be significant.

In this case, column J should be added indicating the amount of the total that concerns non-resident households.
17.200 Some of the entries in the rows of columns G and H, specifically the actual contributions made by both employers and employees, appear in the core accounts, even though the entitlements and change in entitlements do not.

Other entries in the columns for G and H shown only in the supplementary table are shaded in the table and explained below.
17.201 The imputed contribution by employers those government schemes for which entitlements appear in column G but not in the core accounts requires special consideration.

In the core accounts, this item is calculated, for Cross-cutting and other special issues by convention, as equal to the difference between current benefits payable and actual contributions payable (by both employees and employers).
In the supplementary table, this is replaced by the amount needed to ensure the total contributions, actual and imputed, by both employers and employees, covers both the increase in pension entitlements from current service and the costs of operating the scheme.

is shown 17.202 An item calculated on the same basis in respect of social security in row 3 as “other (actuarial) accumulation of pension entitlements in social security funds”.
The distinction from employers’ imputed social contributions is deliberate and is intended to emphasize the probable fragility of these estimates.

17.203 Items for household social contribution supplements and the other changes in entitlements are shown on the same bases as for private schemes.

17.204 Changes in pension entitlements are recorded as transactions in the following cases: a.
If the pension scheme is included in the core accounts, and the employer manager agrees a change in the terms of pension entitlements via negotiation with the affected employees, this change should be recorded as a transaction in the core accounts.

b.

If the pension scheme is not recorded in the core accounts, and the employer manager agrees a change in the terms of pension entitlements via negotiation with the affected employees, this change should be recorded as a transaction in the supplementary table.
c. In the case of social security, if changes in entitlements are agreed in parliament, this is also recorded as if it is negotiated.
17.205 Changes in pension entitlements that are imposed without negotiation are recorded as other changes in the volume of assets 17.206 The difference in the type of recording is one of principle but it is recognized that the distinction between what is negotiated and what is imposed without negotiation will be difficult to determine in practice with different situations prevailing in different countries.
371 System of National Accounts Part 3: The treatment of standardized guarantees in the SNA L. Types of guarantees 17.207 A loan guarantee is normally an arrangement whereby one party, the guarantor, undertakes to a lender that if a borrower defaults, the guarantor will make good the loss the lender would otherwise suffer.

Often a fee is payable for the provision of a guarantee though the form of this varies.

Sometimes the guarantor will acquire some rights over the defaulting borrower.
Similar guarantees may be offered in respect of other financial instruments, including deposits.

This section refers to similar guarantees of all financial instruments.

17.208 Guarantees have a significant impact on the behaviour of economic agents, both by influencing their decisions on production, income, investment or saving and by modifying the lending and borrowing conditions on financial markets.
Some borrowers might have no access to loans or be willing to make deposits in the absence of guarantees, while others might not benefit from comparatively low interest rates.

Guarantees are particularly significant for the general government sector and for the public sector as government activities are often linked to the issuance or activation of guarantees.

17.209 Three classes of guarantees are recognized.


No special treatment is proposed for guarantees in the form of manufacturers’ warrantees or other form of guarantee.

(The cost of replacing defective merchandise is an intermediate cost of the manufacturer.)

17.210 The first class of guarantees is composed of those guarantees provided by means of a financial derivative, such as a credit default swap.

These derivatives are actively traded on financial markets.
The derivative is based on the risk of default of a reference instrument and so is not actually linked to an individual loan or bond.

Incorporating the transactions connected with establishing this sort of financial derivative is discussed in chapter 11. in involved 17.211 The second class of guarantees, standardized guarantees, is composed of the sorts of guarantees that are issued in large numbers, usually for fairly small amounts, along identical lines.
There are these three parties arrangements, the debtor, the creditor and the guarantor.

Either the debtor or creditor may contract with the guarantor to repay the creditor if the debtor defaults.

The classic examples are export credit guarantees and student loan guarantees.

Government guarantees of other financial instruments such as loans and some other debt securities in return for a fee are other examples.
Here, although it is not possible to establish the likelihood of any one debtor defaulting, it is not only possible but standard practice to estimate how many out of a batch of similar debts will default.

If the guarantor is working on purely commercial lines, he will expect all the fees paid, plus the investment income earned on the fees and any reserves, to cover the expected defaults along with the costs and leave a profit.
This is exactly the same paradigm as operates for non-life 372 insurance and a similar treatment is adopted for these guarantees, described as “standardized guarantees”.

This involves including transactions and balance sheet items parallel to those for non-life insurance, including the generation of output and payments of a fee supplement and a service fee by those taking out the guarantees.
17.212 The third class of guarantees, described as one-off guarantees, consists of those where the loan or the security is so particular that it is not possible for the degree of risk associated with the debt to be calculated with any degree of accuracy.

In most cases, the granting of a one-off guarantee is considered a contingency and is not recorded as a financial asset/liability.
(As an exception, one-off guarantees granted by governments to corporations in certain well-defined financially distressed situations and with a very high likelihood to be called are treated as if these guarantees are called when the financial distress is recognized.)

If a fee is charged, this is recorded as a payment for a service at the time of payment.
If a call is made under a guarantee, a capital transfer is recorded from the guarantor to the guarantee holder at the time of default or, in cases where the guarantor obtains an effective claim on the guarantee holder, a financial transaction (including increases in equity participation) is recorded.

17.213 Standardized guarantees are to be distinguished from one- off guarantees based on two criteria: a.
They are characterized by often repeated transactions with similar features and pooling of risks; b. Guarantors are able to estimate the average loss based on available statistics by using a probability-weighted concept.

One-off guarantees are, on the contrary, individual, and guarantors are not able to make a reliable estimate of the risk of calls.

17.214 Financial derivatives are described in chapter 11.

The treatment of standardized guarantees follows.

1.
1.

Standardized guarantee schemes to is possible but unlikely 17.215 Standardized guarantees may be provided by a financial institution, insurance including but not confined corporations.

They may also be provided by government units.

It that non-financial corporations may provide these sorts of guarantees; it is most unlikely that they would be provided by any unit to a non-resident unit.

As indicated above, standardized guarantee schemes have much in common with non-life insurance.
In the general case, similar recording is recommended as described below.

17.216 When a unit offers standardized guarantees, it accepts fees and incurs liabilities to meet the call on the guarantee.

The value of the liabilities in the accounts of the guarantor is equal to the present value of the expected calls under existing guarantees, net of any recoveries the guarantor expects to receive from the defaulting borrowers.

The liability is entitled provisions for calls under standardized guarantees.
17.217 A guarantee may cover a multiyear period.

A fee may be payable annually or upfront.

In principle the fee should represent charges earned in each year the guarantee holds with the liability decreasing as the period gets shorter and so the same sort of recording should be followed here as for annuities with the fee paid earned as the future liability decreases.

In practice, some units operating guarantees may have data only on a cash basis.
This is inaccurate for an individual guarantee but the nature of the standardized guarantee scheme is that there are many guarantees of the same type, though not all for exactly the same time period nor all starting and finishing on the same dates.

Unless there is reason to suppose that there is a major change in the nature of the guarantee holders over time, using cash based data should not introduce significant error.
17.218 Altogether six sets of transactions need to be recorded in respect of standardized guarantee schemes; two relating to the measurement of the production and consumption of the guarantee service, three relating to redistribution and one in the financial account.
The value of the output of the activity, the investment income to be attributed to the guarantee holder (whether creditor or debtor) and the value of the service charge are calculated in the manner described above for non-life insurance with the concepts of fees replacing premiums and calls under a standardized guarantee scheme replacing claims.

17.219 The production and consumption transactions are as follows: a.
The output is recorded in the production account of the sector or subsector to which the guarantor belongs.

b.

The service may be paid for by either the borrower or the lender of the debt being guaranteed.

When non- financial corporations, financial corporations, general government or non-profit institutions pay fees to obtain this sort of guarantee, the fees constitute intermediate consumption, recorded in their production account.
Any fees for such guarantees payable by households are part of final consumption expenditure, recorded in the use of income accounts.

17.220 The redistributive transactions cover investment income attributed to guarantee holders in respect of standardized guarantee schemes, net fees, and calls under standardized guarantee schemes.

Cross-cutting and other special issues b.


Net fees are calculated as fees receivable plus fee supplements (equal to the investment income attributed to the unit paying the fee for the guarantee) less the value of the services consumed.

These net fees are payable by all sectors of the economy and receivable by the sector of the guarantor.
c. Calls under standardized guarantee schemes are payable by the guarantor and receivable by the lender of the debt under guarantee, regardless of whether the fee was paid by the lender or the borrower.

Both net fees and calls are recorded in the secondary distribution of income account.

17.221 In the financial account, an entry shows the difference between payment of fees for new guarantees and calls made under existing guarantees.

2.
2.

Guarantees provided by government this case 17.222 Governments often offer guarantees for specific policy purposes.

Export credit guarantees are one example.

The guarantees may be issued by a government unit that can be treated as a separate institutional unit.

When this is so, the normal rules for the allocation of government units to either publicly controlled corporations or as part of general government apply.
If a guarantee unit charges fees that are economically significant (in this may be equivalent to saying that most of the calls plus the administrative costs are covered by the fees charged), then this is a market activity.

It should be treated as a financial corporation and transactions should be recorded as described above.

If the fees cover most but not all the costs, the recording is still as above.
The loss made by the agency offering the guarantees may be covered by government on a regular or intermittent basis but this is not passed on to those seeking the guarantees as a subsidy.

Regular payments are recorded as a subsidy to the agency and intermittent payments, covering cumulated losses, are recorded as capital transfers only when such payments are made.
17.223 In general, when a government unit provides standardized guarantees without fees or at such low rates that the fees are significantly less than the calls and administrative costs, the unit should be treated as a non-market producer within general government.
However, if government recognizes the probability of having to finance some of the calls under the guarantee scheme to the extent of including a provision in its accounts, a transfer of this size from government to the units concerned and a liability of this amount (under provisions for calls under standardized guarantees) should be recorded.

3.

Balance sheet implications a.


Investment income attributed to guarantee holders in respect of standardized guarantee schemes is recorded as payable by the guarantor.

It is recorded as receivable by the unit paying the fee.

Both payables and receivables are recorded in the allocation of primary income account.
17.224 Conceptually the total value on the balance sheet of the instruments under guarantee should be reduced by the extent of provisions for standardized guarantees which are estimates of the amount of debt that will be in default.

In practice, this amount is not likely to be significant compared with the total value of the instrument concerned.
373 System of National Accounts 374 Part 4: The recording of flows associated with financial assets and liabilities Cross-cutting and other special issues M. Introduction 17.225 The objective of this part of chapter 17 is to show, for each category of financial assets and liabilities, how and where changes in their values are recorded in the SNA and to show when some part of the transaction relating to a financial instrument is treated not as changing the value of the instrument itself but as a measure of the output of financial institutions.
Before describing these flows in detail in the next section, it is helpful first to recall the characteristics of financial institutions, the type of flows that are associated with providing financial services as well as the sort of income and holding gains and losses associated with holding financial assets and liabilities.

1.
1.

The characteristics of financial institutions 17.226 Within the SNA, the term corporations is used to describe institutional units providing both financial and non- financial services.
These are divided into two institutional Figure 17.2:Indications of the flows associated with different financial instruments Services appearing in the production account Property income appearing in the distribution of primary income account Revaluation account Buy/sell margin Margin on interest Interest Dividends Investment income attributed to collective investment fund share holders Withdrawals from incomes of quasi- corporations Holding gains and losses Financial instrument Monetary gold and SDRs Gold bullion Unallocated gold accounts SDRs Curency and deposits Currency Domestic Foreign Transferable deposits In domestic currency In foreign currency Inter-bank deposits Other deposits In domestic currency In foreign currency Debt securities Loans In domestic currency In foreign currency Equity and investment funds Equity Listed shares Unlisted shares Other equity Investment fund shares Money market fund shares Other investment fund shares Financial derivatives and employee stock options Financial derivatives Employee stock options x x x (x) x x x x x x x x x x x x x x x x x x x x x x x x x Other accounts receivable/payable (x) x x x x x x (x) x x x x x x x x 375 System of National Accounts and corporations non-financial sectors; financial corporations.
Financial corporations are distinguished from non-financial corporations because they play a particular role in the economy.

Some facilitate means of payments between other units thus avoiding the need for barter.

Some also provide the means whereby units seeking additional funds to finance capital formation, acquire financial assets or even for consumption can utilize the funding set aside by other units as saving.
The equation that investment in capital formation must be equal to saving plus net borrowing from the rest of the world is fundamental to the functioning of the economy, the way financial markets work and so to the accounting system itself.

17.227 When considering the financial sector alone or in connection with other statistics such as monetary and financial statistics, it is usual to speak of financial institutions rather than financial corporations.
No change in definition or coverage is implied by this change in terminology.

When subsectoring the financial sector, as explained in chapter 4, a distinction is made between those financial corporations that are primarily involved in financial financial intermediation, which are called intermediaries, and other financial institutions.

17.228 Financial intermediation is the activity of matching the needs of borrowers with the desires of lenders.
It is carried out by financial institutions preparing alternative sets of conditions under which clients can borrow and lend.

These conditions allow for variations in the rate of return that may be expected from an investment with, often, higher returns being less certain than lower returns or involving forgoing access to the funds for a longer period.

There are now very many, very diverse ways in which money can be borrowed and lent.
The act of financial intermediation is thus one of devising financial instruments that encourage those with savings to commit to lend to the financial institutions on the conditions inherent in the instruments so that the financial institutions can then lend the same funds to others as another set of instruments with different conditions.

This activity encompasses financial risk management and liquidity transformation.
provide 17.229 All financial intermediation in the SNA is carried out by financial institutions.

However, some corporations in the financial sector are not themselves intermediaries but simply financial intermediation.

For example, they may provide advice to clients about the terms available for specific types of borrowing and lending, such as a mortgage broker or provide certain sorts of financial resources such as a foreign exchange bureau that exchanges one currency for another.
These are the units described as other financial institutions.

auxiliary services to 17.230 Financial institutions provide services and charge for them.

The ways in which they charge, however, are not always obvious.

When a bank offers “free banking” it only signifies that there are no explicit fees, not that there are no implicit fees.

Fees may be charged indirectly by means of charging those purchasing a financial asset more than the seller of the same asset receives.
For example, dealers in foreign exchange typically buy and sell at different rates; the differences between those rates and the mid-point represent service charges paid by the customers.

376 17.231 Nor is it only the service charge that may have to be measured indirectly.

Bills are an offer of a fixed sum at some time in the future and the promise of this payment is sold at a discount.

The increase in value between the buying price and the redemption price is treated as interest in the SNA.
17.232 Nor are the terms in use in the financial markets exactly the terms used in the SNA.

For example, the money paid by a bank on a deposit is described as interest by the bank but is not the amount recorded as interest in the SNA because the amount paid by the bank is assumed to be a compound payment representing interest as understood in the SNA less the service charges levied on the depositor for the costs of operating the account.
In the SNA, the terms bank interest and SNA interest are used when it is necessary to distinguish the two concepts.

Unless it is qualified as bank interest, the term interest in the SNA is to be taken as referring to SNA interest.

2.

Charging for financial services 17.233 As noted above, the way in which financial institutions charge for the services they provide is not always as evident as the way in which charges are made for most goods and services.
Several kinds of financial institutions do make explicit fees for the services they render.

Other financial institutions may make implicit charges, either alone or in conjunction with explicit fees.

rendered they are 17.234 Explicit fees should always be recorded as payable by the unit to whom the services are rendered to the institution performing the service.

If the services are rendered to a corporation or to government, the costs will form part of to intermediate consumption.
If households they will be treated as final consumption unless the financial service is performed in relation to an unincorporated enterprise, the owning and occupying of a dwelling.

Within the SNA, financial services are not incorporated into the value of any financial asset even if their incurrence is necessary for the acquisition of the asset.
(This is in contrast with the treatment on non-financial assets where the costs of acquiring the asset are included in the value of the asset appearing on the balance sheet.)

Nor do explicit fees affect the value at which transactions in financial assets actually take place in the market.

including 17.235 Implicit charges for financial services have to be measured indirectly.
The charges may be simply the difference between the buying and mid-price and between the mid- price and selling price as in the example of foreign exchange quoted above.

(Each service should be calculated at the time of the transaction concerned so that holding gains and losses occurring between the time of the purchase and sale are not treated as services.)

Other implicit charges may be combined with other transactions (or other flows) on a particular financial instrument.
The service charge associated with borrowing and lending is one such example where it is combined with interest.

As noted in chapter 6 when the output of financial services is discussed, ignoring the implicit charges for financial services may lead to understating the output of the industry and sector.

Cross-cutting and other special issues 3.

Investment income associated with financial instruments 4.
Holding gains and losses on financial instruments 17.236 Most financial instruments give rise to investment income.

Debt instruments such as Special Drawing Rights (SDRs) on the IMF, loans, most debt securities, deposits and some unallocated gold accounts where the amount is repaid according to a fixed formula give rise to interest.

Equity and investment fund shares give rise to dividends or other distributions from corporate income.
As far as possible, there should be no interest arising on other accounts receivable or payable since the amounts outstanding that give rise to interest payments should be classified as loans.

In practice this might not always be possible in which case there will be some amounts of interest shown under this instrument also.
Except for other accounts receivable or payable, only gold bullion, currency, non-interest bearing deposits, financial derivatives and employee stock options never give rise to investment income.

17.237 In the normal course of events, loans and deposits denominated in domestic currency do not give rise to nominal holding gains though there will always be real holding losses for the asset holder in the presence of inflation.
Securities denominated in domestic currency where the income is in the form of coupons only may be subject to holding gains and losses.

These occur because when the interest rate varies, the present value of the future coupon payments and redemption values change and this is reflected in the market price.

17.238 For equity and investment fund shares other than money market fund shares, nominal holding gains are common and may be substantial.
Indeed, the most frequent reason for acquiring these instruments is in order to benefit from the holding gains that arise from holding them.

N. Recording flows in financial instruments 17.239 As explained above, both service charges and investment income flows may be combined with the costs of acquiring and disposing of financial assets and liabilities.

This section of the chapter, therefore, examines each class of instrument in turn to identify what flows should be recorded in each case.
Explicit fees are not covered in this section since even if they apply, their value is additional to the value at which financial assets change hands.

There are thus three types of flows of relevance in this section; the implicit fees made by financial institutions, different income flows and holding gains and losses.

A summary of the types of flows that relate to each instrument is given in figure 17.3.
Implicit fees are subdivided between those that appear as a margin between the buying and selling price and those that represent a margin on interest paid and received (FISIM).

All income flows are investment income and these flows are divided between interest, dividends, withdrawals from quasi-corporations and investment income attributed to investment fund shareholders.
Only instruments relating to insurance, pension and standardized guarantee schemes are excluded as the treatment of these schemes is described in detail in other parts of this chapter.

the 1.

Monetary gold 17.240 Monetary gold (including allocated gold accounts) consists of two subcategories, physical gold bullion and unallocated gold accounts, both of which are held by the monetary authorities (or other units authorized by them) as part of reserves.
Although it may not be possible to publish these two subcategories separately for reasons of confidentiality, it is important to understand the different considerations that apply to each of them.

17.241 Gold bullion takes the form of coins, ingots, or bars with a purity of at least 995 parts per thousand.

Gold held as a valuable by commercial banks or as inventories by some specialized industries, for example jewellers, may be indistinguishable from gold bullion or may be of a lower quality.
Physical gold, excluding gold bullion included in monetary gold, whether gold bullion or not, can be referred to as commodity gold (since it is traded on commodity markets).

17.242 Gold bullion may be sold by one monetary authority to another in another country.

In such a case the exchange is recorded as an exchange of financial assets only.
In all other cases, the gold is reclassified as commodity gold and thus a valuable held by the monetary authority (and is no longer part of reserves) and is then sold as commodity gold.

The reclassification is recorded in the other changes in the volume of assets account as demonetization of gold.

If the gold is sold abroad it will feature in exports and imports of the countries concerned.

When commodity gold is sold, there may be a trade margin attached to it.
When a monetary authority acquires monetary gold a reverse path is followed.

The gold is acquired initially as commodity gold either from a domestic unit or from abroad and is subsequently reclassified to monetary gold as monetization in the other changes in the volume of assets account.

17.243 There is no interest earned on gold bullion held as a valuable but it is subject to nominal and real holding gains and losses as the gold price changes.
Interest can be payable when one monetary authority lends gold bullion held as reserves to another monetary authority.

17.244 Unallocated gold accounts are treated as foreign currency deposits unless they are held by the monetary authorities as part of foreign reserves.

Unlike gold bullion, unallocated gold accounts have counterpart liabilities.

Because the unallocated gold accounts classified as monetary gold must be held as part of foreign reserves, the counterpart liability is necessarily held abroad.
The counterpart liability will not be treated as part of monetary gold in the counterpart country.

(Assets held abroad as part of foreign reserves are generally not identified as such within the liabilities of the 377 System of National Accounts partner country.)
If a monetary authority acquires an unallocated gold account to be treated as reserves, it is recorded first as an acquisition of a foreign currency deposit and then reclassified to monetary gold as a change of classification in the other changes in the volume of assets account.

Removing an unallocated gold account from reserves is recorded as, first, a change in classification from monetary gold to a foreign currency deposit and then as a disposal of the deposit.
17.245 Unallocated gold accounts attract interest and a service charge and are also subject to nominal and real holding gains and losses as the gold price alters.

2.

SDRs 17.246 SDRs are allocated to the countries and authorities participating in the SDR Department of the IMF.

Countries must be members of the IMF; other participants include a number of central banks, intergovernmental monetary institutions and development institutions.
Participants may hold more or fewer SDRs than their allocation as a result of transactions in SDRs between participants.

SDRs attract interest but no service charge as interest paid by participants holding more than their allocation exactly matches the interest owing to participants holding less than their allocation.

Data on the interest rates payable are available regularly from the IMF.
Since the value of the SDR is based on a basket of four key currencies, the value of SDRs is always subject to nominal and real holding gains and losses.

From time to time, new allocations of SDRs may be made; when this occurs the allocation is recorded as a transaction.

3.

Currency 17.247 Notes and coins are the simplest financial asset to record since for domestic currency, no service charges, investment income or nominal holding gains and losses are recorded.
Under inflation, though, the holder of notes and coins suffers real holding losses.

The cost of producing the physical notes and coins is recorded as government expenditure and not netted against the receipts from issuing the currency.

17.248 Foreign currency should be recorded in the national balance sheets converted to a value in domestic currency using the exchange rate relevant for the date of the balance sheet.
This value is subject to nominal and real holding gains and losses as the exchange rate of the foreign currency relative to domestic currency alters.

As noted above, there is usually a service charge associated with acquiring or disposing of foreign currency.

4.
4.

Deposits and loans 17.249 In the 1993 SNA, the acronym FISIM (Financial Intermediation Services Indirectly Measured) was used for indirect service charges on deposits and loans, No explicit mention was made of other indirect charges for financial intermediation except in the case of insurance.
Although the update recognizes other indirectly measured service charges associated with financial intermediation, it is convenient to continue to use the familiar expression, 378 FISIM, for its traditional meaning, that is, for financial intermediation associated with loans and deposits held with financial intermediaries.
issuing loans and 17.250 Paragraphs 6.163 to 6.169 describe the basic principle of FISIM and explain the need to make the distinction, referred to above, between interest as understood by the banks holding deposits and the investment income flows recorded in the SNA.

One (or possibly more) reference rate(s) should be applied to the level of loans and deposits to determine the SNA interest flows to be recorded.
The difference between these flows and bank interest are recorded as service charges payable to the banks by the units holding the deposits or loans.

This applies to both resident and non-resident units and to deposits and loans held with resident and non-resident units.
For clarity, the term bank interest is used to indicate the apparent interest as quoted by a financial intermediary to their customer; the term SNA interest is used for the amount recorded in the SNA as interest, that is the level of loans and deposits multiplied by the reference rate chosen.

For deposits with banks, the service charge is equal to SNA interest less bank interest; for loans the service charge is equal to bank interest less SNA interest.
At a minimum, it is probable that different reference rates should be used for every currency in which non-resident loans and deposits are denominated.

17.251 No exclusion is made for lending of own funds.

Although the act of lending, and the charging of SNA interest is not a productive activity, there is a service charge associated with lending.
A person borrowing from a bank is unaware whether the amounts borrowed are of intermediated funds or come from the bank’s own funds and no difference in the service charges applied should be made.

Similarly, if a person borrows from a money lender, there is a service charge payable.

(Often, in fact, the service charge is very large, reflecting the much higher risk of default faced by lender.
A noteworthy feature of some the money microfinance schemes that, because defaults are uncommon, the charges are modest.)

is 17.252 It is not always simple to determine whether positions between banks should be classified as deposits or loans.

In a complete flow of funds presentation, this should be resolved but in the absence of a flow of funds analysis, inter-bank positions may be shown under currency and deposits.

By convention they are shown under deposits.


It is assumed that the inter-bank rate at which banks borrow and lend to one another is usually such as to meet the criteria for a reference rate.

(In some cases it may be appropriate to use the inter-bank rate as the reference rate.)

For this reason, it may often be appropriate to assume that there is no FISIM associated with inter-bank lending and borrowing within the national economy.
17.253 The outstanding balance on a credit card or on an account with a retailer is often subject to interest.

These outstanding balances should be classified as loans, not other accounts receivable or payable.

FISIM is calculated on them if the unit providing the loan is classified as a financial institution.

17.254 Repurchase agreements are classified as giving rise to deposits or loans depending on whether they are or are not included in the national measure of broad money.
They thus give rise to interest that may have a FISIM component.

In addition, they have fees associated with their initiation.

17.255 There are no nominal holding gains and losses on deposits and loans expressed in domestic currency (whether these are held by residents or non-residents).

With any inflation at all, there will be real holding losses on assets denominated in domestic currency.
There may be nominal and real holding gains and losses on deposits and loans denominated in other currencies or held as unallocated gold accounts (or similar accounts in other precious metals).

17.256 Any charges made by a financial institution for operating a bank account, a fee for cashing a cheque or for withdrawing money from an automatic teller machine are all treated as explicit fees.
17.257 The special case of non-performing loans and how they should be treated in the SNA is discussed in chapter 13.

5.

Debt securities 17.258 In terms of recording the associated flows, there are three types of debt securities.
The first is where the amount payable at the end of the period for which the security exists is the same as the initial amount paid for the security but there are associated “coupons” that entitle the holder to payments of interest, at fixed or variable rates, at intervals during the life of the instrument.

The second type of security is one where no intermediate payments are made but the issue price is lower than the redemption price.
The issue price is equal to the redemption price discounted to the date of issue at the appropriate rate of interest that could be earned on a deposit of similar characteristics.

The increase in value of the security during its life is treated as interest accruing to the holder of the security that is “reinvested” in the security to increase its value.

The third type of security is a hybrid of the two other forms; the initial value is less than the redemption value but there are also attached coupons.
In certain circumstances, if the coupons represent a rate of interest higher than that prevailing in the market for similar securities at time of issue, the security may be offered at a price higher than the redemption price.

Service charges associated with securities 17.259 For securities, the interest calculated according to the coupon or as the increase in value of the security is recorded in the SNA as such without adjustment for a service charge.
However, there is a service charge associated with the acquisition of a security on initiation and with the disposal and acquisition of a security at any point during its life.

These service charges are identified as being the difference between the buying (bid) and selling (ask or offer) price quoted for each security and the mid- price.

The bid and offer prices should be those applicable to the individual buyer and seller since these may vary according to the quantity being transacted or other factors.
Cross-cutting and other special issues due to holding gains and losses).

At first sight, it seems that interest of 16 should be recorded.

However, suppose the mid-price on purchase was 100 and on sale was 120.

The correct recording would be to show interest of 20 payable by the issuer of the security to the holder with a purchase of services of 4 payable by the holder to the dealer in securities.
Ignoring the bid-ask spread understates interest the financial the services provided by and intermediaries that buy and sell securities.

ignores Interest on discounted securities 17.261 There are two ways in which the value of a discounted security can be determined during its life when the prevailing interest rate is different from the rate prevailing when the security was initiated.
The debtor approach is the perspective of the unit issuing the security and the creditor approach is the perspective of the unit holding the security.

The first option, called the debtor approach, is to continue to use the rate prevailing on initiation throughout the instrument’s life.

The alternative, the creditor approach, is to use the current rate to estimate the value of interest between any two points in the instrument’s life.
17.262 Suppose an instrument is offered at 90 with a redemption value of 100.

If the discount (interest) rate does not change during its life, interest will accrue steadily throughout.

Suppose, though, that the interest rate falls when the instrument has reached a value of 95.

Because the redemption value is now discounted by a smaller factor, the value of the security increases, say to 97.

Both the creditor and debtor approach would record interest of 5 in the period before the interest rate fall.
Under the creditor approach, this increase in value of 2 from 95 to 97 is treated as a holding gain and only the subsequent rise to the redemption value of 100 is treated as interest.

Thus over the whole life of the instrument it has given rise to interest of 8 and a holding gain of 2.

17.263 In the SNA, the debtor approach is used.

Under this approach, the interest accruing in the period before the interest rise is still 5 but so is the interest in the period after the interest rate rise.
Adding this level of interest to the value of 97 when the rise occurred would give a value of 102 at the redemption date.

Since this value is too high, a holding loss of 2 has to be recorded.

Thus over the whole life of the instrument there is interest of 10 with an initial holding gain of 2 (when the interest rate changed) offset by the later holding loss of 2.

The holding loss occurs steadily over the period between when the holding gain was recorded and the redemption period.
The rationale for using the debtor approach is that the debtor, the issuer of the security, is not liable to make the payment until the security matures and from his perspective it is appropriate to treat the total amount of interest as accruing steadily over the life of the security.
Determining interest flows on bills and bonds Interest on bills and similar instruments 17.260 Suppose an instrument is bought for 102 and subsequently sold for 118 even though there has been no change in the rate of interest (and hence of the value of the instrument 17.264 Bills are short-term securities that give the holder (creditor) the unconditional right to receive a stated fixed sum on a specified date.
They are issued and traded in organized 379 System of National Accounts markets at a discount that depends on current market short- term interest rates and the time to maturity.

Most bills mature after a period ranging from one month to one year.

annual rate that is constant over the life of the bond, so that the final value F=L(1+r)n. 17.265 As the bill approaches maturity, its market value increases because there is less discounting applied to it.
This increase in value, in common with the increase in the value of any asset due to the unwinding of a discount factor, is treated as income in the SNA.

For financial assets, the income is recorded as interest.

17.266 Let the price paid for a bill at its time of issue and after excluding the service charge be L; this represents the amount of funds that the purchaser (creditor) provides to the issuer (debtor) and measures the value of the initial liability incurred by the issuer.
Let the face value of the bill be F: this represents the sum including the service charge paid to the holder of the bill (the creditor) when it matures.

The difference, F-L, or discount on the bill, measures the interest payable over the life of the bill.

17.267 Bills are traded on money markets at values that gradually rise to reflect the interest accruing on the bills as they approach maturity.
The increase in the value of a bill due to the accumulation of accrued interest does not constitute a holding gain because it is due to an increase in the principal outstanding and not to a change in the price of the asset.

Interest on bonds and debentures 17.268 Bonds and debentures are long-term securities that give the holder the unconditional right to: a.

A fixed or contractually determined variable money income in the form of coupon payments; or b.
A stated fixed sum on a specified date or dates when the security is redeemed; or c. Both (a) and (b).

Most bonds fall into this category.

17.269 When a bond is issued at a discount, the difference between the face value, or redemption price, and the issue price constitutes interest that accrues over the life of the bond, in the same way as for a bill.
However, as accounts are compiled for time periods that are typically much shorter than the life of the bond, the interest must be distributed over those periods.

The way in which this may be done is explained below.

Zero-coupon bonds 17.270 Zero-coupon bonds are long-term securities that are similar to bills.

They do not entitle their holders to any fixed or variable money income but only to receive a stated fixed sum as repayment of principal and accrued interest on a specified date or dates.
When they are issued they are usually sold at a price that is substantially lower than the price at which they are redeemed on maturity.

Let L equal the issue price and F the redemption price, so F-L is the value of the interest receivable and payable over the life of the bond.

This interest has to be distributed over the years to its maturity.
One possible method is to assume that interest at a rate of r is credited at the end of each year at an 380 17.271 The interest rate, r, is given by the following expression r=(F/L)1/n-1 where n is the number of years from the time of issue to maturity.

The interest accruing during the course of year t is then given by rL(1+r)t-1 where t = 1 at the end of the first year.

17.272 The interest accruing each year is effectively reinvested in the bond by its holder.
Thus, counterpart entries equal to the value of the accrued interest must be recorded in the financial account as the acquisition of more bond by the holder (creditor) and as a further issue of more bond by the issuer (debtor).

Other bonds, including deep-discounted bonds 17.273 Most bonds pay a fixed or variable money income and may also be issued at a discount or, possibly, a premium.

In such cases, the interest receivable by the holders of the bonds has two components: a.
The amount of the money income receivable from coupon payments each period; plus b.

The amount of interest accruing each period attributable to the difference between the redemption price and the issue price.

The second component is calculated in the same way as for zero-coupon bonds, as described above.

In the case of deep- discounted bonds, most of is attributable to the difference between the redemption price and the issue price.
At the other extreme, some bonds offer an income stream in perpetuity and are never redeemed.
interest accruing the Index-linked securities 17.274 Index-linked securities are financial instruments for which the amounts of the coupon payments (interest) or the principal outstanding or both are linked to a general price index, a specific price index, the price of a commodity or treatments are an exchange recommended for the recording of transactions depending on the type of index used to uprate the level of principal to which the interest is linked and on the currency in which the interest and principal are denominated.
index.

Different rate 17.275 The indexation mechanism links the amount to be paid at maturity or coupon payments or both to indicators agreed by the parties.

The values of the indicators are not known in advance.

For debt securities with indexation of the amount to be paid at maturity, they may be known only at the time of redemption.

As a result, interest flows before redemption cannot be determined with certainty.
For estimating interest accruals before the values of the reference indicators are known, some proxy measures have to be used.

In this regard, it is useful to distinguish the following three arrangements: a. indexation of coupon payments only with no indexation of amount to be paid at maturity, b. indexation of the amount to be paid at maturity with no indexation of coupon payments, and c. indexation of both the amount to be paid at maturity and coupon payments.
The principles described below for index-linked debt securities apply to all index-linked debt instruments.

17.276 When only coupon payments are index-linked, the full amount resulting from indexation is treated as interest accruing during the period covered by the coupon.

It is most likely that by the time data are compiled for a reporting period, the date for the coupon payment would have been passed and hence the value of the index is known.
When the date for the coupon payment has not been passed, the movement in the index during that part of the reporting period covered by the coupon can be used to calculate the interest accrual.

17.277 When the amount to be paid at maturity is index-linked, the calculation of interest accruals becomes uncertain because the redemption value is unknown; in some cases the maturity time may be several years in the future.
Two approaches can be followed to determine the interest accrual in each accounting period.

a.

Interest accruing in an accounting period due to the indexation of the amount to be paid at maturity may be calculated as the change in the value of this amount outstanding between the end and beginning of the accounting period due to the movement in the relevant index.

b.

Interest accruals may be determined by fixing the rate of accrual at the time of issue.
Accordingly, interest is the difference between the issue price and the market expectation, at inception, of all payments that the debtor will have to make; this amount is recorded as interest accruing over the life of the instrument.

This approach records as income the yield-to-maturity at issuance, which the indexation that are foreseen at the moment the instrument was created.
Any deviation of the underlying index from the originally expected path leads to holding gains or losses which will not normally cancel out over the life of the instrument.

the results of incorporates 17.278 While the first approach (using the movement in the index) has the advantage of simplicity, interest includes all changes and fluctuations in the value of the amount to be paid at maturity in each accounting period due to the movement in the relevant index.
If there is a large fluctuation in the index, this approach may yield negative interest in some periods even though market interest rates at the time of issue and current period may be positive.

Also, fluctuations behave like holding gains and losses.

The second approach (fixing the rate at the time of issue) avoids such problems, but the actual future cash flows may differ from the initially expected cash flows unless ex ante market expectations are exactly met.
This means that interest for the life of the instrument may not be equal to the difference between the issue price and redemption value.

Cross-cutting and other special issues to change relatively smoothly over 17.279 The first approach works well when a broad-based indexation of the amount to be paid at maturity is used (for example a consumer price index) as such indexation is expected time.
However, the first approach may give counter-intuitive results when the indexation of the amount to be paid at maturity combines motives for both interest income and holding gains (for example, a commodity price, stock prices, or gold prices).

Therefore, when indexation includes a holding gain motive, typically indexation based on a single, narrowly defined item, the second approach is preferred, otherwise the first approach should be used for the measurement of interest accrual.
17.280 When both the amount to be paid at maturity and coupon payments are indexed to a broad-based reference item, interest accruals during an accounting period can be calculated by summing two elements: the amount resulting from the indexation of the coupon payment (as described in paragraph 17.276), that is attributable to the accounting period, and the change in the value of the amount the end and beginning of the outstanding between accounting period due to the movement in the relevant index (as described in paragraph 17.277(a)).
When both the amount to be paid at maturity and coupon payments are indexed to a narrow index that includes a holding gain motive, interest accruals for any accounting period can be determined by fixing the yield-to-maturity at issuance as explained in paragraph 17.277(b).
17.281 Debt instruments with both the amount to be paid at maturity and coupon payments indexed to foreign currency are treated as though they are denominated in that foreign currency; interest, other economic flows and stock levels for these instruments should be calculated using the same principles that apply to foreign currency denominated instruments.
Interest should accrue throughout the period using the foreign currency as the currency of denomination and converted into the domestic currency using mid-point market exchange rates.

Similarly, the amount outstanding should be valued using the foreign currency as the unit of account with the end of period exchange rate used to determine the domestic currency value of the entire debt instrument the international investment position.
Changes in market values of debt securities due to exchange rate movements or interest rate changes are treated as revaluations.

(including any accrued interest) in 17.282 As with other securities, the interest accruing as a result of indexation is effectively reinvested in the security and these additions to the value of the security must be recorded in the financial accounts of the holder and issuer.

6.
6.

Equity and investment fund shares 17.283 The financial service charges levied on transactions in equity and investment fund shares are calculated in the same away as for debt securities as the difference between the financial intermediary’s selling price and the mid-price and between the mid-price and the intermediary’s buying price.

They are treated as explicit fees.

17.284 The investment income from corporate equity takes the form of distributed income of corporations.
For corporations, the distributed income is in the form of 381 System of National Accounts dividends.

For quasi-corporations, the investment income is withdrawals from income of quasi-corporations.

As noted in chapter 7, dividends or other withdrawals from corporate income are recorded as investment income at the time the shares start to be quoted ex dividend.
A different recording is made for extraordinarily large dividends that are out of line with recent experience on the amount of income available for distribution to the owners of the corporation.

Any excess distribution is to be recorded as a withdrawal of equity (recorded in the financial account) and not as part of investment income.

Chapter 22 discusses the case of exceptional dividends of public corporations.
17.285 For foreign direct investment enterprises, there will also be investment income in the form of reinvested earnings.

17.286 For investment funds, the income element comes in the form of investment income disbursements to collective investment fund shareholders.

In the SNA, the full value of the investment income earned is shown as being distributed to the shareholder in the allocation of primary income account with reinvestment recorded in the financial account.
However, if an investment fund is also a foreign direct investment enterprise, the reinvested earnings are recorded before the remaining investment income is distributed to investment fund share holders.

especially options based products, a financial institution may act as a market maker and sell the products with a margin between the bid and offer price.

This margin is treated as a service charge as with other financial instruments.
17.290 The initial value of a forward-type financial derivative is zero but it acquires a value as soon as there is a change in the circumstances that the financial derivative is designed to provide financial protection against.

At this point, a financial asset and matching liability are recognized and recorded as a transaction in financial derivatives in the financial account.

Subsequent changes in value are recorded in the revaluation account.
If the value becomes negative, it becomes a liability for the holder rather than an asset and an asset rather than a liability for the seller.

17.291 At inception, options have a positive value normally equal to the premium paid to establish them.

This is recorded as a transaction in financial derivatives in the financial account.

Thereafter, any change in value is recorded in the revaluation account.

Options are always an asset for the purchaser and a liability for the seller.
17.292 There is no investment income accruing on a financial derivative.

17.287 As noted earlier, there may be considerable holding gains and losses, both nominal and real on equity and investment fund shares.

8.

Employee stock options 17.288 The entries in the financial accounts relating to acquisitions of equity conceptually contain two distinct types of transactions.

One is the exchange of equity and investment fund shares between institutional units.
Because the transactions are valued at mid-price, total acquisitions must be equal to total disposals.

The net effect, therefore, is to show the change in composition of the holders of shares by institutional sector and with the rest of the world.

The second type of transactions included in the financial account is the receipt of any reinvestment of earnings and the counterpart of the outflow recorded under investment income payable by corporations.
In calculating the revaluation element between opening and closing balance sheet, care must be taken to exclude the reinvestment of earnings term.

7.

Financial derivatives 17.293 As explained in chapter 7, the granting of an employee stock option may form a part of compensation of employees.

All issues relating to employee stock options are discussed in part 6 of this chapter.

9.
9.

Other accounts receivable or payable 17.294 Other accounts receivable or payable are essentially accrual adjustments typified by trade credit and advances.

Trade credit refers to the case where goods and services have been delivered but payment has not yet been received.

Advances refer for which prepayment has been made but the products are not yet delivered.
The means of financing payment, such as the use of credit cards, is not included here; the balance on the cards is treated as a loan and payments such as interest or overdue fees are recorded as for loans.

for work-in-progress to payment 17.289 Arranging a financial derivative may involve a set-up fee which should be shown as an explicit fee charged by the financial institution concerned and payable by the holder of the financial derivative.
For some financial derivatives, 17.295 Other accounts receivable or payable denominated in domestic currency can have no nominal holding gains and losses but may have real ones.

Any items denominated in foreign currency may have both nominal and real holding gains and losses.

382 Part 5: Contracts, leases and licences Cross-cutting and other special issues O.
Introduction 17.296 Many transactions that take place in the economy and are recorded in the SNA are specified in terms of a contract between two institutional units.

The majority of contracts are such that one unit provides a good, service or asset to the other unit for an agreed payment at an agreed time (possibly immediately after agreeing on the price).

Such contracts may be written and legally binding or may be informal or even only implicit.
If a unit accepts the estimate provided by a builder for the cost of specified work, the contract is written and may well be legally binding.

If a book is ordered from a bookshop but there is a delay in delivery, there is an informal contract between the book shop and the customer but it is unlikely to be enforceable by either side.
Whenever a customer asks how much a given service will cost, whether it is a haircut, the delivery of a heavy product or entry to a cinema, accepting the service at the quoted price is in effect an implicit contract.

However, all these contracts are simply agreements about the terms under which goods, services and assets are provided to the customer along with the legal ownership of the item.
The only extent to which these contracts feature in the SNA is that they determine the point at which the transaction is to be recorded in the accounts.

This is the time at which the ownership of the good, service or asset changes.

For services, this is always when the service is delivered and for goods it may coincide with the time of delivery.

However, is never determined by the time when payment is made.
Any difference between the time of payment and time of change of ownership gives rise to an entry in the financial account under other accounts receivable or payable.

time of recording the P. Leases to 17.300 Three types of leases are recognized in the SNA; operating leases, financial leases and resource leases.

Each of these leases relates the use of a non-financial asset.

Fundamental to the distinction between the different sorts of leases is the difference between legal and economic ownership.
This distinction is elaborated in chapter 3.

The legal owner of an asset is the institutional unit entitled in law and sustainable under the law to claim the benefits associated with the asset.

By contrast, the economic owner of an asset is entitled to claim the benefits associated with the use of the asset in the course of an economic activity by virtue of accepting the associated risks.

The legal owner is often the economic owner also.


When they are different, the legal owner has divested itself of the risks in return for agreed payments from the economic owner.

17.297 However, there are other contracts and legal agreements variously described as leases and licences (or permits) where the terms of the agreement may affect the time of recording of transactions made under the agreement as well as the classification of payments and the ownership of the item subject to the agreement.
The purpose of this part of the chapter is to provide guidance on how transactions made under these more complex arrangements are to be recorded in the SNA.

17.298 The first item for discussion concerns the different sorts of leases recognized in the SNA.

The next topic for discussion is the treatment of permits to use natural resources.
This is of particular importance when it is government that claims ownership of the resource on behalf of the community at large but can apply to privately owned resources also.

This leads naturally into a discussion of the treatment of assets where more than one unit has a claim to ownership, or the benefits of ownership accrue to more than one unit.

17.299 Some contracts are not connected with the use of assets.
The first contracts for discussion are licences (or permits) given to undertake particular activities independently of any assets that may be used in the activity.

Here there are different treatments when the permits are issued by government and when they are given by other institutional units.

The next point for consideration is when a contract can constitute an asset in itself, independently of the subject of the contract.
Finally, a number of clarifications are made concerning the timing and nature of payments made under a contract.

1.

Operating leases 17.301 An operating lease is one where the legal owner is also the economic owner and accepts the operating risks and receives the economic benefits from the asset by using it in a productive activity.

One indicator of an operating lease is that it is the responsibility of the legal owner to provide any necessary repair and maintenance of the asset.
Under an operating lease the asset remains on the balance sheet of the lessor.

17.302 The payments made under an operating lease are referred to as rentals and are recorded as payments for a service.

The character of operating leases may most easily be described in relation to equipment since operating leases often concern vehicles, cranes, drills etc.
In general, though, any sort of non-financial asset, an intellectual property product or a non-financial asset may be subject to an operating 383 System of National Accounts lease.

The service provided by the lessor goes beyond the mere provision of the asset.

It includes other elements such as convenience and security, which can be important from the user’s point of view.
In the case of equipment, the lessor, or owner of the equipment, normally maintains a stock of equipment in good working order that can be hired on demand or at short notice.

The lessor must normally be a specialist in the operation of the equipment, a factor that may be important in the case of highly complicated equipment, such as computers, where the lessee and his employees may not have the necessary expertise or facilities to service the equipment properly themselves.
The lessor may also undertake to replace the equipment in the event of a serious or prolonged breakdown.

In the case of a building, the lessor is responsible for the structural integrity of the building, so would be responsible in the case of damage due to a natural disaster, for example, and is usually responsible for ensuring that elevators, heating and ventilation systems function adequately.
17.303 Operating leasing developed originally to meet the needs of users who require certain types of equipment only intermittently.

Many operating leases are still for short periods though the lessee may renew the rental when the period expires and the same user may hire the same piece of equipment on several occasions.
However, with the evolution of increasingly complicated types of machinery, especially in the electronics field, the servicing and backup facilities provided by a lessor are important factors that may influence a user to rent.

Other factors that may persuade users to rent over long periods rather than purchase are the consequences for the enterprise’s balance sheet, cash flow or tax liability.

2.
2.

Financial leases the operating risks and receives 17.304 A financial lease is one where the lessor as legal owner of an asset passes the economic ownership to the lessee who then accepts the economic benefits from using the asset in a productive activity.

In return, the lessor accepts another package of risks and rewards from the lessee.
It is frequently the case that the lessor, though the legal owner of the asset, never takes physical delivery of the asset but consents to its delivery directly to the lessee.

One indicator of a financial lease is that it is the responsibility of the economic owner to provide any necessary repair and maintenance of the asset.

Under a financial lease, the legal owner is shown as issuing a loan to the lessee with which the lessee acquires the asset.
Thereafter the asset is shown on the balance sheet of the lessee and not the lessor; the corresponding loan is shown as an asset of the lessor and a liability of the lessee.

Payments under the financial lease are treated not as rentals but as the payment of interest and repayment of principal.

If the lessor is a financial institution, part of the payment is also treated as a service charge (FISIM).
17.305 Very often the nature of the asset subject to a financial lease may be quite distinct from the assets used by the lessor in his productive activity, for example a commercial airliner legally owned by a bank but leased to an airline.

It would make no economic sense to show either the aircraft or its consumption of fixed capital in the accounts of the bank or to omit them from the accounts of the airline.
The 384 device of a financial lease avoids this undesirable form of recording the ownership of the aircraft and the decline in its value while keeping the net worth of both parties correct throughout the length of the lease.

17.306 It is common for a financial lease to be for the whole of the life of the asset, but this need not necessarily be so.
When the lease is for the whole of the life of the asset, the value of the imputed loan will correspond to the present value of the payments to be made under the lease agreement.

This value will cover the cost of the asset and include a fee charged by the lessor.

Payments made regularly to the lessor should be shown as a payment of interest, possibly a payment for a service and a repayment of capital.
If the terms of the agreement do not specify how these three items are to be identified, the repayment of principal should correspond to the decline in the value of the asset (the consumption of fixed capital), the interest payment to the return to capital on the asset and the service charge to the difference between the total amount payable and these two elements.
17.307 When the lease is for less than the whole life of the asset, the value of the loan should still be estimated as the value of the asset plus the value of the service charges to be made under the terms of the lease.

At the end of the lease, the asset will appear on the balance sheet of the lessee and its value will be equal to the value of the loan owed to the lessor at that time.
At that point the asset could be returned to the lessor to cancel the loan or a new arrangement, including the outright purchase of the asset, may be reached between the lessor and lessee.

Because a financial lease requires the lessee to acquire substantively all the risks and rewards associated with the asset, if the lease is for less than the expected life of the asset, the lease usually specifies the value to the lessor at the end of the lease or the terms under which the lease can be renewed.
Any variation in the price of the asset from the value in the lease agreement is borne by the lessee.

17.308 Although a financial lease will typically be for several years, the duration of the lease does not determine whether the lease is to be regarded as an operating or financial lease.
In some cases a large complex such as an airport or even a building may be leased for short periods, perhaps only one year at a time, but on condition that the lessee takes all responsibility for the asset, including all maintenance and cover for exceptional damage, for example.
Even though the lease period is short, and even though the lessor may not be a financial institution, if the lessee must accept all the risks associated with the use of the asset in production as well as the rewards, the lease is treated as a financial and not an operating lease and the asset appears on the balance sheet of the lessee with a corresponding loan extended from the lessor to the lessee.
17.309 As a consequence, any corporation that specializes in this sort of leasing, even though it may be called a property company or aircraft leasing company, should be treated as a financial corporation offering loans to the units leasing assets from them.

If the lessor is not a financial corporation, the payments are split into repayments of principal and interest only; if the lessor is a financial corporation, the interest is split into SNA interest and a service charge (FISIM).
Cross-cutting and other special issues 3.

Resource leases 17.310 A resource lease is an agreement whereby the legal owner of a natural resource that the SNA treats as having an infinite life makes it available to a lessee in return for a regular payment recorded as property income and described as rent.

The resource continues to be recorded on the balance sheet of the lessor even though it is used by the lessee.
By convention, no decline in value of a natural resource is recorded in the SNA as a transaction similar to consumption of fixed capital.

17.311 The classic case of an asset subject to a resource lease is land but natural resources are also generally treated in this way.

An exception, when a long-term lease of land may be taken as the sale of the land is described in paragraph 17.328.

17.312 Payments due under a resource lease, and only such payments, are recorded as rent in the SNA.
There is further discussion of leases on natural resources in the following section.

Q. Licences and permits to use a natural resource 17.313 As noted above, in many countries permits to use natural resources are generally issued by government since government claims ownership of the resources on behalf of the community at large.

However, the same treatments apply if the resources are privately owned.
17.314 There are basically three different sets of conditions that may apply to the use of a natural resource.

The owner may permit the resource to be used to extinction.

The owner may allow the resource to be used for an extended period of time in such a way that in effect the user controls the use of the resource during this time with little if any intervention from the legal owner.
The third option is that the owner can extend or withhold permission to continued use of the asset from one year to the next.

17.315 The first option results in the sale (or possibly an expropriation) of the asset.

The second option leads to the creation of an asset for the user, distinct from the resource itself but where the value of the resource and the asset allowing use of it are linked.

The third option comes back to the treatment of the use as a resource lease.
The difference in treatment between the second and third options was articulated in the context of the case of a mobile phone licence and that recommendation (see SNA News and Notes Volume 14, (United Nations, 2002)) is recapitulated before seeing how each of the three options relates to different types of natural resources.

1.
1.

The “mobile phone” treatment of licences or permits to use a natural resource 17.316 The case arose in 2000 when the sale of licences to use radio spectra for third generation mobile phones brought a flurry of interest from companies wanting to have exclusive access to the spectra and who in consequence were prepared to bid (often by auction) extremely large sums for the access rights to the spectra.

17.317 Eight conclusions were agreed in respect of the mobile phone licences.
Allowing for updated terminology, these were: a.

The spectrum constitutes a natural resource.

b.

The licence to use the spectrum constitutes an asset described as a permission to use a natural resource which is a subset of the general asset class of contracts, leases and licences.

c. Typically licence payments are neither taxes nor purchases of the spectrum itself.

d. Land, mineral deposits and the spectrum are similar types of assets and so are leases and licences based on the use of those assets.
e. There is no single, universal and clear-cut criterion to distinguish between rent and asset sale; a range of criteria needs considering.

f. Most cases examined point to treating licence payments as the purchase of an asset, not rent.

g. The value of the licence and the value of the spectrum move symmetrically.

h. Further elaboration will be useful in future.

17.318 The considerations referred to under conclusion (e) were six in number and are reproduced below.

a.
a.

Costs and benefits assumed by licensee: the more of the risks and benefits associated with the right to use an asset are incurred by the licensee, the more likely the classification of a transaction as the sale of an asset as opposed to rent.

Thus, preagreement on the value of payments (whether by lump sum or by instalments) effectively transfers all economic risks and benefits to the licensee and so point to the sale of an asset.
If, on the other hand, the value of payment is made contingent on the results from using the licence, risks and benefits are only partially transferred to the licensee and the situation is more readily characterized as payment of rent.

In the case of mobile phone licences, the total amount payable has often been pre-agreed.
An additional to which commercial risks have been passed to the licensee is to examine the hypothetical case where a licensee goes indication of the degree 385 System of National Accounts bankrupt.

If, in such a case, the licensor reimburses none of the upfront payment made by the licensee, this a would characterization of the transaction as rent, as apparently the licensee has incurred all the commercial risks involved.
constitute against strong case a b. Upfront payment or instalment: as with other indicators, the mode of payment is in itself not conclusive for a characterization as asset or rent payment.

Generally, the means of paying for a licence is a financial issue and as such not a relevant factor in determining whether or not it is an asset.
However, business practice shows that upfront payments of rent for long periods (15-25 years in the case of mobile phone licences) are highly unusual and this favours an interpretation as sale of an asset.

c. Length of the licence: licences granted for long periods suggest a treatment as the sale of an asset, for shorter periods a treatment as payments for rent.
The time frame involved in mobile phone licensing (15-25 years) is considered rather unusual as a period for which to conclude a fixed payment of rent and therefore a further indication favouring an interpretation as sale of an asset.

d. Actual or de facto transferability: the possibility to sell the licence is a strong indication of ownership and if transferability exists, this is considered a strong condition to characterize the licensing act as the sale of third-party property rights.
In practice, mobile phone licences are often transferable either directly (by the enterprise selling the licence to another enterprise) or indirectly (through the enterprise being acquired through a takeover).

e. Cancellation possibility: the stronger the restrictions on the issuer’s capacity to cancel the licence at its discretion, the stronger the case for treatment as a sale of an asset.
Conversely, when licences can easily be cancelled at the discretion of the issuer, ownership over benefits and risks has not been fully transferred to the licensee and the transaction qualifies more readily as rent.

f. Conception in the business world and international accounting standards: businesses, in accordance with international accounting standards, often treat a licence to use the spectrum as an asset.
Again, in itself this does not lead to treatment as an asset in the national accounts, and there are other areas where companies choose to present figures in their accounts in ways that are not consistent with the national accounts.

But the treatment of the acquisition of mobile phone licences as capital investment in company accounts provides an added incentive to treat them in a similar way in the national accounts.
17.319 Not all these considerations have to be satisfied to characterize the licence as a sale of an asset nor does a simple majority of them being satisfied do so.

However, in order to qualify as a rental agreement, at least some of the following sorts of conditions should hold.

386 a.

The contract is of short-term duration, or renegotiable at short-term intervals.
Such contracts do not provide the lessee with a benefit when market prices for the leased asset go up in the way that a fixed, long-term contract would.

Such benefits are holding gains that typically accrue to owners of assets.

b.

The contract is non-transferable.


Non-transferability is a strong but not a sufficient criterion for the treatment of licence payments as rent, because, although it precludes the lessee from cashing in on holding gains, it does not preclude the lessee from reaping comparable economic benefits (for example, using the licence in their business).

c. The contract contains detailed stipulations on how the lessee should make use of the asset.
Such stipulations are often seen in cases of rent of land, in which the owner wishes to retain a control over the usage of the land.

In the case of licences, examples of such stipulations would be that the contract states what regions or types of customers should be served, or that it sets limits on the prices that the lessee may charge.
d. The contract includes conditions that give the lessor the lease without the the instance for underuse of unilateral right compensation, for underlying asset by the lessee.

terminate to than a e. The contract requires payments over the duration of the contract, rather large upfront payment.

Although this condition is essentially financial in character and thus cannot be decisive on the type of the lease, it may indicate a degree of control for the lessor to direct the use of the spectrum.
The case for a treatment as rent is further supported if the payments are related to the revenue the lessee derives from the licence.

17.320 These two sets of considerations can be seen as a more specific parallel to the distinction of economic ownership from legal ownership used in distinguishing between an operating and financial lease as described above.
The conditions for treatment of the payment as the acquisition of an asset and for treatment as payment of rent are indicative rather than prescriptive.

A decision on the appropriate treatment when some of the conditions are not met will necessitate consideration of how to record those conditions not met.

For example, if on balance the decision is to treat the payment as rent but a large upfront payment was made, this should be treated as a prepayment to be recorded on an accrual basis.
However, if the recipient is not willing to consider a refund if the contract is suspended, accrual recording is difficult.

This is one reason why upfront payments are often indicative of the sale of an asset rather than the payment of rent.

17.321 The application of these principles to the main forms of natural resources is described below, beginning with radio spectra.

2.
2.

Radio spectra 17.322 Payment for a mobile phone licence constitutes the sale of an asset, not payment for rent, when the licensee acquires effective economic ownership rights over the use of the spectrum.

To decide whether ownership is effectively transferred or not, the six criteria quoted above are to be considered.

should be recorded as capital formation and an acquisition of an asset in a manner similar to costs of ownership transfer on purchase and sale of an asset.
Cross-cutting and other special issues 17.323 When sale of an asset applies and when the life span of the licence and of the spectrum coincide, the payment for a licence is treated as the sale of the spectrum itself.

The latter situation applies always when licences are granted indefinitely.
17.324 When sale of an asset applies, and when the life span of the licence is different from the life span of the spectrum, the payment for a licence is treated as the sale of a permit to use a natural resource by the legal owner (licensor) to the economic owner (licensee).

17.325 When the licence agreement is treated as the sale of an asset in its own right, its value is established at the time of its sale.
It declines with the expiration of the period of validity to fall to a value of zero at the point of the expiry of the licence.

Symmetrically, the value of the spectrum to the lessor falls when the licence acquires a value and is progressively re-established as the licence expires.

This is consistent with a potential further sale of the right to use the spectrum for another period.

This procedure also ensures a neutral effect on the net worth of the overall economy during the life of the licence.

3.
3.

Land 17.326 Land may be sold outright when the legal ownership is transferred from one institutional unit to another.

(Land may not be recorded as being sold to a non-resident unit.

In such cases a notional resident unit is created that holds title to the land; the non-resident unit then owns the equity of the notional resident unit.)

17.327 The type of asset most frequently subject to a resource lease is land.

Tenant farmers usually pay regular rent to their landlord.
A resource lease on land may be considered as a sale of the land if the lease satisfies most or all of the same criteria as those listed for payments for a mobile phone licence to be considered a sale of an asset.

When the land is leased in other circumstances, the payments are recorded as rent under a resource lease agreement.

17.328 In some jurisdictions, the land under buildings remains in the legal ownership of a landlord other than the owner of the buildings.
If regular payments are made to the landlord, these are recorded as rent.

However, it is sometimes the case that, even though the land legally belongs to another unit, the right to occupy it for an extended period is paid for in a single upfront payment often when the building is acquired.

As explained in the previous section, this suggests recording the payment as the acquisition of the asset.
In such a case, when the building changes ownership, the purchase price includes an element representing the present value of future rent payments.

In such a case, the land is recorded in the SNA as if the ownership is transferred along with the building above the land.

If, at the end of the land lease, a further payment is liable for extension of the lease for another long-term period, this 4.
Timber 17.329 If a unit is given permission to clear fell an area of natural forest, or to fell at its discretion without any restriction in perpetuity, the payments made to the owner constitute the sale of an asset.

(The sale of forested land may be recorded as the sale of the timber and the land separately, depending on the intended use of each.)
17.330 The option to have a lease permitting felling at the lessee’s discretion but subject to the restoration of the land, in an acceptable forested state, at some time in the future is improbable.

It is more common for timber felling to be allowed under strict limits with a fee payable per unit volume of timber felled (stumpage).

The limits are usually such that the harvest of timber is sustainable and so the payments are recorded as rent in the case of a natural forest.
17.331 Forests may also be produced assets, in which case the extraction of timber is treated as the sale of a product.

17.332 Illegal logging across national borders is prevalent in some countries.

In such cases the quantity of timber extracted should be recorded as uncompensated seizure of a natural resource or cultivated asset, as the case may be.

5.

Fish 17.333 Natural stocks of fish with an economic value are an asset and the same considerations apply to them as to other natural resources.
It is not realistic to consider that permission would be given to exhaust fish stocks but illegal fishing may either reduce the stock below the point of sustainability or exhaust them altogether.

In these cases, uncompensated seizure of the stock should be recorded.

17.334 Fishing quotas may be allocated in perpetuity or for extended periods to particular institutional units, for example, where fishing is an established way of life and there may be little alternative economic employment.
In such circumstances the quotas may be transferable and if so, there may be a well developed market in them.

Fishing quotas may therefore be considered as permits to use a natural resource that are transferable.

They are thus assets in the SNA.

17.335 An alternative regime is to issue a permit for a strictly limited period of time, less than a year, to a nominated institutional unit, often a non-resident.

This is a common practice in some islands in the South Pacific, for example.
In these cases the revenue from the licences should be recorded as rent as under a resource lease.

17.336 A licence for recreational fishing has long been considered, by convention, as payment of a tax.

This treatment is not changed by the wider considerations for commercial fishing.

387 System of National Accounts 6.

Water 17.337 A body of water with an economic value can be sold in its entirety either as part of the land that surrounds it or as a separate entity.
17.338 As is the case for fish, it is unlikely that economic ownership would be ceded under a long lease with no preconditions on the quantity and state in which a similar amount of water should be returned to the owner.

However, it is possible that surface water could be leased under a long lease for recreational purposes, say.

The treatment of such leases should be as for land.

17.339 Of increasing concern is the extraction of water from water bodies.
Regular payments for the extraction of water (as opposed to the delivery of it) should be treated as rent.

7.

Mineral resources 17.340 Mineral resources differ from land, timber and fish in that although they also constitute a natural resource, there is no way of using them sustainably.

All extraction necessarily reduces the amount of the resource available for the future.
This consideration necessitates a slightly different set of recommendations for how transactions relating to their use should be recorded.

17.341 When a unit owning a mineral resource cedes all rights over it to another unit, this constitutes the sale of the resource.

Like land, mineral resources can only be owned by resident units; if necessary a notional resident unit must be established to preserve this convention.
17.342 When a unit extracts a mineral resource under an agreement where the payments made each year are dependent on the amount extracted, the payments (sometimes described as royalties) are recorded as rent.

17.343 The owner (in many but not all circumstances government) does not have a productive activity associated with the extraction and yet the wealth represented by the resource declines as extraction takes place.
In effect, the wealth is being liquidated with the rent payments covering both a return to the asset and compensation for the decline in wealth.

Although the decline in wealth is caused by the extractor, even if the resource were shown on the balance sheet of the extractor, the rundown in wealth would not be reflected in the extractor’s production account because it is a non-produced asset and thus not subject to consumption of fixed capital.
(The SEEA 2003 describes a form of satellite account where such a deduction from national income can be made for minerals as well as for other natural resources used unsustainably.)

For these reasons, simple recording of payments each year from the extractor to the owner as rent and changes in the size and value of the resource as other changes in the asset accounts of the legal owner is recommended.

R. Sharing assets 17.344 There are two ways in which assets may be shared.
The asset may be wholly owned by two or more units, each at different points in time.

Alternatively, the risks of and benefits from the asset may be shared by two or more units at a single point in time.

The two cases require different treatments.

17.345 Within the SNA, even though the asset may be owned by different units at different times, when a balance sheet is drawn up, the whole of the value of the asset is attributed to one unit.

For an asset subject to an operating lease, there is no ambiguity.
The legal owner is also the economic owner and is the unit that shows the asset on its balance sheet.

For an asset subject to a financial lease, the unit showing the asset on its balance sheet is the economic owner.

The value of the asset is the present value of the future payments due to the legal owner plus the value of the asset at the end of the lease as specified in the lease agreement.
This is consistent with the views that the value of the asset represents the stream of future benefits coming from the asset and the economic owner is the unit entitled to receive these benefits in return for accepting the risks associated with using the asset in production.

For an asset subject to a resource lease, the value is shown on the balance sheet of the legal owner.
17.346 When licences to use natural resources such as radio spectra, land, timber and fish satisfy the “mobile phone” criteria, a separate asset, described as a permit to use a natural resource, is established.

These assets are part of the subclass of contracts, leases and licences.

They are then shown on the balance sheet of the licensee.

17.347 Sharing the risks and rewards of an asset between different units at a point in time is unusual.
The most common occurrence is that a single unit undertakes the activity in which the asset is used and that unit shares the returns among the owners in the form of distributed property income.

However, occasionally it is possible such a single unit does not exist and it is not meaningful to try to create it statistically.

This is most common when the participating units are resident in different economies, as may be the case with an airline, or in the case of some unincorporated joint ventures (UJVs).
The terms under which UJVs are established are diverse but one form allows that all members share the assets equally.

In such cases, the SNA records the assets shared between the owners in proportion to their ownership shares.

17.348 In some joint ventures, one party may contribute an asset as its share of the costs.
If this happens, an injection of capital equal to the value of the asset should be recorded followed by the purchase of the asset in question with the ownership of the asset then shared by all parties to the arrangement.

388 S. Permits to undertake a specific activity to engage 17.349 In addition to licences and leases to use an asset as described in the previous sections, permission may be granted in a particular activity, quite independently of any assets involved in the activity.
Thus permission to extract minerals in return for the payment of rent, for example, is not covered by this type of permit.

The permits are not dependent on a qualifying criterion (such as passing an examination to qualify for permission to drive a car) but are designed to limit the number of individual units entitled to engage in the activity.

Such permits may be issued by government or by private institutional units and different treatments apply to the two cases.

1.
1.

Permits issued by government 17.350 When governments restrict the number of cars entitled to operate as taxis or limit the number of casinos permitted by issuing licences, for example, they are in effect creating monopoly profits for the approved operators and recovering some of the profits as the fee.

In the SNA these fees are recorded as taxes, specifically as other taxes on production.
This principle applies to all cases where government issues licences to limit the number of units operating in a particular field where the limit is fixed arbitrarily and is not dependent only on qualifying criteria.

17.351 In principle, if the licence is valid for several years, the payment should be recorded on an accrual basis with an other account receivable or payable entry for the amount of the if licence fee covering future years.
However, government does not recognize a liability to repay the licensee in the case of a cancellation, the whole of the fee payable is recorded at the time it is paid.

17.352 The incentive to acquire such a licence is that the licensee believes that he will thereby acquire the right to make monopoly profits at least equal to the amount he paid for the licence.

This stream of future income is treated as an asset if the licensee can realize this by on-selling the asset.
The type of asset is described as a permit to undertake a specific activity.

The value of the asset is determined by the value at which it can be sold or, if no such figure is available, is estimated as the present value of the future stream of monopoly profits.
If the payment for the licence is being recorded by government on an accrual basis, the licensee has an asset in his balance sheet under accounts receivable or payable equal to the value of the future payments and so the value of the licence itself should cover simply the excess of the monopoly profits over the cost.

If the licence is on-sold, the new owner assumes the right to receive a refund from the government if the licence is cancelled as well as the right to earn the monopoly profits.
If the licence was recorded as a single tax payment, the value of the asset is determined by the value at which it can be sold or, if no such figure is available, is estimated as the value of all the future monopoly profits without deduction.

The asset first appears in the other changes in the volume of assets account and changes in value, both up and down, are recorded in the revaluation account.
Cross-cutting and other special issues An example 17.353 Suppose a unit, A, contracts with government to buy a permit to operate a casino for 3 years at a total cost of 12.

He expects to make monopoly profits of 7 per year because the permit excludes many other casinos from operating.

The government may or may not be prepared to make a refund if A relinquished the permit.

A may utilize the permit for the whole of the 3 years for which it is valid or he may sell it to unit B at the end of year 1.
The recordings under these four possibilities are examined below.

Case 1: Government does not offer a refund and A keeps the permit for 3 years 17.354 At the start of year 1, A pays tax of 12 and has an asset worth 21 initially.

By the end of the year, the value of the asset has reduced by 7 as an other volume change, because one of the three years for which the permit was initially valid has expired.

At this point the asset is contributing 14 to his net worth.
By the end of the second year he writes off another 7 as an other volume change, leaving a contribution to net worth of 7.

By the end of the third year the asset is worth zero.

Case 2: Government does not offer a refund and A sells the permit to B after one year 17.355 At the start of year 1, A pays tax of 12 and has an asset worth 21 initially.
By the end of the year the value of the asset has reduced by 7 as an other volume change, because one of the three years for which the permit was initially valid has expired.

At this point he values the asset at 14.

However, B is only prepared to pay 13 for the asset and A accepts this.

A therefore reduces the value of the asset by 1 as a revaluation change.

B then acquires the asset and reduces its value by 6.5 in the other change in volume of assets account in each of the two following years.
Case 3: Government does offer a refund and A keeps the permit for 3 years 17.356 At the start of year 1, A makes a payment of 12 to government but this is recorded as a payment of tax of 4 during the year and at the end of the year government has an account payable to A of 8.

The value of the permit to A is only the excess of the monopoly profit over the total amount that A will have to pay to government.
This starts at 9 (the difference between 7 and 4 for three years) but by the end of year 1 is worth only 6.

At the end of the year A’s net worth includes an account receivable from government of 8 and 6 as the remaining value of the permit.

The total is 14 as in case 1.

During the second year, A’s account receivable from government is reduced by 4 which is used to pay the tax due in year 2.

In that year the value of the permit also reduced by 3 from 6 to 3.
At the end of the year, A’s net worth includes an account payable from government of 4 and a permit worth 3, total 7 as in case 1.

At the end of year 3, both the account payable and the value of the permit are reduced to zero.
389 System of National Accounts Case 4: Government does offer a refund and A sells the permit to B after one year 17.357 At the start of year 1, A makes a payment of 12 to government but this is recorded as a payment of tax of 4 during the year and at the end of the year government has an account payable to A of 8.

The value of the permit to A is only the excess of the monopoly profit over the account payable.
This starts at 9 (the difference between 7 and 4 for three years) but by the end of the year is worth only 6.

At the end of the year A’s net worth includes an account receivable from government of 8 and 6 as the remaining value of the permit.

The total is 14 as in case 1.

As in case 2, A has to reduce the value of his permit (in this case from 6 to 5) when he appears to sell the asset to B for 13.

In fact, the account payable from government of 8 is transferred to B and the asset is sold for 5.
B’s net worth is unchanged.

He has paid A 13 but received the account payable of 8 and an asset valued at 5 in return.

In year 2, the account payable is reduced by 4 and a tax payment of 4 is recorded and the permit declines in value from 5 to 2.5.

Government permits as assets 17.358 A permit issued by government to undertake a specific activity may be treated as an asset only when all the following conditions are satisfied: a.
The activity concerned does not utilize an asset belonging to government; if it does the permission to use the asset is treated as an operating lease, a financial lease, a resource lease or possibly the acquisition of an asset representing permission to use the asset at the discretion of the licensee over an extended period; b.
The permit is not issued subject to a qualifying criterion; such permits are treated as either taxes or payments for services; c. The number of permits is limited and so allows the holder to make monopoly profits when undertaking the activity concerned; d. The permit holder must be legally and practically able to sell the permit to a third party.

17.359 Even if all these conditions are satisfied, if in practice the permits are not on-sold, it is not relevant to record the permits as assets.
If any of the conditions is not satisfied, the payments are treated as taxes without the creation of an asset in the category of contracts, leases and licences.

(There may be an account payable as shown in cases 3 and 4 of the example.)

2.

Permits issued by other units 17.360 It is less common for units other than government to be able to limit the participation in a given activity.
One instance may be when it is either compulsory or desirable to belong to a professional association but in this case there is seldom a limit on numbers participating.

Another example could be where the owner of property limits the numbers of units allowed to operate on his property for example a hotel with a policy of only allowing one taxi 390 firm to pick up guests.

In these sorts of cases, the permits are treated as payments for services.
In principle the payment should be recorded on an accrual basis throughout the period for which the permit is valid.

There is no reason in principle why such permits could not be treated as assets if they were marketable though this may not be a common situation.

Non-government permits as assets 17.361 A permit issued by a unit other than government to undertake a specific activity may be treated as an asset only when all the following conditions are satisfied: a.
The activity concerned does not utilize an asset belonging to the permit-issuer; if it does the permission to use the asset is treated as an operating lease, a financial lease or a resource lease; b.

The number of permits is limited and so allows the holder to make monopoly profits when undertaking the activity concerned; c. The permit holder must be legally and practically able to sell the permit to a third party.
17.362 Even if all these conditions are satisfied, if in practice the permits are not on-sold, it is not relevant to record the permits as assets.

If any of the conditions is not satisfied, the payments are recorded as payments for a service.

3.

Permits to use natural resources as sinks 17.363 Governments are increasingly turning to the issuing of emission permits as a means of controlling total emissions.
These permits do not involve the use of a natural asset (there is no value placed on the atmosphere so it cannot be considered to be an economic asset) and are therefore classified as taxes even though the permitted “activity” is one of creating an externality.

It is inherent in the concept that the permits will be tradeable and that there will be an active market in them.

The permits therefore constitute assets and should be valued at the market price for which they can be sold.
17.364 The case of payments for discharging water may be considered as an example of the different possible ways of treating the payments.

17.365 If a payment to discharge water is a fine intended to inhibit discharge, it should be treated as a fine.

17.366 If a limited number of permits is issued with the intent to restrict discharges, the payment should be treated as a tax if the medium into which the water is discharged is not regarded as an asset in the SNA.
17.367 If the discharge medium is an asset and the necessary conditions are met concerning the terms on which the discharge is permitted, then the payment for the permit should be treated in the same way as the payment for a licence to use the radio spectrum for mobile phones.
If the charge is linked to remedial action, the payment is a payment for a service unless the amount levied is out of all proportion to the costs involved in subsequent water treatment in which case the payment should be treated as a tax.
Cross-cutting and other special issues T. Contracts for future production 17.368 Although human capital is not recognized as an asset in the SNA, there are cases where a contract that entitles the holder to limit the ability of a named individual to work for others may be regarded as an asset.

The most prolific and lucrative contracts may be for sports players where, for example, a football club can “sell” a player to another.
In fact they are not selling the person, they are selling the exclusive right to have that person work for them.

Similar contracts exist for the rights to publish literary works or musical performances.

All such contracts are treated as assets of the type entitlement to goods and services on an exclusive basis within the asset class of contracts, leases and licences.

17.369 It is possible to imagine that similar contracts may exist for the production of goods in future.
An examination of the practice of purchasing the options of future aircraft production revealed, however, that in this case there is no transferable asset and a change of mind on the part of the potential purchaser or failure to deliver on the part of the supplier is settled by a change in the arrangements between the two parties and does not lead to the sale of the option to a third party.
If an instance arises where the option to purchase goods is treated in the same way as a contract for a named individual’s performance, the same classification would apply.

U.

Leases as assets 17.370 As stated at the beginning of this part, contracts underlie many transactions recorded in the SNA and it is important to understand what the implications are for the time of recording and classification of transactions arising from a contract.
It has been noted that permits or licences to use natural resources may constitute an asset as may permits to undertake specific activities and contracts for future production.

There is one other condition that may lead to a contract being considered as an asset, which is another circumstance when the contract is transferable to a third party (that is a unit other than the two specified in the original contract).
17.371 Suppose a lease on an apartment agreed some time ago specifies the rental at 100 per month but if the same apartment were to be leased currently it would fetch 120 per month.

From the lessor’s point of view, the apartment is “encumbered” by the existing lease, that is, it carries a penalty (in this case of 20 per month) because of the existence of the lease.
The encumbered value of the apartment is based on the present value of future rental payments taking the existence of the lease into account, that is, the future income stream is 100 for as long as the lease lasts and 120 thereafter (ignoring any allowance for inflation).

The unencumbered value of the apartment is a present value based on an income stream of 120 per month from the current period forward.

The value to be entered in the landlord’s balance sheet is the encumbered value.
If he wishes to sell the apartment and the existing tenant had the right to remain at the agreed rental, the encumbered value is all the landlord (lessor) could hope to realize.

If he wished to realize the unencumbered value he would have to pay the tenant the difference between the unencumbered value and the encumbered value to be free of the lease.

This amount, the encumbrance, can in some circumstances be treated as an asset of the tenant.
The circumstances are that it is both legally possible and is practicable for the tenant to sublet the apartment to a third party.

Because of the difficulty of identifying when such assets may exist, it is recommended that in practice these assets be recorded only when there is evidence that they have been realized.

17.372 It is possible that the encumbered value of the apartment may be higher than the unencumbered value if rentals have fallen since the lease was agreed.
In this case it is the landlord that benefits from the discrepancy between the contract price and the market price because the value of the apartment in his balance sheet is still the encumbered value.

If the tenant wishes to cancel the lease, he may have to pay the landlord the difference between the encumbered value and the unencumbered value.
Only in the exceptional case where the tenant pays a third party to assume the lease at the price specified in the lease, does this payment represent realizing an asset of negative value to the tenant.

Once the lease expires or is cancelled, the value of the apartment returns to its unencumbered value.

17.373 Assets reflecting such third-party property rights are always transitory.

They exist only for the length of the lease and where there is a difference between the encumbered and unencumbered values.
As each year passes, they reduce in value because the period during which the difference exists is reduced but may increase if the new rental price increases.

17.374 The market price of the rental of an apartment is the price actually paid by the existing tenant.

If, in this example, the original tenant remains in situ and pays 100 per month, this is the market price despite the fact that a new lease would fetch a rental of 120.
Only if the original tenant sublets the 391 System of National Accounts apartment for 120 would the market price be recorded as 120.

Of this, 100 will be paid to the landlord and 20 to the original tenant.

Marketable operating leases as assets 17.376 A marketable operating lease may be treated as an asset only when the two following conditions are satisfied: 17.375 The example above shows when a marketable operating lease may acquire a value as an asset.
Permits to use natural resources and contracts for future production may also give rise to these sorts of third-party property rights assets.

So may permits to undertake specific activities even though the original payment was treated as a tax if payable to government.

Financial leases do not give rise to these sorts of assets.
If the value of the asset being leased increases by more than the payments due under the financial lease, the lessee always has the option of selling the asset, repaying the loan and keeping the difference.

a.

The lease specifies a predetermined price for the use of an asset that differs from the price the asset could be leased for at the current time, and b.

The lessee is able legally and practically to realize this price difference by subcontracting the lease to a third party.
17.377 In practice, it is recommended that such assets should be recorded only when the lessee does actually exercise his right to realize the price difference.

V. Other considerations 1.

Time-share arrangements 17.378 One way of sharing an asset offering accommodation is by means of a “time-share” arrangement.

The same expression, though, may be used for a number of different arrangements.
17.379 One arrangement is similar to purchasing a house except that “ownership” is restricted to a particular period each year but in perpetuity.

Exactly the same physical space is available to the owner each year.

Another arrangement guarantees accommodation at a given time each year but not necessarily the same physical space.

Other arrangements consist of buying “points” in a scheme that the owner can use to purchase accommodation at different locations and times subject to availability.
in owner has a fixed agreement to have some form of accommodation available at a given period for a fixed length of time, it is likely that this represents a prepaid lease but one that could be sublet occasionally or sold for the rest of the period of the lease as a transferable operating lease.

A participant in a points-based scheme may have only an account receivable by way of an asset.
17.382 Where time-share arrangements are significant, the conditions pertaining to them should be examined in the light of the general principles described in this section to determine how to record the transactions involved and classify the assets.

2.
2.

Lost deposits 17.380 All time-share arrangements have a unit that is responsible for upkeep, maintenance, insurance and so on but there are variations in whether this unit is the ultimate owner of the complex and the subscribers are lessees or whether the unit acts as agent for the group of owners or subscribers.

Similarly there are variations in whether the owner or subscriber may sell or bequeath his ownership to another unit permanently and whether they can sublet occasionally.
17.381 The issue of whether participation in the time-share scheme gives rise to an asset will depend on the answers to these sorts of questions.

If the owner has a nominated space, available in perpetuity, is eligible to act as part of the management committee for the scheme, can sell or bequeath the allocation at will, then the holding is most likely to be an asset of the same type as a house.
If the 17.383 Under any form of contract, it is possible that one party makes a payment and the other does not deliver the goods, services or assets promised in the contract.

In many cases this gives rise to an account payable or receivable that the first party may reclaim from the second.

In some circumstances this may not be possible.

For example, cheap airline tickets are often offered on a non-refundable basis.
The fact that prepayments are non-refundable is part of the business plan of the company concerned.

Their output should be measured as the value of sales without reduction for the payments by clients who did not avail themselves of the services to which they were entitled.

Volume measures of output will depend on the services actually delivered and the impact of the non-refundable deposits will show up as a price effect.
It will also be reflected in the consumption expenditure figures of those paying for services they did not in the end take delivery of.

392 Part 6: Employee stock options Cross-cutting and other special issues W. Introduction 17.384 A particular form of income in kind is the practice of an employer giving an employee the option to buy stocks (shares) at some future date.
The ESO is similar to a financial derivative and the employee may not exercise the option, either because the share price is now lower than the price at which he can exercise the option or because he has left the employ of that employer and so forfeits his option.

The following is a description of how stock options are valued, taking into account the probability that not all the options are exercised.

1.
1.

Terminology 17.385 Typically an employer informs his employees of the decision to make a stock option available at a given price (the strike price or exercise price) after a certain time under certain conditions (for example, that the employee is still in the enterprise’s employ, or conditional on the performance of the enterprise).

The time of recording of the employee stock option in the national accounts has to be carefully specified.
The “grant date” is when the option is provided to the employee, the “vesting date” is the earliest date when the option can be exercised, the “exercise date” is when the option is actually exercised (or lapses).

In some countries the permissible length of time between vesting and exercise date is quite long; in others it is very short.

2.
2.

Valuation 17.386 IASB accounting recommendations are that the enterprise derives a fair value for the options at grant date by taking the strike price of the shares at that time multiplied by the number of options expected to be exercisable at vesting date divided by the number of service years expected to be provided until the vesting date.

This fair value is applied to the number of service years provided in each year to derive the cost to the firm in the year.
The fair value per service year is adjusted if the assumptions about the number of options to be exercised alter.

17.387 In the SNA, if there is neither an observable market price nor an estimate made by the corporation in line with the recommendations just given, the valuation of the options may be estimated using a stock options pricing model.

These models aim to capture two effects in the value of the option.
The first effect is a projection of the amount by which the market price of the shares in question will exceed the strike price at the vesting date.

The second effect allows for the expectation that the price will rise further between the vesting date and exercise date.

3.

ESOs as a financial asset 17.388 Before the option is exercised, the arrangement between the employer and employee has the nature of a financial derivative and is shown as such in the financial accounts of both parties.
It is sometimes possible for these options to be traded or the employer may buy back the options for cash instead of issuing shares.

It is possible that multinational corporations may offer employees in one economy options on shares of their parent company in another country.

4.

Recording ESOs in the account of the SNA 17.389 An estimate of the value of the ESO should be made at grant date.
This amount should be included as part of compensation of employees spread over the period between the grant date and vesting date, if possible.

If this is not possible, the value of the option should be recorded at vesting date.

17.390 The costs of administering ESOs are borne by the employer and are treated as part of intermediate consumption just as any other administrative functions associated with compensation of employees.
17.391 Although the value of the stock option is treated as income, there is no investment income associated with ESOs.

17.392 In the financial account, the acquisition of ESOs by of households matches compensation of employees with a matching liability of the employer.
corresponding part the 17.393 In principle, any change in value between the grant date and vesting date should be treated as part of compensation of employees while any change in value between vesting date and exercise date is not treated as compensation of employees but as a holding gain or loss.

In practice, it is most unlikely that estimates of the costs of ESOs to the employers are revised between grant date and exercise date.
For pragmatic reasons, therefore, the whole of the increase between grant date and exercise date is treated as a holding gain or loss.

An increase in value of the share price above the strike price is a holding gain for the employee and a holding loss for the employer and vice versa.

17.394 When an ESO is exercised, the entry in the balance sheet disappears to be replaced by the value of the stocks (shares) acquired.
This change in classification takes place via transactions in the financial account and not via the other changes in the volume of assets account.

5.

Variations in the use of ESOs 17.395 There are two consequences of the treatment of employee stock options to be incorporated into the accounts on the grounds of consistency.

One relates to other means of rewarding employees that are related to shares in the 393 System of National Accounts company.
The other relates to the use of stock options to meet expenses other than compensation of employees.

17.396 The first consequence is for variations on the basic employee stock option model.

A firm may contribute its own shares to the pension fund.

This variation is usually called an employee share plan or a stock ownership plan.

Under the 1993 SNA, these shares would not have been recognized as claims by households because such funding was not “arm’s length”.
With the change to recording pension entitlements rather than the existing assets to meet them, this objection to recording in the same manner as the IASB recommends disappears and should be followed.

17.397 Another variation on the use of stock options to reward employees is the offer to employees to purchase shares at advantageous rates under an employee share (stock) purchase plan.
Employees are not obliged to accept the offer, but if they do the discount in the share value should be treated as part of compensation of employment.

Similarly, if employees receive a benefit relating to the change in a company’s shares but not shares themselves, this payment should be treated as part of compensation of employees.
these as part of 17.398 The second consequence is the possibility that the enterprise pays for goods and services by means of stock options as well as offering the compensation package to employees.

When this happens, the value of the stock option should be estimated if at all possible by the value of goods and services received in exchange.

If this is not possible, then similar valuation methods should be used as in the case of employee stock options.
The options should be recorded as a form of trade credit between the issuers and the supplier of the goods and services in the financial account.

Such arrangements are usually referred to as share (stock) appreciation rights.

For simplicity within the SNA, the term employee stock options (ESOs) is used to include stock appreciation rights.

394 Chapter 18: Elaborating and presenting the accounts A.
Introduction 18.1 18.2 The preceding chapters explain both the accounting concepts of the SNA and the form of the sequence of accounts.

This chapter, and those that follow, describe how to build on this information to use the SNA in a way best suited to serve the needs of users and illustrate the interaction of the SNA with other international statistical standards.
system, rather it should be seen as a sign of the degree of confidence that the statistician has in both the original estimates and the later revisions.

Some of the poorest quality national accounts are those that have remained unchanged for many years.

Aspects associated with publishing time series, and the need to revise them, are discussed in section B.
The present chapter is concerned with a number of issues of particular concern to those responsible for the maintenance of the national accounts data base and the presentation of the accounts in the most suitable form for different sorts of analysis.

In particular it addresses: 18.4 Chapter 15 describes the theory of the price indices that can be used to deflate some aspects of national accounts from current values to estimates in volume terms.
Section C describes briefly which parts of the accounts it is useful to express in this way.

a. how to deal with revisions and discrepancies in the data and the trade-off between timeliness and accuracy, b. which accounts to present in volume terms, c. the role of data more frequent than annual, d. regional accounts, and e. what sort of detail might be included in publications.
18.3 Although no table in previous chapters has illustrated it, the prime use of the SNA is in a time series context so that users of the accounts can assess how the economy is evolving and developing over time.

National accountants, like other statisticians, are regularly under pressure to produce estimates of the accounts as quickly as possible.
Inevitably there is a tension between timeliness and accuracy since more comprehensive and robust data usually take longer to process than short-term indicators.

Producing accounts as quickly as possible with the best information available at that time inevitably means that revisions to the initial estimates will be necessary.
The publication of revisions to series is not a sign of weakness in the statistical 18.5 Annual series are adequate to identify long-term shifts in the economy but to assess what is happening in the short term, higher frequency national accounts fill a key role in between short-term indicators and fully elaborated annual accounts.
Discussing such accounts requires a manual in itself but an indication of some of the key issues is given in section D. 18.6 Another dimension of the accounts is that of regional accounts, where a region may be either a subdivision of a country or an economic region covering several economies.

A brief mention of some aspects of regional accounting is given in section E. 18.7 The SNA is meant to be presented flexibly in order to respond most appropriately to local circumstances.
Section F illustrates some ways in which key aspects of the accounts might be presented.

It is important to stress that the tables in this section are not intended to be taken as strict guidelines but simply as indications of the sorts of details that might be condensed or expanded in different circumstances in order to highlight different aspects of the economy.

B.

Time series, revisions and discrepancies 1.


Time series 18.8 The tables in this manual are designed to be expository and therefore feature data only for a single time period.

In practice it is time series of the aggregates that explain the movement of economic variables that are of most interest to analysts.

The style of tables used in chapters 6 to 13 is well suited to time series presentations since the number of columns may be extended as necessary to accommodate increasingly long time series.
For example, instead of one 395 System of National Accounts table with one column for each of the five institutional sectors, one for the total economy and one for the rest of the world, it is straightforward to have seven tables, one for each of the columns but for multiple years.

organizations.

The papers prepared by the task force are available under the title Guidelines on Revisions Policy and Analysis (Organisation for Economic Co-operation and Development and Eurostat, 2008).
18.9 in particular factors.

For some purposes, The length of time series shown will depend on a number for of macroeconomic modelling, as long a run as possible may be interesting and some countries have series going back for over fifty years.

However, most printed tables show no more than the ten to fifteen most recent years, with earlier data available only electronically.
Usually more attention is given to ensuring the data for the recent past are as complete and accurate as possible with earlier years receiving less detailed attention.

It is desirable, however, at a minimum to provide a link to earlier series so the long- term evolution of the economy can be examined.

18.10 There may be factors that imply that long time series are mainly of academic interest.
For example, the change from command economy to market economy that took place in eastern Europe in the early 1990s resulted in such a fundamental change in the nature of economic activity that time series for a period from the late 1980s to the early 1990s are of limited analytical interest.

In this case the political economic consequences.


In all countries, the evolution of the economy over a long period in response to innovations in products, marketing mechanisms and changing import patterns means that comparisons over very many years need to be interpreted carefully.

overshadowed changes the 2.

Revisions 18.11 One consequence of preparing national accounts on a continuing basis over a number of years is that data sources change and improve.
Intermittent sources, such as a survey held only every five years, may become available and indicate that the earlier assumptions based on projecting the previous survey were flawed.

In such a case it is not sufficient to simply replace the data for the most recent period (or even from the date of the new survey forward) but to ensure that the whole time series is suitably adjusted in order to portray the best possible evolution of the series in question over as long a period as possible.
Failure to do so results in inappropriate discontinuities in the series that can be seriously misleading to analysts unaware that the source of the underlying data has changed.

18.12 This need to revise data brings to the fore the conflict inherent in statistics between making the data as accurate as possible and making them as timely as possible.

Users would like data that are both timely and accurate but there are trade-offs between these goals in practice.
Each statistical office must make judgements about how to balance these conflicting demands but whatever the ultimate conclusion, time series that are consistent over time and explanations to enable analysts to appreciate the trade-offs the statistical office has to take are essential.
18.13 A set of guidelines on best practice for performing and using the results of revisions analysis and in formulating a revisions policy that effectively supports user needs was prepared by a task force made up of representatives from OECD, Eurostat and several member countries of those 396 3.

Discrepancies 18.14 Although the SNA ensures there is perfect consistency between the three measures of GDP, this is a conceptual consistency that in general does not emerge naturally from data compilations.
This is because of the wide disparity of data sources that must be called on and the fact that any error in any source will lead to a difference between at least two of the GDP measures.

In practice it is inevitable that many such data errors will exist and will become apparent in exercises such as the balancing of supply and use tables.

18.15 Just as a statistical office must make choices about the trade-off between timeliness and accuracy, choices must also be made about how to deal with discrepancies.
Resources can be invested in improving data surveys, the format of the questionnaire, sampling strategies, processing techniques including the treatment of missing data and so on.

However, while ultimately desirable, such an approach is costly and long-term.

Even with very sophisticated data collection methods, discrepancies between different estimates will persist due to differences in coverage, valuation and lags in recording.
In addition, a statistical office is also dependent to a greater or lesser extent on administrative sources of data and may not be able to ensure these exactly meet the statistician’s needs.

18.16 Two approaches are open to a statistical office.

The first is to be open about the problem and publish a statistical discrepancy.

When this is done, it is usual to attach it to the variant of GDP the office feels is least accurate.
The aim is to show users something about the degree of reliability of the published data.

For example, the office may feel that the production estimate of GDP is fairly sound but have doubts about some of the expenditure components.

18.17 The alternative is for the office to remove the discrepancy by examining the data in the light of the many accounting constraints in the SNA, making the best judgement possible about where the errors are likely to have arisen and modifying the data accordingly.
The supply and use framework, described in chapter 14, is a very powerful tool for doing this sort of work.

More information on such balancing techniques can be found in manuals on input- output tables such as those prepared by the UN and Eurostat.

18.18 In practice, some countries may not be able to compile all three measures of GDP.
Indeed, it happens that sometimes only the production measure is compiled completely and only certain components of the expenditure measure are available, principally government expenditure, capital formation (perhaps with information on changes in inventories), exports and imports of goods only.
If, in such a case, an estimate of GDP by expenditure is presented where household consumption is derived as a global balancing item, this estimate will cover not only the true but unknown value of household consumption but will also include the net effect of all errors cumulated from all other parts of the estimates.
incomplete 18.19 Any errors in the production measure, missing figures for imports and exports of services, or the fact that government expenditure has been recorded on a cash rather than on an accrual basis, will distort the value of household consumption.

If, then, the figure for gross operating surplus is derived by subtracting compensation of employees and taxes less subsidies on production from this incorrect figure for GDP, the errors will be carried forward to this aggregate also.
The lesson for users looking at accounts with no statistical discrepancy is to be sure to understand how it was eliminated.

The lesson for compilers is to study the possibilities of working at more detailed levels to avoid having to make gross assumptions about missing items, especially one as critical to an assessment of living conditions as household consumption.
C. Accounts in volume terms the studying changing 18.21 A major purpose in constructing accounts covering a longer period of time is to be able to study the way in which the basic structure of the economy has changed.

This can be seen by composition of macroeconomic aggregates in current values.

To determine growth rates, however, it is necessary to abstract from the effects of price changes.
This is done by constructing accounts in volume terms which enable the user to see the changes from one year to the next that would have resulted if there had been no change in prices.

Chapter 15 describes in detail the theory and practice underlying the construction of price indices and the construction of volume measures.

That chapter also explains the consequences of deriving time series in volume terms using chained indices where some impacts of price changes do affect the volume estimates.
18.22 It is only the elements of the goods and services account and non-financial capital stock for which volume measures are derived.

In general, flows of property income, transfers and financial transactions are expressed only in nominal terms.

In cases of high inflation, an alternative presentation where even these flows may be adjusted is possible but this is not the norm.
18.23 As well as expressing the elements of the goods and services account in volume terms, the whole supply and use tables can be expressed in volume terms.

Compiling such a table ensures not only that goods and services balance when expressed in current values but that the prices used for their deflation are strictly consistent.

Conceptually, a production index should be related to a weighted index of the input prices, the weights corresponding to the values of the different input categories.
If the prices used to deflate output and those used to deflate intermediate consumption are not consistent, the implicit deflator for value added will be implausible.

Discovering such implausibility is an indication that either the current value figures are not well balanced, the prices used are inconsistent or inappropriate, or both.
Elaborating and presenting the accounts Discrepancy in net lending or net borrowing 18.20 Often, the compilation process for the financial accounts and balance sheets is sufficiently separate from the rest of the accounts that the figures for net lending or net borrowing derived from each are different in practice even though they are conceptually the same.

A discrepancy may indicate an error in the financial account or at any place in the accounts leading up to the balance in the capital account.
An examination of the differences sector by sector may help identify the most likely sources of error.

For example, a large discrepancy on household net borrowing may mean that some household income is not recorded; a large discrepancy for non-financial corporations may mean that some expenditure on fixed capital has not been recorded.

But each case must be investigated on a case-by-case basis.
lending in net 18.24 It is useful to consider the expenditure components of GDP and the production components of GDP separately first, then to consider the supply and use table and finally the capital stock measures.

1.

The expenditure components of GDP 18.25 The measure of GDP easiest to express in volume terms is that of expenditure.
As long as appropriate price indices exist, the estimates of household consumption, capital formation, exports and imports can be deflated without much conceptual difficulty.

It is desirable to work at as great a degree of detail as possible using the product detail available for each aggregate.

Care must be taken, as explained in chapter 15, to ensure that differences in quality are properly accounted for in the price deflators.
This is especially important in the case of capital formation where many items such as computers are subject to rapid technological change and many items are customized, for example pieces of heavy machinery built to individual specifications.

18.26 Price indices for services are more difficult to compile than for goods and this is especially so for non-market services.
Because the current values of non-market services are usually determined as the sum of costs, the obvious approach is to deflate each of these (including calculating compensation of employees at constant compensation rates).

However, this does not allow for any change in the quality of services provided and in particular for the impact of any productivity changes that may have been achieved.
In some cases, direct volume measures should be considered as described in the Handbook on price and volume measures in national accounts or the handbook Towards measuring the volume of health and education and services (Organisation for Economic Co-operation and Development, 2009).

Research work is actively in progress to derive volume estimates of output that take account of changes in the quality as well as the quantity of the services provided.

397 System of National Accounts 2.


The production components of GDP 18.27 Central to the production measure of GDP is value added, the balancing item in the production account.

Statements can be found saying that it is not possible to think of a balancing item having price and volume dimensions.

To date the most common practice is to deflate the values of output and independently, intermediate consumption industry by industry, and then derive the difference as value added for each industry.
(This is known as the double deflation method.)

Different price indices are necessary for two reasons.

The first is because the goods and services included in intermediate consumption for any industry are not the same as the output of that industry.

The second reason is that intermediate inputs are always measured at purchasers’ prices whereas output is measured at either basic prices or producers’ prices.
18.28 More recently, though, there is increasing interest in trying to associate movements in value added, after price effects have been eliminated, with changes in labour and capital the different concepts of inputs.

A description of productivity can be found in Measuring Productivity: Measurement of Aggregate and Industry-level Productivity Growth (OECD, 2001), hereafter referred to simply as Measuring Productivity.
The manual discusses the question of whether the estimates of the costs of capital and labour exactly exhaust the estimate of value added coming from direct volume estimates, a subject which is taken up in chapter 20 on capital services.

3.

Supply and use tables in volume terms 18.29 The rows of a use table show the way in which the total supply of a product is used for intermediate consumption, final consumption, capital formation and exports.

This identity must hold in value terms.


If the product in question is one where there is an unambiguous measure of quantity, the identity must also hold in volume terms.

If the volume figures are derived by deflating the current values, the identity will only hold with certainty if each use category is deflated using a price index that is strictly appropriate to it.
18.30 It is a good practice to compile supply and use tables in both current values and in volume terms at the same time so that the consistency of all the input data, including price indices, can be investigated together.

4.

Capital stock 18.31 Derivation of estimates of the consumption of fixed capital requires estimates of capital stock excluding the effects of price changes, even if there is no thought of estimating capital services or productivity measures.
The levels of capital stock are typically derived by cumulating capital formation in successive periods and deducting the amount that has been exhausted.

It clearly makes no sense to aggregate estimates of capital formation at the prices actually paid since the effect of rising prices (even prices rising only moderately) will be to overstate the amount of “new” capital relative to “old”.
18.32 The preferred technique is to estimate all capital still in stock at the price of a single year and then revalue this to the price prevailing when the balance sheet is to be drawn up, typically the first and last day of the accounting period.

This should be done at the most detailed level practicable.

More on this can also be found in chapter 20.

D. Quarterly and other high frequency accounts 18.33 One response to the demand for timely data is to compile accounts more frequently than annually.
In principle, the SNA can be applied to any length of time period but there are some special considerations that need to be respected for high frequency as opposed to annual accounts.

A frequent choice for high frequency data is for quarterly accounts.

For greater detail on compiling quarterly accounts, see Quarterly National Accounts Manual: Concepts, Data Sources and Compilation or the manual Handbook on Quarterly National Accounts (Eurostat, 1999).
These manuals discuss in detail issues such as using indicators to extrapolate data and benchmarking quarterly estimates to annual data.

What follows here is simply an indication of some of the key considerations that apply to quarterly as opposed to annual accounting.

Similar considerations apply to other high frequency accounts.

1.

Conceptual issues Time of recording 18.34 The time of recording principle is the same for quarterly national accounts as for annual accounts.
The accounts are to be compiled on an accrual basis and not a cash basis.

While there will always be amounts accrued but not yet paid or received, the proportion of these amounts, relative to the total flows in the period, will be larger for a shorter period.

Definitions involving a year or more 18.35 The qualifying criterion for a fixed asset is that it should be used in production for more than one year.
For simplicity and consistency between quarterly and annual accounts, this period is maintained even for quarterly accounts.

18.36 Similarly the distinction between short-term and long-term in the classification of financial assets remains one year.

398 Seasonality 18.37 One aspect of quarterly accounts is the effect that arises because patterns of supply and demand may change with the season.
For example, more electricity may be used in winter to heat buildings than in summer or, conversely, more may be used in summer to cool them.

Many agricultural products are more readily available at one time of year rather than another and thus have lower prices then.
For these reasons, although the quarterly accounts should first be compiled using the data as observed, it is desirable to calculate quarterly data on a seasonally adjusted basis in order to study the pattern of evolution of the economy abstracting from seasonal effects.

18.38 Many holidays fall at the same time each year leading to a different number of working days in each quarter.

Thus it is common to calculate series adjusted for the number of working days in a period.
It is thus desirable to adjust high frequency data for both seasonal and working day effects.

2.

Data quality 18.39 When compiling quarterly accounts, it is necessary to compare the availability of quarterly data as compared with annual data.

Usually there is more information available annually and it is more comprehensive or otherwise better quality than quarterly data.
To the extent this is so, the quarterly accounts may be seen as being provisional in some sense and need to be revised when more reliable annual data become available.

Simply benchmarking four quarterly observations to the eventual annual figure, though, may give unexpected and implausible changes from the last revised quarter to the next quarter (a “step”) unless techniques are used that address this problem.
Most commonly used computer programs available to statistical offices automatically adjust to ensure that no such step results.

18.40 Although it is usual to ensure that the sum of data for the four quarters is equal to the annual figures for data before adjustment, forcing this agreement on seasonally adjusted data may be difficult and thus ill-advised if the step problem just referred to is to be avoided.
18.41 Some data values are never available quarterly and quarterly estimates may need to be made by interpolating and projecting information.

The use of mathematical techniques for deriving data, however, should be kept to a minimum since these are unlikely to pick up the fluctuations in the economy that quarterly accounts are annual Elaborating and presenting the accounts intended to detect.
Data values that have been derived by interpolation and projection are also unlikely to have a strong seasonal component so complete accounts with full seasonal variations may not exist.

Inventories 18.42 One possible exception to the general rule that the quality of annual data is superior to quarterly data concerns the measurement of changes in inventories.

The level of inventories at the start and end of the period should be deflated and the change in inventories calculated as the difference.
Holding gains (or losses) may occur when goods are held in inventories and the shorter the periods over which estimates of changes in inventories excluding holding gains and losses are made, the better those estimates will usually be.

(A parallel case is that of shares, for example, where holding gains are eliminated by using data quoted daily or, in some instances, more frequently.)
It is simple to think of the situation where the level of inventories is the same at the same date in successive years (possibly zero) but where there has been considerable movement of goods into and then out of inventory in the intervening period.

In such a case, the sum of the quarterly (or even shorter period) estimates of changes in inventories is to be preferred to the annual estimates.

3.
3.

Quarterly accounts in volume terms 18.43 Just as the goods and services account in annual accounts can be expressed in volume terms, so can the quarterly goods and services account.

Although it is recommended that volume indices be chained, for quarterly accounts it is recommended that volume indices should be chained on only an annual basis to avoid spurious results that could be caused by seasonal effects.

The techniques are described in detail in paragraphs 15.45 to 15.50.

4.
4.

Coverage of quarterly accounts 18.44 It is possible in principle to compile the whole set of accounts in the SNA, including balance sheets, on a quarterly basis.

The most common sets of quarterly accounts, though, are for the goods and services account, the income components of value added, government expenditure, the balance sheet and changes in balance sheets for financial assets and liabilities.

The quarterly goods and services account should also be compiled in volume terms.
E. Regional accounts 18.45 Regional accounts are of special importance when there are important disparities between the economic and social development of the various regions of a country.

18.46 A full system of accounts at the regional level implies treating each region as a different economic entity.

In this context, transactions with other regions are recorded as if they are external transactions.
External transactions of the region have to distinguish between transactions with other regions of the country and transactions with the rest of the world.

399 System of National Accounts 18.47 Three types of institutional units have to be considered in the context of regional accounts.

a.

There are regional units, the centre of predominant economic interest of each of which is in one region and most of their activities take place in this region.
Among regional units are households, corporations whose establishments are all located in the region, local and state governments, at least part of social security and many NPISHs.

b.

There are multiregional units, the centre of predominant economic interest of each of which is in more than one region but does not relate to the country overall.

Many corporations and a number of NPISHs are in this situation.
c. A small number of units are national units, which means that their centres of predominant economic interest are not located geographically even in the sense of multiregional location.

This is usually the case of central government and may be the case for a small number of corporations (probably public), generally in a monopolistic or quasi-monopolistic situation, such as the national railway corporation or the national electricity corporation.
18.48 Assigning transactions of the regional units to a specific region does not raise any conceptual problem.

Assigning the transactions of multiregional units between various raises more difficulties.

When considering regions deliveries between units of the same enterprise in different regions, it is necessary to apply the recommendation in paragraph 6.104 about intra-enterprise deliveries.
Such deliveries are recorded only when the receiving unit assumes responsibility for making the decisions about the level of supply and prices at which their output is delivered to the market.

When this is not the case, the receiving unit is regarded as providing only a processing service to the sending unit.

18.49 Further, some of the transactions of multiregional units simply cannot be allocated between the different regions in which they operate.
This is the case for most property income and financial transactions.

Thus the only balancing items of multiregional units that can be determined at the regional level are value added and operating surplus.

These difficulties are parallel to those that arise when trying to construct accounts for industries where different types of activities are undertaken in separate establishments of the same enterprise.
18.50 Assigning the transactions of national institutional units by region raises even more complex issues to the point where the usefulness of attempting to do so may be questioned.

While sales of electricity and railway services or compensation of employees paid by central government may be assigned to regions, interest on the public debt payable by central government or national corporations cannot be geographically located.
Consequently, a reasonable solution is to introduce a kind of national “quasi-region”, not allocated as such between the regions and being treated as an extra region.

This national “quasi- region” may include the head offices of enterprises that have establishments located in, and assigned to, the regions.

18.51 These conceptual difficulties partly explain why no country establishes the complete SNA accounts for every region.
In most cases regional accounts are limited to recording production activities (with conceptual problems arising for locating some of transportation and them, such as communication) by industry and more complete accounts for institutional sectors composed of regional units, such as households and local and state government.
Establishing accounts for goods and services and input-output tables by region does not raise insoluble conceptual issues, though it involves treating deliveries to and from other regions as exports and imports.

However, the practical difficulties of doing so are very considerable in the absence of a sophisticated system of transport statistics.

18.52 It should also be noted that in large countries there may be significant variation in prices of the same products across different regions.
A full investigation of the impact of price variation on regional production and expenditure could involve the construction of a type of PPP exercise to be able to estimate the difference in purchasing power in different regions.

ISIC Rev.
4 sections A B, C, D and E C of which F G, H and I Table 18.1:High-level SNA/ISIC aggregation (A*10) Description Agriculture, forestry and fishing Manufacturing, mining and quarrying and other industry : manufacturing Construction Wholesale and retail trade, transportation and storage, accommodation and food service activities J K L M and N O, P, and Q Information and communication Financial and insurance activities Real estate activities Professional, scientific, technical, administration and support service activities Public administration, defence, education, human health and social work 1 2 2a R, S, T and U Other services activities 400 18.53 Nonetheless, regional accounts, even with the limitations mentioned above, are a very useful tool for economic policy.
Partial regional accounts may be inserted in a set of regional statistical indicators on labour participation, unemployment, poverty, etc.

The greater the contrast between the regions in a country, the more useful is such a Elaborating and presenting the accounts system of regional indicators, including value added per capita, household disposable income and household consumption per capita.
It is for countries themselves to regional accounts and statistical devise specific into consideration indicators, their own taking their Table 18.2: Industry level headings for a country with a large subsistence economy ISIC, Rev.
4 Sections Divisions Groups Description A B C D and E F G I H J to U A F 01 02 03 014 Monetary Agriculture, forestry and fishing Crop and animal production, hunting and related service activities Cash crops Food crops Animal production Forestry and logging Fishing and aquaculture Mining and quarrying Manufacturing Formal Informal Electricity, gas, steam and air conditioning supply; and Water supply; sewerage, waste management and remediation activities Construction Wholesale and retail trade; repair of motor vehicles and motorcycles Formal Informal Accommodation and food service activities Transportation and storage Transport via railways Other land transport Air transport, transport via pipeline and warehousing and support activities for transportation 491 492 511, 512, 493, 521, 522 Postal and courier activities; programming and broadcasting activities; and telecommunications Other services Public administration and defence; compulsory social security Education Human health and social work activities Real estate activities Miscellaneous Total Monetary Non-Monetary Agriculture, forestry and fishing Crop and animal production, hunting and related service activities 014 Food crops Animal production Forestry and logging Fishing and aquaculture Construction Imputed rental of owner-occupied dwellings Other non-monetary activities Total Non-Monetary Total value added at basic prices Taxes less subsidies on products and imports Gross domestic product 53, 60 and 61 84 85 86, 87 and 88 68 01 02 03 68 401 System of National Accounts circumstances, data systems and resources that might be devoted to this work.
18.54 There are two manuals giving more detail on regional accounts; Regional accounts methods - Gross value-added and gross fixed capital formation by activity Eurostat, 1995) and Regional accounts methods – Households Accounts (Eurostat 1996).
F. Presentational issues 18.55 Although it is possible, as already noted, to introduce more detail into the integrated economic accounts by introducing more columns for subsectors and more rows for disaggregations of transactions, this may quickly result in a very complicated and unmanageable table.
For this reason, more detailed analysis of production and transactions in goods and services, financial transactions and detailed balance sheets, as well as analysis by purpose are shown in other types of tables.

Some of these alternatives are described in following chapters.

This section focuses on the presentation of the main macroeconomic aggregates with supporting detail.
18.56 It is fundamental to an understanding of the SNA to grasp the three different ways of compiling GDP, from the production, expenditure and income approaches.

However, the definitions in chapter 16 concentrate on the different types of flows at the most aggregate level to make the distinction between the three approaches as clear as possible.

In practice when presenting the results to users, some more detail is necessary.
The amount and kind of detail can vary from country to country but there are some broad guidelines that tend to be used by international organizations when producing tables for several countries at the same time.

1.

Production measures of GDP 18.57 For the production measure, it is usually appropriate to give some level of industry detail.

ISIC, Rev.

4 provides a top- level of 21 sections and a second level of 88 divisions.
For national accounts summary data presentations, a high-level aggregation of 10 categories and an intermediate-level aggregation of 38 categories have been developed that are suitable for SNA data reporting from a wide range of two SNA/ISIC countries.

The aggregations, which are denoted as A*10 and A*38, respectively, is described in more detail in ISIC, Rev 4, paragraphs 199 to 212.

Table 18.1 shows the high-level (A*10) aggregation of industries.
structure of these Key industries 18.58 It is quite common in some countries to show very summary data for a range of industries with a breakdown by agriculture (ISIC section A), industry (ISIC sections B to F of which manufacturing, ISIC section C, is shown separately) and services (ISIC sections G to U).

In countries where there are a small number of key industries, it may be useful to break some of these headings down further and to merge others.
For example, it may be useful for an insight into the working of the economy to distinguish agriculture Table 18.3: GDP by expenditure GDP: expenditure approach Final consumption expenditure Household final consumption expenditure Possibly include summary detail by product or COICOP Final consumption expenditure of NPISHs Government final consumption expenditure Individual consumption expenditure Collective consumption expenditure of which Actual individual consumption expenditure Gross capital formation Gross fixed capital formation, total Possibly include summary detail according to the asset classification of capital formation Changes in inventories Acquisitions less disposals of valuables External balance of goods and services Exports of goods and services Exports of goods Exports of services Imports of goods and services Imports of goods Imports of services Statistical discrepancy Gross domestic product 402 undertaken on a commercial scale to produce cash crops for export from small-scale informal agricultural activities or to distinguish the assembly of electronic goods.
Equally in some countries it may be sufficient to merge some service groups.

However, it is good practice to follow the basic ordering adopted by ISIC whatever the level of detail shown.

18.59 In countries with a large subsistence economy, it may be desirable to show whether the production is monetary or non-monetary.

Table 18.2 shows how the main ISIC industries can be elaborated to make this distinction.
Depending on circumstances, a subset of these headings (or possibly with extra disaggregation if appropriate) may be a useful way to present information on the production activities in a country.

2.

Expenditure measures of GDP 18.60 The most aggregate level of the expenditure measure of GDP is household final consumption expenditure, general government final consumption expenditure, gross capital formation, exports of goods and services and imports of goods and services.
(Often in such an abbreviated presentation the item for household final consumption expenditure includes that for NPISHs also.)

An example of a somewhat more detailed table is shown in table 18.3.

The possibility to include details by product or by COICOP groups is shown in the table.

Similarly (though not shown), details of products or COPNI, COFOG groups could be included under other headings as appropriate.

3.
3.

Income aggregates the same 18.61 There is much less standardization in the presentation of income measures of GDP.

Some presentations concentrate on showing compensation of employees and operating surplus (and mixed industry income) by breakdown as is shown for the output measure of GDP.

Other presentations give the different components of compensation of employees (wages and salaries, and employers’ social contributions), as well as the different types of taxes and subsidies levied on production.
As already pointed out, income should, properly speaking, be measured net of consumption of fixed capital and thus show the composition of NDP, not GDP.

The size of NNI relative to NDP is also of interest to analysts and should be shown.

18.62 Again national needs should be taken into account when determining the presentation of the accounts.

In a country where income in kind or subsistence income is significant, a breakdown of compensation of employees that includes these items should be considered.

4.
4.

Accounts in volume terms 18.63 Accounts in volume terms may be presented in a number of ways that are not necessarily mutually exclusive.

It is possible to present them in level terms so that for one year (the reference year) the figures in current prices and in volume terms will be identical.
A consequence of this is that if, as recommended in the SNA, volume estimates are derived by means of chain-linking, then the aggregates may not be equal to the sum of the components for years other Elaborating and presenting the accounts than the reference year.

One alternative is to present the volume estimates in index number form.

The year that previously was the same in level terms becomes 100 for both the aggregates and the components.
This procedure makes changes easier to recognize but users can still calculate the level figures if desired by applying the base year level values to the volume indicators.

However, this alternative is inappropriate for aggregates that can take zero or negative values, such as changes in inventories.

A third alternative is to show the volume indicators only in terms of growth rates from either the previous year or from a base year.
However, rounding problems suggest this may be an additional form of presentation rather than the only one.

(See paragraph 15.63 for more on measuring the contributions of chain-linked indices to growth.)

5.

Quarterly accounts 18.64 As noted in the discussion on quarterly accounts above, quarterly estimates should be presented on both a seasonally adjusted and an unadjusted basis.

Often they will be presented in current prices and as volume series also.

6.
6.

Sector accounts 18.65 The rationale for making institutional sectors such an important part of the SNA is the key role that they play in understanding how economic developments affect one or another groups of units in the economy.

An account for each sector can be examined on its own, much as is suggested in following chapters, but some features of the accounts are only apparent from a presentation where all the sector accounts are available together.
For example, an examination of property income flows shows which sectors pay interest and which receive it, what proportion of dividends are received by pension funds and whether rent is paid predominantly by households or not.

The secondary distribution of income account allows a comparison to be made between the amount of current taxes on income, wealth, etc.
paid by corporations as compared with households, which sectors pay insurance premiums and which receive the claims and how important other current transfers are in the economy.

18.66 The chapters that discuss the interpretation of the sector accounts also consider matters of presentation as do the chapters showing the links with other statistical systems, notably the links to government finance statistics, external transactions and monetary and financial statistics.
In all cases, though, attention should be paid to presenting the accounts in a manner most useful to the readers of the publication for which a presentation is being designed.

This may well vary from one type of publication to another and flexibility in approach is essential to enable the readers to make best use of the data being presented.

7.

Integrated accumulation accounts 18.67 Chapter 13 explains the articulation of the accumulation accounts for both non-financial and financial assets.
The links between opening and closing balance sheets for non- financial assets are essential for the derivation of consumption of fixed capital and for measures of capital services and productivity as explained in chapter 20.

Very 403 18.68 For financial assets and liabilities, the situation is somewhat better and indeed in some cases the flow data are derived from opening and closing balance sheet data.
Although these data are regularly published, when available, the tables are not always linked to the regular national accounts publication and so users are not always aware of the essential connection between the financial part of the accounts and the rest.

System of National Accounts often, though, the basic data on which such estimates are made are not published on a regular basis or even at all.
Despite their obvious importance, even stocks of residential dwellings are not publicly available for more than a handful of countries.

404 Chapter 19: Population and labour inputs A.

Introduction 19.1 19.2 19.3 19.4 individuals Economic activity is essentially human activity and yet the sequence of accounts does not refer to persons except indirectly.

All individuals that make up households (the population) are only identified in so far as they engage in consumption expenditure.
Those that are employees feature only as the recipients of compensation with no indication about whether there are a few very well paid employees or many very poorly paid (though in fact there are some of each and many in between).

The purpose of this chapter is to show how data for population and labour can be used in conjunction with key entries in the sequence of accounts to show how much the average citizen benefits from economic activity and how much the average worker contributes to output.
An indication of the first is given by measuring GDP per capita and of the second by estimating labour productivity.

As well as being of interest in themselves, these figures are interesting in comparison with similar data in different time periods and in different countries.

This chapter considers total population, labour inputs and labour productivity only.

Chapter 24 considers different types of households.
The extension of productivity to include the impact of capital is covered briefly in chapter 20 and more extensively in other publications such as Measuring Productivity.

in per capita The SNA requires a definition of population to express GDP and consumption aggregates in per capita terms.

In effect, expressing the volume of GDP (or of household final consumption expenditure) terms “standardizes” the volumes by adjusting for the size of countries based on their populations.
Per capita volumes of major aggregates are often used as a measure of the relative standard of living in countries, despite the misgivings of some social analysts about the adequacy of this measure.

Even though the per capita volumes of GDP have some shortcomings, it is clear there is a strong correlation between a country’s per capita volume of GDP and its standard of living.

input variables are necessary to examine Labour productivity.
Changes in productivity over time are an the efficiency of economic important indicator of production.

Likewise, differences level of productivity in a country compared with similar countries provide a useful indicator of the relative efficiency of the country’s production processes.

Productivity can be measured in different ways, with the simplest being labour productivity, typically measured as the volume of GDP per hour worked.
More complicated productivity measures, the in such as multifactor productivity (sometimes called total factor productivity) also require a measure of labour inputs, along with capital inputs, to obtain an overall input measure to divide into the GDP volume.

1. International standards on labour force statistics 19.5 Clearly, if a ratio is to be formed between measures of output and labour input, the concept of labour used must match the coverage of production in the SNA.
The relevant standards on the labour force are maintained by the International Labour Organization ILO standards are contained in “resolutions”, which are adopted by sessions of the International Conference of Labour Statisticians (ICLS).

The resolution of 2008 confirms that the economically active population is defined in terms of individuals willing to supply labour to undertake an activity included in the SNA production boundary.

(ILO).
(ILO).

The 19.6 Not everyone who is economically active works for a resident institutional unit.

It is therefore particularly important that the concept of residence underlying the population estimates be consistent with that for labour force estimates and that the residence of individuals included in employment estimates are consistent with the criterion of resident institutional unit in the SNA.

2.
2.

The structure of the chapter 19.7 The topic of population and the derivations of per capita figures for aggregates such as GDP are the subject of section B.

Section C starts by describing how the total population can be divided into those in the labour force and those not in the labour force and the adjustments made to population totals to allow for residents working abroad and non-residents working in the national economy.
It also describes how various categories of the labour force are defined and discusses some boundary issues.

19.8 Section D discusses how simple head counts of employed persons can be improved for use in productivity measures by different means of standardization.

The derivation of labour productivity measures is the topic of section E and the chapter closes with a brief discussion of data sources in section F. 405 System of National Accounts B.
Population 19.9 Annual population estimates derive from less frequent population censuses.

Censuses usually count the number of people present on a specified night or the number of people who usually live in a dwelling, even if they are not present when the census is enumerated.

However, a census is often conducted only every five or ten years and sometimes less frequently.
In years between censuses, updated information on the population of a country is provided by drawing on information on births and deaths and on net migration.

19.10 The population of a country is most simply defined as all those persons who are usually resident in the country.

In this definition, the SNA and BPM6 concept of residence is used, that is persons are resident in the country where they have the strongest links thereby establishing a centre of predominant economic interest.
Generally, the criterion would be based on their country of residence for one year or more.

In most cases, the concept of residence is straightforward, being based on the dwelling a person occupies on a permanent basis, although there are some borderline cases discussed further in chapter 26.

19.11 Generally, persons who are resident in a country for one year or more, regardless of their citizenship, should be included in the population measure.
An exception is foreign diplomatic personnel and defence personnel, together with their families, who should be included as part of the population of their home country.

The “one-year rule” means that usual residents who are living abroad for less than one year are included in the population but foreign visitors (for example, holidaymakers) who are in the country for less than one year are excluded from the measured population.
Further the application on the residence criterion in special cases is given in paragraphs 4.10 to 4.15 elaboration on 1.

Per capita estimates of volume growth 19.12 The growth rate in the volume of GDP is one of the key economic indicators provided by the national accounts.

Such growth rates can be compared directly between countries because they are expressed in common units (percentage changes) and are not affected by the currency in which the GDP estimates are expressed.
However, part of each country’s growth in GDP volumes is attributable to changes in population and so it is useful to “standardize” percentage growth rates by calculating per capita growth rates.

For example, if a country’s population is increasing more rapidly than its GDP volume growth then the per capita output is falling.

On the other hand, a country with a very low growth in GDP volume but with a declining population will show an increase in per capita output.
19.13 As noted in the introduction, there are some shortcomings of per capita figures.

Just two examples can be given to illustrate this.

An economy with larger household sizes may have equivalent benefits from proportionately smaller expenditure on housing and other items covering all household members than a country with smaller household sizes.

Giving the same weight to a small child and an adult in a physically demanding job may also give misleading information on the adequacy of food consumption.
19.14 Per capita growth rates in real national income or in real actual consumption generally provide a better measure of the changes in the average “welfare” of a country’s population than the changes in GDP volumes.

GDP is a measure of production within a country but the inflows or outflows of income from or to the rest of the world can have a significant effect on both the level and growth rates in real national income per capita.
Similarly, the level and growth rates in GDP volumes can differ significantly from those in the final consumption of households because of the varying shares across countries of capital formation and net exports within GDP.

2.

Absolute levels of GDP per capita 19.15 As described in chapter 15, the International Comparison Program (ICP) makes estimates of absolute levels of GDP and GDP per capita across countries in order to try to establish a relative level of prosperity.
These estimates involve measures of GDP, purchasing power parities (PPPs) and the same population estimates previously described as being used for volume growth measures.

C. Measuring the labour force 19.16 Not all individuals included in the population are engaged in production.

Some are too young, some too old and some may simply choose not to work.

Others may usually work but be temporarily not working because of illness, lack of employment or being on holiday, for example.
A first step in moving from population data to data for employment, is thus to define what is meant by the labour force.

of the SNA.

The labour force is further divided into those who are employed and those who are unemployed.

Thus the population of the country can be subdivided into three categories; employed, unemployed and not in the labour force.

A person’s status depends on their activity (or lack of it) during a particular reference period (usually a week).
19.17 The labour force consists of those who are actively prepared to make their labour available during any particular reference period for producing goods and services that are included within the production boundary 19.18 Because the labour force is defined with reference to a short period, the number of persons in the labour force at any time may be smaller than the economically active population.
For example, seasonal workers may be 406 included in the economically active population but not in the labour force at certain times of year.

which employs them, and not in the industry of the enterprise for which they actually work.

Population and labour inputs 19.19 The labour force consists of four groups of persons; residents who are employees of resident institutional units, residents who are employees of non-resident institutional units, unemployed residents and self-employed persons.
(A self-employed person is necessarily associated with a resident household.

If such a person provides goods and services abroad, recorded as exports.)

Employment in the SNA is defined as all persons, both employees and self-employed persons, engaged in some productive activity that falls within the production boundary of the SNA and that is undertaken by a resident institutional unit.

these are 1.
these are 1.

Employees 19.20 Employees are persons who, by agreement, work for a resident institutional unit and receive remuneration for their labour.

Their remuneration is recorded in the SNA as compensation of employees.

The relationship of employer to employee exists when there is an agreement, which may be formal or informal, between the employer and a person, normally entered into voluntarily by both parties, whereby the person works for in return for remuneration in cash or in kind.
There is no requirement that the employer should declare the agreement to any official authority for the status of employee to apply.
the employer 19.21 Employees include but are not confined to the following categories: a. persons and (manual non-manual workers, management personnel, domestic staff, people carrying out remunerated productive activity under employment programs) engaged by an employer under a contract of employment; 19.22 An outworker is a person who agrees to work for a particular enterprise or to supply a certain quantity of goods and services to a particular enterprise by prior arrangement or contract with that enterprise, but whose place of work is not within it.
An outworker is treated as an employee if there is an explicit agreement that the outworker is remunerated on the basis of the work done, that is the amount of labour contributed as an input into some process the further discussion of is of production.

There classification of outworkers in paragraphs 7.34 to 7.38.

19.23 Persons temporarily not at work are also considered as employees provided they have a formal job attachment.
This formal attachment should be determined according to one or more of the following criteria: a. the continued receipt of wage or salary; b. an assurance of return to work following the end of the contingency, or an agreement as to the date of return; c. the elapsed duration of absence from the job which, wherever relevant, may be that duration for which workers can receive compensation benefits without obligations to accept other jobs.
Persons included in the above classification are those temporarily not at work because of illness or injury, holiday or vacation, strike or lockout, educational or training leave, parental leave, reduction in economic activity, temporary disorganization or suspension of work due to such reasons as bad weather, mechanical or electrical breakdown, or shortage of raw materials or fuels, or other temporary absence with or without leave.
For some purposes, it may be useful to distinguish employees temporarily not at work if this is possible.
b. civil servants and other government employees whose terms and conditions of employment are laid down by public law; c. the armed forces, consisting of those who have enlisted for both long and short engagements and also conscripts (including conscripts working for civil purposes); d. ministers of religion, if they are paid directly by general government or a non-profit institution; e. owners of corporations and quasi-corporations if they work in these enterprises; f. students who have a formal commitment whereby they contribute some of their own labour as an input into an enterprise's process of production in return for remuneration and (or) education services; g. disabled workers, provided that the formal or informal relationship of employer to employee exists; 19.24 Managers of corporations (or quasi-corporations) are treated in the SNA as employees but the ILO classification regards them as self-employed.
2.

Self-employed persons 19.25 Self-employed persons are persons who are the sole or joint owners of the unincorporated enterprises in which they work, excluding those unincorporated enterprises that are classified as quasi-corporations.

Persons who work in unincorporated enterprises are classed as self- employed persons if they are not in paid employment that constitutes their principal source of income; in that latter case, they are classified as employees.
They may be temporarily not at work during the reference period for any specific reason.

The compensation for self-employment is included in mixed income because it is not possible to observe separately the return to labour from the return to any capital used in the unincorporated enterprise.

(For some analytical purposes it may be useful to estimate a breakdown.
See paragraphs 20.49 to 20.50) h. persons employed by temporary employment agencies, who are to be included in the industry of the agency 19.26 Self-employed persons also include the following categories: 407 System of National Accounts a. contributing family workers working in unincorporated enterprises; b. outworkers whose income is a function of the value of the outputs from some process of production for which they are responsible, however much or little work was put in; c. workers engaged in production undertaken entirely for their own final consumption or own capital formation, either individually or collectively.
(An example of the last is communal construction.)

19.27 Contributing family workers are sometimes called unpaid workers but there are other unpaid, or voluntary, workers.

19.28 In ILO statistics, self-employed persons include those working in enterprises that are legally unincorporated even if there is sufficient information available for them to be treated as quasi-corporations in the SNA.

In the SNA the remuneration of these people is included in compensation of employees rather than in mixed income.
Among others, this may include members of producers’ cooperatives.

3.

Unemployment 19.29 To complete the picture of the labour force, it is necessary to mention unemployment because the labour force is divided between employed persons (that is, employees plus self-employed persons) plus those who are unemployed.

An unemployed person is one who is not an employee or self-employed but available for work and actively seeking work.
The concept of unemployed persons is not required in the national accounts because the unemployed do not contribute to production but their numbers are necessary to the employed make population to the economically active population.

transition from the conceptual 4.


Boundary problems Jobs and employees 19.30 Individuals may have more than one source of income from employment because they work for more than one employer or, in addition to working for one or more employers, they work on their own account as self- employed.

The agreement between an employee and the employer defines a job and each self-employed person has a job.
The number of jobs in the economy thus exceeds the number of persons employed to the extent that some employees have more than one job.

An individual with more than one job may do these successively as when the person works for part of the week in one job and the rest of the week in another or in parallel as when the person has an evening job as well as a daytime job.

In some cases, too, a single job may be shared by two persons.
to provide 19.31 Employers may not be aware of, and in any case are not jobs asked undertaken by their employees.

When employers supply information on the number of employees, they actually provide information on the number of jobs they provide.

Care has to be taken that the number of jobs does not information on, secondary 408 include vacancies when numbers of jobs are used for number of employees.
The distinction between number of jobs and number of employees is one issue that has to be carefully addressed in productivity statistics.

Residence 19.32 Population numbers are dependent on the residence of individuals but employees do not have to be resident in the economy where they work.

The results of the activity of producer units can be compared with employment only if the latter includes both the residents and the non-residents who work for resident producer units.
Employment mainly consists of resident employees working for resident institutional units and self-employed persons.
However, it also includes the following categories where there might be a question about whether they are considered resident or not: a. non-resident border workers (sometimes called frontier workers), that is, persons who cross the border each day to work as employees in the economic territory; b. non-resident seasonal workers, that is, persons who move into the economic territory and stay there for less than one year in order to work in industries which periodically require additional labour; c. members of the country’s armed forces stationed in the rest of the world; d. nationals who are on the staff of national scientific bases established outside the geographic territory of the country; e. nationals who are on the staff of diplomatic missions abroad; f. members of the crews of fishing boats, other ships, aircraft and floating platforms operated by resident units; g. employees of general government bodies situated for example the geographic territory, outside embassies; h. students undertaking employment are included or not according to their classification as resident or non- resident as explained in chapter 26.
19.33 On the other hand, the following residents, though employees, are excluded from employment in residential institutional units from measures of (and hence employment as used in the context of the SNA): a. residents who are border workers or seasonal workers, that is, who work as employees in another economic territory; b. nationals who are members of the crews of fishing boats, other ships, aircraft and floating platforms operated by non-resident units; c. residents who are employees of foreign government agencies located on the geographic territory of the country; d. the personnel of international civilian organizations located within the geographic territory of the country (including local employees directly recruited); e. members of the armed forces working with international military organizations located on the geographic territory of the country; f. nationals working in foreign scientific bases established in the economic territory.
19.34 Labour force statistics may be based on either household surveys (when all residents should be covered) or from establishment surveys (when the focus is on employment in resident institutional units).
However, some further adjustments are required to ensure the coverage of employment on an SNA basis is complete: a. conscripted members of the armed forces are generally not included in establishment surveys and may not be captured in household surveys but conscripts are regarded as being employees of general government in the SNA; b. resident workers living in an institutional household (such as a religious institution or a prison) are generally surveys or not establishment surveys but the workers are included in SNA employment; in either household included c. resident workers under the age limit defined for measurement of the labour force who work for resident institutional units are included in SNA employment.
5.

The non-observed economy 19.35 National accountants are particularly concerned about ensuring that the whole of economic activity within the SNA production boundary is measured comprehensively.

This is often referred to as the “exhaustiveness” of the coverage of the national accounts.
In practice, it means ensuring that the value of production activities that are illegal or hidden (that is, the “underground economy” or the “hidden economy”) as well as those that are simply described as informal is included in the accounts.

In principle, for the SNA, the remuneration of all these workers should be included in either compensation of employees or mixed income.
Therefore, when looking at comparisons between labour statistics and output, it is important the persons concerned should be included in labour statistics also.

6.

Labour in NPISHs 19.36 The output of NPISHs is supplied free or at prices that are not economically significant so it is valued by the costs of production.

One of these costs is compensation of employees.


It is important that these employees be recorded in the employment measures used in deriving productivity Population and labour inputs changes.

However, NPISHs often have volunteer workers so the treatment of these deserves special attention.

7.
7.

Volunteer labour 19.37 A distinction can be made between those who have an agreement to provide labour for token remuneration or only income in kind, those for whom there is explicitly no remuneration and those where there is apparently no remuneration but the workers benefit directly from the output to which they contribute.

In ILO statistics, all three types of worker are included in the economically active population as employees.
19.38 In the SNA, the remuneration of those working for token amounts or only income in kind is measured by these costs.

No imputation for an additional element of remuneration is included.

For example, if doctors or teachers work for only food and lodging, the value of this as income in kind is the only salary imputed to them.

Such instances may arise in religious institutions or in the wake of natural disasters.
If the unit employing these staff is responsible for whatever little remuneration is received, the staff are classed as employees.

19.39 If staff are purely voluntary, with no remuneration at all, not even in kind, but working within a recognized institutional unit, then these individuals are still regarded as being employed in SNA terms but there is no entry for compensation of employees (or mixed income) for them.
(Individuals providing services to groups of other individuals, such as coaching a children’s football team, without any associated infrastructure are not regarded as employed but rather engaging in a leisure pursuit, however worthy their efforts might be.)
19.40 If family members contribute to the output of an unincorporated enterprise, the estimate of mixed income is supposed to include an element of remuneration for them and thus they are all treated as being in the economically active population from an SNA point of view.

In ILO statistics such workers will not be included in the economically active population if they are under age.

(The lower limits for working age will depend on national conditions.)
19.41 By convention, no labour services are attributed to the services provided by owner-occupied dwellings (see paragraphs 24.50 to 24.58).

In contrast, if a group of individuals agrees to construct a building or structure, for example a school or a well, these individuals are regarded as being in the labour force and receive mixed income for their efforts.
Because it is difficult to value such projects, unless a direct comparison can be made with a similar building, the value of construction should be based on the costs into construction projects, so its value must be included as part of the total costs using wage rates paid for similar kinds of work on local labour markets (see paragraphs 6.127 and 7.30).

This income is then used to acquire the result of their efforts which may subsequently be handed over to a third party for maintenance.
The latter action is recorded as a capital transfer in kind.

incurred.

Labour is a significant input 409 System of National Accounts D. Standardized measures of labour inputs 19.42 A crude estimate of the labour inputs required for productivity measures is provided by the numbers of persons employed.

Using this as a starting point, the labour input measures can then be adjusted to provide various degrees of sophistication.
Examples in increasing order of being difficult to measure are full-time equivalents, total actual hours worked and quality-adjusted labour inputs based on models.

Each of these is discussed in turn below.

only normal hours or hours usually worked, any paid overtime, plus annual and holiday leave entitlements can be ascertained.
It may be impossible to estimate the deduction to be made for the average level of absence from work due to illness from either total hours actually worked or annual (full-time) hours actually worked.

This error will not affect full-time equivalent employment if sickness rates in part- time jobs are the same as in full-time jobs.

1.
1.

Employment measured on a full-time equivalent basis 19.43 Full-time equivalent employment is the number of full- time equivalent jobs, defined as total hours actually worked by all employed persons divided by the average number of hours actually worked in full-time jobs.

19.44 The definition does not necessarily describe how the concept is estimated.

The method sometimes used, of simply counting all part-time jobs as half a full-time job, is the crudest possible way of making an estimate.
Since the length of a full-time job has changed through time and differs between industries, more sophisticated methods are preferred, such as one that establishes the average proportion and average working time of less than full- week, full-time jobs in each job group separately.

19.45 The SNA does not recommend full-time equivalent employment as the preferred measure of labour inputs.
However, if the data are good enough to permit an estimation of total hours actually worked, full-time equivalent employment should also appear in association with the national accounts.

One reason is that this facilitates international comparisons with countries which can only estimate full-time equivalent employment.
However, with the move by the ILO to recommend recording total hours actually worked as the preferred measure of labour input, the use of full-time equivalents is likely to be gradually phased out.

19.46 As just noted, the number of full-time equivalent employees is based on the number of hours worked, on average, in a full-time job.
If the number of hours in a full- time job falls because of an increase in annual leave entitlements or public holidays, say, there may be little or no change in full-time equivalents even though the total number of hours actually worked has declined.

A similar effect may be caused by an increasing incidence of sick leave.

The estimate of the number of hours in a full-time job is therefore adjusted for the average amount of sick leave taken in the reference period as well as for annual leave taken.

2.
2.

Hours worked 19.47 Even with such adjustments made to full-time equivalent numbers, the preference is for total hours actually worked to be used in productivity estimates.

19.48 In practice, total hours actually worked and annual (full- time) hours actually worked may have to be estimated.
In many countries, especially for monthly paid employee jobs, 410 19.49 If the reference weeks used in the surveys that provide the data are not fully representative, the best available information on variations throughout the year should be used in estimating data for the year as a whole.
Defining hours actually worked 19.50 For the purposes of the SNA, working time is defined as the time spent in undertaking activities that contribute to the the SNA production of goods and services within production boundary.
Seven concepts of working time are defined in the resolution concerning the measurement of working time adopted by the 18th ICLS, in December 2008: a. hours actually worked, b. hours paid for, c. normal hours of work, d. contractual hours of work, e. hours usually worked, f. overtime hours of work and g. absence from work hours.

19.51 The most important measure for the SNA, and the one most relevant for use in measuring productivity, is hours actually worked.
This concept covers a. direct hours, the time spent carrying out the tasks and duties of a job in any location regardless of the amount of time agreed contractually between employer and employee, b. related hours, including time on call, travelling on work assignments, training and other tasks itemized in the resolution, c. down time, covering periods when a person is available for work but cannot because of temporary interruptions of a technical, material or economic nature d. resting time such as short periods of rest, for refreshment, etc.
19.52 Hours worked excludes a. all types of leave (annual, public holidays, sick leave, 4. parental leave civic duty etc.

), Employee labour input at constant compensation Population and labour inputs b. commuting time when no productive work is done, c. education other than training, d. meal breaks and other longer periods of rest while travelling on business.

19.53 More exhaustive definitions of these criteria can be found in the ICLS resolution.
19.54 The truism, for employee jobs, that hours worked equal hours paid less hours paid but not worked, plus hours worked but not paid, is a useful one, since many establishment surveys record hours paid, not hours worked, so that hours worked have to be estimated for each job group, using whatever information is available about paid leave, etc.

3.
3.

Quality-adjusted labour input labour productivity changes over 19.55 Using total hours actually worked as the input measure for calculating time implicitly assumes that each hour worked is of the same quality (that is, there are no differences in the qualifications and skill levels of the labour employed).

In other words, each hour worked by a highly skilled person, such as a brain surgeon, is assumed to produce the same quantity and quality of output as each hour worked by an unskilled worker.
It is possible to produce a quality-adjusted measure of the labour inputs that takes account of changes in the mix of workers over time by weighting together indicators of quality for different grades of workers.

(The term quality-adjusted is used as being parallel to the idea of quality-adjusted price indices but it could also be seen as an adjustment for the change in the composition of the workers involved.)
19.56 The quality indicators used can relate to variables such as academic qualifications, trade qualifications, experience (typically based on age of the worker), industry of employment and so on.

The various indicators are weighted together using average hourly wages for a worker falling into each category.
The premise behind this approach is that workers are hired only until their marginal price (that is, their wages, including on-costs) is less than the marginal revenue expected to result from their production.

The index formula used can be a fixed-weight (Laspeyres) formula or a more sophisticated formula such as the Tornqvist, which takes account of changing weights by using weights from each of the periods in the analysis.
19.57 Calculating a quality-adjusted labour input measure using this approach is very data intensive and only those countries that have highly developed statistical systems are likely to have the detailed data required.

19.58 Total hours actually worked and full-time equivalent employment are both physical measures of labour input.
Output too can usually be measured in physical terms, such as tonnes or cubic metres, but this is not done in the national accounts, because the basic value per tonne or cubic metre varies so much between products that these physical measures lack general economic significance.

But compensation per hour or per full-time year of work varies enormously too.
Physical measures of labour input are only valid if the mix of different kinds of labour is much the same in the different countries or at the different times examined.

19.59 Since output is measured both at current prices and in volume terms, it is natural to do the same with labour inputs the as well as with remuneration of the self-employed is included in mixed income and cannot be unambiguously identified separately.
For this reason, the labour input of employees only is shown at constant compensation.

inputs.

However, intermediate 19.60 The measurement of employee labour inputs at current prices and in volume terms is symmetrical with the measurement of output and subject to the following caveats.

a.
a.

Market prices and market compensation are assumed to measure the relative economic importance of different goods, services and the advantages and jobs; disadvantages of this assumption are the same for inputs as for outputs.

b.
b.

Though the and constant volume measure compensation concepts are defined as revaluations of quantities at base period prices or compensation levels, they can be estimated in practice as the sum, over all groups, of values at current prices or compensation levels, each divided by an appropriate wage index.
c. These group indices are estimates, calculated for a representative sample of jobs or of goods or services, with weights reflecting the relative importance of each of the subgroups represented by a selected and specified job, or by a selected and specified good or service.

In other words, a compensation index is constructed like a price index.
19.61 While the value of employee labour input at constant compensation can be estimated by deflating current values, as mentioned above, the data may also permit the direct approach of multiplying the current number of jobs in each job group by the base-period average annual compensation for jobs in that job group.

411 System of National Accounts E. Estimating labour productivity 1.
Labour productivity and MFP 19.62 Volumes of output per hour worked (or per person labour employed) are described as measures of productivity.

However, this is a somewhat unsophisticated measure because changes in this measure can reflect a number of factors other than just the number of hours of labour employed.

In particular, increases in the amount of capital used can affect this ratio as can changes in the composition of the labour force over time.
19.63 Measures of capital productivity, calculated by dividing the volume of output by an index of capital services provided, suffer from similar drawbacks since they do not capture the effects of the amount of labour employed and the efficiency and composition of the capital inputs.

19.64 A measure that takes account of the contributions of both labour and capital to growth in output is multifactor productivity (MFP), which is sometimes referred to as total factor productivity (TFP).
The advantage of using MFP as the measure of productivity is that it includes effects not included in the labour and capital inputs.

This topic is discussed further in chapter 20 and in Measuring Capital.

19.65 The productivity model can be extended to include other factors such as the energy and materials used in production.

This can be extended to producing productivity estimates at the most detailed level of the input-output tables.

An example of such work can be found in the EU-KLEMS project.
EU-KLEMS was initially a statistical and analytical research project focussing on the analysis of productivity and growth accounting in the European Union at the industry level.

More information on it can be found on the project site http://www.euklems.net/.

The work is being adopted officially.

2.

Employment estimates for productivity estimation 19.66 As explained in section D, neither the number of employees, nor even full-time equivalent employees are ideal measures for use in productivity studies.
Total hours actually worked is preferred by many because it is a reasonable compromise between these cruder measures and data-intensive measures that adjust for differences in the qualifications, skill levels and composition of labour.

19.67 Whichever is used labour measure in calculating productivity, it is very important to ensure that the coverage of the labour data is consistent with that of the national accounts.
In other words, the labour inputs must be estimated within the same production boundary and using the same criteria for residence that are used in the national accounts.
Typically, the topics that cause most difficulty are residence (particularly with border workers), defence force and diplomatic personnel (who are commonly not covered by the labour force surveys often used to provide the basic data) and obtaining details of unpaid hours (for example, unpaid overtime) or of some self employment (for example, contributing family workers).

412 19.68 Increasingly, analysts are interested in measuring productivity on an industry basis as well as for the economy as a whole.
Calculating industry employment and working time by industry adds an additional degree of the estimation process.

Among other difficulty advantages, using hours worked overcomes the problems involved in measuring employment by industry when a worker has two or more jobs, not in the same industry.

to 19.69 In particular, the national accounting data come from surveys of establishments while the employment estimates are generally obtained using household surveys.
It is often difficult to correctly match the data classified by industry from these separate sources.

Similar difficulties potentially affect regional estimates, with the concept of residence having to be applied at a regional level rather than at the country level.

19.70 Labour productivity, including industry productivity, and MFP are all valid measures of an economy’s performance.
From a practical viewpoint, it is important to ensure that the employment and hours worked underlying these sets of estimates are consistent with each other as well as with the productivity output measures when calculating estimates.

3.

Data consistency 19.71 Examining the relative productivity performance of different industries is of interest to many analysts.

In practice, the labour input estimates for the whole economy can be estimated either “bottom up” or “top down”.
In the former case, the totals for the economy as a whole will be completely consistent with the industry estimates because they are summed to derive the total labour estimates.

However, in the case of a top-down approach, a range of different data sources may be used the disaggregation by industry.

In such cases, it is important to ensure that the sum of the industry estimates is consistent with the national totals.

to obtain 19.72 Classifying employment by industry is not always straightforward.
The main issue is to ensure that the employment estimates for each industry are as consistent as possible with the national accounts values and volumes so that the productivity estimates are reliable.

One particular problem that arises is where staff are recruited via an external recruitment agency.

Maintaining consistency with the industry output means that employment should be classified to the industry of the establishment that legally employs the workers.
In practice, this will be the establishment that pays the employee’s wages and any associated social contributions, which will usually be the employment agency and so the employees will be classified to industry class 7491 Labour recruitment and provision of personnel.

The output of this industry includes the revenue derived from the activity of hiring out staff to those those that need establishments establishments will be industries.
The establishments using these staff pay the employment agency and then the employment agency pays the staff so the payments by the “using” establishments will be the staff; generally, in other recorded as part of intermediate input for the using industry.

19.73 Ideally, for productivity purposes both the output attributable to these staff and the hours they work would be recorded in the industry in which they are actually working rather than in the industry “Labour recruitment and provision of personnel”.
However, in practice, it is unlikely that the data can be collected to enable the output and hours worked to be classified this way.

It may be useful for some purposes for the staff hired out by employment agencies to be allocated to the industries that actually use the staff.

However, any such allocation should be presented in a supplementary table and not in the main accounts.
4. International comparisons 19.74 Productivity growth is often expressed in percentage terms and comparisons across countries made in terms of these percentages.

Assuming similar methods have been used to compile the estimates for the countries being compared, levels of they have roughly comparable and productivity, this sort of comparison is interesting and much simpler than the alternative of comparing levels.
Measuring the relative levels of production (for example, that F. A note on source data 19.76 Broadly speaking, there are three types of data sources for employment data.

These might be used singly or in combination especially when the periodicity of each differs.

The usual caveats that the quality of a survey depends on the sample size, survey design, response rate and reference period obviously apply to the surveys used for employment data as for other surveys.
So do the steps that need to be taken to allow for non-response and misreporting.

19.77 The three data sources are: a. household surveys, such as a labour force survey; b. establishment surveys; c. administrative data (for associated with a payroll tax).

example, employment Population census data may also be available infrequently.

19.78 The employment estimates from a household survey typically count the number of people who have jobs and, perhaps, the number of hours they work.
If the labour input measure being used is the number of jobs in the country then the household survey will provide an underestimate to the extent that some people work in more than one job, unless the survey collects information on multiple job holding.

On the other hand, if the household survey collects details relating to the hours worked in all the jobs in which each person is employed then it should provide a good estimate of employment for the economy as whole.
Population and labour inputs the volume of GDP or of GDP per capita) or productivity between countries is more complicated because it is necessary to convert the national accounts data to a common currency.

The best means of doing so is to calculate purchasing power parities (PPPs), which measure the rate of currency conversion that would be required to equalize the prices of a common basket of goods and services between the countries concerned.
In practice, PPPs adjust for differences in price levels between countries as well as differences in exchange rates (see section E of chapter 15).

19.75 International comparisons of productivity below the level of GDP, such as by industry, are problematical.

PPPs are calculated using the expenditure-based estimates of GDP so there are no PPPs for the individual industries that contribute to GDP.
Therefore, it is necessary to make an assumption that the PPP for a single aggregate such as GDP is applicable to all industries.

Examining the differences in the PPPs for the various expenditure components shows they can vary significantly so this is unlikely to be a very good assumption.

Making robust international comparisons of productivity at disaggregated levels is thus a very demanding exercise.

19.79 Establishment surveys tend to have some shortcomings when used as a source of employment data.
In the first place, it is difficult to ensure that the survey frame on which they are based is completely up to date because of the lags inherent in the sources used to update the frame (for example, registration of new establishments with the appropriate authorities).

Even if the lags in updating the survey the employment estimates will vary with the peaks and troughs in the business cycle.
Secondly, it is often difficult to collect data for self-employed persons, particularly if they are operating an unincorporated establishment.

There may be genuine confusion with enterprises regarding casual workers as providers of services rather than employees.

Further, there may be some cases of deliberately underreporting the numbers of employees.
frame are consistent, impact on their reasonably full coverage 19.80 Administrative data provide a useful source of employment data for the national accounts but may need to be used with caution and in connection with other sources.

Even when they have (for example, establishment tax data) the data may not be available until well after the reference year and provide only a snapshot of employment in that year rather than the average for the year.
A source such as payroll tax data is often affected by having exemptions for smaller establishments (including the enterprises), which unincorporated completeness of the data.

In such cases, the coverage of establishments is likely to vary by industry because of the concentration of smaller establishments in industries such as agriculture, construction and retailing.
reduces 413 System of National Accounts 19.81 The problems connected with handling border workers in the national accounts have been described in the section on residence.

As far as data sources are concerned, household surveys are likely to include employed persons in the country in which they are surveyed (that is, their country of residence) unless the survey contains specific questions to identify and exclude such workers.
19.82 Employed persons who have more than one job during a reference week can only be classified by industry and by status in employment through the application of some essentially arbitrary criterion as to which of their jobs is the most the practical plane, while household surveys can provide data about either or both of employed persons and jobs, establishment surveys only provide data about jobs.

important one.

On 414 Chapter 20: Capital services and the national accounts A.
Introduction 20.1 20.2 This chapter differs in content and style from those describing the accounts of the SNA.

Its aim is to show how a link can be made between the value of assets used in production and the gross operating surplus generated.

This link has been elaborated over a period of about fifty years in a body of knowledge described as the theory of capital services.
However, it is only fairly recently that a few statistical offices have incorporated the ideas from the theory into the measurement of stocks of those assets used in production.

Because there is evidence that this approach leads to improved measures of capital stock, it is proposed that, for those offices interested, a table supplementary to the standard accounts could be prepared to display the implicit services provided by non-financial assets.
The contribution of labour input to production is recognized in compensation of employees.

By also associating estimates of capital services with the standard breakdown of value added, the contributions of both labour and capital to production can be portrayed in a form ready for use in the analysis of productivity in a way entirely consistent with the accounts of the SNA.

The rest of the introduction gives a very general overview of the ideas involved in linking capital services with national accounts.
Section B shows how the measurement of capital stock can be aligned with the notion of the efficiency of an asset as well as its price.

This is followed by section C showing how to identify flows of capital services within existing entries in the accounts.
Section D shows how consideration of the basic link between asset value and contribution to operating surplus can be exploited to determine the appropriate way to account for costs associated with acquiring and disposing of assets and to place a value on assets where limited market price information is available.

Finally, section E discusses a possible format for a supplementary table.

1.
1.

The basic ideas of capital services 20.3 Non-financial assets give rise to benefits either from being used in production or simply from being held over a period of time.

This chapter concerns those non-financial assets that contribute to production and how this contribution is recorded in the accounts.

The assets concerned are fixed assets, inventories, natural resources and those contracts.

leases and licences used in production.


Valuables give rise to benefits derived from holding them as stores of value rather than using them and so are not covered by this chapter.

20.4 Assets appear on the balance sheet of their economic owner and the changes in value between one balance sheet and the next have to be identified and included in the appropriate account.

Changes in the value of assets due to changes in absolute or relative prices appear in the revaluation account.
Changes due to unexpected events not reflected in transactions appear in the other changes in the volume of assets account.

Every other change in value is treated as a transaction and must be recorded elsewhere in the SNA.

If the user of the asset is not the legal owner, two sets of transactions are recorded, those giving rise to payments between the user and the owner and those that show the user receiving the benefits of using the asset.

These latter are recorded as internal to the user.


If the legal owner of the asset is also the user of the asset, only the internal transactions are recorded.

20.5 Assets used in production have to be paid for but the payment is not deducted from the value of production in the period the asset is acquired but is spread over the whole of the period the asset is in use in production.
For fixed assets, is recorded as this gradual payment for an asset consumption of fixed capital, which is the decline in the value of the asset due to its use in production.

However, assets are not just a charge on production, they also contribute to the profitability of an enterprise by being the source of operating surplus.
It has long been commonplace to recognize that operating surplus is the return to capital used in production but an articulation of how this surplus is generated and how it relates to the value of an asset and the way in which this value changes during a period has not previously been included in the SNA.

As noted, this articulation is known as the theory of capital services.
This terminology sits a bit uncomfortably with national accountants since the services referred to are not the outputs of production in the way that transportation or education services, for example, are.

Nevertheless, the terminology is well established and should not in itself give rise to problems as long as it is remembered that capital services are not produced services.
Alternatively, capital services can be thought of as simply the term for the way in which the changes in the value of assets used in production are captured in the production account and the balance sheet.

20.6 Much of the impetus for identifying the entries associated with capital services in the national accounts has come from those interested in the analytical uses that can be made of the information, especially for productivity studies.
Because much of this work has been undertaken by researchers, it is perhaps inevitable that the rationale and 415 System of National Accounts reasoning behind the proposals should have been expressed in a rather academic manner, in particular making extensive use of sometimes rather complex algebra.

This chapter takes a different approach.

It aims to show that, rather than introducing a new concept into the SNA, capital services can, in theory, be identified within the existing accounts.
Further, recognizing this can lead to improvements in the estimates of consumption of fixed capital, which are currently required in the production accounts, and of the values of capital stock, which are required in the balance sheets.

The derivation of information analytically useful for productivity studies can thus be seen as a by-product of improved national accounts compilation practices and not an additional exercise.
The explanation is done in terms of highly simplified numerical examples but still aims to demonstrate the connection between the concepts referred to in studies referring to capital services and the national accounts approach to the valuation of capital and the derivation of stock levels.

20.7 relevant The explanation given here is to some extent superficial since it is intended to give an overview of the concepts and indicate in general terms why the theory of capital services is to national accountants.
For a deeper understanding of the subject, reference should be made to the two OECD manuals on the subject, Measuring Capital and Measuring Productivity and some of the practical and theoretical work referenced in those manuals.

B.

Valuing capital stock 20.8 20.9 Estimating is not a the value of capital stock straightforward process.
Whereas it is possible to measure all new capital formation undertaken in a year directly and simply aggregate it, estimating the total value of a stock of assets, even of the same basic type, but with differing characteristics and of different ages, is not simple.
In theory, if there were perfect second-hand markets for assets of every specification, these observed prices could be used to revalue each asset at the prices prevailing in a given year, but in practice, this sort of information is very seldom available.

Thus measures of capital stock must be derived indirectly and this is conventionally done by making assumptions about how the price of an asset declines over time and incorporating this in a model based on the perpetual inventory model (PIM).
Basically the PIM writes down the value of all assets existing at the beginning of the year in question by the reduction in their value during the year, eliminates those assets that reach the end of their useful lives in the year and adds the written-down value of assets acquired during the year.

This routine is so well established that it is possible to overlook the assumptions it rests on but it is an investigation of these assumptions that reveals the dual benefits of deriving capital service values.
In the absence of observable prices, the value of an asset may be determined by the present value of its future earnings.

Economic theory states that in a well functioning market (suitably defined) even when prices are observable, this identity will hold also.

There are thus two sorts of questions that may be posed about the value of an asset; (i) how much would it fetch if sold, and (ii) how much will it contribute to production over its useful life.
The first of these traditional question asked by national accountants; the second is basic to studies of productivity.

However, these two questions are not independent.

the is 1.

Knowing the contribution to production 20.10 Suppose an asset will add values of 100, 80, 60, 40 and 20 to production over the next five years.

For simplicity assume all products have the same prices and there is no inflation.

Assume, further, that the real rate of interest is five per cent per annum for all five years.
416 20.11 The value of the asset in all five years can be derived using present value techniques as shown in table 20.1.

(For simplicity, in this and all the following examples, the values shown are values at the start of the year so that, when discounting, the factor for the whole year is used.

This simplification is made only to facilitate exposition; in practice mid-year figures should be used.
It should also be noted that the figures in the tables are rounded and therefore may appear not to add exactly.

However, a reader who follows the examples in a spreadsheet will achieve exactly the figures shown.)

20.12 The addition to the value of the asset in year 1 from the expected earnings of 80 in year 2 is 76, that is 80 divided by 1.05.
(Alternatively, the addition to the value of the asset in year 1 can be viewed as 80 times a discount factor of 0.9524, the reciprocal of 1.05) The addition to the value of the asset in year 2 from earnings in year 3 is 57 (60 divided by 1.05) and in year 1 is 54 (57 divided by 1.05) and so on.
When the value of 100 for the earnings in the first year is added to 76, the value of the second year’s earnings in the first year, and to 54, the value of the third year’s earnings in the first year and to 35 and 16, representing the value of the earnings in years 4 and 5 in the first year, a value of the asset in year 1 of 282 is derived.

When the table is complete, the value of the asset in each of the five years is seen to be 282, 191, 116, 59 and 20.
20.13 The decline in value of the asset from year to year can be calculated by deducting each succeeding year’s value from the value of the present year.

Thus a series of 91, 74, 57, 39 and 20 is derived, a series that sums to 282, the original value of the asset.

If the decline in value of the asset (91 in the first year) is deducted from the contribution to production (100 in the first year), the value of income generated in a year results (9 for the first year).
To see that this item represents income, consider that the sum of the elements in the first column for years 2 to 5 together (182) represents the value of the same capital stock existing in year 2 but valued in the first year.

This value of 182 increases by 9 to 191 between year 1 and year 2.

This amount satisfies the criterion for income that it is the amount that the owner of the capital can spend and still be as well off at the end of the period as at the beginning.
Table 20.1:Example of deriving the value of capital stock from knowledge of its contribution to production Year 1 Year 2 Year 3 Year 4 Year 5 Sum of 5 years Discount rate 5% Contribution to asset value from earnings in : Year 1 Year 2 Year 3 Year 4 Year 5 Value in year Value index (year on year) Decline in value Income Over the five-year period, the value of income is equal to the difference between the sum of the diagonal elements (300) less the amount of the decline in value (282), or to put it another way, there is an identity between the value of income the asset yields and the discounting inherent in establishing its current value.
2.

Knowing the value at any time 20.15 Now suppose nothing is known about the contribution of the asset to production but the decline in the value of the asset over the five years, due to ageing, is known.

If this is postulated in terms of a value index relative to the preceding year’s value, and the initial value is known to be 282, then the entries in table 20.2 can be calculated.

By design, a value series consistent with the figures in table 20.1 is assumed.
Applying the decline in value of 0.68 to the initial value of 282 gives a value of 191 for year 2; applying the value decline of 0.61 to 191 gives 116 for year 3 and so on.

(Alternatively a time series of values could be postulated and applied to the initial value.)

From this the declines in value of the asset from year to year can be deduced and seen to be identical with those in table 20.1.
Table 20.2:Example of deriving the value of capital stock from knowledge of its decline in price Year 1 Year 2 Year 3 Year 4 Year 5 Sum of 5 years Discount rate 5% Contribution to asset value from earnings in : Year 1 Year 2 Year 3 Year 4 Year 5 Value in year Value index (year on year) Decline in value Income In general this is as far as the PIM goes.
Its twofold purpose is to calculate asset values for the balance sheet and the figures for consumption of fixed capital and these requirements are satisfied at this point.

But it is in fact possible to go further.

The contribution of the asset to production in the final year (20) is the same as the final year’s value.

If this is discounted by five per cent, the addition to the value of the asset at the start of year 4 is determined to be 19.
Given the value of the asset at the start of year 4 is 59, there must be a figure of 40 contributed to production in that year.

Extending this, for year 3 the value Capital services and the national accounts of 116 must consist of 18 representing the contribution to production twice, 38 in year 5 of 20 discounted representing the value contributed to production in year 4 of 40 discounted once and so by residual the value contributed to production in year 3 must be 60.
In this way all the top, triangular, part of the table can be completed and the values of the amounts of income in a year be derived just as in table 20.1.

3.

Age-efficiency and age-price profiles 20.17 Although tables 20.1 and 20.2 start from different assumptions, exactly the same complete table results even though they are filled in a different order in the two cases.
Table 20.1 starts from assumptions about the declining contribution to production and derives stock values and the decline in value each year.

Table 20.2 starts from assumptions about the decline in value of the stock and derives the contribution to production and the decline in value each year.

Both techniques give values of stocks to include in the balance sheets and figures of consumption of fixed capital.

The assumptions made in the two cases must be consistent.
In fact it can be shown that every pattern of decline in the contribution of an asset to production (usually called the age-efficiency profile) corresponds to one and only one pattern of decline in prices (usually called the age-price profile).

20.18 Given this, it would seem possible to take the information in a set of PIM assumptions and simply derive the contributions to production from these.
While it is possible to do this, it is generally held to be preferable to start again by postulating a set of age-efficiency profiles.

The reason for this can be illustrated by table 20.3.
Table 20.3:Table 20.2 with a slightly different pattern of price decline Year 1 Year 2 Year 3 Year 4 Year 5 Sum of 5 years Discount rate 5% Contribution to asset value from earnings in : Year 1 Year 2 Year 3 Year 4 Year 5 Value in year Value index (year on year) Decline in value Income Table 20.3 again starts from a series of relative price changes as in table 20.2 but these changes are somewhat different.
Instead of a series of 1.00, 0.68, 0.61, 0.51 and 0.34, a series of 1.00, 0.75, 0.55, 0.30 and 0.20 is taken.

These changes underestimate the rate of decline in value in the second year and assume a faster rate of decline in later years.

At first sight they do not seem unreasonable.

However, the effect on the contribution to production is considerable and the resulting series of 80, 101, 83, 28 and 7 is quite implausible.
What sort of asset would be over twenty per cent more efficient in its second year than in its first and still more efficient in the third year than in the first before declining quickly thereafter?

Yet this pattern of flows is still consistent with an initial value of 282, as in table 20.2 and with cumulative declines in value adding to this amount over five years.
417 System of National Accounts the income they generate 20.20 These are the reasons why it is argued that making assumptions about efficiency decline is likely to lead to superior results for the value of stocks, their decline in value and than making assumptions about the rate of price decline.

As a further example of why this may also be easier, consider the case of an asset that contributes the same to production, let us say 100, for each of five years and then stops dead, like a light bulb.
It is easy to postulate a constant age-efficiency profile but the corresponding age-price profile is much less intuitively obvious and varies according to the discount factor applied.

20.21 However, while there are good reasons for using age- efficiency profiles as the starting point, where actual information is available on age-price profiles, even partial information, it should be confirmed that the selected age- efficiency profile is consistent with the observed age-price movements.

4.
4.

The special case of geometrically declining profiles 20.22 A number of patterns can be postulated for either the age- price or age-efficiency profile.

These include straight line depreciation and various non-linear forms discussed in Measuring Capital.

One of particular interest is that where the price declines geometrically, that is each year the price (when adjusted for inflation) is a fixed proportion, f, of the year before.
Because such a series converges to, but never actually reaches, zero, it is difficult to portray it in a table such as those shown above but the interesting characteristic can be derived by means of a little very simple algebra.

20.23 It can be seen from the tables above that the value of an asset at the start of any year, Vt, is equal to the capital services to be rendered in that year, a, plus a discount factor, d, times the value of the asset at the start of the next year, Vt+1.

Thus Vt = a +d Vt+1.


C. Interpreting the flows 20.28 The tables above generate three time series of particular interest.

One is the contribution to production of an asset over time, one is the decline in the value of the asset and one is the income generated by the asset.

Obviously the middle term corresponds to consumption of fixed capital as normally understood in the SNA.
The contribution of capital to production is what is called gross operating surplus and so the third time series, income, corresponds fittingly to net operating surplus.

However, these flows can be described by alternative names also.

The diagonal to element of production, is also known as the value of capital services.

The income element is the return to capital.

The rate of return on capital is the ratio of income to the value of capital.
For tables 20.1 and 20.2, the income flow as a the contribution tables, showing the 418 In the case where Vt+1 =f Vt, Vt = a/(1-df).

By analogy, if the value of the capital services rendered by the asset in year t=1 is b, Vt+1 = b/(1-df).

But since Vt+1 =fVt, it follows that b must be equal to af.

Thus we have the case that the shape of the age-price profile and the shape of the age-efficiency profile are exactly the same.
20.24 As noted above, there is one and only one age-price profile corresponding to one age-efficiency profile, so it follows that the geometrically declining profile is the only profile that is the same for both the decline in price and in efficiency.

One consequence is that figures for capital stock adjusted for the decline in value are equal to those for capital stock adjusted for the decline in efficiency.
This property adds to the reasons that can be advanced for choosing this profile to determine the value of capital stock.

5.

Practical considerations 20.25 As noted at the outset of this section, there are many simplifications built into the examples presented, made in order to facilitate the explanation of the basic theory behind the idea of capital services to those new to the idea.
Measuring Capital should be consulted for a more rigorous discussion and for considerations such as the rationale for choosing one age-price (or age-efficiency) profile rather than another, how to estimate life lengths and retirement patterns of assets and the role of expectations in the calculations.

20.26 The manual also discusses the fact that the return to capital must be sufficient to cover taxes levied on the asset in question, a point that is ignored here also in the name of simplification.
20.27 To be precise, a distinction is made between the interest or discount rate, r, usually assumed to be five per cent in this chapter, and the discount factor which is the reciprocal of (1+ r).

When r is 5 percent, the discount factor is 95.24 per cent.

When the discount factor is 95.0 per cent, the discount rate is 5.26 per cent.

proportion of the next year’s capital stock value (that part not used in the current year) is also five per cent, the same as the discount rate.
The alternative terminologies are illustrated in table 20.4.

1.

Capital services and gross operating surplus 20.29 At this point, the national accountant asks how can gross operating surplus be estimated in this way when it is derived as a balancing item in the generation of income account?

There are two possible answers to this question.


The first answer is that there is not a complete identity with gross operating surplus but the value of capital services is implicitly within it so may be noted as an “of which” item relative to gross operating surplus.

Suppose the discount rate chosen is the rate that can be obtained on a bank deposit, say.

This determines the amount the user of the asset needs to generate as net operating surplus if the asset is to be cost effective.
If the figures for capital services and gross operating surplus are both 100, then the producer has made a reasonable choice of asset; it is earning as much for him as leaving his money in the bank.

If he earns a little more than 100, he has done better than leaving the money in the bank.

If the national accounts show he has earned 150, say, it may be that the producer has been very lucky indeed, perhaps realizing some monopolistic profits.
However, it is also possible that there is some sort of asset he is using that has not been identified in calculating capital services, one possibility being some form of intangible asset.

Similarly if the value of gross operating surplus is much lower than the value of capital services estimated, there may be good reason to question the range and valuation of assets assumed to be used in production or the quality of the estimates of gross operating surplus.
Thus deriving the value of capital services in this manner is also a valuable tool for checking data quality.

20.30 The alternative to treating capital services as an element of gross operating surplus is to equate gross operating surplus with capital services exactly and to do this by determining a rate of return (discount rate) that brings this about.

Many traditional analyses of productivity have used this approach and some cross-country comparisons of productivity depend on this assumption.
Other studies, used at the industry level, suggest that the variation in apparent rate of return obtained in this way needs to be used, if at all, with very great caution.

There is still robust discussion in academic circles about the preferred way of determining the rate of return, exogenously as described in the preceding paragraph or endogenously as described here.
One way of interpreting the difference is to say that using an exogenous rate of return simply confronts the cost of capital (capital services) with the benefits (gross operating surplus); the endogenous rate of return gives a single figure to be contrasted with the yardstick of a “normal” rate of return.
Table 20.4:Capital services and SNA terminology Year 1 Year 2 Year 3 Year 4 Year 5 Sum of 5 years Discount rate 5% Contribution to asset value from earnings in : Year 1 Year 2 Year 3 Year 4 Year 5 Value in year Value index (year on year) Decline in value Income 9 100 76 54 35 16 282 1.00 91 Value of capital services or gross operating surplus 80 57 36 17 191 0.68 74 60 38 18 116 0.61 57 40 19 59 0.51 39 Consumption of fixed capital 1 3 6 20 20 0.34 20 0 282 18 Return to capital or net operating surplus Capital services and the national accounts 2.
Prices and volumes 20.31 An examination of table 20.1, or indeed any of the others, shows that the value of an asset at a point in time, such as the start of a year, can be expressed rather neatly as the sum of the capital services rendered in the year plus the discounted value of the asset at the end of the year.

This is the starting point of much of the algebraic elaboration of capital services in the literature, but with one important difference.
Whereas most national accountants tend to think first in terms of current price aggregates and later (possibly) a breakdown into a volume aggregate plus a corresponding price, most descriptions of capital services run in the other direction.

They assume a volume and develop a theory of the corresponding price (the “user cost”).

These could be multiplied together to give a current value but much analysis is done using volume or price information.
20.32 One reason for working this way is that the assumption underlying table 20.1, that the contributions to production over the life of the asset are known, is not often true in practice.

What is known, estimated or simply assumed is an index of how the efficiency changes over time.

Equally the value of the asset assumed known in table 20.2 is only known on an asset-by-asset basis when each is new; all other value figures are estimates for reasons explained above.
It is possible to use the identity that the start-of-year value of an asset equals capital services rendered in the year plus the discounted end-of-year value, all expressed in index number form and assuming no inflation, into one that expresses the value of the capital services as dependent on the decline in the value of the asset due to ageing (the depreciation element) and the rate of return (the opportunity cost of money).
If the impact of general inflation is now taken into account, the price of the capital services (usually called the user cost) can be expressed as depending on the increase in value of a new asset of the same type, the nominal cost of money and the relative year- on-year decline in value of the asset due to ageing.

20.33 It is also possible then to have different prices for different sorts of assets and look at differential movements between asset prices and the movements in the general level of inflation.
(Table 20.1 was based on the very restrictive assumptions of there being neither absolute nor relative price inflation.)

20.34 Another important consideration passed over in the simple numeric tables is the following.

For balance sheet data, values at the date the balance sheet is drawn up are needed.

For estimates of capital services/gross operating surplus as well as for consumption of fixed capital and income flows, values at average-year prices are needed.
In practice, the mid-year observations are often assumed to be close approximations to the annual averages but this is not always so, especially in times of significant inflation.

419 System of National Accounts D. Applying the capital service model 20.35 Once a theoretical link between the content of gross operating surplus and the capital services embodied in an asset used in production is accepted, there are a number of other beneficial implications for the national accounts.
These include the question of the use of land in production, the valuation of natural resources, the separation of mixed income into the labour and capital components, the measurement of assets with a residual value, the treatment of costs of ownership transfer on acquisition, the treatment of terminal costs, capital maintenance, the valuation of work in progress on long-term projects, an alternative approach to estimating the imputed rentals of owner- occupied dwellings and the separation of the payments under a financial lease into the element to be regarded as the repayment of principle from the element regarded as interest.
Each of these will be explained a little further below.

20.36 Before discussing land and natural resources, it is useful to recall the consequences of an asset being used by a unit not the legal owner of the asset.

The important distinction is whether the user does or does not assume the risks associated with its use in production.

When the user does not assume the risks, the asset is regarded as being subject to an operational lease.
In such a case the payment to use the asset is a rental and forms part of intermediate consumption.

The benefits from using the asset in production accrue to the owner in the operating surplus of the production account relating to his leasing activity.

(See paragraphs 17.301 to 17.303.)

20.37 When the user does assume the risks associated with the use of the asset in production, the benefits from using the asset in production accrue to the user and appear in his operating surplus.
This is true of both produced and non- produced assets.

The difference between produced and non-produced assets concerns the type of lease existing between the legal owner and the user and the type of property income paid to the legal owner of the asset.

20.38 In the case of a produced asset, the user of the asset who assumes all risks associated with the asset becomes the economic owner of the asset.

The asset appears on the balance sheet of the economic owner.
If the legal owner is different, any payment from the economic owner to the legal owner is recorded as property income payable under a financial lease.

(See paragraphs 17.304 to 17.309.)

20.39 In the case of a non-produced asset, when the user of the resource and legal owner differ, the asset remains on the balance sheet of the legal owner but a resource lease between the legal owner and user obliges the latter to pay the former property income in the form of rent.

(See paragraphs 17.310 to 17.312.)


20.40 For all non-financial assets used in production, the estimation of the value of the capital services associated with the asset allows this to be contrasted with the property income payable for its use to determine whether the use of the asset is cost-effective.

420 1.

Land 20.41 The first and oldest recognized form of non-produced capital is land.
Land is special in that, under good management, the value is assumed to remain constant from year to year except for the effects of inflation in land prices.

That is to say, there is no depreciation of land and all the contribution to production can be regarded as income.

To show how this can be related to the previous examples, Table 20.5 shows part of a corresponding table for land that contributes 20 to production in perpetuity.

A full table would have an infinite number of rows and columns.
Here only a few are shown and some very simple algebra (with explanation) is used to explain how the totals are reached.

20.42 The value of the first column is the sum of 20, 20 discounted once (the second year’s contribution to production discounted once), 20 discounted twice for the third year and so on if not for ever, at least for very many years.

With a discount rate of 5 per cent as before, the sum of this column is 420.

To see that this is so, consider a simple geometric progression.
What is required is the sum of a series that can be written as: Sn=a+ad+ad2+ad3+ad4+ad5+…+adn where a is the return to the asset in every period and d is the discount factor.

(As noted earlier.

for a discount rate of 5 per cent, the discount factor is 95.24 per cent.)
If every term in the equation is multiplied by an extra factor d the result is: dSn= ad+ad2+ad3+ad4+ad5+… +adn+1 Subtracting the second expression from the first gives: Sn (1-d) = a (1-d n+1) If d is less than unity (as it will be in a discounting framework) and n is very large, that last term becomes insignificant and the sum of the series, Sn, can be determined as a/(1-d).

In table 20.5, a is 20 and d is 0.9524, so the sum of the series is 420.
Table 20.5:The case of land Year 1 Year 2 Discount rate 5% Year 3 Year 4 Year 5 .

.

.

Year 10 .

.

.

Contribution to asset value from earnings in : Year 1 Year 2 Year 3 Year 4 Year 10 Year 25 Year 40 Value in year Value index (year on year) Decline in value Income .

.

.

.

.

20 .

.

.

8 4 420 1.00 0 20 .

.

.

.

.

10 .

.

.

.

.

.

.

.

5 .

.

.

420 .

.

.

.

1.00 .

.


.

.

.

.

.

.

.

0 .

.

.

.

.

.

.

.

20 .

.

.

20.43 However, since each of the columns of the table, though one term shorter than the previous one, is also an infinite series beginning in exactly the same way, the sum of each column is also 420.

Thus the decline in value of the land from year to year is zero and the whole of the 20 is not just the contribution to production but also income.
In national accounts parlance, the gross and net operating surplus are both 20 and there is no depreciation.

Equally the value of the capital service and the return to capital are both 20.

20.44 As noted above, it may seem slightly odd to think of a non- produced asset contributing a “service” since in national accounts services are always produced.
This is simply a reflection of the words chosen by economists to describe the contribution of capital to production without connecting the word “service” to the specific interpretation given to it in the SNA.

Similarly one may hear compensation of employees described as the cost of labour services.

20.45 Another term used for capital services is economic rent and this initially seems more applicable in the case of land but is also a pitfall.
In table 20.5, the economic rent of land is the extent to which the farmer benefits from using the land for agricultural production (20).

This rent accrues whether the farmer is farming his own land or is a tenant farmer.

The amount that the tenant farmer is due to pay his landlord is what the national accounts show as rent under property income.

In the days when a farmer paid his rent as a share of the crop yield, the link was more obvious.
What he retained represented enough to cover his costs and the cost of his own (and any hired) labour.

In a monetized economy, the rent payable to the landlord is often agreed a very long time in advance.

Comparing the rent earned (as operating surplus) with the rent payable as property income shows whether the agreed rent is “fair” or perhaps excessive relative to the farming income.

2.
2.

Valuing natural resources 20.46 There is an increasing interest in placing a capital value on natural resources but, since these assets are seldom sold on the market, there has been doubt about how to do this.

Looking at the economic rent to be earned by a mineral deposit or a natural forest, for example, is one way to solve the problem.

20.47 Suppose that a mining company knows the size of the deposit being mined, the average rate of extraction and the costs of extraction of one unit.
After allowing for all intermediate costs, labour and the cost of fixed assets used, what is left must represent the economic rent of the natural resource.

By applying the expected future this extractions, a stream of future income can be estimated and from this, using the techniques already described, a figure for the value of the stock of the resource at any point in time.

to 20.48 In fact, the application of the capital service technique goes further than this.
In the case of a natural forest, if the rate of regrowth is at least equal to the rate of harvest, then the value of the forest does not decline and the rate of harvest is sustainable.

However, in the case of a mineral deposit with no natural renewable capability, then it is possible as before to separate the contribution to production into an element showing the decline in value of the deposit and a residual Capital services and the national accounts element.
Because this residual amount is consistent with the idea of maintaining the level of wealth intact, it can be regarded as income.

Clearly this leads into the area of so- called green accounting and the possibility of allowing for consumption of natural capital as well as consumption of fixed capital in an alternative presentation of national accounts in a satellite account.
Indeed, this is the argument developed at greater length and with applications to specific resources in section D of chapter 7 of the Integrated Environmental and Economic Accounting 2003 (United Nations, European Commission, International Monetary Fund, Organisation for Economic Cooperation and Development and World Bank, 2003) commonly referred to as the SEEA.

3.
3.

Mixed income 20.49 When discussing land, above, it was pointed out that the economic rent of the land was the part that was not otherwise accounted for by intermediate consumption, the cost of hired labour and the capital services rendered by fixed assets and the labour cost of the farmer.
Very often, it is difficult to put a value on the labour of a self-employed person and so this may be merged with the economic rent on land and the capital services rendered by any fixed assets used and described as mixed income.

In principle, though, if a separate estimate of the capital services rendered by fixed assets can be made from information about the services rendered by similar assets in other parts of the economy, then mixed income can be split into its labour and capital components.
20.50 In practice this has often proved difficult since the residual amount for self-employed income may turn out to be very small or even negative.

The most obvious cause of this is that the estimates for the capital services are too high.
This may be because larger companies are able to make more efficient use of capital, for example using a high value piece of equipment continuously rather than intermittently, or because they actually have other, intangible, assets, which have not been taken into account.

This means the capital services for these unmeasured assets are attributed to those that are recognized but this addition is not appropriate for the self-employed worker.
Thus the acceptance of the capital services model is unlikely to provide a quick and accurate breakdown of mixed income but it does show the way to probe the data for both large and small enterprises to ensure that capital is being measured comprehensively and consistently.

4.

Assets with a residual value 20.51 Very many assets are used by a single owner until they are worn out and worth nothing.

However, this is not the case for all assets.


Some are disposed of after a few years, perhaps because the cost of regular maintenance is deemed by the current owner to be too high relative to the value the asset contributes to production.

Some airlines, for example, may wish to use the fact that they keep up-to-date fleets of aircraft as part of their advertising appeal.

In other cases, for example with construction equipment, the original owner may simply have no further use for the asset.
20.52 Table 20.6 shows an example of an asset that is used for only four years and then disposed of for a value of 300.

421 System of National Accounts Again for simplicity it is assumed that the disposal value after four years is known when the asset is acquired.

For example, the market in used assets may be sufficient to ensure that the value at any point is equal to the remaining services to be delivered by the asset.

Inflation is still assumed to be zero.


corresponding part of table 20.6 giving increased value to the asset in each year until the end of year 4, increased consumption of fixed capital and slightly increased income, because the costs of ownership transfer are also viewed as the present value of the extra services required to meet the costs.
20.53 The top, triangular, part of the table shows the normal calculation of the value of the capital services to be rendered in these four years, a value that at the outset is seen to be 1 107.

To this the discounted value of the residual value of 300 must be added.

This value is 247, making the total value of the asset 1 354.
As in the case where an asset is held to exhaustion, the decline in the value of the asset including the residual value is lower year by year than the decline in the capital services to be rendered in these four years because there is an income element coming from the fact that the remaining value increases as the time for disposal of the asset gets closer.

The total of the decline in the value of the asset, to be shown as consumption of fixed capital, is 1 054.
This value, together with the residual value of 300, is equal to the original value of 1 354.

The total income (net operating surplus) is 121, the sum of the income arising from the use in production (68) plus the income arising from the unwinding of the discount factor on the terminal value (53).
Table 20.6: An asset with a residual value Discount rate 5% Residual value Year 3 Year 4 Sum of 4 years Year 1 Year 2 Contribution to asset value from earnings in : Year 1 Year 2 Year 3 Year 4 Value in year Decline in value Income Residual value Income Joint value Decline in value Income Table 20.6 illustrates that the cumulative value of the consumption of fixed capital calculated in respect of an asset should be equal to the initial value of the asset, treated as fixed capital formation, less the value to the owner on disposal of the asset.
This holds whether the asset passes into use as a fixed asset by another user, is used for another purpose in the same economy or is exported.

5.

Costs of ownership transfer on acquisition 20.54 The costs of ownership transfer incurred on acquisition of an asset are treated as fixed capital formation.

This assertion is equivalent to assuming that the services rendered by the asset must be sufficient to cover both the costs of the asset and the costs of ownership transfer.
Table 20.7 shows an example where costs of 30 are incurred on the acquisition of the asset in table 20.6.

In order for the asset to have exactly the same value as before on disposal, 300, the costs of ownership transfer have to be accounted for during the period in which the owner who incurred the costs uses the asset in production.
The figures in the triangular part of table 20.7 are added to those in the 422 20.55 If the costs of ownership transfer were to be attributed to the whole life of the asset and not just that part for which the unit that paid the costs owns the asset, there is a mismatch between the calculated value of the asset and the market value demonstrated in the sale at a value of 300.
In such a case, the data have to be brought back into reconciliation by means of an entry in the other changes in the volume of assets account but this means that not all of the costs incurred by the initial owner are shown as a charge against gross value added and so income is over- stated.
This may be inevitable when assets are sold unexpectedly but in the case of many vehicles and large mobile construction equipment, the purchaser may well take account of the value to be realized on sale after a given period.
When this is so, every effort should be made to take account not only of the residual value but also factor the expected life length into the calculations of the amount of consumption of fixed capital to be attributed to the costs of ownership transfer so there is no residual value of these costs left on disposal.
Table 20.7:Example of costs of ownership transfer on the acquisition of the asset in table 20.6 Year 1 Year 2 Year 3 Year 4 Sum of 4 years Discount rate 5% Contribution to asset value from earnings in : Year 1 Year 2 Year 3 Year 4 Value in year Decline in value Income Residual value Decline in value Income 6.
Terminal costs 20.56 Table 20.6 considered the case where an asset had a residual value at the time the current owner disposed of it.

It is also possible to have assets that have significantly large costs associated with disposal.

Examples include the decommissioning costs of nuclear power stations or oil rigs or the clean-up costs of landfill sites.
The following discussion is not meant to downplay the practical difficulty of estimating terminal costs, simply to demonstrate why in principle the existence of terminal costs should reduce the value of the asset throughout its life.

20.57 Terminal costs are similar to capital formation in that they should be covered by income generated during the time the asset is used in production.
If this is not done during the asset’s life these large costs may be treated as intermediate costs at a time when there is no longer any income being generated from production and so lead to negative value added.

Alternatively, they are recorded as capital formation but instead of the costs being recovered from value added, these costs are simply written off in the other changes in the volume of assets account.
This procedure omits from the macroeconomic aggregates a legitimate cost to business and so overstates gross and net domestic product over a period of years.

20.58 Table 20.8 shows an example of how terminal costs should be recorded.

The data in fact correspond to the numbers in table 20.6 for the contribution to production in each year, but in this case the residual value is negative rather than positive.

20.59 The analysis of the data follows that for table 20.6 exactly.
The value of the capital services to be provided by the asset in use is still 1 107.

However, since the present value of the terminal cost is -247, the total value of the asset is 860.

As before, the cumulated value of consumption of fixed capital, 1 160 is equal to this value less the terminal value of -300.

Not only is the value of the asset in each year lower than the value of the use in production, in year 4 the value is actually negative.
The rationale of this is that although the asset will yield services of 225 in that year, the impending costs of 300 mean that the owner would not be able to sell the asset; he would in fact have to pay another owner to take over the asset since it would then be the responsibility of the new owner to meet the disposal costs of 300.
Table 20.8:An asset with a terminal cost Discount rate 5% Residual value Year 3 Year 4 Sum of 4 years Year 1 Year 2 Contribution to asset value from earnings in : Year 1 Year 2 Year 3 Year 4 Value in year Decline in value Income Residual value Income Joint value Decline in value Income 400 286 227 194 1 107 365 35 - 247 - 12 860 377 23 300 238 204 742 278 22 - 259 - 13 483 291 9 250 214 464 239 11 - 272 - 14 192 253 - 3 225 225 225 0 - 286 - 14 - 61 239 - 14 0 - 300 - 300 1 107 68 - 53 1 160 15 20.60 Anticipated costs on ownership transfer on disposal of an asset, including legal fees, commission, transport and disassembly, etc., should in principle be treated in the same way as terminal costs.
7.

Major repairs and renovations 20.61 Major repairs and renovations that extend the life of an asset are treated as capital formation and the value of the repairs and renovations is added to the value of the asset before the work was undertaken.

The example of costs of ownership transfer on acquisition of an asset can be applied directly in this case, excepting only that the costs are incurred in a year other than the year of acquisition.
The value of the capital repairs is supposed to be equal to the discounted value of the increased services that the asset will yield, either by increasing the services in each of the remaining years of the initial life length, or extending the life length, or both.
Capital services and the national accounts 20.62 The value of the capital repairs can be analysed by merging the value with that of the asset in question and reworking all the calculations of the services to be rendered, the income generated and the consumption of fixed capital for the asset and the maintenance taken together.
However, as table 20.7 shows, it is also possible to leave the calculations for the asset as they were and simply aggregate them with a separate analysis of the maintenance undertaken as if it related to a wholly new asset.

8.

Work-in-progress for long term projects 20.63 Table 20.9 relates to an asset with a final value of 200 that is to be constructed over a period of four years.

One possibility is that, assuming no inflation, work in progress of 50 should be recorded in each of the four years.
However, consistent with the notion of discounting future income, an alternative view is preferable.

Suppose still that there is a discount rate of five per cent.

In each year, the value of the completed asset in each of years 1 to 3 will be 172.8, 181.4 and 190.5, each of which will cumulate to a value of 200 after, respectively, three, two or one years accumulation in value of 5 per cent.
Dividing each of these by four implies that even if equal amounts of work are put in place in each year, the values to be recorded should be 43.2, 45.4, 47.6 and 50.0.

In addition, though, there will be income arising from a return to the work already put in place.

This would give a time series for the work put in place and other income of 2.2, 4.5 and 7.1 in each of years two to four giving the value of the partially complete structure as 43.2, 90.7, 142.9 and 200.0.
These are the values that a purchaser of the partially completed structure would be willing to pay, given that he would forgo the income from the finished structure for up to three years.
Table 20.9:Valuing work-in-progress spanning several years Value of final product in each year Value of construction activity (one quarter of final value) Income accruing on work put in place In year 1 In year 2 In year 3 End year value Year 1 172.8 Year 2 181.4 Discount rate 5% Year 4 Year 3 190.5 200.0 43.2 45.4 47.6 50.0 2.2 2.3 2.3 43.2 90.7 142.9 2.4 2.4 2.4 200.0 9.
Owner-occupied dwellings 20.64 The SNA specifies that an imputed rental on owner- occupied housing should be included in the production boundary and form part of household consumption.

In a situation where there is either no rental market in such properties or only a very limited one, this is difficult to implement.

Cross-country comparisons of the results (as in the International Comparison Program) show that the different techniques used produce highly variable results.
Here too, the use of the techniques described in this chapter may be helpful.

20.65 In the example for land, it is possible to deduce a value of 420 for the land that yielded economic rent of 20 every year in perpetuity.
While modern houses do not last for ever, if they are assumed to last for, say, fifty years the discount 423 System of National Accounts factor applied over this period gives contributions to the value of the asset that are negligible at the end and again it may be supposed that, if the value of the house is 420, then the imputed rental is 20.
Given that the market for houses is much better established than for rented housing, this may also provide a source of useful and comparable data for a troublesome area of national accounts.

However, this method should be used with caution since houses are often bought in the expectation of making significant real holding gains.

It should also be recognized that the rental for a house usually includes land rent.

10.
10.

A financial lease 20.66 The process of discounting future income streams to determine present value applies to financial assets as well as to non-financial assets.

Consider an agreement with a bank to borrow 1 000 over a period of five years at five per cent interest.

The total amount to be paid to the bank will be 1 100 at a rate of 220 per year.

But, as table 20.10 shows, each year’s payment does not consist of repayment of principal of 200 and interest of 20.
Interest is payable on the remaining balance, so is highest in the first year and is zero in the last year.

(This is a result of the simplifications used in the chapter.

In practice, interest would be charged daily and so even in the last year some interest would be payable.

However, the way in which the balance between interest and repayment of principal changes over time as the loan is repaid holds.)
20.67 The arithmetic behind table 20.10 is indistinguishable from any of the other tables in this chapter demonstrating that the same principles hold for valuing financial assets as for non- financial assets.

The same methodology that can be used to show how much of the contribution to production is consumption of fixed capital and how much contributes to net operating surplus can also be used to show how much of the payment to the bank is a repayment of capital and how much is interest.
Both consumption of fixed capital and a repayment of capital feature in the accumulation accounts as changing the value of the stock of assets.

The contributions to net operating surplus and interest are both income flows and are shown in the current accounts.

20.68 This duality is especially important when an asset is acquired under a financial lease.

In this case, table 20.10 can be used to show both the change in value of the asset and the change in the loan taken out to pay for it.
Cost benefit analyses of the merits of borrowing to acquire assets also depend on this sort of calculation.

Unless the asset can contribute at least as much to production as the interest due to the lender, it is not a good investment.
Even if a producer has sufficient funds available to purchase an asset without borrowing, it makes sense to undertake such an analysis since the alternative to acquiring the asset is to convert the funds to an asset that will either earn income or appreciate and yield holding gains.
Table 20.10: The case of a financial loan Year 1 Year 2 Year 3 Year 4 Year 5 Sum of 5 years Interest rate 5% Contribution to loan value from payments due in : Year 1 Year 2 Year 3 Year 4 Year 5 Loan value in year Repayment of principal Interest E. A supplementary table on capital services 20.69 This section describes a table that could be compiled to compare data coming from the standard national accounts tables for the elements of gross value added with those derived from applying the theory of capital services to the national accounts data on capital stock.
Before presenting the table, though, it is appropriate to recall briefly the various simplifying assumptions that underlie the numeric examples in the earlier part of the chapter, assumptions that would be totally inappropriate in serious estimation of capital service flows.

The most important are: c. The general preference for an age-efficiency approach to determine the value of capital stock should not be taken to mean that information on age-price decline, when such exists, is to be ignored.
The solution is to find an age-efficiency pattern the observed decline in prices.

Where such a match can be made, this may inform the choice of age-efficiency declines where no matching price information is available.

that matches a.

Somewhat different figures would emerge if any of the tables were to be calculated for the start of year, end of year or mid-year.

Mid-year flows need to be discounted by half the annual discount rate to give start of year figures, for example.

b.
b.

The assumption that there is no price inflation, either overall or between different assets, is clearly unrealistic.

Changes due to price movements need to be separately identified and included in the revaluation account.

20.70 There is a question about the appropriate level of detail to be used for assets.

They are very diverse and even products that appear superficially similar, such as aircraft, may have quite different specifications.
This is a problem that must be resolved whatever means of determining a stock figure for assets is used.

The final choice may be a source of inaccuracies, or conversely, may lead to extra resource cost for little improvement in the results.

20.71 The first level of detail that might be examined is given in table 20.11.

This assumes that information on value added by institutional sector is available.
The figures for operating 424 Capital services and the national accounts surplus for non-financial and financial corporations may be compared with capital services from fixed assets used by these sectors adjusted as necessary for natural resources and inventories.

The figures for general government and NPISHs in the national accounts data and those for capital services data must be equal.
This is because by convention no return to capital on assets used in non-market production is included when output is estimated as the sum of costs.

Consequently gross operating surplus is equal to the consumption of fixed capital and net operating surplus is zero (possibly excepting small amounts of operating surplus coming from secondary market production).
The capital services for household dwellings should match operating surplus for households and the figure for capital services for other household unincorporated enterprises is to be compared with the national accounts figure for mixed income (which should include a labour compensation element also).
Table 20.11:The outline of a possible supplementary table Total/Gross Consumption of fixed capital Net Capital services Decline in value Return to capital National accounts data Gross value added Compensation of employees Mixed income Operating surplus Non-financial corporations Financial corporations General government NPISHs Households Taxes less subsidies on production Capital services Fixed assets Market producers (excluding households) Non-financial corporations Financial corporations Non-market producers General government NPISHs Households Dwellings Other unincorporated enterprises Natural resources Inventories 425 System of National Accounts 426 Chapter 21: Measuring corporate activity A.
Introduction 21.1 The purpose of this chapter is to discuss aspects particular to corporations in both the financial and non-financial corporation sectors.

It begins in section B by discussing the demography of corporations; how they come about, how they disappear and how they merge with one another.
The consequences of these actions in the SNA are almost all to do with recording the acquisition of the owner’s equity in corporations and in some cases reclassification of assets and liabilities between sectors.

21.5 21.6 Section F looks at the consequences of financial distress and the implications of remedial action for recording within the SNA.
The last section, section G, covers a rather different subject and looks at the emergence of commercial accounting standards over the last several years and how the process of developing new standards can be instrumental in helping to develop new approaches within the SNA.

21.2 Section C looks at some subsectoring of corporations and how this can be effectively deployed for analysis.

21.3 Section D considers the relationships between corporations in the domestic economy and in the rest of the world.
Much of this section is concerned with aspects of globalization and the derivation of relevant indicators.

21.4 Section E recalls some of the discussion in chapter 20 and looks further at the contribution of assets to production.

1.

A note on terminology 21.7 As explained in section B of chapter 4, the term corporation is used in the SNA to cover a wide variety of legal forms of institutional units.

In addition, the expression enterprise is used in connection with production activities.
While corporation is normally the term of preference in the SNA, other documents, notably the BD, tend to use enterprise in preference to corporation.

Further, the register of all enterprises or corporations is usually called a business register, even though “business” is not a term commonly used in national accounts.

In this chapter, all three terms are used without implying a difference between them.

B.
B.

The demography of corporations 21.8 Maintaining a list of corporations is similar to maintaining a list of all individuals present in the country in that it is necessary to record new corporations as they come into being and to record those that cease to be.

A business register normally serves an administrative function in keeping track of the existing businesses in the economy but also serves as the basic sampling frame for surveys directed at businesses.
Thus it is normal for a business register to contain information on the activity, size, location, etc.

of each business and to note when the main activity of a corporation changes from one type of activity to another.

In addition a business register may also include information on the links one corporation may have to other resident and non-resident corporations.

1.

The creation of corporations 21.9 Corporations can come into being in a number of ways.
One is when what was previously an unincorporated sector becomes the household enterprise within indistinguishably part of incorporated.

(The exact process of incorporation, such as when this may or must happen and how it is effected, will depend on the company law in effect in the country concerned.)

When this happens, the assets and liabilities that were previously the household are separated off and become those of the corporation.
In return for giving up control of these assets, and responsibility for the liabilities, the household acquires equity in the new corporation, initially exactly equal in value to the assets and liabilities transferred to the corporation.

Once an enterprise is incorporated, the owning household no longer has a claim on the assets and has no responsibility for the liabilities but instead owns the equity in the corporation.
21.10 An individual may simply decide to set up a business, set up a legal entity and begin operations.

Initially, there may be no assets of the entity and no liabilities but as these accrue they belong to the corporation and the owner’s equity changes correspondingly.

On a larger scale, there 427 System of National Accounts may be an agreement between a number of units, one or more of whom propose a business plan and one or more of whom agree to finance the operation.
A formal agreement results in which the split of the rewards from the corporation’s activity is determined and also the division of the responsibilities.

The assets of the new corporation are recorded as being acquired by it and an amount of owner’s equity in the corporation incurred as a liability towards the parties supplying the finance is also recorded.
21.11 It is not necessary for the corporation to issue shares for the agreement on the share of the profit arising from the activities of the corporation to be binding.

Cooperatives and limited liability partnerships are two examples of units the SNA treats as corporations where the way in which profits are shared between the owners is clear even though there are formally no shares.

21.12 Corporations may also come into being at the initiative of government, an NPISH or a unit in another economy.
In addition, a corporation may come into existence by the splitting of a previously existing corporation.

This possibility is discussed below under mergers and acquisitions.

2.

The dissolution of corporations 21.13 Similarly there are several ways in which corporations may go out of existence.

The first is when an entity is wound up after having been declared bankrupt.

(The exact process varies from country to country.


In some countries a declaration of bankruptcy means the corporation must stop trading immediately and the process of winding up its affairs begins.

In other countries, there may be a time lag while the corporation has an opportunity to continue trading while it tries to recover its position and only if this fails is it wound up.)
When a corporation is wound up, the receiver (the unit responsible for administering the liquidation of the corporation) sells all of its assets and distributes the proceeds amongst those having a claim on the corporation in a legally predetermined order.

The shareholders are always the last to be allocated any proceeds.

In the case where the corporation is bankrupt it is quite common that the shareholders receive nothing.
Only in very exceptional circumstances will the shareholders have any responsibility to provide funds towards settling other liabilities of the corporation.

21.14 A corporation may be wound up voluntarily by its owners.

When this happens the assets are sold and the proceeds are divided amongst the owners according to the shares each has in the corporation.
If the corporation is one that had issued shares, it can only be wound up if a clear majority of shareholders agree or if a clear majority of the shares are first acquired by a sufficiently small number of units who can reach agreement to wind up the corporation.

21.15 The acquisition of all shares of a corporation need not be a preliminary to the corporation ceasing to exist; it may simply continue with a smaller number of shareholders or even as a private unlisted corporation.
The advantage of remaining incorporated is that there is a limit to the liability of the owners to meet any shortfall on the corporation’s balance sheet.

Thus even when an individual or group of individuals wants to control the whole of a corporation they 428 may choose simply to make it an unlisted corporation but still one with the limited liability that comes with incorporation.
21.16 A third way in which a corporation may disappear is through it being merged with another corporation, though a the merged merger does not automatically corporation disappears.

This too is discussed below under mergers and acquisitions.

imply 3.
imply 3.

Nationalization and privatization 21.17 The government may decide to take ownership of a corporation for a number of reasons, either because it is felt it is in the public interest for government to control the corporation, in response to financial distress or for other political motivations.
When this happens the ownership of the corporation passes to the government, that is the government acquires the equity in the corporation, but the assets of the corporation remain on its balance sheet unless the government decides to nationalize the corporation and disband it at the same time.

Often but not always, government may make a payment to the previous owners of the corporation but this may not necessarily correspond to their view of a fair price.
Unless the corporation is dissolved, the process of nationalization leads to a change in the ownership of the corporation from private units to the government but the assets and other liabilities of the corporation continue to be owned by the corporation.

Owners’ equity in the corporation is recorded as a transaction in the financial account.
There is also a reclassification of the assets and liabilities of a corporation being nationalized from the national private subsector to the public subsector recorded in the other change in the volume of assets account.

21.18 The government may also decide to privatize a corporation it currently controls.

When this happens the most usual mechanism is that its shares are offered to the public either for sale or, in some cases, without charge or perhaps at a price lower than the market would bear.
When shares are offered free or at a reduced price, a capital transfer from government to the eventual shareholders needs to be recorded in the accounts as well as the acquisition of shares.

As with nationalization, only the equity in the corporation changes hands, not its assets and other liabilities, and the change in ownership of the equity is recorded as a transaction in the financial account.
The ownership of the assets and liabilities remains with the corporation but they are reclassified from the public to national private subsector in the other changes in the volume of assets account.

21.19 There is more discussion on nationalization and privatization in chapter 22.

4.

Mergers and acquisitions 21.20 The process of corporations merging and de-merging is of interest within an economy but especially interesting when the merger (or de-merger) involves units in different economies.
Foreign direct investment can hardly be discussed without considering the subject of mergers and acquisitions.

Some of the expressions commonly used in this field are listed below.

The descriptions come from the BD but similar concepts appear also in the BPM6.

(A revised version of the BD was released in 2008.

It is consistent with both the SNA and BPM6.)

Elaborating recommendations for the recording of mergers and acquisitions within the SNA is part of the research agenda.
21.21 A merger refers to the combination of two or more corporations to share resources in order to achieve common objectives.

A merger implies that, as a result of the operation, only one entity will survive and frequently occurs following an acquisition (described below).

There are several types of merger possible.

a.

A statutory merger relates to the business combination where the merged (or target) corporation will cease to exist.
The acquiring corporation will assume the assets and liabilities of the merged corporations.

In most cases, the owners of merged corporations remain joint owners of the combined corporation.

b.

A subsidiary merger relates to an operation where the acquired corporation becomes a subsidiary of the parent corporation.

In a reverse subsidiary merger, a subsidiary of the acquiring corporation will be merged into the target corporation.
combination whereby c. Consolidation is a type of merger which refers to a business two or more corporations join to form an entirely new corporation.

All corporations involved in the merger cease to exist and their shareholders become shareholders of the new corporation.

The terms consolidation and merger are frequently used the distinction between the two is usually in reference to the size of the combining corporations.
Consolidation relates the combining corporations have similar sizes while merger generally implies significant differences.

interchangeably.

However, to an operation where d. A reverse merger is a deal where the acquiring corporation ceases to exist and merges into the target corporation.

If a corporation is eager to get public listing in a short period of time, it can buy a corporation with listed shares and merge into it in order to become a new corporation with tradeable shares.
e. A merger of equals is a type of merger where the corporations involved are of similar size.

21.22 An acquisition is a transaction between two parties based on terms established by the market where each corporation acts in its own interest.

The acquiring corporation achieves control of the target corporation.

The target corporation becomes either an associate or a subsidiary or part of a subsidiary of the acquiring corporation.
Measuring corporate activity belonging to the same sector of activity) may also result in a hostile takeover.

b.

A reverse takeover refers to an operation where the the acquiring is bigger than target corporation corporation.

21.23 A divestment (de-merger) refers to the selling of the parts of the corporation due to various reasons: a.

A subsidiary or part of the corporation may no longer be performing well in comparison to its competitors; b.
A subsidiary or a part may be performing well but may not be well positioned within the industry to remain competitive and meet long-term objectives; c. Strategic priorities of the corporation to remain competitive may change over time and lead to divestments; d. Loss of managerial control or ineffective management; e. Too much diversification may create difficulties and thus lead the parent corporations to reduce the diversification of its activities; f. The parent corporation may have financial difficulties and may need to raise cash; g. Divestments may be realized as a defence against a hostile takeover.
21.24 Corporate divestments can be conducted in different ways: a.

A corporate sell-off is the sale of a subsidiary to buyers that are other corporations in most cases.

b.

A corporate spin-off occurs when the divested part of a corporation is floated on the stock exchange.

The newly floated corporation is separately valued on the stock exchange and is an independent corporation.
The shares in the newly listed corporation are distributed to the shareholders of the parent corporations who thereafter own shares in two corporations rather than one.

c. An equity carve out is similar to a corporate spin-off but the parent retains the majority control.

This form has the advantage of raising cash for the divestor.

d. Management buy-outs and buy-ins occur when the buyer is the manager or a group of managers of the corporation that is being sold off.

a.
a.

A takeover is a form of acquisition where the acquiring corporation is much larger than the target corporation.

The term is sometimes used to designate hostile transactions.

However, mergers of equals (in size or 21.25 In all these cases, transactions in the equity of the two corporations involved need to be recorded in the financial account and, possibly, a change of classification by sector in the other changes in the volume of assets account.
429 System of National Accounts C. Subsectors 21.26 The subsectoring of the corporations sectors is discussed in chapter 4.

It is proposed that there should be a three-way split of corporations between those that are national private corporations, those that are controlled by the government and those that are foreign controlled.

Within each of these it is desirable to identify market non-profit institutions (NPIs).

21.27 The reason for identifying NPIs is twofold.


In the first place, in order to have a comprehensive picture of NPIs, as described in chapter 23, it is necessary to be able to identify those market NPIs that are assigned to the corporations sector.

Identifying them separately may be unexpected to some users, since there is often a misconception that all NPIs are non-market and fall in the NPISH sector.
The other reason for identifying NPIs separately is that for some analyses it may be desirable to analyse corporations excluding the NPIs if it is felt that their economic behaviour is significantly different.

21.28 In identifying publicly controlled corporations, there is a question about how to provide long time series if there has been a significant change in the number and type of corporations subject to public control during the period.
It is usual to provide a time series that includes only those corporations that were subject to public control at each period in question.

Because interest usually focuses on how much of the corporate sector was controlled by the government, and how this has changed over time, this gives an appropriate picture.
However, if the intent is to explore the behaviour of the same group of corporations over time a supplementary table may be prepared that takes the current definition of publicly controlled corporations and uses this set of corporations over the time period considered regardless of whether or not they were publicly controlled for the whole of that period.

21.29 Identifying foreign controlled corporations is key to looking at the interaction between the domestic economy and the rest of the world.
Exploring this in greater detail is the subject of the following section.

D. Relations between corporations in different economies 21.30 Deregulation of markets, technological innovations and cheaper communication tools have allowed investors to diversify in competitive markets overseas.

In consequence, a significant increase in cross- border financial movements including direct investment has become a key factor in international economic integration, more generally referred to as globalization.
their participation 21.31 Regular analysis of direct investment trends and developments is an integral part of most macroeconomic and cross-border financial analysis.

It is of prime importance to policy analysts to identify the source and destination of these investments.

Several indicators based on direct investment statistics facilitate the measurement of the extent and impact of globalization.

1.
1.

Foreign direct investment 21.32 Foreign direct investment (FDI) is a key feature of the balance of payments and it is useful to review some of the basic concepts associated with this.

Further details can be found in both BPM6 and the BD.

In the context of FDI, the term enterprise tends to be used rather than corporation, but as noted in the introduction, no difference of meaning is intended.

21.33 Direct investment statistics embody four distinct statistical accounts: a.

Investment positions, b.


Financial transactions, 430 c. Associated income flows between enterprises that are related through a direct investment relationship, and d. Other changes in the value of assets, especially revaluation terms.
21.34 Direct investment is a category of cross-border investment associated with a resident in one economy (the direct investor) having control or a significant degree of influence on the management of an enterprise (the direct investment enterprise) that is resident in another economy.

21.35 Direct investment may also allow the direct investor to gain access to the economy of the direct investment enterprise which it might otherwise be unable to do.
The objectives of direct investors are different from those of portfolio investors who do not have significant influence on the management of the enterprise.

21.36 Direct investment enterprises are corporations which may either be subsidiaries in which over 50 per cent of the voting power is held, or associates in which between 10 per cent and 50 per cent of the voting power is held or they may be quasi-corporations, such as branches, which are effectively 100 per cent owned by their respective parents.
Enterprises that have no direct investment influence upon one another (that is the 10 per cent voting power criterion is not met) but are directly or indirectly influenced in the ownership hierarchy by the same enterprise (which must be a direct investor in at least one of them) are described as fellow enterprises.
21.37 Direct investment relationships are identified according to the criteria of the Framework for Direct Investment Relationships (FDIR, described in the BD), including both direct and indirect relationships, through a chain of controls ownership.

Suppose corporation B and B controls C then A in effect has control over C also.

corporation A that 2.


FDI and globalization 21.38 Direct investment positions show an important class of investment made abroad and received from abroad, divided between equity and debt, at a given reference point in time.

FDI positions as a percentage of GDP give one indication of the extent of globalization at that time.

These structural indicators demonstrate the interdependence of economies.
21.39 Financial transactions show the net inward and outward investments with assets (acquisitions less disposals or redemptions) and liabilities (incurrence less discharges) presented separately by instrument in any given period.

FDI financial transactions expressed as a percentage of GDP provide one indicator of the changes over that period in the degree of globalization of an economy.
This indicator provides early information on the relative attractiveness of foreign) economies for new investments after allowing the withdrawal of investments or disinvestment during the same time period.

(both domestic and for 21.40 Direct investment income provides information on the earnings of direct investors and of the direct investment enterprises.
Direct investment earnings arise (i) from distributed earnings as well as undistributed earnings which are treated as reinvestment of earnings in that enterprise and (ii) from interest on inter-company loans, trade credit and other forms of debt.

FDI income flows as a percentage of GDP provide information on the relative importance of the earnings of direct investment in both the reporting economy and abroad.

3.
3.

The role of “pass through funds” 21.41 “Pass through funds” or “funds in transit” are funds that pass through an enterprise resident in one economy to an affiliate in another economy, so that the funds do not stay in the economy of the affiliate.

These funds are often associated with direct investment.

Such flows have little impact on the economy they pass through.
While special purpose entities, holding companies and financial institutions that serve other non-financial affiliates are particularly associated with funds transit, other enterprises may also have pass through funds in direct investment flows.

in 21.42 Pass through funds are included in direct investment in standard presentations because they are an integral part of a direct investor’s financial transactions and positions with affiliated enterprises.
(An exception is made for positions in debt instruments between related financial institutions.)

Excluding these funds from direct investment would distort and substantially understate direct investment financial flows and positions at aggregate levels.

Further, inclusion of these data in direct investment promotes symmetry and consistency among economies.
However, the economies through which the funds pass, it is useful to identify inflows and outflows not intended for use locally by the entity concerned.

for Measuring corporate activity 21.43 FDI has a key role to play in development, especially in emerging countries.

In order to explore how much of global FDI reaches these countries, and where it originates, a supplementary analysis is useful.
Such an analysis identifies the country where the pass through funds originate by identifying the first unit other than a pass through fund in the host or investing economy (in the outward or inward chain) as appropriate.

4.

Ultimate investing country 21.44 Presentations of FDI according to the BD show the country of the immediate counterparty and the industry of the immediate counterparty for outward FDI.
For inward FDI, it is possible to determine not only the immediate counterparty but also the ultimate investor.

The ultimate investor for this purpose is the enterprise that has control over the investment decision to have an FDI position in the direct investment enterprise.

As such the ultimate investor controls the immediate direct investor.
It is identified by proceeding up the immediate direct investors ownership chain through the controlling links (ownership of more than 50 per cent of the voting power) until an enterprise is reached that is not controlled by another enterprise.

If there is no enterprise that controls the immediate direct investor, then the direct investor is effectively the ultimate investor in the direct investment enterprise.
investing country 21.45 The country in which the ultimate investor is resident is the ultimate investment enterprise.

It is possible that the ultimate investor is a resident of the same economy as the direct investment enterprise.

(A controls B controls C. A and C are resident in the same economy but B is resident in another.)
the direct in 21.46 In order to transform the usual presentation by country to the supplementary ultimate investing country presentation, the entire FDI position that is attributed to the country of residence of the immediate direct investor is allocated to the ultimate investing country.
When there is more than one immediate direct investor in a direct investment enterprise, the entire inward FDI position of each immediate direct investor is reallocated to the respective ultimate investing country based on the ultimate controlling parent of each of the immediate direct investors.

This method ensures that the levels of direct investment into a country according to the the supplementary presentation are the same.

standard presentation according and to 5.


Multinational enterprises 21.47 As well as information relating to foreign direct investment where only a 10 per cent voting power is required to identify a foreign direct investor, there is interest in analysing the activities of multinational enterprises (MNEs) where more than 50 per cent of the voting power is held.

Thus foreign controlled enterprises in the sense of subsectors in the SNA.
(There is a small distinction between the BD and BPM6 and the SNA on the question of control.

For the BD and in the BPM6, the 50 per cent of voting power rule is applied rigidly but the SNA is more flexible.

See chapter 4.)
See chapter 4.)

the MNEs correspond to 21.48 In addition to statistics on the activities of MNEs, statistics are also available for the wider group of corporations with 431 System of National Accounts links in other economies, not just those where there is majority ownership, called foreign affiliates.
These statistics are known as Foreign AffiliaTes Statistics (FATS), and are described in Recommendations Manual on the Production of Foreign AffiliaTes Statistics (FATS) (Eurostat, in Measuring Globalisation: Handbook on Economic Globalisation Statistics (Organisation for Economic Co-operation and Development, 2005).

Work is continuing to ensure the consistency of the various sets of statistics cited in these and other publications on globalization.

elaborated 2007) and 6.


Outsourcing 21.49 There are two ways in which a corporation A in economy X may have another corporation B in economy Y assemble parts for it.

Although the effect appears similar, the consequences for recording in the accounts are quite different.

Suppose that A and B are unrelated enterprises, and B contracts to do work for A in return for a fee.

(This case is described elsewhere, for example in chapter 28.)
In this case there is no recorded transfer of the items from A to B (or X to Y).

Only the agreed fee is recorded as a transaction between the two economies.

21.50 However, if A and B both belong to the same group of corporations, then it may be the case that there is a transfer of the risks and rewards of the items on their dispatch from A to B.

The question is whether a realistic price is entered for the items in the trade figures for both A (and X) and B (and Y) as the items move internationally.
When A and B are related, a practice known as “transfer pricing” is sometimes used.

Suppose the tax regime in Y is more liberal than that in X.

It may then be the case that A artificially lowers the price of the items dispatched to B in order to minimize profits in X while B records a higher profit subject to the lower tax regime in Y.
In principle, international accounting standards and the balance of payments recommendations indicate that items transferring across borders should be valued at “arm’s length” prices, that is to say prices that would prevail if there were no relationship between involved.
Making such an adjustment is not easy but it is in the interests of tax authorities, customs officials and the statistician to see whether appropriate adjustments can be made if the sums involved are significant and adjustments can be made with sufficient reliability.

two corporations the E. The contribution of assets to production to be considered 21.51 Chapter 20 discusses the role of capital services in production and the calculation of multifactor productivity (MFP).
The assets in calculating productivity are those fixed assets that are both owned and used by the enterprise plus any natural resources and other leases and non-produced assets licences and possibly marketing assets they both own and use in production.

Assets that are not legally owned by the enterprise but are subject to a financial lease are included in the calculations in the same way that they are recorded on including contracts, the balance sheet of the enterprise.
However, assets that are leased under an operating lease agreement are excluded.

This may mean two enterprises undertaking similar activities using similar assets may show different productivity figures because one uses assets it owns and the other assets that it leases.
An area for supplementary analysis is to consider compiling information on assets according to the using rather than the owning industry and to look at the implications for operating surplus and productivity of the use of leased rather than owned assets.

F. The consequences of financial distress 21.52 Signs that a non-financial corporation is suffering financial distress include the level of profits that it has been generating recently and possibly the level of dividends it is able to offer.
It is also probable that it suffers a cash flow problem and is unable to meet its liabilities on a timely basis.

Competitors may take the opportunity to launch a takeover bid.

However, if no takeover bid is offered the question here is how the corporation may survive at all.

instance where government steps in and offers either to take over the corporation, in effect nationalizing it, or may offer a major capital injection in return for a degree of control, possibly full control, of the corporation.
The recording of nationalization and capital injections by government as well as of the steps that may be taken under a bailout are discussed in chapter 22.

21.53 In a similar way, a financial corporation may suffer financial distress because it has difficulty in raising finance and is unable to service its liabilities.

Again this is a circumstance in which a competitor may launch a takeover bid but this may not always be forthcoming.
21.54 If the corporation, whether financial or non-financial, is deemed to be of national importance this may be an 21.55 Another possibility is that the government offers a guarantee to the creditors of the corporation in distress.

The activation of a one-off guarantee is treated in the same way as a debt assumption.

The original debt is liquidated and a new debt is created between the guarantor and the creditor.
In most instances, the guarantor is deemed to make a capital transfer to the original debtor, unless the guarantor acquires an effective claim on the creditor, in which case it leads to the recognition of a financial asset (a liability of the 432 debtor).

The recording of guarantees including those offered by government is discussed in part 3 of chapter 17.

1.
1.

Bad debts 21.56 All corporations, but especially financial corporations, may suffer from bad debts and this phenomenon may be particularly acute when other aspects of the economy also exert financial pressure on the corporation.

Within the SNA, loans are always recorded as the amount that is due to be repaid to the creditor.

In cases where the debtor has a bad credit rating this may overstate the market value of the loan.
This is seldom done on a loan by loan basis but is regularly done for classes of loans.

21.57 The SNA identifies a subset of bad debts as non- performing loans.
As explained in paragraph 13.66, these are loans whose payments of interest or principal are past due by 90 days or more or interest payments equal to 90 days or more have been capitalized, refinanced, or delayed by agreement, or payments are less than 90 days overdue, but there are other good reasons (such as a debtor filing for bankruptcy) to doubt that payments will be made in full.
Measuring corporate activity that memorandum The SNA recommends items be compiled for the accounts showing the nominal and market value of bad loans and the implications for interest flows, the amount of interest accruing on the nominal value, the amount of interest outstanding from previous periods and the amount relating to the current period that is unpaid.

The proposed memorandum items are discussed in paragraphs 13.67 to 13.68.
21.58 Elaborating the accounting for assets where the market value suddenly diverges from past trend values and the whole question of when it might be appropriate to define and use “fair values” is one item on the research agenda as explained in annex 4.

In addition, circumstances emerging from the credit crisis that emerged in 2008 will continue to be monitored to see if other memorandum items or other steps should be recommended.

2.
2.

Concessional lending and debt rescheduling 21.59 There is detailed discussion of government’s role in concessional lending and debt rescheduling in section D of chapter 22.

G. Links to commercial accounting 21.60 In recent years, the International Accounting Standards Board (IASB) has become increasingly important as the standard setter for commercial accounting.
The IASB promulgates International Financial Reporting Standards (IFRS) and at present more than 100 countries are involved in this process of harmonization.

Many large companies, especially multinationals, already apply these international accounting standards.

21.61 The principles underlying the IFRS are in most cases entirely consistent with the principles of the SNA.
In particular, it is worth noting that the introduction to the standards explains that economic substance should take precedence over legal form.

The IFRS, like the SNA, pays attention not only to the conceptually preferred approach but also practical possibilities.

21.62 The process of developing a new standard is a threefold one.

In the first step, a document discussing the arguments for and against a new standard is proposed and it is released with an invitation to comment.
Once the comments are received and analysed, if it is decided to proceed, an exposure draft is prepared and posted for global comment.

Only if the exposure draft receives substantial favourable comment is a formal standard developed.

At each stage, the documentation available discusses the background to the standard as well as its formal wording.
21.63 Since it is inevitable that national accounting information for large companies in particular must be drawn from data compiled according international accounting the standards, it would be advantageous for the national accounts community to take a greater interest in the three stages of developing international accounting standards and contribute their points of view.
to 21.64 For multinational enterprises, the standard accounts may be available only for the group as a whole where relationships between enterprises in different countries have been consolidated.

In this case, national accountants would need to consult other sources for the required non-consolidated data.
21.65 Two particular areas where the IFRS adopts approaches somewhat different from the SNA are in the area of the recognition of holding gains and losses as income and in the recording of provisions and contingent liabilities.

Further examination of the IASB position could be helpful in refining the SNA treatment of these issues, if not by accepting the IASB position entirely, at least by showing a reconciliation between their position and that of the SNA.
21.66 In addition to the IASB that sets standards for private corporations, the International Public Sector Accounting Standards Board (IPSASB) performs a similar function for government bodies.

There is reference to the IPSASB in chapter 22.

433 System of National Accounts 434 Chapter 22: The general government and public sectors A.
Introduction 22.1 A major strength of the SNA is the ability to compile accounts for whole sectors, individual units, or some intermediate levels and to aggregate the accounts in different ways.

Disaggregating the economy into various sectors and subsectors makes it possible to observe and analyse the interactions between the different parts of the economy for purposes of policymaking.
Particular interest is given to the general government sector, as defined in chapter 4 and the public sector, as defined in this chapter.

Many of the concepts in this chapter have been described in a number of previous chapters.
This chapter aims to bring these together, give some more elaboration on how they might be put into practice and gives a link to other systems of economic statistics particularly aimed at government such as the GFSM2001, the ESA95 Manual on Government Debt and Deficit (Eurostat, 2002a) and the External Debt Guide.

22.6 22.7 22.2 22.3 The powers, motivation and functions of government are different from those of other sectors.
Governments use their powers to pass laws affecting the behaviour of other economic units.

They are able to redistribute income and wealth largely by means of taxes and social benefits.

The accounts for the general government sector show how goods and services provided to the community as a whole or to individual households are financed mainly by revenue raised.
The range of goods and services government provides and the prices charged are based on political and social considerations rather than on profit-maximization.

Fiscal operations are carried out by the government and financed through the budget under the usual budgetary procedures.

However, some operations originated by government units may require the intervention of entities which are not ruled by the legal government framework, including public corporations.
These actions may be described as quasi-fiscal activities.

22.8 22.4 Operations related to privatization and restructuring public corporations, securitization of assets using the intervention of special purpose entities, including those abroad, may be described in this way.

Though such operations are not reported in the budget and might escape the usual control procedures, they may have a significant impact on government revenue and expenditure.
their public policy objectives 22.5 As well as providing services directly, governments often fulfil through public corporations (for example, railways, airlines, public utilities and public financial corporations).

A public corporation may be required to provide services to areas of the economy that would not be covered otherwise by means of subsidized prices.

As a result, the public corporation may operate with a reduced profit or at a loss.
In order to analyse the full impact of government on the economy, therefore, it is useful to form a sector consisting of all the units of general government and all public corporations.

This composite sector is referred to as the public sector.

For the general government and the public sectors, in addition to the usual sequence of accounts of the SNA, the accounts can be presented in a manner that is more suitable for government finance analysts and policymakers.
The latter increasingly use aggregates and balancing items defined in terms of the concepts, definitions, classifications and accounting rules of the SNA so that these aggregates can be related to other macroeconomic variables and compared with the same items in other countries.

Some of these items, such as saving and net lending or borrowing, are already available in the sequence of accounts.
Other items, such as total revenue, total expense and total outlays, the tax burden, the net operating balance and total debt, do not appear as such in the SNA.

Aggregates and balancing items of this nature can be used to assess the use of resources to produce individual and collective services, the need to collect taxes and other revenues, the ability of government to borrow and repay debt and the sustainability of the desired level of government operations.
this presentation, The present chapter gives an overview of this so-called public finance or government finance presentation of the accounts.

In order the to derive transactions in the SNA current and capital accounts are rearranged to derive aggregates and balancing items of specific interest to the general government and public sectors.
For example, a combination of taxes, user fees and grants from other governments can be aggregated to form total revenue, as the amount available from operations to fund government services.

22.9 Section B summarizes the identification of government units and other units controlled by government units and explains how those units are grouped into sectors in the SNA.

22.10 Section C describes the presentation of government finance statistics.
22.11 Section D addresses a number of accounting issues that are unique to, or exceptionally important for, government.

435 System of National Accounts 22.12 Finally, section E shows how information about the public sector may be prepared in a manner roughly parallel to the government finance statistics presentation described in section D. 1.

Data sources accounting data can be transposed correctly into the framework of the SNA.
Such guidance is especially important when the government financial accounts are compiled on a cash basis and must be converted to an accrual basis to comply with the accounting basis of the SNA.

the 22.13 In practice, macroeconomic accounts can seldom be built up by simply aggregating relevant microdata.

Government is an exception in that the statistics for government units and public corporations are often derived directly from the microdata in government financial accounting databases.
As a result, compilers of statistics for the government units and public corporations usually draw more heavily on accounting information than the results of statistical enquiries.

In particular, the development in recent years of International Public Sector Accounting Standards by the International Public Sector Accounting Standards Board of the International Federation of Accountants has increased the need for clear guidance on the compilation of the detailed government finance statistics so that 2.
Consolidation involves elimination of 22.14 As a rule, the entries in the SNA are not consolidated.

those the Consolidation transactions or debtor/creditor relationships that occur between two transactors belonging to the same institutional sector or subsector.

As stated in chapter 3, however, consolidation may be relevant for the general government sector.
For example, information on debt owed by government units to units outside the general government sector may be more relevant than gross figures that include debt owed to other government units.

Guidance on consolidation is provided in Section C. B.

Defining the general government and public sectors 22.15 General government units include some NPIs and public enterprises not treated as corporations.

The public sector includes general government and public corporations.
To identify which NPIs are included in general government, conditions for control by government must be identified.

To determine which enterprises are treated as public corporations and which as part of general government, it is necessary to specify conditions for control by government and the concept of economically significant prices.
22.16 In order to identify the units falling in both the general government sector and the public sector, it is helpful to begin by restating the definition of government units given in paragraphs 4.117 to 4.118).

The discussion on what is meant by control by government and economically significant prices follows.

1.
1.

Government units 22.17 Government units are unique kinds of legal entities established by political processes that have legislative, judicial or executive authority over other institutional units within a given area.
Viewed as institutional units, the principal to assume functions of government are responsibility for the provision of goods and services to the community or to individual households and to finance their provision out of taxation or other incomes, to redistribute income and wealth by means of transfers, and to engage in non-market production.
In general terms: received as transfers from other government units and it must have the authority to disburse some, or all, of such funds in the pursuit of its policy objectives.

It must also be able to borrow funds on its own account.

b.
b.

Government units typically make three different kinds of final outlays: · · · The first group consists of actual or imputed expenditures on the free provision to the community of collective services such as public administration, defence, law enforcement, public health, etc.

that are organized collectively by government and financed out of general taxation or other income.
The second group consists of expenditures on the provision of goods or services free, or at prices that are not economically significant, to individual households.

These expenditures are deliberately incurred and financed out of taxation or other income by government in the pursuit of its social or political objectives, even though individuals could be charged according to their usage.
The third group consists of transfers paid to other institutional units, mostly households, in order to redistribute income or wealth.

a.

A government unit usually has the authority to raise funds by collecting taxes or compulsory transfers from other institutional units.
A government unit must have funds of its own either raised by taxing other units or 22.18 Within a single economy when there are different levels of government at central, state or local levels, there may be many separate government units.

Social security funds also constitute government units.

436 22.19 In all countries, there is an institutional unit of the general government sector important in terms of size and power, in particular the power to exercise control over many other units.
This unit is often referred to as national government and the unit covered by the main budget account.

It is a single unit of the central government that encompasses the fundamental activities of the national executive, legislative and judiciary powers.

Its revenues as well as its expenses and expenditures are normally regulated and controlled by a Ministry of Finance or its functional equivalent by means of a general budget approved by the legislature.
Most of the ministries, departments, agencies, boards, commissions, judicial authorities, legislative bodies and other entities that make up this central government unit are not separate institutional units but are part of this primary central government unit.

This is because they generally do not have the authority to own assets, incur liabilities, or engage in transactions in their own right.
If there are state or local governments these governments will also have a primary government unit that includes the principal executive, legislative and judicial powers.

that each of likely then is it 22.20 In addition, there may be government entities with a separate legal identity and substantial autonomy, including discretion over the volume and composition of their expenses and outlays and a direct source of revenue, such as earmarked taxes.
(The terms expense, outlay and revenue are commonly used in the presentation of government accounts.

Their definitions and relationship to SNA concepts are covered in section C.) Such entities are often established to carry out specific functions, such as road construction or the non-market production of health or education services.
These entities should be treated as separate government units if they maintain full sets of accounts, own goods or assets in their own right, engage in non-market activities for which they are held accountable at law and are able to incur liabilities and enter into contracts in their own right.

Such units are often referred to as extrabudgetary units because they have separate budgets and any transfers from the main budget account are supplemented by their own sources of revenue.
Budgets vary widely among countries and various terms are often used to describe these units.

These units are classified in the general government sector to the extent that they are non- market producers and are controlled by another government unit.

22.21 A social security fund is a particular kind of government unit that is devoted to the operation of one or more social security schemes.

A social security fund must satisfy the general requirements of an institutional unit.
That is, it must be separately organized from the other activities of government units, hold its assets and liabilities separately and engage in financial transactions on its own account.

22.22 As noted earlier, NPIs that are non-market producers and are controlled by a government are also units of the general government sector.

Although legally be established to be independent from government, they are considered to be carrying out government policies and are effectively part of government.
Governments may choose to use non-profit institutions rather than government agencies to carry out certain government policies because NPIs may be seen as not subject to political pressures.

For example, research and development and the setting and they may The general government and public sectors maintenance of standards in fields such as health, safety, the environment and education are areas in which NPIs may be more effective than government agencies.
22.23 The case of units engaged in financial activities needs special consideration.
As described in paragraph 4.67, a unit set up by government with functions similar to a captive financial institution is treated as an integral part of general government and not as a separate unit if it has no powers to act independently, is restricted in the number of transactions it can engage in, does not carry the risks and rewards associated with the assets and liabilities it holds and is resident in the same economy.
If the unit is non- resident, it is treated as a separate unit but the transactions it undertakes as quasi-fiscal operations are reflected in transactions between that unit and the government.

In particular, if the non-resident unit borrows abroad, it is regarded as lending the same amount to government and on the same terms.

22.24 At the same time, the general budget of any government level might control market producers satisfying the criteria to be a quasi-corporation as defined below.
These units should not be classified in the general government sector, but in the non-financial or financial corporations sector, as appropriate.

As public units, they are, however, part of the public sector.

2.

NPIs controlled by government 22.25 The criteria for deciding whether an NPI is controlled by government or not is described in paragraph 4.92.

They are summarized here for convenience.

22.26 Control of an NPI is defined as the ability to determine the general policy or programme of the NPI.
All NPIs allocated to the general government sector should retain their identity as NPIs in statistical records, to facilitate analysis of the complete set of NPIs.

To determine if an NPI is controlled by the government, the following five indicators of control should be considered: a.

The appointment of officers; b.

Other provisions of the enabling instrument; c. Contractual agreements; d. Degree of financing by government; and e. Risk exposure.
A single indicator could be sufficient to establish control in some cases but sometimes a number of separate indicators may collectively indicate control.

A decision based on the totality of all indicators will necessarily be judgmental in nature but the judgements should be consistent for similar cases.

3.
3.

Corporations controlled by government 22.27 To be classified as a public corporation, a corporation must not only be controlled by another public unit, but it also 437 System of National Accounts must be a market producer.

Control is defined as the ability to determine the general policy or program of an institutional unit.
Government is in a position to exercise control over many kinds of units: miscellaneous extrabudgetary agencies, non-profit institutions and corporations (non-financial or financial).

The criteria for control of a corporation are described in paragraphs 4.77 to 4.80.

The key factors to be considered are a.

Ownership of the majority of the voting interest; b.
Control of the board or other governing body; c. Control of the appointment and removal of key personnel; d. Control of key committees of the entity; e. Golden shares and options; f. Regulation and control; g. Control by a dominant customer; and h. Control attached to borrowing from the government.

Although a single indicator could be sufficient to establish control in some cases, in others a number of separate indicators may collectively indicate control.
A decision based on the totality of all indicators must necessarily be judgmental in nature, but the judgements should be consistent for similar cases.

4.

Economically significant prices 22.28 To be considered as a market producer, a unit must provide all or most of its output to others at prices that are economically significant.

Economically significant prices are prices that have a significant effect on the amounts that producers are willing to supply and on the amounts purchasers wish to buy.
These prices normally result when: a.

The producer has an incentive to adjust supply either with the goal of making a profit in the long run or, at a minimum, covering capital and other costs; and b.

Consumers have the freedom to purchase or not purchase and make the choice on the basis of the prices charged.
22.29 These conditions usually mean that prices are economically significant if sales cover the majority of the producer’s costs and consumers are free to choose whether to buy and how much to buy on the basis of the prices charged.
Although there is no prescriptive numerical relationship between the value of output (excluding both taxes and subsidies on products) and the production costs, one would normally expect the value of goods and services sold (the sales) to average at least half of the production costs over a sustained multiyear period.
438 22.30 Because economic circumstances vary considerably, it may be desirable to accept different thresholds to achieve consistent economic measurement over time, between units and across countries.

In principle, the distinction between market and non-market should be made on a case-by-case basis.

22.31 It can be presumed that prices are economically significant when the producers are private corporations.
When there is public control, however, the unit’s prices may be modified for public policy purposes.

This may cause difficulties in the prices are economically determining whether significant.

Public corporations are often established to provide goods that the market would not produce in the desired quantities or at the desired prices.
Even when the sales of such corporations may cover a large portion of their costs, one can expect that they respond to market forces quite differently than would private corporations.

22.32 It is likely that corporations receiving substantial government financial support, or that enjoy other risk reducing factors such as government guarantees, will act differently from corporations without such advantages because their budget constraints are softer.
A non-market producer is a producer that faces a very soft budget constraint so that the producer is not likely to respond to changes in the economic conditions in the same way as market producers.

Suppliers of goods and services to government 22.33 The question arises whether units supplying goods and services to government should be treated as market or non- market producers.
The essential question is whether the unit provides the goods and services in competition with private producers and the choice of supplier is based on price.

This is true whether the supplier is the only supplier and whether the government is the only customer of the supplier.

Definition of sales and costs 22.34 In order to assess whether a producer is a market producer, it is necessary to carry out a comparison between the receipts from sales and the production costs of the products.
Sales are measured before any taxes applicable to the products are added.

Sales exclude all payments received from government unless they would be granted to any producer undertaking the same activity.

Own account production is not considered as part of sales in this context.

22.35 Production costs are the sum of intermediate consumption, compensation of employees, consumption of fixed capital and [other] taxes on production.
Further, if the unit is to be treated as a market producer, a return to capital is included in production costs.

Subsidies on production are not deducted.

5.

A decision tree for public units 22.36 Figure 22.1 shows the relationship between the general government sector, the public sector and the other main sectors of the domestic economy.
22.37 As explained in paragraph 4.117, government units are established by political processes and have legislative, judicial or executive authority over other institutional units within a given territory.

These units belong to the general government sector and so to the public sector also.
In order to determine which other institutional units belong to the general government sector and which to the public sector, the decision tree described in figure 4.1 should be followed, using the following sequential questions: a.

Is the entity of interest an institutional unit?

If it is not, but is resident, then it is treated as part of the unit that controls it.

If it is not an institutional unit but is non- resident it is treated as a quasi-corporation in the economy in which it is resident.

b.
b.

Is the unit a market or non-market producer according to the criteria given immediately above?

c. Is the unit controlled by government or another public corporation?

22.38 The answers to the last two questions lead to allocations to sectors as follows: a.

If the unit is a market producer and not controlled by government is a part of neither the general government sector nor the public sector.

it b.
it b.

If the unit is a market producer and controlled by government or another public corporation, it is not part of general government but is part of the public sector.

c. If the unit is a non-market producer and controlled by government, it is part of the general government sector and the public sector.

d. If the unit is a non-market producer but not controlled by government, it is treated as an NPISH.

It is a part of neither the general government sector nor the public sector.

6.
6.

Subsectors of the general government sector The general government and public sectors government; in some cases more levels of government must be accommodated within the three level structure.

The other method of subsectoring is to exclude social security funds from each level of government and have a separate subsector for social security funds covering all levels of government.
The choice of classification used will depend on whether social security funds are independent of the level of government where they operate or not.

22.40 Greater detail on subsectoring general government is given in section F of chapter 4.

7.

Subsectors of the public sector 22.41 It is possible to construct subsectors of the public sector to meet analytical demands.

Two methods of subsectoring the public sector may be considered.
In the first, the public sector could be divided into the general government sector as one subsector and the aggregate of all public corporations as a second subsector.

The public corporations into non-financial public might be further divided corporations, financial public corporations other than the central bank, and the central bank.

22.42 Secondly, the public sector could be divided by level of government in the same way as the general government sector is.
In this case, the subsectors would be the central government public sector, the state government public sector and the local government public sector.

Each of these subsectors would consist of the corresponding subsector of the general government sector plus all public corporations controlled by a unit of level of government.
If a unit is controlled in part by a unit at one level of government and in part by a unit in another part of government, an allocation must be made to one or the other level of government depending on factors such as the degree of control exercised by each of the controlling units.

Social security funds could form a separate subsector or could be combined with each level of government.
It should be noted that if there is a separate fund to meet government employee pensions, this fund should be excluded from social security funds.

that 8.

Borderline cases 22.39 As described in chapter 4, the general government sector may be subsectored in either of two ways.

One method is to have up to three subsectors; one for central government, one for state government and one for local government with social security included at any level where relevant.
In some cases there may be only one or two levels of general 22.43 Specific guidance on when certain entities created by government units are to be included in the public sector or not is needed.

The entities concerned include quasi- restructuring agencies, special purpose corporations, entities, joint ventures and supranational authorities.
Figure 22.1:The public sector and its relation to institutional sectors Non-financial corporations Financial corporations General government NPISHs Households Public Public Private Private Public Private Private 439 System of National Accounts Quasi-corporations 22.44 Quasi-corporations are unincorporated enterprises that function as if they were corporations.
Quasi-corporations are treated in the SNA as if they were corporations: that is, as institutional units separate from the units to which they legally belong.

Thus, quasi-corporations owned by government units are grouped with corporations in the non- financial or financial corporate sectors.
22.45 The intent behind the concept of a quasi-corporation is to separate from their owners those unincorporated enterprises that are sufficiently self-contained and independent of their owners that they behave in the same way as corporations.

If they function like corporations, they must keep complete sets of accounts.
Indeed, the existence or possibility to construct a complete set of accounts, including balance sheets, for the enterprise is a necessary condition for it to be treated as a separate institutional unit, otherwise it would not be feasible from an accounting point of view to distinguish the quasi-corporation from its owner.
22.46 In order to be treated as a quasi-corporation the government must allow the management of the enterprise considerable discretion not only with respect to the management of the production process but also the use of funds.

Government quasi-corporations must be able to maintain their own working balances and business credit and be able to finance some or all of their capital formation out of their own saving, financial assets or borrowing.
The ability to distinguish flows of income and capital between quasi- corporations and government implies that, in practice, their operating and financing activities must be separable from government revenue or finance statistics, despite the fact that they are not separate legal entities.
The net operating surplus of a government owned quasi-corporation is not a component of government revenue and the accounts for government record only the flows of income and capital between the quasi-corporation and government.

The case of restructuring agencies 22.47 Some public units are involved in the restructuring of corporations, either non-financial or financial.

These corporations may or may not be controlled by government.
Restructuring agencies may be long-standing public units or agencies created for this special purpose.

Government may fund the restructuring in various ways, either directly, through capital loan or injections (capital acquisition of equity) or indirectly, through granting guarantees.

Units such as restructuring agencies have little output so the usual criterion of whether the output is market or non-market in determining when the unit is part of general government is not sufficient.
Instead the following propositions should be considered: transfer, a.

A unit that serves only government is more likely to be included in general government than one that deals with other units also.

c. A unit that takes on low risk because it acts with strong public financial support and legally or effectively on behalf of the government is likely to be included within general government.

22.48 Restructuring agencies may operate in a number of ways.

The following are two frequently-observed examples.
22.49 A restructuring agency may undertake the reorganization of indirect management of the public sector and privatization.

Two cases may be considered: the a.

The restructuring unit is a genuine holding company controlling and managing a group of subsidiaries and only a minor part of its activity is dedicated to channelling funds from one subsidiary to another on behalf of the government and for public policy purposes.
The unit is classified as a corporation and the transactions made on behalf of the government should be rerouted through the general government.

b.

The restructuring unit, whatever its legal status, acts as a direct agent of the government and is not a market producer.

Its main function is to redistribute national income and wealth, channelling funds from one unit to the other.

The restructuring unit should be classified in the general government sector.
22.50 Another example of a restructuring agency is one mainly concerned with impaired assets, mainly in a context of a banking or other financial crisis.

Such a restructuring agency must be analysed according to the degree of risk it assumes, considering the degree of financing of the government.

Again, two cases may be considered: a.

The restructuring agency borrows on the market at its own risk to acquire financial or non-financial assets that it actively manages.
In this case the unit should be classified as an institution in the financial corporations sector.

b.

The restructuring agency deliberately purchases assets at above market prices with direct or indirect financial support from the government.

It is primarily engaged in the redistribution of national income (and wealth), does not act independently of government or place itself at risk and therefore should be classified in the general government sector.
Special purpose entities 22.51 Government units are always considered resident because, by definition, the economic territory of a country consists of the geographic territory administered by a government, as well as some territorial enclaves in the rest of the world, used by the government for diplomatic, military, scientific, or other purposes, normally with the formal agreement of the government of the country in which they are physically located.
These enclaves are part of the general government sector.

b.

A unit that sells financial assets at other than market values is more likely to be in the general government sector than not.

22.52 Some governments may set up special purpose entities (SPEs) for financial convenience, the SPE being involved in fiscal or quasi-fiscal activities (including securitization 440 of assets, borrowing, etc.).
Resident SPEs that function in only a passive manner relative to general government and that carry out fiscal activities are not regarded as separate institutional units in the SNA and are treated as part of general government regardless of their legal status.

If they act independently, acquire assets and incur liabilities on their own behalf, accepting the associated risk, they are treated as separate institutional units and are classified to sector and industry according to their principal activity.
in the economy where 22.53 Non-resident SPEs are always classified as separate they are institutional units established.

When such entities are created, care must be taken to reflect faithfully the fiscal activities of the government.

All flows and stock positions between the general government and the non-resident SPE should be recorded when they occur in the accounts for general government and the rest of the world.
22.54 A government may create a non-resident SPE to undertake government borrowing or incur government outlays abroad.

Even if there are no actual economic flows recorded between the government and the SPE related to these fiscal activities, transactions should be imputed in the accounts of both the government and the rest of the world to reflect the fiscal activities of the government undertaken by the SPE, including borrowing.
The special case of securitization units is discussed in section D. The general government and public sectors 22.57 The principal question to be considered here is whether the effective economic control of the joint venture establishes a public or a private unit.

If a joint venture operates as a non- market producer, it must be the case that government is in effective control and it is classified as part of general government.
22.58 If the joint venture is a market producer, it is treated as a public or private corporation according to whether it is or is not controlled by a government unit, using the same indicators as described above.

Normally, the percentage of ownership will be sufficient to determine control.

If the public and private units own an equal percentage of the joint venture, the other indicators of control must be considered.
22.59 Public units can also enter into joint operating arrangements that do not involve establishing separate institutional units.

In this case, there are no units requiring classification, but care must be taken to ensure that the proper ownership of assets is recorded and any sharing arrangements of revenues and expenses are made in accordance with the provisions of the governing contract.
For example, two units may agree to be responsible for different stages of a joint production process or one unit may own an asset or a complex of related assets but both units agree to share revenues and expenses.

Joint ventures Supranational authorities 22.55 Many public units enter into arrangements with private entities or other public units to undertake a variety of activities jointly.

The activities could result in market or non-market output.
Joint operations can be structured broadly as one of three types: jointly controlled units, referred to here as joint ventures; jointly controlled operations; and jointly controlled assets.

22.56 A involves joint venture the establishment of a corporation, partnership or other institutional unit in which each party legally has joint control over the activities of the unit.
The units operate in the same way as other units except that a legal arrangement between the parties establishes joint control over the unit.

As an institutional unit, the joint venture may enter into contracts in its own name and raise finance for its own purposes.

A joint venture maintains its own accounting records.

22.60 Some countries may be part of an institutional agreement that involves monetary transfers from the member countries to the associated supranational authority and vice versa.
The supranational authority also engages in non-market production.

In the national accounts of the member countries, the supranational authorities are non-resident institutional units that are part of the rest of the world and may be classified in a specific subsector of the rest of the world.
22.61 Because the supranational authority is fulfilling the functions of a level of government, it is possible to construct a set of accounts for the authority as if it were a resident unit of the member country even though it remains non-resident.

Such an additional account may provide a useful supplement for the analysis of the economic activities of the member countries.

C. The government finance presentation of statistics 1.
Introduction 22.62 The sequence of accounts for all institutional units and sectors is described in chapters 6 to 13.

For the general government sector and, in some cases, the public sector, experience has shown that an alternative presentation, usually known as a government finance presentation or public finance presentation, of the stocks and flows is better suited to certain analytical requirements.
This section gives a very brief overview of the way in which government accounts are presented in, for example, the GFSM2001, which should be consulted for further explanation and discussion.

22.63 Basically the government finance presentation consists of transactions that increase net worth leading to an aggregate called revenue and transactions that decrease net worth leading to the aggregate called expense.
In addition there are two main balancing items, net operating balance and net 441 System of National Accounts lending or net borrowing.

Additional accounts can be shown for other economic flows and balance sheets.

22.64 The following section provides general information about the concepts involved in government finance.

subsidies, normally amount to much less and are reported separately.
Property income may or may not be an important source of revenue, but in either case it relates directly to the same category as in the allocation of primary income account.

2.

Revenue 3.

Expense 22.65 A revenue transaction is one that increases net worth.

In the government finance presentation of the accounts, the concept of revenue is defined to include all resources acquired by government as recorded in the SNA current accounts and capital transfers receivable recorded in the capital account.
Specifically, revenue can be determined as follows: 22.70 An expense transaction is one that decreases net worth.

In the government finance presentation of the accounts, the concept of expense is defined to include all uses incurred by government as recorded in the SNA current accounts and capital transfers payable as recorded in the capital account.
Specifically, expense can be determined as follows: Revenue equals Taxes, plus Social contributions, plus Other current revenue, plus Capital transfers receivable.

22.66 Government revenue is usually dominated by compulsory levies in the form of taxes and social contributions.

For some levels of government, grants (transfers from other government units and international organizations) are a major source of revenue.
Other general categories of revenue include property income, sales of goods and services and miscellaneous transfers other than grants.

22.67 Estimating taxes and social contributions can be quite difficult.

The problems involved and the recommended solutions are described in section D. Taxes are recorded in several of the accounts in the sequence of accounts.
An advantage of the government finance presentation is that all taxes can be presented as one category of revenue, with subclassifications according to the basis on which the tax was levied.

In particular, both current and capital taxes can be shown under a single heading.

22.68 Other current revenue covers property income, sales of goods and services, fines, penalties and forfeits, voluntary transfers other than grants and miscellaneous and unidentified revenue.
The distribution of goods and services that are not sold at all or sold for prices that are not economically significant does not accord with the general notion of revenue as a transaction that increases net worth.

As a result, only actual sales of goods and services or goods and services produced by government but provided as compensation of employees in kind are included in as and revenue.

compensation in kind are treated as revenue because they offset expenditure.)
services provided (The goods 22.69 Transfers from one government unit to another, often from the central or a state government to a lower level of government, can be quite important sources of government revenue.

The government finance presentation allows all of these receipts to be collected into a separate category of revenue, usually labelled grants.
Other transfers, including 442 Expense equals Production expenses (compensation of employees, intermediate consumption and consumption of fixed capital), plus Interest payable, plus Grants, plus Social benefits, plus Other current expenses, plus Capital transfers payable.

22.71 The government finance presentation as in GFSM2001, for example, differs from the sequence of accounts in a number of ways.
The absence of a production account in the government finance presentation makes it impossible to show both the cost structure of own account production and its final use.

Thus, for instance, the salaries of employees engaged in own account capital formation are directly classified as acquisitions of capital formation and not as compensation of employees.
Conversely, the salaries of employees that produce social benefits in kind are recorded as compensation of employees and not again as (part of) expense on social benefits in kind.

The government finance presentation uses some labels and definitions that differ from those in the sequence of accounts and also introduces various simplifications.

For example, outlays on FISIM and insurance services are not distinguished from interest and net insurance premiums respectively.
22.72 Governments typically produce many services and some goods and then distribute them free or at prices that are not economically significant.

In the SNA, the cost of these goods and services is recorded as a use when they are produced and again as a social benefit or final consumption expenditure when reduce unnecessary duplication, these costs are recorded only as production finance presentation.

they are distributed.


To the government expenses in 22.73 In principle, retirement benefits paid to government employees are considered the liquidation of a liability rather than a payment of a current expense.

However, in practice social benefits as reported in government accounts may include retirement benefits paid to government employees.
If these transactions in pension liabilities are to be excluded, the contributions must also be excluded from revenue and the item adjustment for changes in pension entitlements excluded from expense.

4.

Outlays 22.74 The purchase of a non-financial asset is not an expense because it has no net effect on net worth since it represents the exchange of one type of asset for another or the incurrence of a liability matched by the acquisition of an asset.
It is however included in a total called outlays (or sometimes expenditure).

Outlays are defined as follows: Outlays equals Expense, plus Acquisitions less disposals of non-financial assets.

The net acquisition of non-financial assets is the sum of the gross capital formation and acquisitions less disposals of non-produced non-financial assets.

5.

Net operating balance 22.75 The net operating balance is defined as revenue less expense.

It is the balance of all transactions that affect net worth.
It is equivalent to the changes in net worth due to saving and capital transfers in the SNA sequence of accounts.

It provides a measure of the sustainability of government policies as it represents the resources acquired or consumed by the government’s current operations.

Specifically: Net operating balance equals Revenue, less Expense.

6.
6.

Net lending or net borrowing 22.76 Net lending or net borrowing can be calculated as the net operating balance less the net acquisition of non-financial assets or total revenue less total outlays.

It represents the amount the government has available to lend or must borrow to finance its non-financial operations.

Specifically: Net lending or net borrowing equals Net operating balance, less Acquisitions less disposals of non-financial assets.
or, alternatively: Net lending or net borrowing equals Revenue, The general government and public sectors less Outlays.

22.77 Net lending or net borrowing is also the balancing item of the financial account, although in practice a statistical discrepancy could appear as a result of using different sources and of possible errors and omissions.

7.
7.

Consolidation 22.78 For analytical purposes, there is often interest in the relationship between net lending or net borrowing and the change in government liabilities.

Attention to government liabilities usually centres on the amount owed to non- government units.

There may be a substantial amount of liabilities incurred by one government unit and held by a second government unit.
The government finance presentation consolidates all flows and stocks within each subsector and sector, and thus all asset and liability positions between units belonging to the same grouping are eliminated.

This procedure still allows the separate identification of the debt of the general government sector, the central government subsector and the public sector, which are analytically useful.

22.79 Consolidation is a method of presenting statistics for a set of units as if they constituted a single unit.
It involves eliminating transactions and reciprocal stock positions among the units that are being consolidated.

Consolidation may be undertaken for any group of units, but it is particularly useful to consolidate the units within the general government sector and its subsectors.
For example, assessing the overall impact of government operations on the total economy or the sustainability of government operations is more effective when the transactions between different levels of government are eliminated and only those transactions that are with other sectors or non- residents remain.
Consolidation is of particular relevance for transactions such as property income (in particular interest), current and capital transfers and transactions in financial assets and the consolidated figures on the ratio of revenue or expense to GDP are more useful for some purposes than the unconsolidated figures.

liabilities.

For example, 22.80 In the SNA, consolidation is discouraged.
Even in the government finance presentation, where consolidation is often useful, it takes place only within a single account where the matching revenue and expense entries appear.

For this reason, consolidation adjustments do not affect balancing items.

For example, a grant (or transfer) from a is central government consolidated by eliminating the expense from central government and the revenue from the local government, thus leaving the net operating balance of the general government sector unchanged.
local government unit to a 22.81 Conceptually, the nature of consolidation is to eliminate all flows among the consolidated units, but practicality should be kept in mind.

For example, it may be argued that transactions in the production account, such as output and intermediate consumption of goods and services, should not be consolidated.
The decision about the level of detail employed in consolidation should be based on the policy usefulness of the consolidated data and the relative importance of the various types of transactions or stocks.

443 System of National Accounts 22.82 Within a government finance presentation, the major transactions considered for consolidation, in probable order of importance, are: case for the second government unit.
However, taxes on gross payroll and labour force that are not treated as social contributions should be consolidated when they are significant and can be identified.

a.

Current and capital transfers, such as central government grants to lower levels of government; b.
Transactions in financial assets and liabilities, such as loans to other governments for policy purposes, acquisitions of government securities by social security units and debt forgiveness; c. Interest revenue and expense on intergovernmental holdings of financial assets and liabilities; d. Acquisitions and disposals of non-financial assets, land, intergovernmental transactions in including buildings and equipment; e. Taxes paid by one government unit or entity to another; 22.84 Practical difficulties always arise with consolidation.
For example, when a transaction to be consolidated is identified in the records of one unit, the corresponding transaction should appear in the accounts of the counterparty, but it may not be recorded there, it may be recorded in a different period, it may be recorded at a different value, or it may be classified as a different type of transaction.
Such errors in the strict application of a quadruple accounting system may exist in relation to any transaction but become apparent when consolidation is attempted.

22.85 Even if transactions between the subsectors of government are being consolidated when presenting the accounts for general government as a whole, they should not be eliminated for the accounts of each subsector considered separately.

f. Purchases and sales of goods and services between government units.

8.
8.

Classification of the functions of government 22.83 Two types of transactions that appear to take place between two government units are never consolidated because they are re-routed in the SNA to other units.

The first is that all employer social contributions, whether paid to social security or to government pension funds, are treated as being paid to the employee as part of compensation and then paid by the employee to the fund.
The second is that all the taxes withheld by government units from compensation of their employees, such as pay-as-you-earn (PAYE) taxes, and paid to other governments should be treated as being paid directly by the employees.

The government employer is simply the collecting agent in this 22.86 A classification of transactions on outlays using the Classification of Functions of Government (COFOG) is integral to the government finance presentation.
This classification shows the purpose for which outlays are undertaken.

These purposes may differ significantly from the administrative arrangements of governments.

For example, an administrative unit responsible for health services may undertake some activities with an educational purpose, such as training of medical professionals.

A cross classification of the transactions of government by both economic nature and according to functions, as shown for example in GFSM2001, is encouraged.
D. Accounting issues particular to the general government and public sectors 22.87 The accounting rules of the SNA apply to general government and public sectors in the same way that they apply to all other sectors of the economy.

However, due to the particular nature of the activities of government units, some additional guidance is useful to assist with the treatment of selected transactions.
These topics are grouped under four headings: a. Clarification of the recording of taxes; b. Interaction with non-resident government-type authorities (including taxes paid to another authority); c. Issues related to debt; d. Interaction with the corporations sectors.

A separate section for each of these headings follows.

1.
1.

Clarification of the recording of taxes Government issued permits 22.88 Taxes are compulsory unrequited payments, in cash or in kind, made by institutional units to the general government exercising its sovereign powers or to a supranational authority.

They usually constitute the major part of government revenue, up to 90 per cent in some countries.
Taxes are described as unrequited because, in most cases, in the government provides nothing commensurate exchange to the individual unit making the payment.

However, there are cases where the government does provide something to the individual unit in return for a payment in the form of the direct granting of a permit or authorization.
In this case, the payment is part of a mandatory process that ensures proper recognition of ownership or that activities are performed under the strict authorization by the law.

The borderline between when such payments are to be treated as a tax and when as the 444 sale of a service or as the sale of an asset by the government requires additional guidance.
22.89 As noted in chapters 7 and 8 when discussing the difference between a tax and a fee for a service, the borderline is not always following recommendations apply.

clear-cut practice.

The in a.


The payment is recorded as a tax when a licence or a permit is automatically granted by the government as a mandatory condition to perform an activity or acquire an asset and when the government unit performs little or no work other than a minimum control of the legal capacity of the acquirer to receive the permit (for instance, to confirm the applicant has not been convicted of a crime).
The payment of the fee in such a case is not commensurate with the control function that the government exercises.

the activity, checking b.

The payment is recorded as the purchase of a service when, for instance, issuing the licence or permit implies a proper regulatory function of the government by exercising control on the competence or qualifications of the persons concerned, etc.
In such a case, the payment is taken to be proportion to the costs of producing the service for all or any of the entities benefiting from the services and is borne by those benefiting.

Only if the payment is out of proportion to the costs of producing the services, is it treated as a tax.

22.90 Chapter 17 discusses the case of licences issued by government in strictly limited numbers.

a.
a.

If the licence is not one to use a natural resource that qualifies as an asset and which the government controls on behalf of the community, then the payment for the licence is a tax.

Notwithstanding, if the licence is legally and practically transferable to a third party, it may still be classified as an asset in the category of contracts, leases and licences.

b.
b.

When the licence is to make use of a natural resource that qualifies as an asset and which the government controls on behalf of the community, payments for the licence are treated either as the acquisition of an asset in the category of contracts, leases or licences or as the payment of rent.

The conditions that need to be considered in deciding between the acquisition of an asset and the payment of rent are described in detail in part 5 of chapter 17.
Permission to use a produced asset owned by government is treated as an operating or financial lease as appropriate.

Accrual recording of taxes revenue side 22.91 Like all transactions in the system, government transactions should be recorded on an accrual basis.

This is true on both taxes and social (for example, the contributions) and the expense side (for example, interest charges).
Unless both parties to a transaction record their view of the transaction at the same point in time, the accounts do not balance.

The general government and public sectors 22.92 For the government, recording revenue and claims when the underlying event occurs is particularly difficult since government recordings are often on a cash basis.

This is especially the case for taxes.


Further, when accrued taxes are calculated from assessments of taxes due, there may be a risk of over- or understatement of tax revenue.

Since tax revenue is a crucial government finance aggregate, such an error must be avoided.
22.93 As explained in chapter 3, the period of time between the moment a tax or any distributive transaction is recorded as accruing in the non-financial accounts and the moment the payment is actually made is bridged by recording an account receivable or payable in the financial account.

In cases where a prepayment covering two or more accounting periods is made to government, an account payable is recorded in the financial account of government for the amounts due in future periods.
In effect this is a financial advance made to government by the payee.

It is a liability of the government and an asset of the payee.

This liability is extinguished as the amounts fall due in future periods.

22.94 The amount of taxes recorded as accruing recognizes that some taxes that may be due in principle are in practice unlikely to be collected.

The alternative means of making the necessary adjustments are described in paragraphs 8.58 to 8.59.
Tax credits 22.95 Tax relief can take the form of a tax allowance, an exemption, a deduction or a tax credit.

Tax allowances, exemptions and deductions are subtracted from the tax base before the tax liability is computed.

A tax credit is an amount subtracted directly from the tax liability due by the beneficiary household or corporation after the liability has been computed.
Tax credits can sometimes be payable, in the sense that any amount of the credit that exceeds the tax liability is paid to the beneficiary.

In contrast, some tax credits are non-payable (sometimes called wastable) and are limited to the size of the tax liability.

the taxpayer and tax revenue.


This 22.96 In Revenue Statistics and GFSM2001, a tax relief that is embedded in the tax system is recorded as reducing the tax therefore as reducing liability of tax the case for is government allowances, exemptions and deductions, since they enter directly into the calculation of the tax liability.

This is also the case for non-payable tax credits as their value to the taxpayer is limited to the size of their tax liability.
For payable tax credits, only the excess over the corresponding liability, which corresponds to an outlay by government, is shown as an expense.

22.97 In contrast, in the SNA, the total amounts due as payable tax credits should be considered as expense and recorded as such at their total amount.

In consequence, tax revenue should be recorded without any deduction for payable tax credits.
22.98 Treating payable tax credits in this way has no impact on the net borrowing or net lending of the general government, but has an impact on both the tax burden and the ratios of public expense or expenditure to GDP.

Because of the need to explain differences in presentation between different 445 System of National Accounts statistical systems, however, in the SNA the amounts of payable tax credits that are offset against tax liabilities should also be shown.

2.
2.

Transactions with other national, international and supranational organizations international or 22.99 Transactions may occur between government units and either supranational organizations, regarded as non-resident units.

Even when government acts as the unit channelling funds to or from the non-resident unit, the transactions are recorded as taking place directly with the non-resident unit.

Six cases may be considered: a.


Taxes: Some taxes on products, such as import duties, excises and value added taxes, might be payable to a supranational organization because they are considered to be levied directly by the supranational organization.

b.

Subsidies: Any subsidies paid by a supranational organization directly to a resident producer are recorded as payable by the supranational organization rather than a resident government unit.
c. Current international cooperation: This consists of current transfers in cash or in kind between the governments of different countries or between governments and international organizations and includes specifically: · Transfers between governments that are used by the recipients to finance current expenditures, including emergency aid after natural disasters; they include transfers in kind in the form of food, clothing, blankets, medicines, etc.
; · Annual or other regular contributions paid by member governments to international organizations (excluding taxes payable to supranational organizations); · by Payments international governments organizations to other governments to cover the salaries of those technical assistance staff who are resident in the country in which they are working and are employed by the host government.
or d. Miscellaneous current transfers: These consist of payments to international or supranational authorities that are regarded as being compulsory but are not taxes.

e. Capital transfers: These include investment grants and the counterpart other capital transaction of debt cancellation as a capital transfer payable and the counterpart of debt assumption as a capital transfer receivable.
including transfers, International membership dues 22.100 In a few cases, membership dues and subscription fees payable to international organizations may not be treated as transfers but as payments for a service, recorded on an accrual basis.

Exceptionally, and when there is a possibility even if unlikely, of repayment of the full amount, the payment may represent the acquisition of a financial asset.
International assistance 22.101 International assistance sometimes takes the form of making goods, such as food and clothing or emergency equipment available following a natural disaster.
In addition to the goods or services themselves, all costs identifiable with the delivery of the goods or services such as transportation to the foreign country, delivery within that country, the compensation of government employees of the donating country to prepare the shipments or oversee their delivery, insurance and so forth should be included in the value of the transfer to the extent that these costs are met by the donor.
22.102 The prices of the goods or services in the receiving country might be quite different from the prices in the donor country.

As a general principle, the value of the donation to the recipient should be regarded as equal to the cost of providing the assistance to the recipient.

It follows that the prices of the donor country should be used as a basis for the calculation of the value of the donation.
22.103 When the goods and services and associated delivery charges are donated by government, NPISHs or households, the items are negative final consumption matching a transfer in kind.

If the items are provided by corporations, they are recorded as a transfer in cash followed by a purchase of the goods by the recipient.

In both cases the items involved are included in exports of the donor country and imports of the recipient country.

3.
3.

Debt and related operations Debt 22.104 Debt is a commonly used concept, defined as a specific subset of liabilities identified according to the types of financial instruments included or excluded.

Generally, debt is defined as all liabilities that require payment or payments of interest or principal by the debtor to the creditor at a date or dates in the future.

Consequently, all debt instruments are liabilities, but some liabilities such as shares, equity and financial derivatives are not debt.
However, due to specific legal, institutional or practical arrangements some other definitions of debt may also exist.

It is therefore useful in all cases to clearly identify the definition of debt according to the instruments included.

f. Financial transactions: Some financial transactions, usually loans, may be recorded when granted by international organizations (for example, the World Bank and the International Monetary Fund) or granted to other governments.
22.105 Debt operations are often used by government as a means of providing economic aid to other units.

The general principle for any cancellation or assumption of debt of one unit by another unit made by mutual agreement is to consider that there is a voluntary transfer of wealth between the two units.

This means that the counterpart transaction of 446 the liability assumed or of the claim cancelled is a capital transfer.

Debt reorganization 22.106 There are four main types of debt reorganization: a.
Debt forgiveness.

A reduction in the amount of, or the extinguishing of, a debt obligation by the creditor via a contractual arrangement with the debtor.

b.

Debt rescheduling or re-financing.

A change in the terms and conditions of the amount owed, which may result or not in a reduction in burden in present value terms.

c. Debt conversion.

The creditor exchanges the debt claim for something of economic value, other than another debt claim, on the same debtor.
This includes debt-for- equity swaps and debt prepayment among other arrangements.

d. Debt assumption and debt payments on behalf of others when a third party is also involved.

Debt forgiveness (or debt cancellation) 22.107 Debt forgiveness is defined as the voluntary cancellation of all or part of a debt obligation within a contractual arrangement between a creditor and a debtor.
Debt forgiveness is distinguished from debt write-off by the agreement between the parties and the intention to convey a benefit, rather than unilateral recognition by the creditor that the amount is unlikely to be collected.

Debt forgiven may include all or part of the principal outstanding, inclusive of any accrued interest arrears (interest that fell due in the past) and any other interest costs that have the accrued.
Debt forgiveness does not arise from cancellation of future interest payments that have not yet fallen due and have not yet accrued.

22.108 Debt forgiveness is recorded as a capital transfer received by the debtor from the creditor at the time specified in the agreement that the debt forgiveness takes effect with a repayment of the debtor’s liability in the financial account and a matching receipt by the creditor.
In the balance sheet, the debtor’s liability and creditor’s asset are reduced by the amount of debt that is forgiven.

Valuation of the amount of the debt forgiven is at market prices for flows and stocks, except for loans where the nominal value is used.

The general government and public sectors 22.110 Under both arrangements, the debt instrument that is being rescheduled is considered to be extinguished and replaced by a new debt instrument with the new terms and conditions.
If there is a difference in value between the extinguished debt instrument and the new debt instrument, part is a type of debt forgiveness by government and a capital transfer is necessary to account for the difference.

22.111 Debt rescheduling is a bilateral arrangement between the debtor and the creditor that constitutes a formal deferment of debt-service payments and the application of new and generally extended maturities.
The new terms normally include one or more of the following elements: extending repayment periods, reductions in the contracted interest rate, adding or extending grace periods for the repayment of principal, fixing the exchange rate at favourable levels for foreign currency debt, and rescheduling the payment of arrears, if any.

22.112 The treatment for debt rescheduling is that the existing contract is extinguished and a new contract created.
The applicable existing debt is recorded as being repaid and a new debt instrument (or instruments) of the same type and with the same creditor is created with the new terms and conditions.

22.113 The transaction is recorded at the time both parties record the change in terms in their books, and is valued at the value of the new debt.

22.114 Debt refinancing involves the replacement of an existing debt instrument or instruments, including any arrears, with a new debt instrument or instruments.
It can involve the exchange of the same type of debt instrument (loan for a loan), or different types of debt instruments (loan for a bond).

For instance, the public sector may convert various export credit debts into a single loan.

Also, debt refinancing can be said to have taken place when a debtor exchanges existing bonds for new bonds through exchange offers given by its creditor (rather than a change in terms and conditions).
22.115 The treatment of debt refinancing transactions is similar to debt rescheduling to the extent that the debt being refinanced is extinguished and replaced with a new financial instrument or instruments.

However, unlike in rescheduling, the old debt is extinguished at the value of the new debt instrument except for non-marketable debt owed.
The balance sheet reflects the transactions extinguishing the old debt instrument and the creation of the new debt instrument along with any valuation change recorded in the revaluation account.

Debt rescheduling and refinancing Debt conversion 22.109 Debt rescheduling (or refinancing) is an agreement to alter the terms and conditions for servicing an existing debt, usually on more favourable terms for the debtor.
Debt rescheduling involves rearrangements on the same type of instrument, with the same principal value and the same creditor as with the old debt.

Refinancing entails a different debt instrument, generally at a different value and may be with a creditor different than that from the old debt.

22.116 A debt-for-equity swap occurs when a creditor agrees to replace a debt owed to it by an equity security.
For example, the government may agree with a public enterprise to accept an increase in its equity stake in the public enterprises instead of making a loan.

If there is a difference the extinguished debt instrument and the new equity instrument, it is a type of debt forgiveness by government and a capital transfer is necessary to account for the difference.
in value between 447 System of National Accounts Debt assumption transaction of the counterpart 22.117 Debt assumption occurs when one unit assumes responsibility for another unit’s outstanding liability to a creditor.

When a government assumes a debt, in most instances the new government liability is a capital transfer in favour of the defaulting debtor.
However, if the government acquires an effective legal claim against the defaulting unit and there is a realistic probability that the claim will be paid, the government may record, as the counterpart transaction of its new liability, the acquisition of a financial asset equal to the present value of the amount expected to be received.

If this amount is equal to the liability assumed, no further entries are required.
If the amount expected to be recovered is less than the liability assumed, the government records a capital transfer for the difference between the liability incurred and any asset acquired.

Similarly, if a government has its debt assumed by another government, then it records a capital transfer receivable, a new debt to the assuming government unit, or a combination of the two.
22.118 Debt assumption frequently occurs when a government guarantees a debt of another unit and the guarantee is called (or activated).

The treatment of the guarantee itself is described below.

22.119 Debt payments on behalf of others are similar to debt assumptions, but the unit making the payments does not assume the entire debt.

The transactions recorded are similar to those described under debt forgiveness.
Other issues related to debt re-organization 22.120 Debt write-offs refer to unilateral reductions by a creditor in the amount owed to it, usually when a creditor concludes that a debt obligation has no value or a reduced value because part or all of the debt is not going to be paid.

Frequently the debtor is bankrupt or has disappeared.

An other change in the volume of assets is used to record the write-off.
Unlike the cases of debt assumption and debt forgiveness, no capital transfer is recorded and therefore there is no impact on net lending or borrowing of government.

22.121 Debt arrears occur when a debtor misses an interest or principal payment.

The debt instrument will not normally change, but knowing the amount of debts in arrears can provide feasible and important, therefore, each category of debt should be divided into those instruments that are in arrears and those not in arrears.

information.
information.

When important 22.122 Debt defeasance allows a debtor (whose debts are in the form generally of debt securities and loans) to remove certain liabilities from the balance sheet by pairing irrevocably assets of equal value liabilities.

Defeasance may be carried out either by placing the paired assets and liabilities in a trust account within the institutional unit concerned, or by transferring the paired assets and liabilities to another institutional unit.
In the former case, there are no transactions with respect to defeasance and the assets and liabilities should not be excluded from the balance sheet of the unit.

In the latter case, the assets and liabilities in question are moved to the the to 448 balance sheet of second unit as long as this unit is recognized as an institutional unit in the SNA.

Often the unit to which the paired assets and liabilities may be moved is an SPE.
The conditions under which an SPE is considered to be an institutional unit are described in paragraphs 4.55 to 4.67.

If the SPE is purely passive it is not considered to be an institutional unit and the assets and liabilities concerned do not move off-balance sheet.

22.123 Debt issued on concessional terms.


There is no precise definition of concessional loans, but it is generally accepted that they occur when units lend to other units and the contractual interest rate is intentionally set below the market interest rate that would otherwise apply.

The degree of concessionality can be enhanced with grace periods, frequencies of payments and a maturity period favourable to the debtor.
Since the terms of a concessional loan are more favourable to the debtor than market conditions would otherwise permit, concessional loans effectively include a transfer from the creditor to the debtor.

interest.
interest.

If such a 22.124 Loans with concessional interest rates to a foreign government could be seen as providing a current transfer equal to the difference between the actual interest and the market equivalent transfer were recognized, it would usually be recorded as current international cooperation, and the interest recorded would be adjusted by the same amount.
However, the means of incorporating the impact within the SNA and international accounts have not been fully developed, although various alternatives have been advanced.

Accordingly, until the appropriate treatment of concessional debt is agreed, information on concessional debt should be provided in supplementary tables.

22.125 Further details on the recording of debt operations can be found in GFSM2001, the Manual on Government Debt and Deficit, the External Debt Guide and Appendix 2 of BPM6.
Government guarantees 22.126 Three types of guarantees are recognized in the SNA, standardized guarantees, guarantees that meet the definition of a financial derivative and one-off guarantees.

The recording of standardized guarantees (for government and other units offering such guarantees) is described in part 3 of chapter 17.

22.127 Guarantees that meet the definition of financial derivatives are those that are actively traded on financial markets, such as credit default swaps.
The derivative is based on the risk of default of a reference instrument and so is not actually linked to an individual loan or bond.

They have no effect on the net lending or borrowing of government.

22.128 One-off guarantees exist where the conditions of the loan or the security are so particular that it is not possible for the degree of risk associated with the loan to be calculated with any degree of accuracy.
In most cases, the granting of a one-off guarantee is considered a contingency and is not recorded as a liability for the guarantor.

Payments under a one-off guarantee are recorded when the call on the guarantee is made or when the fact that such a call will be made is very well established.
As an exception, one-off guarantees granted by governments to corporations in certain financially distressed situations and with a very high likelihood to be called are treated as if these guarantees were called at inception.

A particular case in point is a bailout by government, which is discussed below.

22.129 The activation of a one-off guarantee is treated in the same way as a debt assumption.

The original debt is liquidated and a new debt is created between the guarantor and the creditor.
In most instances, the guarantor is deemed to make a capital transfer to the original debtor, unless the guarantor acquires an effective claim on the creditor, in which case it leads to the recognition of a financial asset (a liability of the debtor).

22.130 The activation of a guarantee may or may not require repayment of debt at once.

The accrual principle for time of recording requires that the total amount of debt assumed is recorded at the time the guarantee is activated and the debt assumed.
Repayments of principal by the guarantor (the new debtor) and interest accruals on the assumed debt are recorded as these flows occur.

Securitization 22.131 Securitization occurs when a unit, named the originator, conveys the ownership rights over financial or non- financial assets or the right to receive specific future flows, to another unit, named the securitization unit.

In return, the securitization unit pays an amount to the originator from its own source of financing.
The securitization unit is often an SPE.

The securitization unit obtains its own financing by issuing securities using the assets or rights to future flows transferred by the originator as collateral.

Government units have made widespread use of this source of finance.

22.132 The first case involving government to be considered is when the securitization comprises the sale (or the transfer) of an asset.
(In the SNA, a stream of future tax receipts is not recognized as a government asset that could be used for securitization.)

The key question for how to record the transaction properly is to determine whether the transfer of the asset is a sale of an existing asset to the securitization unit or a way to borrow using possible future flows of revenues as collateral.
In order to be treated as a sale, the asset must already appear in the balance sheet of the government and there must be a full change of ownership to the securitization unit as evidenced by the transfer of the risks and rewards linked to the asset.

The following factors must also be considered: The general government and public sectors sufficient amount of the future income to repay the borrowing in full.
If more income is earned than is needed to repay the borrowing, the excess is retained by the government.

Because receipts of future income are uncertain, “rights” to considerably more income than is necessary to repay the borrowing of the securitization unit are usually used as collateral.

The amount received by the government as the originator is treated as borrowing, usually in the form of a loan.
Government assumption of pension liabilities 22.134 On occasion, large one-off transactions may occur between a government and another unit, usually a public corporation, linked to pension reforms or to privatization of public corporations.

The goal may be to make a public corporation competitive and financially more attractive by removing existing pension liabilities from the balance sheet of the public corporation.
This goal is achieved by the government assuming the liability in question in exchange for a cash payment of the same value.

If the cash payment is not equal in value to the liability incurred, a capital transfer is recorded for the difference.

4.

Relations of general government with corporations Earnings from equity investment to 22.135 A government unit has a close relationship with any public corporation or quasi-corporation that it controls.
Despite this close relationship, flows related the equity investment between a government unit and its controlled corporation are treated in the same way as flows between any corporation and its owners.

An equity investment is the action by economic agents of placing funds at the disposal of corporations.

The amounts invested, described as equity capital, are part of the own funds of the corporation and the corporation has a large degree of freedom in the way in which they are used.
In return, the owners receive shares or some other form of equity securities.

These financial assets represent property rights on corporations and quasi- corporations and entitle the holders to: a.

A share of any dividends (or withdrawals of income from quasi-corporations) paid at the discretion of the corporation but not to a fixed and predetermined income, and a.

To be recorded as a sale, the purchase price must be equal to the current market price.

b.
b.

A share in the net assets of the corporation in the event of its liquidation.

b.

If the government, as the originator, guarantees repayment of any debt related to the asset incurred by the securitization unit, it is unlikely that all of the risks associated with the asset have been transferred.

22.133 The second case involving government is the securitization of future revenue flows.

In the SNA, a stream of future incomes is not recognized as an asset.
In most of these cases, it is not the rights to the income that are used as collateral, but the obligation of the government to use a Dividends versus withdrawal of equity 22.136 It is important to distinguish between the return of the equity investment by the corporation to its owner and the payment of income in the form of dividends.

Only regular distributions from the entrepreneurial income are recorded as property income either as dividends or withdrawals of income from quasi-corporations.
Large and irregular payments, based on accumulated reserves or sale of assets are recorded as a withdrawal of equity.

449 System of National Accounts Disposal of assets 22.137 The sale of non-financial assets owned by public corporations, such as buildings and land, does not by itself constitute privatization and is recorded in the capital account of the corporations sector as disposals of fixed assets or other non-financial assets.
However, if the public corporation sells assets and then surrenders the proceeds of such a sale to general government, this is recorded as a withdrawal of government’s equity in the corporation.

A withdrawal of equity is also recorded if the public corporation disposes of a financial asset and surrenders the proceeds to government.

22.140 Privatization may be organized in more complicated institutional arrangements.
For instance, some or all of the non-financial assets of a public corporation may be sold by a public holding company, or other public agency, controlled by a government and all or part of the proceeds paid to the government.

In such cases, the public corporation will record the disposal of non-financial assets in the capital account, while the payment to the government of the proceeds from the sale is recorded as a withdrawal of equity.
22.141 The case where the privatization is arranged via a restructuring agency is discussed in paragraphs 22.47 to 22.50.

Acquisition of equity, capital transfers and subsidies Nationalization 22.138 Subsidies are current transfers, usually made on a regular basis, from government to corporations designed to influence their levels of production, the prices at which the their outputs are sold or corporations.
Payments to public corporations on a large and irregular basis (often called “capital injections” in the media) are not subsidies.

They are treated as either a capital transfer or the acquisition of equity: the remuneration of a.

Payments to cover cumulated losses arising as a result of public policy purposes should be recorded as a capital transfer.

b.

A payment made in a commercial or competitive context may be treated as an acquisition of equity.
This should be limited to cases where the government is acting similarly to a private shareholder in that it has a valid expectation of a cash return in the form of future property income.

In this case, the corporation will probably issue new shares to the government and enjoy a large degree of freedom over how the funds provided are used.

Treating the payments as the acquisition of equity depends on evidence of the corporation’s profitability and its ability to pay dividends in future.
Privatization 22.139 Privatization is usually understood to consist of the sale of shares or other equity held by government in a public corporation to other units.

Often these other units are outside the public sector but they need not be; for example, a public corporation may buy shares in a unit newly separated from government.

Such sales are purely financial transactions, recorded in the financial account of the SNA.
The assets owned by the public corporation continue to belong to the corporation; it is the ownership of the corporation itself, as represented by the ownership of the equity in it, that changes hands.

In effect, the government’s claim on reduces because government exchanges shares or equity in the public corporation for cash or other financial assets.
The cost of any financial services that government must purchase to achieve the sale are treated as an expense that should be recorded as intermediate consumption by general government in the SNA.

the public corporation 450 22.142 Nationalization is a process whereby government takes control of specific assets or an entire corporation, usually by acquiring the majority or the whole stake in the corporation.

The recording of flows differs according to the way the government takes control.
a. Appropriation or confiscation: the change in ownership of assets is not the result of a transaction made by mutual agreement.

There is no payment to the owners (or the compensation is not commensurate with the fair value of the assets).

The difference between the market value of the assets acquired and any compensation provided is recorded as an uncompensated seizure in the other changes in the volume of assets account.

b.
b.

Purchase of shares: the government buys all or some of the shares in the corporation at a price that is the market price or very close to it.

There is usually a legal context for the transaction which ensures that it is made by mutual agreement, even though the former owner may have little choice whether or not to accept the offer, or to negotiate the price.

The purchase of shares is a financial transaction recorded in the financial account.
Bailouts injection of financial resources 22.143 A bailout is a term meaning a rescue from financial distress.

It is often used when a government unit provides either short-term financial assistance to a corporation to help it survive a period of financial difficulty or a more to help permanent recapitalize the corporation.

A bailout may in effect constitute another means of nationalization the government acquires control of the corporation it is bailing out.
Bailouts of financial institutions are particularly noteworthy.

Bailouts are likely to involve highly publicized one-time transactions involving large amounts and are therefore easy to identify.

if 22.144 Intervention of general government may take various forms.

For instance: a.

A government might provide equity financing on exceptionally favourable terms.

b.

A government might purchase assets from the enterprise to be assisted for prices greater than their true market value.
c. A government might create a special purpose entity or other type of public body to finance or to manage the sales of assets or liabilities of the enterprise to be assisted.

22.145 In most of these cases, the assistance provided by government to the unit suffering financial distress is recorded as a capital transfer.

In determining the magnitude of the capital transfers, the following points need to be taken into account.

a.
a.

If the government buys assets from the enterprise to be assisted, the amount paid will normally be more than the true market price of the assets.

The purchase of assets other than loans should be recorded at the actual market price and a capital transfer should be recorded for the difference between the market price and the total amount paid.

b.

Governments often buy from loans financial institutions during a bailout.
Unless a loan becomes tradeable and is traded with established market value, it is always recorded in the SNA at nominal value.

Only if a market for the loans develops and the loans are regularly traded there are they reclassified as securities and recorded at market value.

c. When a government buys a loan at nominal value when the fair value is much less, no capital transfer for the difference in value is recorded.
However, if there is reliable information that some loans are irrecoverable, their value is reduced to zero as an other volume change in the balance sheet of the corporation and a capital transfer should be recorded from government to the corporation for their former nominal value.
If there is some possibility that some part of the loan may be recoverable in the future, the loans are reclassified (at their zero value) from the balance sheet of the corporation to that of the government at the time the capital transfer is recorded.

If the value of the loans subsequently increases, this is shown as a revaluation item in the government’s balance sheet.

d. As part of a bailout, government may extend the range of guarantees it is prepared to offer.
These guarantees should be recorded as described above in paragraphs 22.126 to 22.130 according to whether this is a one-off guarantee or part of a standardized guarantee scheme.

22.146 If a public institutional unit is created by government simply to assume management of the bailout, the unit should be classified in the general government sector.
If the new unit has other functions and the bailout is a temporary task, its classification as a government unit or a public corporation is made following the general rules as described in the section above on restructuring agencies.

Units that purchase financial assets from distressed financial corporations with the objective of selling them in an orderly manner cannot be considered financial intermediaries.
If the unit has been created by government The general government and public sectors for this specific task, it is classified in the general government sector.

Restructuring, mergers and reclassifications 22.147 When a public corporation is restructured, financial assets and liabilities may appear or disappear reflecting new financial relationships.

These changes are recorded as changes in sector classification and structure in the other changes in the volume of assets account.
An example of such a restructuring is when a corporation is split into two or more institutional units and new financial assets and liabilities are created.

22.148 The purchase of shares and other equity of a corporation as part of a merger, on the other hand, is to be recorded as a financial transaction between the purchasing corporation and the previous owner.
22.149 Any change in the classification of assets and liabilities not related to restructuring or changes in sector classification is recorded as a change in the classification of assets or liabilities in the other changes in the volume of assets account.

Transactions with the central bank 22.150 It is appropriate to begin by recalling the definition of the central bank and associated explanations from chapter 4.
The central bank is the national financial institution that exercises control over key aspects of the financial system.

In general, the following financial institutions are classified in this subsector: a.

The national central bank, including where it is part of a system of central banks; and b.

Currency boards or independent currency authorities that issue national currency that is fully backed by foreign exchange reserves.
c. Central monetary agencies of essentially public origin (for example, agencies managing foreign exchange or issuing bank notes and coin) that keep a complete set of accounts but are not classified as part of central government.

Supervisory authorities that are separate institutional units are not included with the central bank but are included with financial auxiliaries.
As long as the central bank is a separate institutional unit, it is always allocated to the financial corporations sector even if it is primarily a non-market producer.

22.151 While the bank may be legally independent of government, it is charged with carrying out government policy under the legislation establishing it.

The central bank is always treated as being controlled by government and is included in the financial corporations sector as a public corporation.
It is the single exception to the rule that a unit whose output is primarily non-market is not to be classified as a corporation.

451 System of National Accounts 22.152 Two types of payments by the central bank to the government require clarification: a.

Payments made on a regular basis, usually in the form of dividends, based on the current activity of the central bank (such as managing foreign exchange reserves).
These payments are recorded as dividends so long as they are not abnormally higher than the sum of net interest and net commissions receivable by the bank.

Amounts in excess of this sum are to be recorded as a withdrawal of equity.

b.

Exceptional payments following sales or revaluation of reserve assets.

These payments should be recorded as a withdrawal of equity.

The rationale is that these assets are being managed as the economic property of the nation and not of the bank itself.
Their valuation affects the equity liability of the central bank and the equity assets of the government.

Holding gains on the reserve assets (assets of the central bank) have a counterpart in the equity liability of the central bank and the equity assets of the central government.

22.153 The measurement of output of the central bank is described in paragraphs 6.151to 6.156.

As part of government policy, the central bank may pay interest on deposits at artificially high or low rates.
The treatment of interest payments in this case is described in paragraphs 7.122 to 7.126 Public-private partnerships 22.154 Public-private partnerships are long-term contracts between two units, whereby one unit acquires or builds an asset or set of assets, operates it for period and then hands the asset over to a second unit.
Such arrangements are usually between a private enterprise and government but other combinations are possible, with a public corporation as either party or a private NPI as the second party.

These schemes are described variously as Public-Private Partnerships (PPPs), Private Finance Initiatives (PFIs), Build, Own, Operate, Transfer schemes (BOOTs) and so on.

The basic principles of all are the same and are treated the same way in the SNA.
22.155 Governments engage in PPPs for a variety of reasons, including the hope that private management may lead to more efficient production and that access to a broader range of financial sources can be obtained.

In the contract period the PPP contractor has the economic ownership.

Once the contract period is over, the government has both economic and legal ownership.
It is not easy to establish which unit is the legal owner of an asset during the contract period or how the implicit transactions when its economic ownership changes should be recorded.

There may be an advance agreement on the timing of the transfer of economic ownership part way through the service lives of the assets, under agreed terms that do not reflect market prices of the assets.

In consequence, some actual transactions may have to be partitioned to reveal their true economic character.
22.156 PPPs vary greatly.

A general description that includes the most common arrangement is as follows.

A private enterprise agrees to acquire a complex of fixed assets and then to use those assets together with other production inputs to produce services.
Those services may be delivered 452 to the government, either for use as an input to its own production (for example, motor vehicle maintenance services) or for distribution to the public without payment (for example, education services), in which case the government will make periodic payments during the contract period.

The private enterprise expects to recover its costs and earn an adequate rate of return on its investment from those payments.
Alternatively, the private enterprise may sell the services to the public (for example, a toll road), with the price regulated by the government but set at a level that the private enterprise expects will allow it to recover its costs and earn an adequate rate of return on its investment.

At the end of the contract period, the government may gain legal and economic ownership of the assets, possibly without payment.
There can be many variations in PPP contracts regarding the disposition of the assets at the end of the contract, the required operation and maintenance of the assets during the contract, the price, quality and volume of services produced and so forth.

22.157 The private enterprise is responsible for acquiring the fixed assets, although the acquisition is often aided by the backing of the government.
The contract may require, however, that the assets meet the design, quality and capacity specified by the government, be used in the manner specified by the government to produce the services required by the contract and be maintained in accordance with standards specified by the government.
Furthermore, the assets typically have service lives much longer than the contract period so that the government will control the assets, bear the risks and receive the rewards for a major portion of the assets’ service lives.

Thus, it frequently is not obvious whether the private enterprise or the government controls the assets over their service lives or will bear the majority of the risks and reap the majority of the rewards.
22.158 As with leases, the economic owner of the assets related to a PPP is determined by assessing which unit bears the majority of the risks and which unit is expected to receive a majority of the rewards of the assets.

The factors that need to be considered in making this assessment can be broadly divided into two groups, those associated with acquiring the asset and those associated with using it in production.

Some of the risks associated with acquiring the asset are: a.
The degree to which the government controls the design, quality, size and maintenance of the assets; b.

Construction risk, which includes the possibility of additional costs resulting from late delivery, not specifications or building codes and meeting environmental and other risks requiring payments to third parties.

Some of the risks associated with using the asset in production are: a.
Supply risk, which covers the degree to which the government is able to control the services produced, the units to which the services are provided and the prices of the services produced; b.
Demand risk, which includes the possibility that the demand for the services, either from government or from the public at large in the case of a paying service is higher or lower than expected; c. Residual value and obsolescence risk, which includes the risk that the value of the asset will differ from any price agreed for the transfer of the asset to government at the end of the contract period; d. Availability risk, which includes the possibility of additional costs or the incurrence of penalties because the volume and/or quality of the services do not meet the standards specified in the contract.
22.159 The relative importance of each factor is likely to vary with each PPP.

It is not possible to state prescriptive rules that will be applicable to every situation in a satisfactory way.

The provisions of each PPP must be evaluated in order to decide which unit is the legal owner.

22.160 Likewise, the complexity and variety of PPP contracts preclude the enumeration of detailed rules governing the transactions to be recorded concerning the control and use of the assets.
Instead, all of the facts and circumstances of each contract should be considered and then an accounting treatment should be selected that best brings out the underlying economic relationships.

There are, however, a few common difficulties.


22.161 If the private enterprise is assessed as being the legal owner during the contract period and if, as usual, the government obtains legal and economic ownership at the end of the contract without an explicit payment, a transaction must be recorded for the government’s acquisition of the assets.
The general government and public sectors One general approach is for the government gradually to build up a financial claim and the private unit gradually to accrue a corresponding liability such that the value of both is expected to be equal to the residual value of the assets at the end of the contract period.

Implementing this approach requires existing monetary transactions to be rearranged or new transactions to be constructed using assumptions about expected asset values and interest rates.
22.162 An alternative approach is to record the change of legal and economic ownership as a capital transfer.

The capital transfer approach does not reflect the underlying economic reality as well, but data limitations, uncertainty about the expected residual value of the assets and contract provisions allowing various options to be exercised by either party could make recording a capital transfer acceptable on pragmatic grounds.
22.163 If the government is assessed as being the legal owner during the contract period but does not make any explicit payment at the beginning of the contract, a transaction must be imputed to cover the acquisition.

The most common suggestion is that the acquisition be made via an imputed financial lease because of the similarity with actual financial leases.

The implementation of that choice, however, depends on the specific contract provisions, how they are interpreted and possibly other factors.
For example, a loan could be imputed and actual government payments to the private unit, if they exist, could be partitioned so that a portion of each payment represents repayment of the loan.

If there are no actual government transactions could be payments, constructed for the loan payments.
then non-monetary E. The public sector presentation of statistics 22.164 As described in section B, the public sector includes all resident institutional units controlled directly or indirectly by resident government units.

In other words, the public sector consists of all units of the general government sector plus all resident public corporations.

22.167 Not all flows need to be consolidated for the public sector.
Because the public sector is a mixture of market and non- market producers, most components of revenue and expense will have limited economic meaning for the public sector.

Elements of the financial account and the balance sheet are the most likely candidates to be consolidated.
22.165 Statistics for the public sector can be presented both within the sequence of accounts for institutional units and sectors or within the same government finance framework as described in section C of this chapter, depending on the use to be made of the statistics.

22.166 With either method of presentation, it is useful to show both subsectors of the public sector and the entire public sector, with the total public sector statistics shown both unconsolidated and consolidated.
For example, one column might have the statistics for the general government sector, the aggregate of all public a second column for corporations and a the the entire public sector.

totals unconsolidated Depending on the flows involved, a fourth column could show the amounts to be eliminated by consolidation and a fifth column could show the consolidated totals for the entire public sector.
third column would have for 22.168 The same balancing items as stressed for the general government sector are likely to be important for the public sector.

The public sector net operating balance (or saving in the sequence of accounts) will indicate trends in net worth resulting from the public sector’s current operations.

This is particularly useful if there are public corporations operating at significant losses.
22.169 Net lending or net borrowing for the total public sector is known as the public sector borrowing requirement.

Net lending indicates the net financing supplied to either the rest of the economy or the rest of the world; net borrowing indicates net financing obtained by the public sector from either the rest of the economy or the rest of the world.
22.170 The balance sheet provides information of net worth, determined as the value of total assets less total liabilities, 453 System of National Accounts and financial net worth, determined as the difference between the value of total financial assets and the total liabilities.

The latter is often cited because of the public sector’s influence on the financial system and because it is often difficult to value government-unique non-financial assets.

454 Chapter 23: Non-profit institutions A.


Introduction 1.

Non-profit institutions in the SNA 23.1 Non-profit institutions (NPIs) play a somewhat unusual role in the SNA.

Like corporations, some NPIs produce goods and services for sale with the intention to cover costs, that is to say as market production.

In common with other market producers, they cannot undertake final consumption.
Like government units, some NPIs are non- market producers and make their output available free or at prices that are not economically significant to individual households or the community at large.

Some of these non- market NPIs are controlled by government and included in the general government sector but those that are not are grouped in their own sector, the non-profit institutions serving households (NPISHs).

23.2 Most NPIs are separately identified institutional units.
That is, they are capable in their own right of owning assets, incurring liabilities and engaging in economic activities and in transactions with other entities.

It follows that a complete set of accounts for the unit, including a balance sheet of assets and liabilities, exists or could be constructed if required.

In some countries, especially developing countries, an NPI may be an informal entity whose existence is recognized by society but does not have any legal status.
23.3 The distinguishing feature that identifies an NPI is that its status does not permit it to be a source of income, profit or other financial gain for the units that establish, control or finance it.

An NPI may make a profit, it may be exempt from taxes, it may have a charitable purpose but none of these are determining characteristics.

The only essential criterion for a unit to be treated as an NPI is that it may not be a source of income, profit or financial gain to its owners.
fees charging 23.4 All NPIs produce goods and services, most often services, intended for consumption by households or by corporations.

Some NPIs produce services for corporations typically as subscriptions) intended to cover costs.

They are often set up to as associations members.

The the price of membership, the SNA criteria of economically significant prices.

For this reason these NPIs are allocated to the corporations sectors.

An example of an NPI serving corporations is a trade association.
that provide services exclusively level of fees charged, (sometimes described typically satisfies 23.5 An NPI may be controlled by government in that government may appoint its officers and determine the objectives of the institution.

It is treated as an institutional unit separate from government because it has independent control of its budget (even if much or all of the funding comes from government) but it is allocated to the general government institutional sector.
Such institutions provide individual and collective services.

An example is a research institute controlled by government.

23.6 Other NPIs exist to provide goods and services to households either in return for a fee or free.

When fees are charged, these may or may not cover a large proportion of the NPI’s costs and therefore may or may not be deemed to be economically significant prices.
When the fees charged are regarded as being economically significant, the NPIs concerned are treated as providing market services and are allocated to the corporations sectors.

Otherwise the NPIs fall into the institutional sector of NPISHs.
23.7 Thus it is possible to categorize NPIs as follows: a. those providing services to corporations whose output is sold to the corporations concerned and treated as intermediate consumption; b. those that are controlled by government and provide individual or collective services on a non-market basis; c. those providing goods and services to households, divided between: · · · those that provide goods and services to individual households at economically significant prices; those providing services to individual households free or at prices that are not economically significant; those that provide collective services free or at prices that are not economically significant.
23.8 Those NPIs that fall under the first bullet point in category (c) are allocated to the corporations sectors and expenditure on their output is treated as final consumption expenditure by households.

Those that fall under the second bullet point under (c) are allocated to the NPISH sector and their output is treated as actual final consumption of households delivered as social transfers in kind.
Those that fall under the third bullet point under (c) are allocated to the NPISH sector but their output remains as actual final consumption of NPISHs.

455 System of National Accounts 23.9 in both There are thus a number of sectors where NPIs appear in the SNA; the financial and non-financial corporations sectors, in the general government sector and in the separate sector of NPISHs.

Subsectors of the first three sectors are established to contain NPIs only.
Those NPIs in the corporations sectors may be further subdivided to show those that are foreign controlled, those that are publicly controlled and those that are subject to national private control.

The NPIs in the general government sector may be subdivided by level of government; central, state and local government.

NPISHs may be divided between those that are foreign controlled and those subject to national private control.

2.
2.

The accounting rules for NPIs in the SNA 23.10 The output of NPIs is valued in the same way as for all institutional units.

If the unit is a non-market producer, output is valued at the sum of costs, including consumption of fixed capital but excluding a return to capital.

If the unit is a market producer, output is measured by sales adjusted for changes in inventories and any production for own capital formation.
For some NPIs that cover a large proportion but not all their costs from sales, this will leave the unit with negative operating surplus.

This is covered by donations (current transfers).

3.

A satellite account for NPIs 23.11 For some time, there has been growing interest in studying the contribution to the economy of institutions such as NPIs because they are seen to constitute a significant presence of growing economic and policy interest.
Such institutions are variously referred to as “non-profit”, “voluntary”, “civil society” or and collectively as the “third”, “voluntary”, “non-profit” or “independent” sector.

Such institutions attract interest their operating characteristics are somewhat because “non-governmental” organizations different from those of other units in the corporations and government sectors.

Specifically: a.

They are not permitted to distribute profits; b.
They may produce public goods as well as private goods; c. They may receive as much or more from current transfers as they receive from selling their output; d. They may depend on volunteer labour as well as paid labour; e. Because they cannot pay dividends, they cannot attract equity capital in competition with corporations; f. They may be eligible for special tax advantages in many countries; g. They typically have special legal provisions covering requirements, political reporting the governance, participation and so on; h. Although they provide public goods and services, they do not have the same powers or restrictions as government in deciding what these goods and services should be and how they should be allocated.
23.12 Arising out of this interest, a satellite account for NPIs has been developed as described in the Handbook on Non- Profit Institutions in the System of National Accounts (United Nations, 2003).

Sections B and C describe the essential features of this satellite account.

Section D discusses some other aspects of NPIs that it may be desirable to explore in addition to the satellite account.

B.
B.

The units included in the NPI satellite account 23.13 The starting point for the satellite account is to identify the units of interest.

As will be seen, the units chosen coincide largely (but not quite entirely) with the units described as NPIs in the SNA.
One way of approaching a satellite account, therefore, would be to consider compiling the complete sequence of accounts for a sector made up of the subsectors of NPIs in the non-financial corporations sector, the financial corporations sector, the general government sector and NPISHs.

However, because many of those interested in accounts for NPIs only do not come from an SNA background, the handbook starts by identifying characteristics of the units of interest.

1.
1.

Determining characteristics of units for the satellite account 23.14 Various alternative concepts have been put forward around which a satellite account for non-profit institutions could be formulated.

23.15 The first of these is the concept of the “social economy” which depicts non-governmental institutions with a social or collective purpose.

Typically mutual societies, cooperatives and associations would be included.

23.16 The second concept is of “public benefit” organizations.
This typically covers a narrower range of institutions that serve a broad public purpose and excludes institutions that serve only their own members.

23.17 In between these two is the concept of the non-profit sector on the lines initially pioneered by the Johns Hopkins Comparative Non-Profit Sector Project.

In this project a definition of the non-profit units was elaborated along structural-operational lines.
The requirements for inclusion are the following: a. organizations should exist as identifiable institutions; 456 b.

They should be institutionally separate from government; c. They do not distribute profits; d. They are self-governing, that is to say they are not subject to control from other units; e. Membership of the unit is neither obligatory nor automatic but involves some degree of voluntary participation.
23.18 The main exclusions from the set of NPIs recognized in the SNA are those NPIs allocated to the general government sector because, although they are institutionally separate from government, they are controlled by government units.

There are a small number of informal, usually temporary, NPIs that may be excluded also.

These are discussed in section D. 2.

Examples of units included Non-profit institutions j.
Unions, business and professional associations that promote and safeguard labour, business or professional interests; k. Religious congregations, such as parishes, synagogues, mosques, temples and shrines, which promote religious beliefs and administer religious services and rituals.
However, an official state church incorporated into the state administration, particularly one supported by obligatory taxes, would not meet the “institutionally separate from government” criterion and thus would be excluded from the set of NPIs in the satellite account.

It should be noted that religious congregations are different from religiously affiliated service agencies in such fields as health, education and social services.
Similarly, service organizations related to a state church might still be considered to be within the non- profit sector, as long as they are separate institutional units and meet all the definitional criteria.

Both market and non-market units should be included in each of these categories, so long as the institution concerned is an NPI (and not just an NPISH).
23.19 The following are illustrative examples of the kinds of entities that are likely to be found within the “non-profit sector” for the purposes of the NPI satellite account: 3.

Borderline cases a.
Non-profit service providers, such as hospitals, higher education institutions, day-care centres, schools, social service providers and environmental groups; b. Non-governmental organizations promoting economic development or poverty reduction in less developed areas; c. Arts and culture organizations, including museums, performing arts centres, orchestras, ensembles and historical or literary societies; d. Sports clubs involved in amateur sport, training, physical fitness and competitions; e. Advocacy groups that work to promote civil and other rights, or advocate the social and political interests of general or special constituencies; f. Foundations, that is, entities that have at their disposal assets or an endowment and, using the income generated by those assets, either make grants to other organizations or carry out their own projects and programs; g. Community-based or grass-roots associations that are member-based and offer services to or advocate for members of a particular neighbourhood, community or village; h. Political parties that support the placing of particular candidates into political office; i.
Social clubs, including touring clubs and country clubs, that provide services and recreational opportunities to individual members and communities; 23.20 Certain other types of organizations are likely to occupy a grey area between the non-profit sector and either the corporations or government sectors.

Some of those entities will properly belong within the non-profit sector for purposes of the NPI satellite account, while others will not.
The following guidelines may be helpful for making those decisions.

(Obviously, these guidelines will have to be applied types of organizations and not on an organization-by-organization basis, but the decision rules can still be instructive.)

The guidelines given here are those of the handbook, slightly modified in the light of experience with implementing the accounts.

It is proposed that the modifications included here will be incorporated into the next edition of the handbook.
to 23.21 Cooperatives are organizations freely by individuals to pursue the economic interests of their members.

The basic principles of cooperatives include: formed a. democratic control, that is, one person, one vote; b. shared identity, that is members are both owners and customers; and c. orientation to provide services to members “at cost”.
As with other institutional units, if the articles of association of a cooperative prevent it from distributing its profit, then it will be treated as an NPI; if it can distribute its profit to its members, it is not an NPI (in either the SNA or the satellite account).

23.22 Mutual societies include such organizations as mutual savings banks, savings and loan associations, mutual insurance companies, sickness and burial funds.
Mutual societies, like cooperatives, are organized by individuals seeking to improve their economic situation through collective activity.

They differ from cooperatives, however, 457 System of National Accounts in that they are mechanisms for sharing risk, either personal or property, through periodic contributions to a common fund.

Normally the depositors in mutual societies formally control their operations.
23.23 Because mutual societies operate in the commercial sphere, they fall in the financial corporations sector.

Only if their articles of association prevent them from distributing profits to their owners are they treated as NPIs in the SNA (but still within the financial corporations sector) and included within the NPI sector for the satellite account.
23.24 Self-help groups are similar to both cooperatives and mutual societies in that individuals join to accomplish goals of mutual support that would be unattainable on an individual level.

They differ from both, however, in that they are not principally engaged in commercial activities.

As a general rule, self-help groups should be treated as membership organizations and included within the non- profit sector.
and 23.25 Social ventures are enterprises organized for the purpose of employing individuals (handicapped, long-term unemployed, etc.)

who would otherwise not is considered an NPI unless it generates and distributes its surplus to owners or stockholders.

find employment.
find employment.

The enterprise training disadvantaged 23.26 Quasi-non-governmental organizations, which are found in many European countries and elsewhere, are designed to function at arm’s length from government departments, thus avoiding direct political control.

To the extent that they are truly self-governing entities, they are appropriately considered part of the non-profit sector, even if they exercise the limited authority delegated to them by government agencies.
or institutions 23.27 Universities, like other institutions, can be either NPIs, public corporations.

Differentiating NPIs from public institutions is especially difficult since both may receive significant amounts of government support, either directly or indirectly, and since even public institutions may have a significant degree of autonomy.

The key, therefore, is whether the institution is for-profit clearly self-governing and not part of the government’s administrative system.
Educational institutions that are NPIs will have their own self-perpetuating boards that can determine all facets of organizational operations, without approval by government officials, and that can cease their operations without the approval of government authorities.

Public educational institutions will have boards selected in significant part by government officials or agencies and lack the power to cease operations without an act of the government.
23.28 Hospitals, like educational institutions, can also be either NPIs, public institutions or for-profit corporations.

The same rules that apply to educational institutions also apply to hospitals.

23.29 Indigenous or territorial groups, such as “band councils” in Canada (a form of First Nation government) and peasant or native communities in Peru, are organized around either cultural or ethnic groupings or a particular geographic area, mainly with the purpose of improving the welfare of their members.
The difficulty arises when such groups essentially operate as local governments, often making and enforcing their own laws.

When that is the case, the groups do not meet the “institutionally separate from government” criterion and fall outside the boundaries of the NPI satellite account.

4.

Classification of NPIs 23.30 NPIs can be classified according to the activity they undertake or the purpose for which they are envisaged.

In terms of activity, the normal classification to be used would be ISIC.
Because the detail available in ISIC, Rev.

3 for many of the social services covered by NPI was not sufficient, an elaboration of the basic ISIC codes was developed for use in conjunction with the NPI satellite account.

This classification is known as the International Classification of Non-Profit Organizations (ICNPO).

Similarly some elaboration of the classification of NPIs by purpose (COPNI) was developed.

In ISIC, Rev.
In ISIC, Rev.

4, however, an alternative aggregation for data reporting for non-profit institutions is given in part four, section D. The twelve main headings of interest are shown in table 23.1.

Table 23.1:ICNPO groups Culture and recreation Education and research Health Social services Environment Development and housing Law, advocacy and politics Philanthropic intermediaries and voluntarism promotion International Religion Business and professional associations, unions Not elsewhere classified Group 1.
2.

3.

4.

5.

6 7.

8.

9.

10.

11.

12.

458 Non-profit institutions C. Accounts for non-profit institutions in the satellite account 23.31 The first set of accounts prepared in the satellite account corresponds exactly to those in the SNA sequence of accounts.

Indeed this can be seen as a simple aggregation across the subsectors for NPIs in the corporations sectors plus NPISHs.

NPIs in the general government sector are excluded from the satellite account as noted above.
value is placed on this, it may exceed the value of monetary donations to some NPIs.

In the satellite account, it is recommended that the value of voluntary labour is estimated on the basis of the remuneration rates of employees undertaking similar work and not at the opportunity cost of the volunteers.
23.32 The second version of the accounts is to consider those NPIs that provide services at economically significant prices but where the sales of their output bring in revenue that is significant but less than the whole of their costs.

Two possible scenarios exist.

The first is that the enterprise undertakes different types of activities, some on a market basis and some on a non-market basis but with the market basis activities predominating.
Although the two types of activity cannot be allocated to separate institutional units, separate establishments for each can be distinguished.

In principle, the production account of the establishments undertaking market activities should be compiled as normal but the non-market account establishments should be based on the sum of costs.

The value of this output should be treated as distributed to households as social transfers in kind and added to household actual final consumption.
the production for 23.33 The second possibility is that only one sort of activity is undertaken but the sales cover a large part of the costs with the balance being made up of donations.

The donations are treated in the SNA as current transfers (any donations designated for capital purposes being treated as capital transfers).

The satellite account treats these donations as analogous to subsidies and so measures the value of the output as the total sum of costs.
In this case, the excess of output measured in this way over the proceeds from sales is treated as non-market output, social transfers in kind and part of actual consumption of households.

23.34 The third variant on the accounts builds on the second version of the accounts by also including an estimate of the value of volunteer labour used in the NPIs.

Volunteer labour constitutes a significant input to many NPIs.
If a 23.35 Work is proceeding on the measurement of volunteer labour in the context of a satellite account.

A draft Manual on the Measurement of Volunteer Work (International Labour Organization, forthcoming) was presented to the ICLS in December 2008.

23.36 The cost of the volunteer labour is treated as both part of compensation of employees and as a transfer back from these employees to the NPI where they work.
The value of the output of the NPI, and the amount treated as social transfers in kind, is increased over the amount in the second version of the accounts by the estimated value of the volunteer labour.

23.37 The satellite account includes other tables apart from the sequence of accounts.

One of these is to show details of revenue received with a breakdown by sector of origin and type of transaction.
In particular, it is recommended to distinguish revenue coming from government split between sales and grants, and that coming from the rest of the domestic economy split between private sales and current transfers (donations).

Where possible both sales and transfers should be separated into those coming from the domestic economy and from the rest of the world.
23.38 Another table includes information in physical units such as the number of employees, number of volunteers, number of entities and number of members of the organization.

In addition some information is given on the financial account and the assets held by the NPI.

23.39 Fully annotated descriptions of the tables are included in the handbook on the satellite account.

D. Other SNA considerations concerning NPIs 1.


NPISHs and government 23.40 In some countries, NPISHs take responsibility for the provision of specific services to households that the government does not see as part of its role to provide.

In others, especially developing countries, NPISHs may provide services government would like to provide but simply does not have sufficient resources to do so.

This becomes very clear following a natural disaster when NPISHs may be very active in relief work.
23.41 Whether the unit undertaking the work is resident or not will depend on the normal rules concerning residence.

Quick response actions that do not lead to long-term involvement in the country being assisted will be regarded as non-resident with the production being recorded in the home countries of the units giving assistance and the assistance itself being shown as imports of goods and services funded by transfers.
If the assistance extends beyond one year, the unit providing the assistance will be regarded as resident and a unit in the NPISH sector of the country receiving the assistance.

In circumstances where international relief is important, it may be helpful to identify NPISHs subject to foreign control separately from other NPISHs and to identify donations from abroad for all NPISHs.

459 System of National Accounts 2.


Informal and temporary NPISHs 23.42 Quite frequently, a number of households may get together to pool resources of knowledge and volunteer labour to serve their local community.

This could include teaching in informal schools, offering medical assistance or the construction of roads, a well, a school building, etc.

When only services are provided on the basis of volunteer labour, no value for the output of the activity is recorded in the SNA.
23.43 When physical structures result, the activity is included in the production boundary.

The value of the output is estimated by comparison with similar products elsewhere in the economy or, when it has to be estimated at the sum of costs, an estimate is made for the implicit value of the labour input.

This labour input is treated as gross mixed income accruing to households who then are assumed to “purchase” the product.
In fact they may then transfer the product to another unit, often government, for maintenance.

However, the recommendation in the SNA, as described in paragraph 4.168, is that such organizations should be treated as informal partnerships rather than as NPISHs.
23.44 If a group of households cooperates to produce goods for sale, even if the objective is still to be able to pay for work on a communal asset, this is not treated as a non-profit institution but as an unincorporated enterprise in the household sector.

23.45 Many small groups of individuals or households may exist as a practical means of allocating shared costs.
These may be as simple as a “coffee club” at the workplace or may be a more formal arrangement whereby the costs of common services provided to all tenants in a block of flats are shared equitably.

Such groups are practical rather than economic.

They are not treated as NPIs and their activities are not recorded in the SNA.

Such costs as they incur should be recorded as paid by the units to which the costs are eventually allocated.
23.46 In the case of microfinance, the unit providing the service is most likely to be either a corporation or an unincorporated enterprise.

Even though the owner of the enterprise may not keep the profits but uses them to generate new loans, this does not automatically make the unit an NPI.

The definition of an NPI is not that the owners choose not to withdraw profits but that they are not legally entitled to do so.
23.47 In practice it may be difficult to compile information on the results are sufficiently informal NPISHs unless important to come to general attention.

3.

The output of NPISHs 23.48 NPISHs produce goods and services, but typically services, that are provided to individual households free or at prices that are not economically significant.

However it is possible conceptually for an NPISH to provide collective services.
An example may be a well-financed institution that engages in research and development but makes its results freely available.

Such an institution is engaged in non-market production but, because it is not controlled by government, it falls in the NPISH sector.

The value of its output is treated as final consumption expenditure and actual final consumption by the NPISH itself.
23.49 The services provided by non-profit institutions serving households are not only very similar to those provided by government.

They present much the same difficulties of measuring their output and of selecting suitable price indices for deflating output to volume terms.

460 Chapter 24: The households sector A.

Introduction 24.1 24.2 24.3 24.4 24.5 The economy functions because people want goods and services and are prepared to work to obtain them.
At the most basic level there is subsistence activity where people work to grow food to eat.

Any sort of development gives opportunities to earn money by working for others and using it to buy goods and services different from those one’s labour has created.

these In addition society recognizes that some individuals cannot participate in the economy in this way and so makes transfers available to the young, the old and the sick, for example.
Often transfers are undertaken by government which redistributes income on behalf of the community at large.

In addition, transfers may be made by non-profit institutions or by extended family members, or others, based on traditional and cultural norms.

Some individuals do not spend all their income but use some to acquire wealth.

Lastly there is income arising from the ownership of wealth.
At its simplest, wealth is due to the accumulation of income earned in earlier periods (possibly generations earlier).

Wealth gives rise to income because others wish to make use of it and pay to do so.

In the SNA such payments are called property income.

Like income, wealth may be transferred from one owner to another.

The SNA gives a clear and full accounting of all income accruing to households in the period itemized by type of income.
It also accounts clearly for how this income is spent on goods and services, transferred to others or used to acquire more wealth.

However, while the sequence of accounts ensures that the accounts of all households are balanced it does not show how this balance is achieved for subsets of households.

This chapter is about how to use information from the SNA on the households sector in conjunction with other data sources to investigate the behaviour of households in greater detail.
The focus here is on how income is used, how the patterns of income and use vary across subsectors and about the links between income and wealth at a detailed level.

Such a focus is of both analytical and policy interest.

It is a quite different view of economic behaviour from the predominant view of the SNA which is how income is generated.

1.
1.

Unincorporated enterprises 24.6 All households undertake final consumption and all to a greater or lesser extent undertake accumulation but a household does not necessarily undertake production.

To the extent possible, the production activities within households are treated as quasi-corporations, included in one of the corporations sectors and separated from the rest of the household.
However, as explained in paragraphs 4.155 to 4.157 a quasi-corporation can only be created when a full set of accounts, including balance sheet entries and information about withdrawals of income from the quasi-corporation, is available.
Very frequently, and especially so in the case of a professional working alone, there may be complete information available on the production activities but it may not be possible to separate out other income flows, transfers and financial transactions relating to the production activity from those for the household in general.

In this case as well as in ones where even is incomplete, an unincorporated enterprise remains as part of the household.
the production activity information on the 24.7 24.8 Even when a quasi-corporation can be created and removed from the rest of the household accounts, the household may still include an unincorporated enterprise relating to other activity.

For example, within a given household one person may be able to separate off the activities repairing vehicles but another may not be able to separate the activities providing food for sale from the rest of the household activities.
Moreover, many households without any other unincorporated production enterprises providing housing services from owner- occupied dwellings and from employing domestic staff.

activities will contain Just as there may be production undertaken within the households sector, there may be people providing labour to these unincorporated enterprises.
Members of the household who work in the unincorporated enterprise are called self-employed and their remuneration is termed mixed income rather than compensation of employees.

Individuals who are not members of the household who are employed in an unincorporated enterprise are employees.

It is possible but not always likely that the enterprise pays for social security for these people.

It is possible but even less likely that the household may offer other social insurance benefits to their employees.
24.9 There is further discussion about employment within households in chapters 19 and 25.

461 System of National Accounts 2.

The problems associated with subsectoring households 24.10 The difficulty in disaggregating the households sector arises for a number of reasons.

a.

The first is that income is earned by individuals but consumption is undertaken by households.

b.
b.

The second is that it is difficult to find a basis for subsectoring households such that the households in each subsector behave in a similar fashion to one another.

Even if their income patterns are broadly similar, their expenditure patterns may differ according to the number and age of the members of the households.

Grouping by the latter may give no similarity in the level of income.

income c. The third reason concerns the source of data on household expenditure.
Typically, and information on corporations comes from establishment surveys and information on government comes from administrative sources.

These sources are fairly comprehensive and are in large part the only source, or B.

Household composition and sectoring 1.

Definition of a household.

24.12 It is useful to begin by recalling the definition of the household given in paragraphs 4.149 to 4.157.
A household is defined as a group of persons who share the same living accommodation, who pool some, or all, of their income and wealth and who consume certain types of goods and services collectively, mainly housing and food.

In general, each member of a household should have some claim upon the collective resources of the household.

At least some decisions affecting consumption or other economic activities must be taken for the household as a whole.
24.13 Households often coincide with families, but members of the same household do not necessarily have to belong to the same family so long as there is some sharing of resources and consumption.

Households may be of any size and take a wide variety of different forms in different societies or cultures depending on tradition, religion, education, climate, geography, history and other socio-economic factors.
The definition of a household that is adopted by survey statisticians familiar with the socio-economic conditions within a given country is likely to approximate closely to the concept of a household as defined in the SNA, although survey statisticians may add more precise, or operational, criteria within a particular country.

24.14 Domestic staff who live on the same premises as their employer do not form part of their employer’s household even though they may be provided with accommodation in kind.
Paid domestic and meals as remuneration 462 at least the primary source, for the data to feed into the SNA.

Data for households comes from household income and expenditure surveys but these surveys are based on smaller samples, may be less frequent than establishment surveys and the data from them may be difficult to reconcile with the totals for income and expenditure the accounting constraints in the SNA.

that emerge from 3.
that emerge from 3.

Structure of the chapter 24.11 The households sector may be viewed in a number of different ways depending on whether the interest is primarily on what sort of production households undertake, what sort of income they earn or what patterns of these different consumption are portrayed.

Given perspectives, it is not easy to come up with a single definitive set of subsectors for households.

The conceptual and practical reasons for the difficulties are reviewed in section B.
A review of possible subsectors is given in section C. The next three sections (D, E and F) in turn look at households as producers, households as consumers and household income.

The last section, section G looks at household wealth and associated income flows.

employees have no claim upon the collective resources of their employers’ households and the accommodation and food they consume are not included with their employers’ treated as consumption.
They should belonging to separate households from their employers.

therefore be 24.15 Persons living permanently in an institution, or who may be expected to reside in an institution for a very long, or indefinite, period of time are treated as belonging to a single institutional household when they have little or no autonomy of action or decision in economic matters.

Some examples of persons belonging to institutional households are the following: a.
Members of religious orders living in monasteries, convents or similar institutions; b.

Long-term patients in hospitals, including mental hospitals; c. Prisoners serving long sentences; d. Old persons living permanently in retirement homes.
24.16 On the other hand, persons who enter hospitals, clinics, similar religious convalescent homes, institutions for short periods, who attend residential schools, colleges or universities, or who serve short prison sentences should be treated as members of the individual households to which they normally belong.

retreats, or 2.
retreats, or 2.

Residence 24.17 All households are resident in the economy but of increasing interest is the phenomenon of a person abroad, often but not necessarily a family member, who remits significant amounts to the family in the domestic economy.

(The same phenomenon also exists within a country, between urban and rural areas, for example.)
The aspect of people moving abroad in response to better employment prospects may be seen as another facet of globalization and one that deserves to be monitored.

The households sector household surveys may sometimes reveal errors in industry data or vice versa it is more problematical to take information from household surveys on, say, expenditure patterns of one group of households and suppose all other members of the group behave in the same way.
For this reason a household income and expenditure survey is often reported as a freestanding exercise and integration with the national accounts totals is not as frequently part of compiling the full set of national accounts as is the case with establishment surveys.

In order to explore why this may be so, it is useful to look briefly at some of the problems experienced with household surveys.

3.

Determining subsectors 4.


Household surveys 24.18 As noted in the the difficulty in introduction, disaggregating the households sector arises for a number of reasons.

The first is that income is earned by individuals but consumption is undertaken by households.

While all households contain all individuals, it is very difficult to associate particular income recipients with particular household groups.
It is possible to have one table showing the types of income earned and the types of individuals receiving them.

It is also possible to have a table of types of households and the pattern of household consumption of each.

Only in the highly stylized situation of one income earner only per household (and only one source of income) can the type of income be matched with the type of household and even then only if households are categorized according to the type of income.
The problem could be compared to that of the supply and use tables but whereas it is possible to establish which industries make which relationship between products, individuals as income recipients and the household to which they belong when households are grouped by any criterion other than main income source.
is no natural there 24.19 The problem of trying to link income flows from the SNA with a desirable set of household characteristics is one of the most difficult aspects of building a social accounting matrix.

Very often it is necessary to revert to modelling to reconcile income related to individuals to consumption related to households.

24.20 The second problem is related to the homogeneity of households.
Various criteria may be used to disaggregate the sector (discussed in section C) but whatever criterion is used it is difficult to assert that the behaviour of the sample is typical of the whole.

This is a difficulty not normally encountered in industrial classifications and surveys.

For example, if a survey covers 50 per cent of firms in a given industry it is probably reasonable to suppose that the pattern of expenditure is typical of the whole.
If an enterprise doubles its turnover, the level of intermediate consumption will probably approximately double but its composition may not alter significantly.

Such assumptions are very suspect in the case of household groups.

This is another area where it may be difficult to use a social accounting matrix for analysis without having further recourse to modelling, this time to determine how groups of households react to different stimuli.
24.21 The information for the corporations sectors derives from surveys.

The household aggregates of income and expenditure are known from the accounting identities in the sequence of accounts.

While it is true that information from 24.22 Any attempt to disaggregate the households sector is likely to be dependent on a household income and expenditure survey.

The conventions adopted by survey statisticians and those of national accountants are not always the same.
A household expenditure survey for example may not include estimates of imputed rental of owner-occupied dwellings or own account production.

It may measure income after tax and measure expenditure on a cash and not on an accrual basis.

Various publications have been prepared such differences and make recommendations on how to reconcile survey data with national accounts requirements.
Particularly relevant is the Final Report and Recommendations of the Expert Group on Household Income Statistics (Canberra group, 2001) and Household Income and Expenditure (International Labour Organization, 2003).

to examine 24.23 A major problem with household surveys is that it is very common for respondents to underestimate or underreport their income.

This may be deliberate or may simply be a lack of understanding of what should be included or simple forgetfulness.
24.24 Similarly some if a survey asks items of consumption are regularly underreported, most notably expenditure on alcohol and tobacco.

On the other hand, consumption of some items is over-reported.

For example, for expenditure on durables based on the recall of the respondent of what has been spent over the last two or three years, people often underestimate how long it is since purchases were made and will report more expenditure in this period the case.
This phenomenon does not only apply to very large items of expenditure; it is reported that household surveys have suggested that the purchase of toothbrushes, for example, is many times higher than in the sales reported by shops.

than has actually been 24.25 The problem of non-response is a concern in household surveys since it is quite likely that some of the households that refuse to respond have income and expenditure patterns that are different from respondents.
For example people with incomes arising from illegal activities may be very reluctant to supply information and may choose not to participate in the survey.

Similarly it is common for households at the very top and very bottom of the distribution to be omitted from the survey either by design or on the grounds of practicality.

24.26 Household surveys may be designed investigate particular phenomena that are not necessarily the primary to 463 System of National Accounts interest for national accounts.
For example, they may be restricted to low income earners in urban areas.

While this information is highly valuable and useful it is not sufficient to produce aggregate figures for national accounts.

Sometimes even if the coverage is more comprehensive, the sample size may not be such as to allow disaggregation along the lines desirable within the national accounts.
It is important to realize that a desired pattern of subsectoring should be determined before the survey is undertaken to ensure the desired characteristics will be adequately represented in the survey sample.

C. Subsectoring households 1.

The production perspective 24.27 A first consideration is to investigate the possibility of subsectoring households according to their involvement in production.
This may be done following the pattern shown in chapter 25 to identify informal and other production activity undertaken by households.

24.28 The first division is to separate institutional households and those households that do encompass an unincorporated enterprise from those that do not.

Thereafter it is straightforward to identify those households whose only productive activity is connected with the owner occupation of houses or the employment of domestic staff.
The households that are left may be further divided between those that employ staff to work in their unincorporated enterprises and those that do not.

As described in the chapter on the informal sector, when proceeding along these lines it is sometimes desirable to identify the type of activity of an unincorporated enterprise, in particular identifying agricultural activity separately from other types of activity.
24.29 Within the SNA, all household enterprises that can be treated as quasi-corporations because they have complete sets of accounts showing their ownership of assets (separately from those of the household to which they belong) and the withdrawal of income to their owners are classified in one of the corporations sectors.
The number of household enterprises that can be treated as quasi- corporations, and thus removed from the households sector, varies considerably from country to country depending on the availability of accounting information and the resources available to identify such enterprises and treat them as quasi-corporations.
24.30 Although it is possible to identify households that only have owner-occupied housing as their unincorporated enterprise, in many cases other unincorporated enterprises will undertake owner occupation of their houses as well.

While from a production point of view it is possible to separate the different types of production activities, for the institutional unit as a whole it is not possible to make this separation.
24.31 In most countries, many households do not have unincorporated enterprises, so when subsectoring is done according to production undertaken by households, those without unincorporated enterprises are grouped together in these a single subsector.

The only common factor 464 households share is that they do not have an unincorporated enterprise.
Thus while subsectoring households according to production is useful in some circumstances it has its limitations in terms of identifying the role of different types of households in the economy.

2.

The consumption perspective 24.32 It is widely observed that as household income rises so the pattern of consumption changes.

The proportion of expenditure devoted to food and other necessities declines as more income is available and is devoted to more luxury goods.
Thus one approach to disaggregating households according to consumption patterns is in fact to disaggregate by level of income, assuming this captures the difference in consumption patterns.

Studies showing consumption patterns according to income deciles are quite common and give information about how patterns of consumption change as the overall level of income increases.

interesting 24.33 The question arises of how household consumption patterns may relate to incomes of individuals.
There is no obvious way to identify how recipients of income fall into one or other income decile when these deciles are calculated on a household basis.

Households with a high income may result from one very well-paid worker or from a number of middle income earners.
Further, although the production account shows total compensation of employees and it may be possible to compare this to the total number of employees, this gives no information about the distribution of income across the labour force in the enterprise.

24.34 Not all income comes from compensation of employees and the effect on total household consumption of other sources of income is equally uncertain.
24.35 Using the level of household income as a proxy for consumption patterns has some significant problems.

One possible disaggregation of households where consumption patterns might be significantly different would be according to whether the household includes children and, where it does not, whether the household is relatively young (and may be setting up home for the first time) or relatively old (where expenditure on consumer durables may be lower than for other groups).
However, here again there is no easy way to link the source of the income with the type of the household in which the income recipient resides.

The households sector 3.

The income perspective 4.

Using a reference person 24.36 A more promising approach to subsectoring appears to come from considering not the level of income but the type of income.

As proposed in chapter 4, the following scheme might be considered.
24.37 Households may be grouped into subsectors according to the nature of their largest source of income.

For this purpose, the following types of household income need to be distinguished: 24.40 Other methods of subsectoring usually require a reference person to be identified for each household.
The reference person is not necessarily the person that other members of the household regard as the “head of the household”, as the reference person should be decided on grounds of economic importance rather than age or seniority.

The reference person should normally be the person with the largest income although the reference person could also be the person who makes the major decisions with regard to the consumption of the household.

a.
a.

Income accruing the owners of household unincorporated enterprises with paid employees (employers’ mixed income); to b.

Incomes accruing the owners of household unincorporated enterprises without paid employees (own-account workers mixed income); to c. Compensation of employees; d. Property and transfer incomes.
24.38 Households are allocated to subsectors according to which of the four categories of income listed above is the largest for the household as a whole, even if it does not always account for more than half of total household income.
When more than one income of a given category is received within the same household, for example, because more the household earns compensation of employees or because more than one property or transfer income is received, the classification should be based on the total household income within each category.

The four subsectors are described as follows: than one member of a.

Employers; b. Own-account workers; c. Employees; d. Recipients of property and transfer incomes.
24.39 The fourth subsector, households for which property and transfer incomes make up the largest source of income, constitutes a heterogeneous group and it is recommended that it should be divided into three further subsectors when possible.

These subsectors are defined as follows: · Recipients of property incomes; · Recipients of pensions; · Recipients of other transfer incomes.
24.41 Once a reference person has been identified, it is possible to group households into subsectors on the basis of the reference person’s characteristics.

For example, subsectors may be defined according to: a.

Occupation of the reference person; b.

Industry, if any, in which the reference person works; c. Educational attainment of the reference person; d. Qualifications or skills possessed by the reference person.

5.
5.

The consequences of demographic change 24.42 A growing policy interest in some countries is the effect of demographic change on household well-being and the response required by government.

For example, in an ageing population, less demand for there may be educational services and more for health services.

24.43 Another concern is whether pension provision is sufficient to ensure that individuals have an adequate level of income in retirement without looking to government for income support.
A focus on such issues might suggest subsectoring households according to whether the main income earner is in work, of working age but not in work or in retirement.

Again, categorization according to the main income earner will give different results from categorizing income as a whole.

6.

Other considerations 24.44 It is possible to consider subsectoring households on quite different grounds.
Examples include the number of persons in the household, the region where the household is located, the qualifications or education level of the head of the household, the industry where the head of the household works, whether the household owns property or other assets and so on.

465 System of National Accounts D. Households as producers 1.

Households and the informal sector 24.45 In all countries, there are some production activities undertaken by households.
Many of these may be described as informal and, as described in chapter 25, measuring the extent of the informal sector and how this changes as the the economy develops gives particular extension of formal enterprises.
the market economy beyond insight into 24.46 The difficulty of separating the productive activity of a household from the rest of the institutional unit has been discussed in a number of places in earlier chapters, particularly in chapter 4, and is referred to above in discussion about the subsectors for households.

This section therefore discusses only some aspects of those productive activities that inevitably remain within the households sector.

2.
2.

Agriculture 24.47 In some countries, subsistence agriculture, or indeed the results of any agricultural production which are used entirely by those responsible for the production, is a very significant part of household consumption and by extension of GDP.

In countries where much of the staple food is grown for own consumption, and it is seasonal, it is necessary to consider whether some part of the increase in the value of the crop due to storage is part of production.
There are details of how this may be done in the annex to chapter 6.

24.48 It should be recalled that the purchaser’s price for agricultural products used for own consumption does not mean the price at the nearest local market which would include transportation costs.

The market price is the price that somebody would pay for the crops where they are grown.

This is frequently called the farm-gate price.


24.49 In principle, all fruit and vegetables grown for their own use by households with small allotments or large gardens should be included within the production boundary, even in developed countries.

In practice it is unlikely to be worth the effort of making estimates unless the amounts involved are significantly large.

3.

Housing 24.50 In almost all economies, a large number of households live in dwellings that they own.
The size of the rental market may be very small and may be confined to some areas, for example urban areas, which makes it difficult to use market rentals as a means of estimating the services provided by all owner-occupied dwellings.

In chapter 20, it is explained that in principle the rent on a capital asset can be calculated by applying a discount factor to the stock of capital at the beginning of a period, so if the value of the house is known, a figure for the services provided can be estimated.
However, this approach also is problematic in those circumstances where there are no data on the stock of capital or where there is uncertainty on the rate of return to be estimated.

For simple rural dwellings, it may be 466 necessary to calculate the cost of construction and estimate how long the building is usable without major renovation.

24.51 All dwellings require regular maintenance.


The production treats as for an owner-occupied dwelling account intermediate consumption only the goods and services necessary to undertake the sort of repairs that are typically the responsibility of the landlord in the case of rented buildings.

These may include payment to specialists in the building trade, for example plumbers or painters, and the cost of these specialists will include their compensation of employees.
However when work is undertaken by the owner himself only the cost of the materials is included in intermediate consumption with no estimate made for the value of the owner’s time spent on repairs.

In consequence, there is no compensation of employees appearing in the production account for owner-occupied dwellings.

(This may be seen to be a pragmatic convention.


If labour costs were to be imputed to the owner undertaking repairs, this would be recorded as income accruing to the household but the income from the rental on the house would be reduced by an exactly offsetting amount.)

24.52 The whole of the imputed rental less actual costs (including costs other than those relating to repairs) incurred is treated as operating surplus of the owner.
The accounts for the owner of the building show the whole of the value of the imputed rental as output, any costs incurred as intermediate consumption and the difference as gross operating surplus which is paid to the household in its capacity as the owner of the unincorporated enterprise.

In the use of income account, the full value of the rental is shown as consumption of the imputed rental of owner-occupied dwellings.
24.53 When major repairs are undertaken, these are treated as gross fixed capital formation but the same conventions apply concerning the recording of compensation of employees.

24.54 Some houses are owned by households but leased out by them.

In this case the rental paid by the tenant is the value of the output of the rental service.
The production account for the earning household shows intermediate consumption charged against this output to derive the operating surplus of the activity, which is treated as income to the owning household.

In some cases the whole of the intermediate consumption may be a service charge paid to a rental agency.

It is conceivable that occasionally the service paid to the rental agency may exceed the rental income so that the rental activity produces a loss.
For example, if a house stands empty for a time, there may still be a fee payable to the rental agency.

The earning household will often regard this as acceptable because one reason for owning a house to rent is because it is hoped a holding gain will be made on owning the house over a long period.

24.55 By convention, all the value added arising from leasing dwellings is treated as operating surplus, not mixed income.

24.56 Some houses will be owned as second homes either in the same economy or abroad.
The same principles apply as in the case of imputed rental of owner-occupied dwellings and rental services activities that come from renting out a house.

If the house is in another country, it is treated as belonging to a notional resident unit in that country.

The legal owner then has a financial claim on the notional resident unit.

The notional resident unit therefore appears to be a direct investment enterprise wholly owned by a non- resident.
However, the only asset of the unit is the value of the property and the whole of the operating surplus from renting out the house is treated as being withdrawn from the notional unit and remitted to the owner so there are no retained earnings remaining to be treated as reinvested earnings.

The households sector 4.


Domestic staff income including any in kind such as 24.59 Services provided by paid domestic staff are valued at the cost of the compensation of employees paid to those staff but free accommodation or free meals as well as any social insurance contributions that may be paid on behalf of the staff.

By convention the production account for paid domestic services consists only of this compensation of employees.
All of the products used in the performance of domestic services, such as cleaning materials and tools used, are treated as final consumption expenditure of the household.

24.57 To the extent that the house abroad is used by nationals of the economy where the legal owner is resident, the rentals should be treated as exports of services from the foreign country and imports of services to the domestic economy.
However, the operating surplus of the notional unit is remitted to the owner and appears as a property income outflow from the foreign country and inflow to the domestic economy, offsetting the flows of rental services (at least in part).

24.60 Individuals who provide paid domestic services must be members of another household.

Payments to children for performing tasks in the house are not treated as the provision of paid domestic services but simply as if the payment were a transfer within the household.
On the other hand payments to a child for babysitting a neighbour’s children should in principle be treated as domestic services but these may be too small and difficult to measure.

24.58 When a house is financed by a mortgage, in principle FISIM charges relating to interest payments on the loan should be treated as part of the intermediate consumption of the production activity associated with renting the property (either for use by the owner or by a tenant).
However, it may be difficult to identify FISIM related only to interest on the mortgage and in some cases a loan using the property as collateral may not be used to secure the property for the purpose of having a dwelling available.

In practice, if FISIM is not treated as part of the intermediate consumption of the rental activity, the operating surplus from the rental activity will be higher than otherwise but the consumption expenditure of the household will be higher by the same amount.
E. Households as consumers 1.

Consumption goods and services provided in kind 24.63 Chapter 9 describes the different concepts of consumption expenditure, actual consumption and the use of consumption goods and services.

Within the SNA, only the first two are measured and the difference between them is accounted for by social transfers in kind provided by government and NPISHs to households.
In principle it might be interesting to be able to distinguish social transfers in kind provided to children (for example most education), to the elderly (particularly health care) or perhaps on a there are considerable difficulties in working at this level of detail and so it is probable that such extra detail could be provided only in the context of a satellite account.

regional basis.
regional basis.

However, 24.61 In practice, some countries may include full-time domestic employees as members of the households, in which case a transfer within the households is recorded, even though transfers within an institutional unit are not normally recorded.

This in turn means there is an element of double counting for the household concerned with a payment to the domestic staff and the expenditure by those staff both consumption being expenditure.
the household’s included in 24.62 In chapter 29 there is discussion of the possibility of extending the production boundary within the context of a satellite account to include all domestic services, including those that are not performed in return for payment.

24.64 In principle, transfers in kind between households should be recorded in the SNA.

However, if there are no subsectors of the households sector, such transfers will not appear in the accounts when they occur between resident households.
On the other hand transfers in kind between resident and non-resident households may be quite significant and should be captured through information on remittances in the balance of payments data.
Practical considerations are described in International Transactions for Compilers and Users in Remittances: Guide (International Monetary Fund, 2008b) ) 24.65 When there is a significant amount of consumption represented by own account production, income in kind, barter or transfers in kind it would be useful to itemize the distinction by households in kind from consumption purchased in the market place.

consumption expenditure between 467 System of National Accounts 2.

Expenditure by tourists 3.


Consumption expenditure by type of product 24.66 Most data sources for household consumption from the supply side are not able to distinguish whether purchases are made by resident households or by non-resident households.

Equally, the same sources will not reveal purchases made abroad by resident households.
These two items are often of a sufficiently significant size that it is important that they be estimated both for the impact on the balance of payments and in order to ensure that the supply and use table can be adequately balanced.

Further consideration of expenditure by tourists is discussed in chapter 29 in the context of a tourism satellite account.

24.67 Most household surveys itemize consumption according to the purposes it is intended to serve: food, housing, etc.
This type of breakdown is the one used in the Classification Of Individual COnsumption by Purpose (COICOP).

For inclusion in the supply and use table, and indeed for other analyses, it is useful to prepare a table showing the cross classification of consumption by purpose and by type of product.
This is useful not only in terms of providing the information for the supply and use tables but also in examining the information used to compile consumer price indices, which in turn are used to deflate consumption expenditure.

If the data permit, it may also be useful to look at the composition of consumption expenditure by type of household with a view to calculating consumer price indices for different groups of households, for example for the elderly or for those with young children.
F. Household income 24.68 It is a well-established phenomenon in all countries that income is distributed unevenly and in a very skewed manner.

Very many people have income significantly below the average or median income and very few people have extremely large incomes.

A poverty line is sometimes quoted as half the median income but an income of twice the median does not imply great wealth; the wealthiest individuals in an economy may have incomes many times larger than the average or median income.
24.69 The reason that the sequence of accounts is important is that it gives a picture of how income is distributed and redistributed either compulsorily via taxes and benefits or voluntarily via transfers or because of ownership of financial or other assets (property income).
In order to examine whether the process of distribution and redistribution of income significantly changes the overall distribution of income in the economy it is necessary to be able to show the flows between different groups of households.

As noted in the introduction, it is difficult to income from one particular source allocate to one is not than another.

This household group rather straightforward and not a standard part of the SNA.
However, it is straightforward to provide more information to analysts on the type of household income than the total contained in the standard sequence of accounts.

As far as value added is concerned, it may be possible to distinguish compensation of employees paid by individual industries or perhaps according to level of education or by region.

Mixed income can similarly be distinguished.


Consumption of fixed capital should be separated between that due to owner-occupied dwellings and that relating to other assets of unincorporated enterprises.

24.70 The standard accounts contain information on transfers in the form of taxes paid and social insurance contributions and benefits split between pensions and other benefits.
In some countries it is especially relevant to show personal remittances from abroad to demonstrate the impact on the domestic economy of those with strong ties to economies abroad.

For countries with a large migrant population it may be similarly useful to identify the corresponding outflows and their destination.
24.71 Within property income it is useful to distinguish those flows that place resources at the disposal of the recipients from those where the receipts are already precommitted as saving, for example, pension entitlements, property income on life insurance and interest that derives from the increase in the value of bonds.

It should be noted that it is particularly useful to identify the withdrawal of income from quasi-corporations if there are many household enterprises treated as quasi-corporations.
24.72 It may be useful to identify and show separately income in kind of all types, such as wages and salaries in kind and transfers in kind, and then derive a total excluding both these and the precommitted saving which might be called discretionary income.

G. Household wealth and associated income flows 1.

Household balance sheets 24.73 For many households, their main assets are their land, houses and accumulated pension entitlements.

Where they exist, claims on enterprises may also be significant.
Investment in financial assets outside pension funds may 468 also be important in some countries.

However, set against the assets must be the liabilities of the households, including the loans involved in mortgages and other financial liabilities and, for example, credit card or other debt.

24.74 For households including an unincorporated enterprise other than owner-occupied dwellings, there may be other fixed assets recorded on the balance sheet but these tend to be small relative to housing.

2.
2.

Family trusts corporations 24.75 Family trusts are owned by households, though some trusts may be owned by a number of households collectively possibly including non-resident households.

Trusts may be set up to protect wealth until a beneficiary comes of age or meets another criterion, they may be set up to preserve family estates and so on.

The SNA recommends that trusts should be treated as quasi-corporations and included in the financial financial institutions.
However the trusts must have liabilities to the beneficiaries sufficient to reduce their net worth to zero.

In compiling the balance sheet for the households sector, the value of the assets corresponding to the liabilities due to resident households must be included.
Where family trusts are important and when household wealth is the subject of interest, it may be useful to introduce a supplementary heading under other equity owned by households to show the value of trusts separately from the equity of other quasi- corporations such as partnerships.

sector as captive 3.

The distribution of wealth 24.76 Increasing interest is being shown in conducting surveys of household wealth along lines similar to surveys of household income and expenditure.
Again the interest is to look at a disaggregation of the households sector to discover the composition of household wealth and its relation to household income.

24.77 In general the distribution of wealth is even more strongly skewed than income.

A family where the main earners are in mid career may have a comfortable level of income and occupy their own house but still have a considerable mortgage and may not yet have built up significant pension reserves.

4.
4.

Pension considerations 24.78 There is a question about whether the rundown of wealth post retirement should be recorded as income or as dis- saving.

The households sector 24.79 By treating pension schemes as social insurance schemes, pension benefits are shown as current transfers, and thus income, rather than as a run-down of saving.
If a pension scheme is not treated in this way, though, there is still income accruing to the pension beneficiary in the form of the property income payable on the pension entitlements.

For a defined benefit scheme, this property income represents the unwinding of the discount factor on future entitlements.

The decrease in the entitlements is equal to the difference between the benefits payable and this property income, similar to the position for an annuity explained at the end of part 1 of chapter 17.
24.80 To the extent that the value of the pension as a form of wealth is based on the net present value of future income flows, pension receipts can be partitioned into the rundown of savings and income accruing.

In cases where there are no pension entitlements, a household with a significant level of financial assets is still likely to receive significant property income, though the mix of property income and holding gains and losses will depend on the investment strategy of the household concerned.
24.81 For a household where one or more of the members is building a pension, significant income will accrue each year but this is not accessible to the household to spend.

It must be accumulated to fund future pension entitlements and thus shows as an increase in wealth.
24.82 It is possible to construct an asset account for pension entitlements showing the start of year level of entitlements, increments due to work done in the year, increases due to the fact that retirement has become a year nearer (the unwinding of a discount factor) and other changes such as an allowance for inflation, less decreases due to pension payments or other changes that reduce entitlements.

5.
5.

Consumer durables interest 24.83 Within the SNA, consumer durables are not treated as a form of wealth but as a form of expenditure.

However, there may be considerable in having a memorandum item in the balance sheets to show the worth of consumer durables.
The acquisition of durables may well be cyclical and there is interest in a satellite account that would replace the purchase of consumer durables as current expenditure by figures for the flow of services provided from the same items treated as fixed capital.

This is discussed further in chapter 29.

469 System of National Accounts 470 Chapter 25: Informal aspects of the economy A.

Introduction 25.1 No economy is completely regulated and captured perfectly by statistical enquiries.
Steps have to be taken, therefore, to to cover unregulated activity and survey attempt imperfections as special exercises.

There are two approaches that, although they share a lot of common ground, are directed towards two rather different goals.

The first is to ensure that all activities including those that may be described as “hidden” or “underground” are encompassed in measures of total activity.
The second is to define what is meant by the subset of economic units that can be considered “informal” and to measure this.

25.5 The rationale for the first activity is obvious; to have a view of the economy as a whole that is as complete as possible and as comparable over time and across countries as possible.
The part of the economy difficult to measure has become known as the Non-Observed Economy (NOE) and several publications have been dedicated to measuring it, notably the Non-Observed Economy (Organisation for Economic Co-operation and Development, International Monetary Fund, International Labour Organisation and CIS STAT (2002).

As the techniques in the handbook make clear, a specific measure of the NOE is not important in itself.
Attention focuses on ensuring that the measurement of total activity is complete or “exhaustive”.

the handbook Measuring the second alternative recognizes The analytical importance, especially in developing countries, of being able to measure that part of the economy that reflects the efforts of people without formal jobs to engage in some form of monetary economic activity.

This part of the economy has become known as the informal sector.
It is by estimating the size of the informal sector that it becomes possible to assess how far the benefits of development reach, for example, people living on the street or in shanty towns.

Those supporting the second approach do not deny the importance of the comprehensive measure of the economy but for them this is not sufficient.

Despite the difficulty of doing so, attempts must be made to identify and measure an informal sector.
25.2 25.3 25.4 size of the three segments in figure 25.1 will vary from country to country.

to relate Efforts to cover the NOE ensure that all enterprises are covered in statistical estimates even if not covered by statistical enquiries.

Some of the supplementary estimates those activities of household may well unincorporated enterprises considered to be informal (in this chapter called informal enterprises) but some will relate to large enterprises, not regarded as informal.
In addition, the NOE aims to cover misreporting in large enterprises, whether this is inadvertent or deliberate.

The NOE thus covers some activity by informal enterprises but also information for some formal enterprises.

25.6 Within the informal sector, some information may be captured statistically.

Consider a household that lets rooms to visitors for one or several nights.
The activity cannot be treated as a quasi-corporation because it is impossible to make a clear separation of costs from regular household costs and to partition that fraction of the house treated as an asset associated with the letting of rooms from its main function as a family home.

However, the value of the letting activity may be captured in a survey directed at tourism activities, for example.

25.7 Other examples might be considered.


Street traders or taxidrivers may be both not observed and informal.

A vehicle repair shop with 5-10 employees may be formal but too small to be covered by statistical enquiries and therefore not observed.

Teaching assistants may be informal but observed.

The situation is complicated by the Figure 25.1:The non-observed economy and the informal sector Not observed, not informal Observed, inform al There is a large overlap between both concerns.
However, while the NOE and the informal sector overlap, neither is a complete subset of the other.

This can be seen in figure 25.1.

The solid circle represents the non-observed economy and the dotted circle the informal sector.

Thus the overlap consists of activities that are not observed and undertaken informally but there are some activities that are not observed but are not undertaken informally and some that are undertaken informally but are observed.
The relative Not observed and informal 471 System of National Accounts fact that street traders, taxi drivers, vehicle repair shops and teaching assistants may be formal in some countries and informal in others, just as they may be observed in some and not in others.

2.

Structure of the chapter 25.11 Section B looks at the characteristics of production units to try to identify the characteristics significant for the non- observed economy, the informal sector or both.
25.8 It should be noted that all countries have both non-observed parts of their economies and informal enterprises though the scale of each and the policy interest in identifying the latter may vary.

25.12 In the context of compiling national accounts, much attention focuses on the non-observed economy.

This topic is addressed briefly in section C. 1.


The policy interest in measuring activity undertaken by informal enterprises 25.9 Production in the informal economy appears in different ways in different countries.

When the motivation is a pure survival strategy or a desire for flexible work arrangements, it is likely to be encouraged.

However, when the motivation is to avoid taxes and regulations, or to engage in illegal activities, efforts are likely to be made to curtail these.
Most kinds of production activities may be undertaken by an informal unit.

These units may operate without a fixed location, or in homes, small shops or workshops.

The activities covered range from street vending, shoe shining and other activities that require little or no capital and skills to activities that involve a certain amount of investment or level of expertise such as tailoring, car repair and professional services.
Many informal enterprises are operated by an individual working alone, as a self- employed entrepreneur (own-account worker), or with the help of unpaid family members, while other informal unincorporated enterprises may engage paid workers.

25.10 The size and significance of production undertaken by informal enterprises depends on the social structures, national and local economic regulations, and enforcement efforts of a given country.
The level of policy interest varies from country to country depending on the type of activity and magnitude of it.

The size, registration and other characteristics of the production units involved are key variables to encourage or discourage certain modes of production or enlarge the scope of the formal economy by recognizing units operating below previous thresholds.
Specific social support and assistance programmes may be designed and monitored to see how far they support goals such as increased production, job creation and security, poverty reduction and the empowerment of women.
in determining whether 25.13 The International Labour Organization (ILO), in adopting a resolution of the International Conference of Labour Statisticians (ICLS), has been instrumental in establishing a concept of an informal sector to identify a set of production units within the SNA households sector that are particularly relevant for policy analysis and formulation, especially in many developing countries and countries in transition.
This work addresses the question of how the market economy is penetrating areas outside the formal parts of the economy.

This topic is addressed in sections D and E. 25.14 The ILO work is pragmatic in realizing that it is very difficult to establish a definition of the informal sector that is strictly comparable across countries given the difference in the structure of micro and small enterprises, the national legislation covering registration of enterprises and the labour laws.
An Expert Group on Informal Sector Statistics (known as the Delhi Group) was set up in 1997 to address, among other issues, both the conceptual and operational aspects of the ILO definition.

Work of the Delhi Group is reported in section F. 25.15 Section G discusses the borderline of units that might be regarded as informal but in practice are not recorded in the households sector, as well as some activities in the households sector that are not regarded as informal.
It goes on to indicate how data matching the concepts of the informal sector may be derived from the SNA accounts.

this by discussing some 25.16 Section H complements to collecting data on activities approaches relating undertaken by informal enterprises and on informal employment.

25.17 The interest in the informal sector has led to the production of a number of handbooks and studies of current practices.
It is impossible to report these in depth in this chapter but section I gives a brief description of some of these and indicates where they may be consulted.

B. Characteristics of units acting informally 25.18 As noted in the introduction, it is not straightforward to define what is meant by the adjective “informal”.

Is the description one of the nature of activities, the way in which they are carried out, or the way in which they are captured in statistical enquiries?
In order to try to formulate a precise delineation of what is the subject of interest, a number of potential characteristics can be listed of what characteristics the word “informal” might be intended to convey.

Although different commentators place more emphasis on some criteria and some on others, there is broad agreement that no single criterion on its own is sufficient to determine what is meant by informal; several criteria must be considered.
25.19 Two questions need to be kept in mind when considering each possible criterion: 472 a. is this really central to the definition of activity undertaken by a unit considered to be an informal enterprise, and b. is it the basis for reaching a definition that will yield internationally comparable results?

25.20 Registration.

One interpretation of what is informal is whatever is not registered with some arm of government.

The problems with this criterion are obvious.


Different countries have different practices on registration.

Some may insist that all activities, however small and casual, should be registered; others may be more pragmatic and require activities to be registered only when their turnover exceeds a given amount or when the number of employees exceeds a given number.
Further, whatever the official requirements for registration, the degree of compliance with the requirements will vary according to the extent to which they are enforced in practice.

A definition of the informal sector based on registration is therefore not going comparability or, possibly, to give comparability over the requirements for registration or degree of compliance with the requirements vary.

time within a country international if 25.21 Legal incorporation.
Closely related to the characteristic of registration is one of legal incorporation.

It is the case that all legally incorporated enterprises are treated in the SNA as falling into one of the corporations sectors but these include quasi-corporations.

A quasi- sectors also corporation is defined in the SNA as a unit where either a full set of accounts, including the balance sheet, is available or can be drawn up.
In this way some units that the owners choose not to incorporate (in many cases quite legitimately) are treated in the SNA as if they are incorporated but having a full set of accounts is a fairly stringent requirement.

Some units may have very detailed information about their production activities but not about other accounts.

Thus they cannot be treated as quasi- corporations and excluded from the households sector despite appearing to be “formal” in terms of the nature of their activity.
Examples where this may happen include doctors, lawyers, engineering consultants and many other professions.

In addition to the statistical restriction on treating production activities as if they are undertaken by incorporated units, requiring or permitting incorporation vary from country to country thus limiting international comparability.

laws 25.22 Size.
laws 25.22 Size.

Faced with this variation of statistical and administrative practices, one possibility for identifying informal enterprises might be to rely simply on the size of the enterprise, defined either in terms of turnover or number of employees.

The problem with turnover is again the potential variability across countries and over time.
Using a maximum number of employees to identify informal enterprises would result in some units with full accounts, and thus allocated to the corporations sectors, being identified as informal and some units in the households sector without a full set of accounts as formal.

25.23 Covered by statistical surveys.


The coverage of statistical surveys, varies surveys, particularly establishment Informal aspects of the economy considerably from country to country and also from industry to industry within a country.

Often small-scale enterprises are excluded because the statistical office considers the cost of collecting information from such units is too expensive considering the proportion of output they account for and the potential for inaccuracies in the reported data.
However, there may be a “grossing up” procedure to allow for the non-coverage of the smaller units.

In such a case, the production activities of these units are likely to appear attributed to the corporations sectors even though strict conformity with SNA guidelines would place these in the households sector.

25.24 Borderline of activity.

In chapter 6 there is discussion of the production boundary of the SNA.
As noted there, some activities that are economic in nature are excluded from the production boundary, specifically services produced by households for their own consumption other than the services provided by owner-occupied housing and services provided by paid domestic staff.

While there is interest in measuring these activities for some forms of analysis, there is agreement that in measuring activity undertaken by informal enterprises the boundary of production in the SNA should be taken as appropriate.
However, the services from owner-occupied dwellings are excluded.

25.25 Illegal activity.

Chapter 6 makes clear that, in principle, the fact that an activity may be illegal is not a reason to exclude it from the production boundary.

In some countries, the difficulties of capturing illegal activities may mean that they are either not well covered or deliberately ignored on pragmatic grounds.
However, for some countries ignoring the production of drugs, for instance, would seriously underestimate the overall level of economic activity.

In general, as discussed further in section C, some illegal activity may be included in the SNA, if only indirectly, and so complete exclusion is impracticable in any case.

25.26 Location.
25.26 Location.

Some analysts may be interested mainly in the development of informal enterprises in urban areas, particularly in so-called shanty towns on the outskirts of large conurbations.

While the policy implications of such an approach can be appreciated, the role of the informal economy in areas outside the main urban areas is also important and for international comparability, and for comparison over is significant, restricting coverage by location is undesirable.
internal migration time when 25.27 The terms of employment.

Some employees have terms of employment that entitle them to various benefits in addition to their wages and salaries.

These benefits typically include paid annual and sick leave and pension entitlement.

Even production units offering such terms to some of their workers may also employ people on less generous terms offering no benefits beyond wages and salaries.
People who work on their own account (the self-employed) may do so to provide some supplementary income, may do so because they are unable to obtain a job with benefits or may simply choose to do so for a number of reasons, including the flexibility of choosing what they do, for whom and for how long.

Many of the latter may work under terms that offer not employment as such but a service contract.
473 System of National Accounts C. The non-observed economy 25.28 At the time the 1993 revision of the SNA started, it was assumed that identifying an informal sector was mainly a problem for developing countries.

However, even by the time that revision was complete, it was obvious that the problem affected all economies, whatever their state of development.
Within the EU, the need to ensure strict comparability of coverage of the national accounts among member states led to a series of initiatives to ensure the accounts were “exhaustive” (that is, fully comprehensive).

Also in the early 1990s as countries in Central and Eastern Europe made the transition to market economies, the need to cover activities outside the scope of previous reporting methods, whether undertaken within formal units or in informal enterprises, became pressing.
is used, already casts of statistical enquiries.

The process of assembling a set of national accounts, especially when the supply and use framework light on missing information and helps improve the estimates overall.

Consider the case of some types of illegal activities.
Because avoiding taxes is illegal and tax collection may be pursued more vigorously than statistical reporting, a prostitute may report her (or his) earnings more or less accurately but describe her activity as modelling, acting or any number of other ways.

Similarly, while smugglers of cigarettes may not report their activities, the fact that households purchase the cigarettes may be much better documented and thus implicitly the illegal imports are captured in the accounts.
25.29 The extent of economic activity missing from statistical data collections and from administrative sources became known as the “non-observed economy”.

In some countries, the emphasis has been placed not on identifying the non- observed economy as such but simply ensuring that the accounts are fully comprehensive (“exhaustive”), but it is easiest to describe factors affecting exhaustiveness through the notion of the non-observed economy.
25.33 It has been argued that a completely balanced set of supply and use tables is unlikely to omit any significant activity.

While it is possible that something may be omitted, if the tables are to balance, there must be exactly matching omissions in other aspects of the accounts, which is not very likely.

However, while the act of balancing the tables may in effect estimate some non-observed activity, it may not be sufficient to capture all of it.
25.30 As explained in the introduction, the non-observed economy overlaps with, but is not the same as, the informal sector.

As well as attempting to cover activities slipping under the net of statistical collection (sometimes called the “underground” or “hidden” economy), attention was paid to ensuring that reported information was both complete and accurate.
25.31 As noted in chapter 6, the fact that some activities are illegal in themselves or may be carried out illegally does not exclude them from the production boundary.

Exercises to measure the non-observed economy should also, in principle, cover such illegal activity.

How far this is pursued in practice will depend on assessments of the importance of illegal activities, how it might be done and the resources available.
25.32 Trying to assess the additions to be made to the national accounts for the non-observed economy is not just a question of examining the comprehensiveness and accuracy 25.34 It should be noted that, again as pointed out in the introduction, concern about the non-observed economy does not lead to a separable measure of it.

The example of using the balancing of supply and use tables as a means of ensuring exhaustiveness is an illustration of why this may not be possible.
25.35 Measures of the non-observed economy will overlap with activities undertaken informally but not exactly match them.

Elements not observed will include estimates for informal enterprises not covered in statistical enquiries and corrections to some measures of informal enterprises that are captured in statistical enquiries.

However, estimates for informal enterprises that are covered in statistical enquiries to be accurate will be excluded.
and are Nevertheless, many of the techniques used to estimate aspects of the non-observed economy, as described in the manual Measurement of the Non-Observed Economy: a Handbook are useful for measuring the informal enterprises also.

judged D. The informal sector as defined by the ILO 1.

The ILO concept of the informal sector 25.36 A major focus of this chapter is to present a concept of an “informal sector” as a subset of household unincorporated enterprises.
This is the characterization of the informal sector in the resolution of the 15th ICLS on statistics of employment in the informal sector, which described in detail the definitions used by the ILO, as follows: (1) The informal sector may be broadly characterized as consisting of units engaged in the production of goods 474 or services with the primary objective of generating employment and incomes to the persons concerned.
These units typically operate at a low level of organization, with little or no division between labour and capital as factors of production and on a small scale.

Labour relations - where they exist - are based mostly on casual employment, kinship or personal and social relations rather than contractual arrangements with formal guarantees.

(2) Production units of the informal sector have the characteristic features of household enterprises.
The fixed and other assets used do not belong to the production units as such but to their owners.

The units as such cannot engage in transactions or enter into contracts with other units, nor incur liabilities, on their own behalf.

The owners have to raise the necessary finance at their own risk and are personally liable, without limit, for any debts or obligations incurred in the production process.

Expenditure for production is often indistinguishable from household expenditure.
Similarly, capital goods such as buildings or vehicles may be used indistinguishably for business and household purposes.

25.37 Although the expression “informal sector” is used in the context of the ILO work, the word sector is used with a different meaning from the SNA sense of a grouping of institutional units.

The ILO work focuses only on production activities and does not include the consumption and accumulation activities of the unit.

2.
2.

Defining the sector 25.38 In the SNA, household enterprises do not constitute separate legal entities independently of the household members who own them.

Fixed capital used in production may also be used for other purposes, for example the premises where the activity is carried out may also be the family home or a vehicle may be used to transport items produced within the household as well as for normal household transport.
The items do not belong to the enterprise as such but to the household members.

As a result, it may be impossible to compile a complete set of accounts for the household productive activities including the assets, both financial and non-financial, attributable to those activities.
It is for this reason, the lack of complete accounts, that the production activity remains within the households sector as an unincorporated enterprise rather than being treated as a quasi-corporation in one of the corporations sectors.
25.39 The ILO concept of the informal sector takes household unincorporated enterprises and further subdivides them into three; one part forming the informal sector, a second part Informal aspects of the economy being units treated as formal, because of the numbers of employees or registration, the third part being referred to simply as households.

(A note on the different uses of terms such as sector and households follows at the end of this section.)
25.40 The subset of household enterprises treated as belonging to the informal sector have economic objectives, behaviour and a form of organization that sets them apart from other unincorporated enterprises.

Specifically, informal sector is defined according to the types of production the enterprise undertakes, still maintaining the production boundary of the SNA and not extending it to include own- use household services, for example.
the Exclusion of units producing purely for own final use 25.41 The first restriction is that at least some of the production must be sold or bartered.

Thus some household enterprises that the SNA treats as producing “for own final use” because most of their production is so used are included but those that produce exclusively for own final use are excluded.

It follows that the activity of dwelling services produced purely for owner-occupation is thus excluded from the informal sector.
Exclusion of units with formal characteristics 25.42 In addition, the coverage of the informal sector is restricted by using additional criteria of numbers of employees or registration.

The minimum number of employees chosen is left to decide based on national circumstances.

Only those not registered under specific forms of national legislation (such as commercial laws, tax and social security laws and regulatory laws) should be treated as informal.
the country to Two categories of informal enterprises 25.43 The exclusion of units from the informal sector varies from country to country, depending on the conditions for registration or the minimum number of employees chosen to determine which units are treated as formal.
However, the ILO concept of the informal sector is always a subset of Figure 25.2:Identifying units in the ILO informal sector General government Non-financial and financial corporations Households NPISHs Households containing an unincorporated enterprise that is registered or has more than a given number of employees Informal sector enterprises (a) without employees "informal own-account enterprises" (b) with employees "enterprises of informal employers" Institutional households, households with no unincorporated enterprises, households only undertaking production for own final use (including owner occupation of dwellings) 475 System of National Accounts household unincorporated enterprises operating within the production boundary of the SNA.
3.

Clarifying the use of familiar terminology 25.44 These units are divided into the following two subsets: Sector a. Unincorporated enterprises without employees.

The ILO term for such units is “informal own-account enterprises”, b. Unincorporated enterprises with employees.

The ILO informal is “enterprises of term for such units employers”.
25.45 With these additional criteria, the production unit in the informal sector is defined as a household enterprise with at least some production for sale or barter for which one or more of the criteria of a limited size of employment, the non-registration of the enterprise or its employees are met.

The delineation of this set of units in terms of the SNA sectors is shown in figure 25.2.
Exclusions on grounds of activity 25.46 Apart from defining the informal sector, the 15th ICLS recommended the following additional considerations about the scope of the informal sector and its statistical treatment.

a.

· · In principle, all goods and services producing activities are within scope.

These might be presented according to the alternative aggregation recommended for the analysis of the activities of the informal sector in ISIC Rev.

4.
4.

This alternative presentation takes into account that some economic activities such as public administration and defence (ISIC 84) are undertaken by units in general government and so cannot qualify as informal ICLS sector activities.

However, recommends that: the agricultural activities (ISIC section A) are measured separately from other economic activities to ensure the international comparability and selection and application of appropriate statistical data collection tools and sample design.
(Units undertaking only subsistence activity are already excluded as they do not sell any of their output.)

facilitate to activities of households as employers of domestic personnel (ISIC 97) with households being producers for own final use are outside the scope of the informal sector.

b. Geographical coverage includes both urban and rural areas even if preference may be given initially to informal enterprises operating in urban areas.
c. Outworkers are included if the units for which they work as self-employed persons or as employees are included in the informal sector.

476 25.47 The term “sector” in the expression “informal sector” does not have the same basis as the usual use of the word sector throughout the SNA.

In the SNA, sectors are made up of complete institutional units; in the context of the informal sector only the productive activities are concerned.
Thus, for example and importantly, households having no productive activity are simply not considered in the steps to identify those unincorporated enterprises operated by households that are to be included in the informal sector.

Enterprise 25.48 In the SNA, a corporation represents a single enterprise but each such enterprise may consist of a number of establishments.
A key difference between an enterprise and an establishment is that a full set of accounts must exist, or could be constructed, for an enterprise but for an establishment a much more restricted set of data is available, typically only information relating to production, number of employees and the capital formation associated with the activity.

25.49 Within a household many different production activities may take place.
For none of these individually nor for the total of all activities that cannot be treated as quasi- corporations does a complete set of accounts exist.

The SNA usage of “unincorporated enterprise” is taken to mean the totality of all unincorporated activity undertaken by a household even though in a supply and use table, for example, this may be partitioned by types of activity and be grouped with establishments of corporations undertaking the same activity.
25.50 The use of unincorporated enterprise in the ILO description of the informal sector does not correspond to the totality of unincorporated activity of a household but to each activity separately.

In SNA terms, the unincorporated enterprise is broken down a number of unincorporated establishments, some of which may be included in the informal sector and some excluded, even for the same household.
Further, the ILO identifies individual members of a household as owning each establishment/enterprise and capable of employing workers.

In the SNA, it is the household collectively that is responsible for all activity and for employing workers.

into Subsectoring production 25.51 The SNA subdivides production into market production, production for own final use and non-market production.

Non-market production is not at issue here, since it is never undertaken by households.
However, to meet the ILO guidelines it is necessary to subdivide producers for own final use into those where some of the production is for sale or barter and those where the production is exclusively for own final use.

In the case of unincorporated enterprises where only some of the production is sold or bartered, all of the production of the unit of those goods and services is still included in production by the informal sector.
Informal aspects of the economy Formal sector, informal sector and households rest that are not treated as informal but are left simply in a group called households.

25.52 The SNA does not use the expression formal sector but it is not difficult to conceive of all units in the corporations sectors, general government and NPISHs as being part of a formal sector as far as production is concerned.

Quasi- corporations are included because they are included in the corporations sectors.
However, this is not the same as saying that any unit that is not informal is formal, since households with unincorporated enterprises not included in the informal sector are divided between those that are treated as formal (because of size or registration) and the 25.53 The ILO meaning of households is thus quite different from that of the SNA since the SNA includes all the units included under ILO guidelines as informal, plus those units with unincorporated enterprises treated as formal, plus those unincorporated enterprises excluded because they produce exclusively for own final use, plus those households with no unincorporated enterprises plus institutional households.
E. 1.

Informal employment Informal employment 25.54 Increasingly it has been realized that production alone is not the only aspect of the economy where a distinction between formal and informal is informative, it is also relevant for employment.

25.55 The ILO defines formal wage employment as employment under terms that bring associated benefits such as paid leave and pension entitlement.

The ILO regards all other forms of employment, including self-employment, as informal.
25.56 As noted in section B, it is possible for formal units to have informal employees and it is also possible (though less likely) that units that are classed as informal may have terms of employment for some of their workers that make them informal formal employees.

The extent of employment can be seen in the shaded part of figure 25.3.

25.57 As explained in chapter 19, there is a distinction between a job and an employee, one employee being capable of holding several jobs.
There are five categories of jobs considered by the ILO.

These are: 25.58 Formal enterprises provide informal jobs only as employees or contributing family workers.

Informal enterprises may offer any of the five types of informal jobs and also formal jobs.

Households (in the ILO sense) provide informal jobs as own-account workers, employees and family workers.

Some domestic staff may have formal jobs.


Figure 25.3:Informal employment and employment in the informal sector Formal jobs Informal jobs Formal enterprises Informal enterprises Other household unincorporated enterprises 2.
Employment in the informal sector a. own-account workers (the self-employed in SNA terms), b. heads of unincorporated enterprises with employees, treated as employers, c. unpaid family workers contributing labour to the unincorporated enterprise, d. employees, e. members of producers’ cooperatives.

25.59 As well as informal employment in total, it is useful to identify the extent of employment in informal enterprises.
This excludes informal jobs in formal units, excludes any informal jobs in other household unincorporated enterprises and includes formal jobs in informal enterprises.

The ICLS defines the population employed in the informal sector as comprising all persons who, during a given reference period, were employed in at least one informal sector unit, irrespective of their status in employment and whether it was their main or a secondary job.
The coverage of employment in the informal sector is indicated by the heavy border in figure 25.3.

477 System of National Accounts F. Work of the Delhi Group 25.60 In 1997 an expert group on informal sector statistics was set up by the United Nations Statistical Commission as a “city group” and is known as the Delhi Group.

One of its objectives was to try to identify internationally comparable data for the informal sector or, at least, a common subset of it.
25.61 The third meeting of the Delhi Group in 1999 proposed a subset of the informal sector that could be defined uniformly across countries, though this subset presently covers only a relatively small part of the informal sector.

These recommendations are as follows: a.

All countries should use legal organization (unincorporated enterprises), of type of accounts (no complete set of accounts) and of product destination (at least some market output).
the criteria of is to left b. Specification of the employment size limit of the enterprise in the national definition of the informal sector the country’s discretion.

For international reporting, however, countries should provide figures separately for enterprises with less than five employees.

In the case of multiple-establishment enterprises, the size limit should apply to the largest establishment.
c. Countries using the employment size criterion should provide disaggregated figures for enterprises that are not registered, as well as for enterprises that are registered.

d. Countries using the criterion of non-registration should provide disaggregated figures for enterprises with less than five employees as well as for enterprises with five and more employees.

e. Countries that include agricultural activities should provide figures separately for agricultural and non- agricultural activities.
f. Countries should in professional or technical activities if they meet the criteria of the informal sector definition.

include persons engaged g. Countries should include paid domestic services unless these are provided by employees of the household where the services are rendered.

h. Countries should follow paragraph 18 of the Resolution adopted by the 15th ICLS regarding the treatment of outworkers/home-workers.
Countries should provide figures for outworkers/home-workers separately included in the informal sector.

i.

Countries covering urban as well as rural areas should provide figures separately for both urban and rural areas.

j.

Countries using household surveys or mixed surveys should make an effort to cover not only persons whose main job is in the informal sector, but also those whose main job is in another sector and who have a secondary activity in the informal sector.
25.62 Subsequent work of the Delhi Group examined many studies on national practices in the collection of data on the informal sector to lead up to the provision of a manual on the informal sector and informal employment to be published by the ILO.

G. Deriving data on activities of informal enterprises from the SNA accounts 25.63 In trying to identify activities undertaken by informal enterprises within the national accounts, three steps are necessary.
The first is to identify those unincorporated enterprises within the whole of the SNA households sector that are candidates to be included.

The second is to consider national practices in establishing the households sector to see if any adjustment to the first step is necessary.

The third step is to provide a breakdown by type of activity so that common exclusions according to type of activity can be made.

1.
1.

Candidate households 25.64 The households sector includes some institutional units that should be excluded at the outset.

These are: a.

Institutional households such as prisons, religious orders and retirement homes; 478 b.

Households with no production activity (that is do not include an unincorporated enterprise); c. Households whose only activity is the production of services the owner-occupied production of services by employing domestic staff, or both.
dwellings, from 25.65 The remaining households all contain some production activity.

However, it will include both market production and production for own final use.

The ILO guidelines on that part of household activity to be regarded as informal include a concept of market production that does not conform to the SNA category.

The ILO treats an enterprise as a market producer if any of the output is sold whereas the SNA requires that most or all of the output be sold.
To overcome this difference, it is recommended that a three- way split of production be made: Informal aspects of the economy a. market production according to the SNA criterion whereby most or all output is sold, this is not national practice, a further adjustment is necessary to remove them.

b. output for own final use where some is sold, and c. output exclusively for own final use.
The sum of the first two categories then accords with the ILO guidelines for inclusion in the informal sector as market producers though only the first is so regarded in SNA terms.

25.66 The ILO also distinguishes households between those that do not have workers employed on a continuous basis and those that do, as follows: a. Unincorporated enterprises without employees on a continuing basis, b. Unincorporated enterprises with employees on a continuing basis.
This categorization is combined with the preceding one as indicated in figure 25.4.

2.

Adjustments for national practices 25.67 Although the SNA recommends separating NPISHs into a sector separate from households, not all countries do this.

If they are not already separated from households, they should be removed at this stage.

25.69 The SNA also recommends that small enterprises without complete sets of accounts should be included in the households sector as unincorporated enterprises.
Some countries, however, prepare production estimates by type of activity for inclusion in a supply and use framework without regard to whether a full set of accounts exists.

By default, all may be included in the corporations sectors with little production remaining in the households sector apart from the imputed services of owner-occupied dwellings and the services provided by paid domestic staff.
It is therefore recommended that estimates for unregistered enterprises with less than five employees be extracted from the figures for the corporations sector to set alongside the the households sector.

Similarly any figures enterprises that are unincorporated but registered should be separately identified.

from 25.70 Figure 25.4 demonstrates how the potential units for treatment according to the ILO definition of the informal sector relate to the institutional sectors of the SNA.
The light shading under corporations indicates that in principle any enterprise that is not registered and has fewer than a given number of employees should be identified if it has been included in corporations.

In practice, it may not be possible to separate those that are registered from those that are not.

3.
3.

Disaggregation by type of activity 25.68 Production units that are not formally incorporated but have complete accounts should be treated as quasi- corporations and excluded from the households sector.

If 25.71 The third step is to disaggregate the production activities from households, grouped as suggested above, and those extracted from the corporations sectors for small-scale activities according to the type of activity concerned.
Figure 25.4:Identifying units for the ILO informal sector from within the SNA institutional sectors General government Non-financial and financial corporations Households NPISHs Those that are registered or with greater than a given number of employees Those that are unregistered or with fewer than a given number of employees Those that are registered or with greater than a given number of employees Self-employed (informal own- account enterprise) Unincorporated enterprise with employees (enterprises of informal employers) Market producers Producers for own final use Market producers Producers for own final use Selling most or all production Selling some production Not selling any production Selling most or all production Selling some production Not selling any production Institutional households, households with no unincorporated enterprises, households only undertaking production for own final use (including owner- occupation of dwellings) 479 System of National Accounts included and Because the separation is initially in terms of units and not activities, there will still be some services from owner- these should be occupied dwellings eliminated.
If a cross-classification by activity and type of unit is available, a choice can be made about whether to include or exclude an activity where the output is exclusively for own use even when another activity by the same unit includes sales outside the households.

a.

Production · of which for own use b.

Intermediate consumption c. Value added 25.72 Some further exclusions may also be made, for example services provided by paid domestic staff and agricultural production.
d. Compensation of employees enterprises with employees only) (for unincorporated 25.73 The problem remains about how to treat individuals such as the doctors and other professionals discussed earlier where information about their production is available but not a represent full unincorporated enterprises and are not excluded from the informal sector by reason of registration or number of employees but are not usually thought of as characteristic of part of the informal sector.

set of accounts.
set of accounts.

They thus still 25.74 The Delhi group recognizes that such individuals will be part of the informal sector.

However, if it is desired either to identify them as a subset or even to exclude them entirely from the informal sector, it is possible that some rules of thumb may be conceived to do so.

For example depending on the type of activity, the rates of pay or the duration of the task, but objections to any of these are easy to formulate and implementation would be extremely difficult.
4.

Presenting the data on the informal sector and informal employment 25.75 The information relating to activities undertaken informally extends only as far as the production and generation of income account.

It is not possible to go farther in the sequence of accounts because of the impossibility of identifying which other income flows, consumption and capital formation relate only to the activity in question rather than to the household to which they belong as a full institutional unit.
Thus the informal sector, as explained previously, is not strictly a sector in the SNA sense and so the figures for it cannot be presented in terms of the full sequence of accounts.

However, it is recommended that where possible two supplementary tables should be prepared, one covering production and the generation of income and one covering employment.

Production e. Gross mixed income f. Consumption of fixed capital g. Net mixed income.

25.77 Further information may also be useful if available.
For example, a breakdown of production by type of activity and, possibly, the proportion of the total production in the industry produced by informal enterprises.

25.78 In countries where some small units that might be considered part of the informal sector are covered by establishment surveys and included in the corporations sector, there may be units of interest in the lightly shaded cell in table 25.4.
If this is so, and if separate estimates for them can be identified, it would be useful to show these alongside the entries for those units clearly within the households sector.

Employment 25.79 Information on the number of jobs should be presented showing: a.

Employment in the informal sector · · Formal jobs Informal jobs b.

Informal employment outside the informal sector · · In the formal sector In other household unincorporated enterprises.
25.76 It is suggested that the following type of information be provided for each of the shaded areas in table 25.4: 25.80 If possible, information on the hours worked in each of these categories would be useful.

H. Approaches to measuring activities undertaken in the informal economy 25.81 It is neither possible nor appropriate to give detailed information in the SNA on survey methodology and questionnaire design.
However, it is useful for national accountants to be aware of some of the options that may be available to help in collecting data on production in informal enterprises.

More detailed discussion is available 480 Informal aspects of the economy in, for example, the manual on Measuring the Non- Observed Economy.

after an economic or establishment census because the sampling frame may not include information, or not up-to- date information on household enterprises.
25.82 The choice of the appropriate method for measuring the informal sector depends upon how adequately established data collection methods cover the activities of interest.

Three main measurement approaches are considered here.

The choice between them will depend upon what information is missing from existing collections, the organization of statistical systems, the resources available and user needs.

1.
1.

Household surveys 25.83 A household survey (or labour force survey) may provide a means to collect information on production by household enterprises that are not included in the sampling frames used for establishment surveys.

It may also be possible to collect data on informal sector employment in household or labour force surveys.
Questions seeking this sort of information could be addressed to everyone in the sampled households during the reference period of the survey, irrespective of their status in employment and in respect of their main and secondary jobs since in many countries a large number of informal sector activities are undertaken as secondary jobs.
Special questions may be required to identify unpaid work in small family enterprises, activities undertaken by women and children, activities undertaken away from home, undeclared activities and informal sector businesses conducted as secondary jobs.

The success of such an approach is dependent on the survey sample areas where including household activities take place and informal sector workers live.
representative geographical 25.84 It should be borne in mind, though, that although employees, contributing family workers and proxy respondents may be engaged in household and informal enterprises, they may have limited knowledge of the operations of the enterprises in question and may not be able to respond to such questions.

2.
2.

Establishment surveys 25.85 In most cases, an establishment survey can be used to measure activity undertaken by an informal enterprise only when a household establishment survey is carried out just 25.86 Even when an establishment survey is used to measure household production units including those of the informal sector, it should be noted that production units without a fixed location or with unrecognizable business premises are easily omitted in the collection.
In addition, double counting of household production may occur if the collections for different types of economic activity are undertaken at different times rather than simultaneously in an integrated design.

For example, the manufacturing activity of a household producing goods in a small workshop or at home may be included in one collection round while the retail sales activity undertaken by the same family of those produced goods is measured in another round.

3.
3.

Mixed household-enterprise surveys 25.87 One type of mixed household-enterprise survey is designed with enterprise modules attached to existing labour force or other household surveys.
Such a survey could cover all household entrepreneurs of the sampled households including informal entrepreneurs (including units operating without fixed premises such as mobile units) and their activities, irrespective of the size of the enterprises, the kind of activity and the type of workplace used and of whether the activities are undertaken as main or secondary jobs.
25.88 Another type of survey, described as a modified mixed household-enterprise survey, is described in International Recommendations on Industrial Statistics, (United Nations, 2008.)

25.89 When a mixed household-enterprise survey is used as the preferred method, attention should be paid to the question of whether the sample adequately reflects the geographical distribution of activities of household production.
It is also necessary to consider how enterprises with production units in more than one location are handled and how duplication of coverage for enterprises that are operated under partnerships may be avoided if the same enterprise is reported by each of its partners who may belong to different households.

economic I.
economic I.

Guidelines, studies and handbooks on the informal economy 25.90 Since the publication of the 1993 SNA, significant advances in methodology have taken place in fields related to the informal economy.

Also, countries have gained extensive experience in collecting and working with data on the informal are highlighted below, suggest that there is a body of work to be taken into account in updating the treatment of the informal sector in the SNA.

sector.
sector.

These developments, which · The proceedings and papers of the meetings of the Delhi Group on Informal Sector Statistics, beginning in 1997, contain the results of extensive conceptual and analytical work, including country practices in the area of the informal sector.

Various papers of the Expert Group on Informal Sector Statistics (Delhi Group), are can http://www.mospi.nic.in/ at mospi_informal_sector.htm.
accessed be 481 System of National Accounts · · The handbook Household Accounting: Experience in Concepts and Compilation, Volume 1: Households Accounts (United Nations, 2000), the product of a 1997 expert group, contains papers on various aspects of the treatment and measurement of the informal sector.

The chapter “The informal sector as part of the households sector” is of particular interest.
The results of the work started by Eurostat in the mid- 1990s and carried out through its Task Force for Accuracy Assessment of Basic Data in European Union member countries and the related pilot tests conducted in candidate countries the extent of exhaustiveness adjustments and their implications for the value of the GDP.
revealed · Research on statistical methods for improving the exhaustiveness of measures of economic production lead to the preparation of the handbook Measuring the Non-Observed Economy - a Handbook.

The handbook’s chapter on informal sector production provides a core definition, clarifies the distinctions between informal sector production and concepts with which it is often confused, and outlines the main methods for measurement.
· The UNECE published a Guidebook to Statistics of the Hidden Economy (United Nations Economic Commission for Europe, 1992) and has since carried out three surveys of country practices and published the results.

The first was in respect of 1991 and covered nine countries.

The results were published as an Inventory of National Practices in Estimating Hidden and Informal Activities for National Accounts in 1993.

The second survey was in respect of 2001/2 and covered 29 countries.
The third survey was carried out for 2005/6 and 45 countries responded.

Both the second and third surveys asked for estimates of the size of the non-observed economy as well as elaborating on the methods used.

The results of the two surveys are summarized in two editions of Non-observed Economy in National Accounts - Survey of Country Practices (United Nations Economic Commission for Europe, 2003 and 2008, respectively).
· There are many ILO documents that elaborate the concepts of informal sector and informal employment.

These include the Resolution concerning Statistics of Employment in the Informal Sector, (International Labour Office, 1993) adopted by the 15th ICLS and Guidelines Concerning a Statistical Definition of Informal Employment (International Labour Office, 2003) adopted by the 17th ICLS.
Other useful information can be found in ILO Compendium of Official Statistics on Employment in the Informal Sector (Hussmanns and du Jeu, 2002), Women and Men in the Informal Economy: A Statistical Picture.

(International Labour Office, 2002), Measuring the Informal Economy: From Employment in the Informal Sector to Informal Employment.
(Hussmanns, 2004), Measurement of Informal Employment: Recent International Standards, (Hussmanns, 2005) · Over the decade, a number of workshops with a focus on the informal sector were held, organized singly or jointly by United Nations Statistics Division, the regional commissions, ILO, and others.
The most recent of these were the OECD/UNESCAP/ADB Workshop on Assessing and Improving Statistical Quality: Measuring the Non-observed Economy, held in Bangkok in May 2004 and the Workshop on Household Surveys and the Measurement of the Labour Force with focus on the Informal Economy held for Southern African Development Community countries in Maseru, Lesotho in April 2008.

482 Chapter 26: The rest of the world accounts and links to the balance of payments A.
Introduction 26.1 This chapter is about the relationship between the rest of the world sector in the SNA and the international accounts as described in BPM6.

It shows that the two manuals use the same macroeconomic framework, with the international accounts providing additional detail on aspects of particular relevance in international transactions or positions.

1.
1.

The rest of the world account in the SNA 26.2 In the SNA, transactions between a resident unit and the rest of the world are recorded as if the units in the rest of the world were another sector of the economy.

The production and generation of income accounts relate only to transactions within the national economy but flows in all other accounts potentially have an entry for the rest of the world.
These entries are necessary to balance each row of the sequence of accounts but they do not enter the aggregate balancing items.

For example, the difference between GDP and GNI derives from transactions for both uses and resources recorded in the allocation of primary income account where the counter-party is a unit in the rest of the world.

If the counter-party entries for the rest of the world were also included, there would be no difference between the balancing items.
Current accounts 26.3 Because the rest of the world account is shown in this way, flows to the rest of the world are shown as a use by the rest of the world and flows from the rest of the world as resources.

For example, exports are shown as uses of the rest of the world and imports as resources from the rest of the world.

Entries for imports and exports form part of the goods and services account in the SNA sequence of accounts.
26.4 As well as entries for imports, exports and the items appearing in the allocation of primary income account, there are potential transactions with the rest of the world to be recorded for all entries in the secondary distribution of income account and for the adjustment item for the net change in pension liabilities appearing in the use of income account.
26.5 There are no entries for the rest of the world account for intermediate or final consumption (or for fixed capital formation) because the use made of the goods and services in another economy is not relevant for the national economy; only the total amount exported is.

26.6 Although balancing items are not calculated in the SNA for the rest of the world account for each individual account, two balancing items relevant to the current accounts are important.
The first is the external balance on goods and services, which is the difference between imports and exports.

The second is the current external balance which is the sum of all resources coming from the rest of the world less all uses going to the rest of the world, including imports and exports.

The current external balance thus shows how far residents call on saving by non-residents.
Accumulation accounts 26.7 26.8 In the rest of the world capital account, there is no entry for fixed capital formation, as noted above.

It is possible for a transaction to be recorded for a natural resource, for a contract, lease or licence or for goodwill and marketing assets.

By their nature, though, and given that land is almost always acquired by a resident unit, such entries will not be common.

On the other hand, capital transfers to and from the rest of the world may be quite important.
The financial account and balance sheets detailing transactions in, and stocks of, financial assets and liabilities where one party is non-resident are viewed as a particularly important part of the rest of the world accounts.

Indeed, in BPM6 more text is devoted to these items than to the items in the current accounts.

26.9 In addition, there are possible entries for other changes in the volume of assets and liabilities and revaluation items for both, relevant to the rest of the world account.

2.
2.

The international accounts in BPM6 26.10 In the description of the rest of the world accounts above, it was noted that exports, for example, are treated as a use by the rest of the world and imports as a resource from the rest of the world.

As its name implies, the rest of the world account is drawn up from the perspective of the rest of the world.

BPM6 looks at the same stocks and flows from the point of view of the domestic economy.
Thus the BPM6 entries are the mirror image of the SNA entries relating to the rest of the world.

26.11 Further, in the context of BPM6, stock levels are usually referred to as positions and the balance sheet accounts for all financial assets and liabilities where one party to the 483 System of National Accounts arrangement is non-resident is called the international investment position.

respectively.
respectively.

Note, though, that what appear as assets in the rest of the world account appear as liabilities in the international accounts and vice versa.

26.12 The international accounts for an economy summarize the economic relationships between residents of that economy and the rest of the world.

They comprise: 3.
The structure of the chapter a. b. c. the balance of payments, which transactions between during a specific time period; summarizes residents and non-residents the international investment position (IIP), which shows at a point in time the value of: financial assets of residents of an economy that are claims on non- residents or are gold bullion held as reserve assets; and the liabilities of residents of an economy to non- residents; and the other changes in financial assets and liabilities account, a statement that shows other flows, such as valuation changes, which reconcile the balance of payments and IIP for a specific period by showing changes due to economic events other than transactions between residents and non-residents.
These accounts correspond to the transactions, balance sheets and other changes in assets accounts in the SNA, B.

Accounting principles 1.

Comparison with SNA accounting principles 26.17 Although the SNA works with a quadruple-entry accounting system, the balance of payments has only a double-entry system.

When a transaction is undertaken between two resident units, four entries are necessary, for example two showing the exchange of a good and two the exchange of a means of payment.
However, when a resident unit carries out a transaction with a non-resident unit, national compilers are unable to verify independently the counterpart entries in the rest of the world.

As a result, although in principle the balance of payments is balanced, in practice, there may be an imbalance due to shortcomings in source data and compilation so that there is a mismatch between financial transactions and their counterparts within the domestic economy.
This imbalance, a usual feature of published balance of payments data, is labelled net errors and omissions.

The balance of payments manuals have traditionally discussed this item, to emphasize that it should be included indistinguishably in other items and that it should be used to indicate possible sources of mismeasurement.
explicitly, published rather than 26.18 However, there has been increasing interest in estimates that are derived from counterpart reporting that has better coverage, valuation, etc.

As well, there has been much work done on reconciling data from the view of both parties (for example, exports of one country, with the counterpart imports recorded by the partner country) and global totals.
Counterparty data are also necessary to 484 26.13 Section B of the chapter discusses the accounting rules of the international accounts.

These are consistent with the SNA accounting rules and agreement has been reached on when the SNA and when BPM6 takes the lead in defining the rules to be applied in both contexts.

Residence is a case in point where the SNA follows BPM6.
26.14 The structure of the international accounts and their relation to similar SNA accounts is the subject of section C. 26.15 A feature of the financial accounts and IIP of the international accounts is the introduction of functional categories that describe the main purpose of financial investment abroad.
This is the subject of section D. 26.16 Section E touches on some considerations of particular importance accounts; global imbalances, exceptional financing, debt reorganization, currency unions and currency conversions.

international the to prepare consolidated data for a currency or economic union from the data of individual member countries.
In effect, all this work is built on the fact that balance of payments statistics effectively become a quadruple-entry system when used at the bilateral or global level.

Valuation 26.19 Valuation principles are the same in the SNA and the international accounts.

In both cases, market values are used, with nominal values used for some positions in instruments where market prices are not observable.
In the international accounts, the valuation of exports and imports of goods is a special case where a uniform valuation point is used, namely the value at the customs frontier of the exporting economy, that is, the FOB-type valuation (free on board).
This treatment brings about consistent valuation between exporter and importer and provides for a consistent basis for measurement in circumstances where the parties may have a wide range of different contractual arrangements, from “ex-works” at one extreme (where the importer is responsible for arranging all transport and insurance) to “delivered duty paid” at the other (where the exporter is responsible for arranging all transport, insurance and any import duties).
In international transactions, there may be motivations for under- or over-invoicing in order to evade taxes or exchange controls, so BPM6 provides guidance on how to develop market-equivalent prices when these cases are identified, and how to make the necessary adjustments needed to other items affected.
There is further The rest of the world accounts and links to the balance of payments discussion on the recording of imports and exports in chapters 14 and 28. regions, or the world as a whole may be used, as they may also be a focus for macroeconomic policy or analysis.

Time of recording and change of ownership 26.20 Time of recording and ownership principles are the same in the SNA and the international accounts.
In practice, the change of economic ownership of goods is often taken to be when the goods are recorded in customs data.

To the extent that there are differences between customs data and actual changes in ownership, such as for items with large values or goods sent on consignment (that is, dispatched before they are sold), adjustments are made.

26.21 There are no longer any exceptions to the recording basis of the change of economic ownership.
However, there is a different presentation in the case of merchanting; that is, where an owner buys and resells goods in the same condition without the goods passing through the territory of the owner.

In that case, the acquisition of the goods is identified as a change of ownership, but shown as a negative export rather than an import on acquisition of the goods and as a positive export on disposal.
If the goods are acquired in one period and not disposed of until a subsequent period, in inventories of the merchant even though these inventories are held abroad.

A consequence of this change in treatment is that in the international accounts, merchanting now appears as transactions in goods where previously it was recorded as a transaction in services.
they will appear in changes 26.22 The principle of recording imports and exports when change of ownership takes place applies also to items such as high-value capital goods where change of ownership is recorded as work is put in place.

(See paragraphs 10.53 and 10.55.)

Netting 26.23 The same rules on netting are applied in BPM6 as in the SNA.

In general, netting is not advised except in the special case of recording transactions in financial assets and liabilities.
However, only acquisitions and disposals of the same type of asset (or incurrence and redemption of the same type of liability) are netted.

There is no netting of assets against liabilities, even of the same sort of instrument and no netting across different sorts of instruments.

Greater detail about netting in respect of financial instruments appears in chapter 3 of BPM6, paragraphs 3.109 to 3.121.

2.
2.

Units 26.24 The international accounts and the SNA are built on the same definitions of institutional units and residence.

Because the international accounts focus on economic relationships between residents and non-residents, more elaboration of borderline cases is provided in BPM6.
Economic territory stations, scientific 26.26 An economic territory includes the land area including islands, airspace, territorial waters and territorial enclaves in the rest of the world (such as embassies, consulates, information or military bases, immigration offices, that have immunity from the laws of the host territory) physically located in other territories.
Economic territory has the dimensions of physical location as well as legal jurisdiction, so that corporations created under the law of that jurisdiction are part of that economy.

The economic territory also includes special zones, such as free trade zones and offshore financial centres.

These are under the control of the government so are part of the economy, even though different regulatory and tax regimes may apply.

(However, it may also be useful to show separate data for such zones.)
The territory excludes international organizations and enclaves of other governments that are physically located in the territory.

Institutional units 26.27 The concept of an institutional unit is the same in the SNA and BPM6.

Because of the focus on the national economy, there are some special treatments of units in cross-border situations.
As discussed below, in some cases, legal entities are combined into a single institutional unit if they are resident in the same economy, but are not combined if they are resident in different economies.

Similarly, a single legal entity may be split when it has substantial operations in two or more economies.

As a result of these treatments, the residence of the resulting units concerned becomes more clear-cut and the concept of the economic territory is strengthened.
26.28 As discussed in chapter 4, resident artificial subsidiaries and special purpose entities (SPEs) are combined with their owners into single legal entities.

However, a legal entity that is resident in one jurisdiction is never combined with a legal entity resident in another.
As a result, SPEs and other similar corporate structures owned by non-residents are considered to be resident of their territory of incorporation, even though most or all of their owners and most or all of their assets are in another economy.

26.29 Similarly, members of a household must all be resident in the same economy.
If a person resides in a different economy from the other members of a household, that person is not regarded as a member of that household, even though they may share income and expenses, or hold assets together.

Branches 26.30 A branch is an unincorporated enterprise that belongs to a non-resident unit, known as the parent.

It is resident and treated as a quasi-corporation.


The identification of branches as separate institutional units requires indications of substantial operations that can be separated from the rest of the entity.

A branch is recognized in the following cases: 26.25 The most commonly used concept of economic territory is the area under the effective economic control of a single government.

However, currency or economic unions, a.


Either a complete set of accounts, including a balance sheet, exists for the branch, or it is possible and 485 System of National Accounts meaningful, from both an economic and legal viewpoint, to compile these accounts if required.

The availability of separate records indicates that an actual unit exists and makes it practical to prepare statistics.
expenses for a project are shown as being incurred by a quasi-corporation, and are part of direct investment flows into that unit rather than sales of licences to non-residents, or exports of services, respectively, to the head office.

In addition, one or both of the following factors tend to be present: Notional resident units b.
The branch undertakes or to undertake production on a significant scale which is based in a territory other than that of its head office for one year or more: intends • • if the production process involves physical presence, then the operations should be physically located in that territory; if the production does not involve physical presence, such as some cases of banking, insurance, other financial services, ownership of patents, merchanting and “virtual manufacturing”, the operations should be recognized as being in the territory by virtue of the registration or legal domicile of those operations in that territory.
c. The branch is recognized as being subject to the income tax system, if any, of the economy in which it is located even if it may have a tax-exempt status.

26.31 The identification of branches has implications for the statistical reporting of both the parent and branch.

The operations of the branch should be excluded from the institutional unit of its head office and the delineation of parent and branch should be made consistently in both of the affected economies.
A branch may be identified for construction projects or mobile operations such as transport, fishing or consulting.

However, if the operations are not substantial enough to identify a branch, they are treated as an export of goods or services from the head office.

26.32 In some cases, preliminary operations related to a future direct incorporation are sufficient evidence of establishing residence that a quasi- corporation is established.
For example, licences and legal investment project prior to 26.33 When land located in a territory is owned by a non-resident entity, a notional unit that can be treated as resident is identified for statistical purposes as being the owner of the land.

This notional resident unit is a kind of quasi- corporation.
The notional resident unit treatment is also applied to associated buildings, structures and other improvements on that land, leases of land for long periods, and ownership of natural resources other than land.

As a result of this treatment, the non-resident is owner of the notional resident unit, rather than owning the land directly, so there is an equity liability to the non-resident, but the land and other natural resources are always assets of the economy in which they are located.
The notional resident unit usually supplies services to its owner, for example accommodation in the case of vacation homes.

26.34 In general, if a non-resident unit has a long-term lease on an immovable asset such as a building, this is associated with it undertaking production in the economy where it is located.

If for any reason there is no associated production activity, a notional resident unit is also created to cover such a lease.
Multiterritory enterprises 26.35 A few enterprises operate as a seamless operation over more than one economic territory, typically for cross- border activities such as airlines, shipping lines, hydroelectric schemes on border rivers, pipelines, bridges, tunnels and undersea cables.

If possible, separate branches should be identified, but if the entity is run as a single operation with no separate accounts or decision-making for each territory that it operates in, it is not possible to delineate branches.
In such cases, because of the central focus on data for each national economy, it is necessary to split the operations between economies.

The operations should be prorated according to an appropriate enterprise- specific indicator of the proportions of operations in each territory.
The prorating treatment may also be adopted for Table 26.1:Selected effects of a household’s residence status on the statistics of the host economy Economic flow or position Resident (for example, long-term guest worker) Non-resident (for example, short-term guest worker) Compensation of employees received from enterprises in the reporting economy Resident-to-resident compensation of employees Resident-to-non-resident compensation of employees Personal expenditure in the reporting economy Resident-to-resident transaction Exports of services, mainly travel Transfers to relatives in home economy Resident-to-non-resident current or capital transfers Non-resident-to-non-resident transfer (There is often some international financial transaction of the short-term worker returning funds from his host to his home economy, for example via a bank in the host economy) A resident institutional unit’s financial claims on or liabilities to the household Resident-to-resident financial claim International financial claim Land and buildings owned in host economy Non-financial asset Non-financial asset and direct investment liability of a notional resident unit Land and buildings owned in home economy Direct investment asset in notional resident unit Not in balance sheet of host economy 486 The rest of the world accounts and links to the balance of payments enterprises in zones subject to joint administration by two or more governments.
3.

Residence 26.36 The residence of each institutional unit is the economic territory with which it has the strongest connection, expressed as its centre of predominant economic interest.
An institutional unit is resident in an economic territory when there exists, within the economic territory, some location, dwelling, place of production, or other premises on which or from which the unit engages and intends to continue engaging, either indefinitely or over a finite but long period of time, in economic activities and transactions on a significant scale.

The location need not be fixed so long as it remains within the economic territory.
Actual or intended location for one year or more is used as an operational definition.

While the choice of one year as a specific period is somewhat arbitrary, it is adopted to avoid uncertainty and facilitate international consistency.

Most units have strong connections to only one economy but with globalization, a growing number have strong links to two or more economies.
Residence of households 26.37 A household is resident in the economic territory in which household members maintain or intend to maintain a dwelling or succession of dwellings treated and used by members of the household as their principal dwelling.

If there is uncertainty about which dwelling is the principal dwelling, it is identified from the length of time spent there, rather than other factors such as cost, size, or length of tenure.
Being present for one year or more in a territory or intending to do so is sufficient to qualify as having a principal dwelling there.

The implications of the residence of a household for the recording of its flows and stocks are summarized in table 26.1.

26.38 In addition to the general principles, additional guidance in determining the residence of households is given in the following specific cases: a.

Students.
Students.

People who go abroad for full-time study generally continue to be resident in the territory in which they were resident prior to studying abroad.

This treatment is adopted even though their course of study may exceed a year.

However, students become residents of the territory in which they are studying when they develop an intention to continue their presence in the territory of study after the completion of the studies.
Members of the same household who are accompanying dependents of students are also considered to be residents of the same economy as the student.

b.

Patients.

People who go abroad for the purpose of medical treatment maintain their predominant centre of interest in the territory in which they were resident prior to the treatment, even in the rare cases where complex treatments take a year or more.

As with students, accompanying dependents are treated in the same way.

c. Crew of ships etc.


Crew of ships, aircraft, oil rigs, space stations or other similar equipment that operate outside a territory or across several territories are treated as being resident in the territory of their home base.

The home base is determined by where they spend most of their time when not undertaking their duties.

This location may not be the same as that of the operator of the mobile equipment.

d. Diplomats, military personnel, etc.


National diplomats, military personnel and other civil servants employed abroad in government enclaves and their households are considered to be residents of the economic territory the employing government.

However, other of employees, such as recruited staff and locally international organization staff are resident in the location of their principal dwelling.

e. Cross-border workers.

There is no special treatment for these workers.


The residence of the persons concerned is based on the principal dwelling, rather than the territory of employment, so employees who cross borders to undertake a job still have their residence determined from their principal dwelling.

f. Refugees.
f. Refugees.

No special treatment is adopted for refugees, so their residence will change from their home territory if they stay or intend to stay in another economy for a year or more, regardless of their legal status or intention to return.
Table 26.2:Selected effects of the residence status of an enterprise on the statistics of the host economy Economic flow or position Sales by enterprise to residents Purchases by enterprise from residents Compensation of employees payable to residents of host economy Compensation of employees payable to residents of home economy Resident enterprise (for example, major long-term construction project) Resident-to-resident transaction Resident-to-resident transaction Non-resident enterprise (for example, minor short-term construction project) Imports of goods and services Exports of goods and services Resident-to-resident compensation of employees Non-resident-to-resident compensation of employees Resident-to-non-resident compensation of employees Not a transaction of host economy Net operating surplus Injections of funds by owners Dividends payable or reinvested earnings Direct investment liabilities of the reporting economy Not a transaction of host economy Not a transaction of host economy A resident institutional unit’s financial claims on or liabilities to the enterprise Resident-to-resident financial claims International financial claims 487 System of National Accounts g. Highly mobile individuals.
Some individuals have close connections with two or more economies.

In cases of no principal dwelling, or two or more principal dwellings in different economies, the residence is determined on the basis of the territory in which the predominant amount of time is spent in the year.

While these individuals need to be classified as residents of a single economy for statistical purposes, additional information may be needed in recognition of strong ties to another economy.
26.39 When households change their economy of residence, there are changes to the status of the assets they own and liabilities they owe.

These changes are recorded as reclassifications through the other changes in volume account.

Because of the treatment of having a notional resident unit for ownership of land by non-residents, new notional units may be identified or old ones converted to ownership of the assets as a result of changes in residence of the owners.
Residence of enterprises 26.40 An enterprise is resident in an economic territory when the enterprise is engaged in a significant amount of production of goods or services from a location in the territory.

Taxation and other legal requirements tend to result in the use of a separate legal entity for operations in each legal jurisdiction.
In addition, a separate institutional unit is identified for statistical purposes where a single legal entity has substantial operations in two or more territories (for example, for branches, land ownership and multiterritory enterprises, as noted above).

As a result of splitting such legal entities, the residence of each of the subsequently identified enterprises is usually clear.
The implications of the residence of an enterprise for the recording of its flows and stocks are summarized in table 26.2. insurance, 26.41 In some cases, the physical location of an enterprise is not sufficient to identify its residence because the enterprise has little or no physical presence, for example its administration is entirely contracted out to other entities.

Banking, funds, securitization investment vehicles and some special purpose entities may operate in this way.
Many trusts, corporations, or foundations that hold private wealth also have little or no physical presence.

Similarly, with virtual manufacturing, all the physical processes are outsourced to other units.

In the absence of any significant physical dimension to an enterprise, its residence is determined according to the economic territory under whose laws the enterprise is incorporated or registered.
The incorporation and registration represent a substantial degree of connection to the economy, associated with jurisdiction over the enterprise’s existence and operations.

In contrast, other connections such as ownership, location of assets, or location of its managers or administrators may be less clear-cut.

26.42 In some rare cases, laws allow enterprises to change their economy of residence, such as within an economic union.
In such cases, as for households, a change of residence means that their assets and liabilities change their status through other changes in volumes.

More commonly, what is called “corporate migration” involves the conveyance of assets and liabilities from a corporation in one economy to a related entity in another economy recorded as a transaction rather than a change of residence of the entity.
Residence of other entities 26.43 General government includes territorial enclaves, such as embassies, consulates, military bases and other enclaves of foreign governments.

However, an entity created by a government under the laws of another jurisdiction is an enterprise resident in the host jurisdiction and not part of the general government sector in either economy.
the forces or acts as 26.44 International organizations are resident in an economic territory of their own and not of the economy in which they are physically located.

An international organization that interim operates military administration in a territory remains an international organization and is non-resident in that territory, even if it undertakes general government functions there.

In cases where these organizations are significant, it may be desirable to identify them separately.
Some international organizations cover a group of economies in a particular region, such as with economic or currency unions.

If statistics are prepared for that region as a whole, these regional organizations are residents of the region as a whole, even though they are not residents of any member economy.

26.45 A non-profit institution serving households (NPISH) has a centre of economic interest in the economy where the legally created or otherwise officially institution recognized.
When an NPISH is engaged in charity or relief work on an international scale, the foreign operations may be sufficiently substantial to be recognized as branches.

is C. A comparison between the international accounts and the SNA rest of the world accounts 26.46 Like the SNA, the international accounts cover accounts for current transactions, accumulation accounts and balance sheets.

The transaction accounts are collectively called the balance of payments.
An overview of the international accounts presentation (using the SNA numerical example) is given in tables 26.3.

The three current accounts are the goods and services account, the primary income account and the secondary income account.

The primary income account corresponds to the allocation of primary income accounts in the SNA, the secondary income account to the secondary distribution of income account in the SNA.
The income accounts in BPM6 do not use distribution and redistribution in their titles, since they do not show distribution and redistribution from one party to another, 488 The rest of the world accounts and links to the balance of payments but just show the income from the point of view of one party.
Because there is no account corresponding to use of income in the international accounts, the adjustment for the change in pension entitlements term appears as a single item after the secondary income account.

(Cross-border pensions are currently minor for most economies.)
26.47 There are no exact parallels in the international accounts for the production account, the generation of income account and use of income account because the international accounts do not describe production, consumption (or capital formation).

Products imported and exported are treated as simple transactions in all cases; whether the products will eventually be used intermediate consumption, final consumption, capital formation, or will the be re-exported international transaction.
The use made of products is entirely domestic in nature.

the context of is unknown for in 26.48 Table 26.3 also shows the restricted form of the capital account in the international accounts and the financial account using the functional classification of financial transactions rather than the instrument classification used in the SNA.

Because the functional classification is a grouping of instruments, the two forms of presentation are strictly consistent.
The functional classification is described below in section D. (The explanation of the shaded cell for reserves liabilities is explained in section D also.)

1.

Goods and services account 26.49 The goods and services account consists only of imports and exports of goods and services because these are the only transactions in goods and services with a cross-border dimension.

Goods and services are recorded when there is a change of economic ownership from a unit in one economy to a unit in another country.
Although there is usually a Table 26.3:Overview of the balance of payments Credits Debits Balance Current accounts Goods and services account Goods Services Goods and services Primary income account Compensation of employees Interest Distributed income of corporations Reinvested earnings Primary income account Goods, services and primary income Secondary income account Current taxes on income, wealth, etc.
Net non-life insurance premiums Non-life insurance claims Current international transfers Miscellaneous current transfers Secondary income Current account balance Capital account Acquisition or disposals of non-produced assets Capital transfers Capital account balance Net lending (+) or net borrowing (-) Financial account (by functional category) Direct investment Portfolio investment Financial derivatives (other than reserves) and ESOs Other investment Reserve assets Total changes in assets or liabilities Net lending (+) or net borrowing (-) Net errors and omissions -38 13 -3 10 10 0 489 System of National Accounts physical movement of goods when there is a change of ownership, this is not necessarily the case.
In the case of merchanting, goods may change ownership and not change location until they are resold to a third party.

26.50 Goods that change location from one economy to another but do not change economic ownership do not appear in imports and exports.

Thus goods sent abroad for processing, or returned after processing, do not appear as imports and exports of goods; only the fee agreed for processing appears as a service.
26.51 The balance of payments gives emphasis to the distinction between goods and services.

This distinction reflects policy interests, in that there are separate international treaties covering goods and services.

It also reflects data issues, in that data on goods are usually obtained from customs sources, while data on services are usually obtained from payments records or surveys.

26.52 The main source of data for goods is international merchandise trade statistics.
International standards are given in International Merchandise Trade Statistics: Concepts and Definitions (IMTS) (United Nations, 1998).

BPM6 identifies some sources of difference that may occur in some or all countries.

It also recommends a standard reconciliation table to assist users in understanding these differences.
One major source of difference is that the standards for IMTS use a CIF-type (cost, insurance and freight) valuation for imports, while the balance of payments use a uniform FOB valuation for both exports and imports.

It is therefore necessary to exclude freight and insurance costs incurred between the customs frontier of the exporter and the customs frontier of the importer.
Because of variations between the FOB-type valuation and actual contractual arrangements, some freight and insurance costs need to be rerouted.

this timing 26.53 The change of ownership basis used for the balance of payments means that goods entries will have a time of reporting consistent with the corresponding financial flows.

In BPM6, there are no longer exceptions to the change of ownership principle.

In contrast, IMTS follow the timing of customs processing.
While is often an acceptable approximation, adjustments may be needed in some cases, such as goods sent on consignment.

In the case of goods sent abroad for processing with no change of ownership, the values of goods movements are included in IMTS, but changes the primary presentation in the balance of payments.

(However, the recommended as values of goods movements are supplementary items to understand the nature of these arrangements.)
Further details of the recording of these processing arrangements are given in chapter 21.

Other adjustments to IMTS may be needed to bring estimates into line with the change of economic ownership of goods, either generally or because of the particular coverage of each country.

Possible examples include merchanting, non- monetary gold, goods entering or leaving the territory illegally, goods procured in ports by carriers, and goods moving physically but where there has been no change of ownership.
in ownership are 26.54 Re-exports are foreign goods (goods produced in other economies and previously imported with a change of 490 economic ownership) that are exported with no substantial transformation from the state in which they were previously imported.

Because re-exported goods are not produced in the economy concerned, they have less connection to the economy than other exports.

Economies that are major trans-shipment points and locations of wholesalers often have large values of re-exports.
Re-exports increase the figures for both imports and exports and when re-exporting is significant the proportions of imports and exports to economic aggregates are increased also.

It is therefore useful to show re-exports separately.

Goods that have been imported and are waiting to be re-exported are recorded in inventories of the resident economic owner.

26.55 Goods are presented at an aggregate level in the balance of payments.

More detailed commodity breakdowns can be obtained from IMTS data.
26.56 Detail is produced for the following 12 standard components of services: a.

Manufacturing services on physical inputs owned by others; b.

Maintenance and repair services n.i.e.

; c. Transport; d. Travel; e. Construction; f. Insurance and pension services; g. Financial services; h. Charges for the use of intellectual property n.i.e.

; i.

Telecommunications, computer and information services; j.
Other business services; k. Personal, cultural and recreational services; and l. Government goods and services n.i.e.

26.57 Three of the standard components are transactor-based items, that is, they relate to the acquirer or provider, rather than the product itself.

These categories are travel, construction and government goods and services n.i.e.

a.

Travel covers all goods or services acquired by non- residents during visits whether for own use or to give away.
Travel transport, local includes goods, accommodation, meals and other services.

b.

Construction covers both the total value of the product delivered by the contractor and any goods and services sourced locally by the contractor that are not recorded in imports and exports of goods.

The rest of the world accounts and links to the balance of payments c. Government goods and services n.i.e.

cover a range of items that cannot be allocated to more specific headings.
Besides the three transactor-based items, the remaining components are product-based, built from the more detailed classes of the CPC 2.
Additional standards for services trade are shown in the Manual on Statistics of International Trade in Services (MSITS) (United Nations, European Commission, International Monetary Fund, Organisation for Economic Co-operation and Development, United Nations Conference on Trade and Development and the World Trade Organization, 2002), which fully harmonized with the international accounts.

is 2.
is 2.

The primary income account 26.58 The entries in the primary income account are concerned with compensation of employees and property income, exactly as in the allocation of primary income account in the SNA.

Payments of taxes on production by residents and receipts of subsidies by residents from the domestic government are recorded in the generation of income account, an account that does not form part of the balance of payments.
Any payments of taxes on production payable by a resident to another government as well as any subsidy receivable by a resident from another government are recorded in the primary income account of the balance of payments.

The matching entries the domestic government are shown in the SNA in the allocation of primary income account and for foreign governments in the rest of the world column of that account and in the primary income account of the balance of payments.
for 26.59 Rent may arise in cross-border situations, but rarely, because all land is deemed to be owned by residents, if necessary by creating a notional resident unit.

An example where rent may be recorded in the international accounts may be short-term fishing rights in territorial waters provided to foreign fishing fleets.

It is common in the international accounts to use the term investment income meaning property income excluding rent.
Investment income the ownership of financial assets and the disaggregation of investment income matches that of financial assets and liabilities so that rates of return can be calculated.

income arising from therefore reflects proportion corresponds to the direct investor’s holding in the enterprise.
26.63 Retained earnings are equal to the net operating surplus of the enterprise plus all property income earned less all property income payable (before calculating reinvested earnings) plus current transfers receivable less current transfers payable and less the item for the adjustment for the change in pension entitlements.

Reinvested earnings accrued from any immediate subsidiaries are included in the property income receivable by the direct investment enterprise.
26.64 Reinvested earnings may be negative, for example where the enterprise makes a loss or where dividends are distributed from holding gains, or in a quarter when an annual dividend is paid.
However, if the dividends are disproportionately levels of dividends and earnings, the excess should be recorded as a withdrawal of owner’s equity from the corporation as explained in paragraph 7.131. large relative to recent 26.65 For a direct investment enterprise that is 100 per cent owned by a non-resident, reinvested earnings are equal to retained earnings and the saving of the enterprise is exactly zero.

3.
3.

Secondary income account 26.66 The entries in the secondary income account are current transfers.

The range of entries corresponds exactly to those in the secondary distribution of income account in the SNA.

Several of these are particularly important in the international accounts, especially current international cooperation and remittances sent to their home countries by individuals working abroad.
26.67 Cross-border personal transfers are household-to- household transfers and are of interest because they are an international funding for some important source of countries that provide large numbers of long-term workers abroad.

Personal transfers include remittances by long-term workers, that is, those who have changed their economy of residence.
26.60 In BPM6, interest flows are measured on exactly the same basis as in the SNA with FISIM separated and treated as an import or export of financial services.

Income of direct investment enterprises 26.61 The role of direct investment enterprises is particularly important and reflected in both the flows and positions in the international accounts.
There is extended discussion on the identification and role of direct investment enterprises in section D. 26.62 As explained in paragraphs 7.136 to 7.139, in the case of a direct investment enterprise, it is assumed that a proportion of the enterprise’s retained earnings is distributed to the direct investor as a form of investment income.

The 26.68 Other workers, such as border and seasonal workers do not change their economy of residence from the home economy.
Instead of transfers, the international transactions of these workers include compensation of employees, taxes and travel costs.

A supplementary presentation of personal remittances brings together personal transfers with these related include personal transfers, compensation of employees less taxes and travel, and capital transfers between households.

For further details, see Appendix 5 Remittances in BPM6.

items.
items.

Personal remittances 26.69 Insurance flows, especially flows relating to reinsurance, can be important internationally.

These flows are recorded in the same way as in the SNA, both as regards the separation of a financial service charge and the treatment of direct insurance and reinsurance flows separately and not on a consolidated basis.

Detailed information on this separation is given in part 1 of chapter 17.

491 System of National Accounts 4.


Balancing items in the current accounts of the international accounts 26.70 The structure of the balancing items in the balance of payments is somewhat different from that in the SNA, in that each account has its own balancing item and another that carries down to the next account.

To illustrate, the primary income account has its own balancing item (balance on primary income) and a cumulative balance (balance on goods, services and primary income).
The external balance on primary income corresponds to balance of primary incomes and is the item feeding into GNI.

The current external balance corresponds to saving by the rest of the world relative to the domestic economy.

The balancing items in the BPM6 structure of accounts are shown in table 16.3, reproduced here for convenience as table 26.4.

5.

The capital account 26.71 The elements of the capital account subject to international transactions are more restricted than those covered in the SNA.
The entries in the capital account cover acquisitions and disposals of non-produced non-financial assets and capital transfers.

There are no transactions recorded as capital formation of produced assets because, as explained earlier, the ultimate use of exports is not a concern for the national economy.

26.72 Like the SNA, net lending or net borrowing is the balancing item for the sum of the current and capital accounts and for the financial account.
As in the SNA, it covers all instruments used for providing or acquiring funding, not just lending and borrowing.

Conceptually, it has the same value as the national accounts item for the total economy, and the same as the national accounts item for the rest of the world but with the sign reversed.

6.
6.

The financial account and IIP 26.73 The financial account of the balance of payments and the IIP are of particular importance because they provide an understanding of international financing as well as of international liquidity and vulnerability.

The integrated IIP statement, including the IIP and associated financial and other changes accounts, is shown in Table 26.5.

The primary classification is based on functional categories, with additional data on instruments and institutional sectors.
26.74 The functional categories, described in section D, convey more information about the motivation and relationship between the parties, which are of particular interest to international economic analysis.

Data by functional category are further subdivided by instrument and institutional sector, which makes it possible to link them to the corresponding SNA and monetary and financial statistics items.
The institutional sector classification is the same as in the SNA, although it is usually abbreviated (to five sectors in the standard components).

In addition, a supplementary subsector is used for monetary authorities, which is a functional subsector linked to reserve assets.
It covers the central bank and any parts of general government or financial corporations other than the central bank that hold reserve assets, so is relevant for countries Table 26.4: Balancing items in the international accounts in relation to the SNA sequence of accounts Uses e h t f o t s e R d l r o w 540 - 41 6 44 - 10 - 51 17 38 - 13 3 - 10 Transactions and balancing items Goods and services account Imports of goods and services Exports of goods and services External balance of goods and services Primary income account Compensation of employees Taxes on production and imports Subsidies Property income External balance of primary income External balance of goods, services and primary income Secondary income account Current transfers External balance of secondary income Adjustment for the changes in pension entitlements Current external balance Capital account Acquisitions less disposals of non-produced assets Capital transfers, receivable Capital transfers, payable External capital account balance Net lending (+) / net borrowing (–) Resources e h t f o t s e R d l r o w 499 2 38 55 4 - 1 492 The rest of the world accounts and links to the balance of payments where some or all reserves are held outside the central bank.
26.75 The part of the balance sheets covered in the international accounts is called the IIP.

The terminology highlights the specific components of the national balance sheet which are included.

The IIP covers only financial assets and liabilities because, to be included in the IIP, there must be a cross- border element.

In the case of financial claims, the cross- border element arises when one party is a resident and the other party is a non-resident.
In addition, while gold bullion is an asset that has no counterpart liability, it is included in the IIP when held as a reserve asset, because of its role as a means of international payments.

However, non-financial assets are excluded as they do not have a counterpart liability or other international aspect.

26.76 The balancing item on the IIP is the net IIP.
The net IIP plus non-financial assets in the national balance sheet equal national net worth, because resident-to-resident financial claims net to zero in the national balance sheet.

26.77 The same level of detail is used for investment income and the IIP.

As a result, average rates of return can be calculated.

Rates of return can be compared over time and for different instruments and maturities.
For example, the trends in return on direct investment can be analysed, or the return can be compared with other instruments.

7.

The other changes in assets accounts 26.78 International assets and liabilities may be subject to all the possible types of other changes in the volume of assets and liabilities and to revaluation changes.
26.79 Because instruments are often denominated in foreign currencies and analysis of the effect of exchange rate movements is particularly important, there is a breakdown of revaluations into exchange rate changes and other factors.

D. International accounts functional categories 26.80 The international accounts functional categories are the primary classification used for each of investment income, financial transactions and positions in the international accounts.
The following five categories are identified: a. direct investment; b. portfolio investment; c. financial derivatives (other than reserves) and employee stock options; d. other investment; and e. reserve assets.

26.81 Detailed definitions are given later in this section.
The functional categories are built on the classification of Table 26.5:Overview of Integrated International Investment Position Statement Opening position Transactions (Financial account) Other changes in the volume of assets Revaluation Closing position Assets (by functional category) Direct investment Portfolio investment Financial derivatives (other than reserves) and ESOs Other investment Reserve assets Total Liabilities (by functional category) Direct investment Portfolio investment Financial derivatives (other than reserves) and ESOs Other investment Total Net IIP System of National Accounts financial instruments discussed in chapters 11 and 13, but with an additional dimension that takes into account some aspects of the relationship between the parties and the motivation for investment.
As a result, the different categories exhibit different patterns of behaviour.

For example, there is a different type of relationship between the parties for direct investors compared to portfolio investors holding equity.

Direct investment is related to control or a significant degree of influence, and tends to be associated with a lasting relationship although it may be short-term.
In addition to financial resources, direct investors often supply additional factors such as know- how, technology, management and marketing.

As well, related companies are more likely to trade with and lend to each other.

In contrast, portfolio investors typically have a smaller role in the decision-making of the enterprise, with potentially important implications for future flows, and for the volatility of the price and volume of positions.
Portfolio investment differs from other investment in that it provides a direct way to access financial markets, and so can provide liquidity and flexibility.

26.82 Reserve assets include a range of instruments that are shown under other categories when not owned by monetary authorities or other units authorized by the monetary authorities and sometimes even when held by monetary authorities.
However, as reserve assets they are identified as being available to meet international payments financing needs and undertake market intervention to influence the exchange rate.

26.83 The instrument classification alone does not fully reflect these behavioural differences.
For example, a loan can appear under direct investment or other investment, but the different nature of the relationship between the parties Table 26.6: Link between Financial Assets Classification and Functional Categories Functional categories t n e m t s e v n i o i l o f t r o P X X X X X SNA /MFSM Financial Assets and Liabilities Classification Monetary gold Special drawing rights Currency and deposits: Currency Interbank positions Other transferable deposits Other deposits Debt securities Loans Equity and investment fund shares: Equity: Listed shares Unlisted shares Other equity Investment fund shares/units: Money market fund shares/units Other investment fund shares/units Insurance, pension and standardized guarantee schemes: Non-life insurance technical reserves Life insurance and annuity entitlements Pension entitlements Claims of pension funds on pension managers Entitlements to non-pension benefits Provisions for calls under standardized guarantees Financial derivatives and employee stock options: Financial derivatives Employee stock options Other accounts receivable/payable: Trade credit and advances Other accounts receivable/payable ) s e v r e s e r n a h t r e h t o ( s O S E d n a X X t n e m t s e v n i r e h t O X* X*1 X X X X X X X x X X X Footnote 1: SDR assets are reserve assets; SDR liabilities are other investment; X shows applicable functional categories; x shows cases that are considered to be relatively uncommon.
494 The rest of the world accounts and links to the balance of payments means that the risks and motivations behind the transaction tend to differ.

A direct investment loan is more likely to be provided and generally involves less vulnerability on the part of the borrowing economy because of the relationship between the parties.

Table 26.6 shows the relationship between instruments and functional categories.

1.
1.

Direct investment 26.84 Direct investment is a category of cross-border investment associated with a resident in one economy having control or a significant degree of influence on the management of an enterprise that is resident in another economy.

As well as the equity that gives rise to control or influence, direct investment also includes associated debt (except debt between affiliated financial intermediaries).
26.85 Control is determined to exist if the direct investor owns more than 50 per cent of the voting power in the direct investment enterprise.

Such an enterprise is called a subsidiary.

A significant degree of influence is determined to exist if the direct investor owns from 10 to 50 percent of the voting power in the direct investment enterprise.

Such an enterprise is called an associate.


In order to achieve bilateral consistency and avoid subjective decisions about actual control or influence, these operational definitions should be used in all cases.

26.86 As well as immediate direct investment relationships, there may be indirect direct investment relationships, as a result of a chain of ownership.

In addition, fellow enterprises may be an important part of direct investment.
(Fellow enterprises are enterprises that have less than ten per cent equity in each other but which are under the control or influence of the same investor who is a foreign direct investor in at least one of the fellows.)

Reverse investment arises when direct investment enterprises invest in their own direct investors but have less than ten per cent of the voting power in the direct investor.
26.87 Direct investment includes debt between the parties as well as equity except in the case of debt positions between related financial institutions.

Such debt between related companies may be called inter-company lending.

One of the features of a group of direct investment enterprises is that its members are more likely to extend loans and trade credit to each other than are unrelated enterprises.
item 26.88 Because of the relationship of control or influence, the direct investor’s share of retained earnings of a subsidiary or associate is imputed as first being paid out as an income flow and then reinvested as a financial transaction.

The income the corresponding equal entry in the financial account is called reinvestment of earnings.

Reinvested earnings are defined as the direct investor’s share in the retained earnings of the enterprise, and so are consistent with the corresponding SNA items.
A consequence is that there will be no saving by an enterprise that is 100 per cent foreign owned, because all saving will be attributed to its direct investor.

reinvested earnings; called is but still subject to a significant degree of influence.

The SNA’s foreign-controlled enterprises are limited to inward direct investment, while the international accounts are also concerned with outward direct investment.
Reinvested earnings on foreign direct investment in the SNA have the same scope as in the balance of payments (although “foreign” is not used because it is redundant in the context of the international accounts).
26.90 In addition to the statistics on the international financial flows associated with direct investment, information on foreign-controlled enterprises is provided through statistics on the Activities of Multinational Enterprises (AMNE statistics) and the closely related Foreign AffiliaTes Statistics (FATS).

These cover items such as exports, imports, domestic sales and domestic purchases of goods and services.

They therefore provide a wider picture of the operations of multinational enterprises.
Additional information is available in Recommendations Manual on the Production of Foreign AffiliaTes Statistics, the Handbook on Economic Globalisation Indicators and MSITS.

2.

Portfolio investment 26.91 Portfolio investment is defined as cross-border transactions and positions involving debt or equity securities, other than those included in direct investment or reserve assets.
Securities are instruments designed for convenient negotiability between parties, such as shares, bonds, notes and money market instruments.

The negotiability of securities is a way of facilitating trading, allowing them to be held by different parties during their lives.

Negotiability allows investors to diversify their portfolios and to withdraw their investment readily.
26.92 Portfolio investment typically depends on organized financial markets and associated bodies such as dealers, exchanges and regulators.

In contrast, the parties to direct and other investment instruments usually deal directly with each other.

The negotiability of portfolio investment transactions makes them a convenient and flexible investment channel, but also may be associated with volatility.

3.
3.

Financial derivatives (other than reserves) and employee stock options 26.93 The definition of the functional category financial derivatives (other than reserves) and employee stock options largely coincides with the corresponding financial instrument class, discussed in chapters 11 and 13.
The difference in coverage between the functional category and the financial instrument is that financial derivatives associated with reserve asset management are excluded from the functional category and included in reserve assets.

This category is identified separately because it relates to risk transfer, rather than supply of funds or other resources.

4.
4.

Other investment 26.89 Those direct investment enterprises that are controlled by non-residents correspond to the SNA subsectors of foreign- controlled investment enterprises.
However direct enterprises include those not subject to control from abroad 26.94 Other investment is a residual category that includes positions and transactions other than those included in financial direct investment, portfolio investment, 495 System of National Accounts derivatives and employee stock options and reserve assets.

It includes the remainder of the following financial instruments: notions of “control” and “availability for use” by the monetary authorities.
a. other equity; b. currency and deposits; c. loans (including use of IMF credit and loans from the IMF); d. non-life insurance technical reserves, life insurance and annuities entitlements, pension entitlements and provisions for calls under standardized guarantees; e. trade credit and advances; f. other accounts receivable/payable; and g. SDR allocations (SDR holdings are included in reserve assets).

5.
5.

Reserve assets 26.95 Reserve assets are those external assets that are readily available to and controlled by monetary authorities for meeting balance of payments financing needs, for intervention in exchange markets to affect the currency exchange rate and for other related purposes (such as maintaining confidence in the currency and the economy, and serving as a basis for foreign borrowing).

Reserve assets must be denominated and settled in foreign currency.
Underlying the concept of reserve assets are the 26.96 In general, only external claims actually owned by the monetary authorities can be classified as reserve assets.

Nonetheless, ownership is not the only condition that confers control.
In cases where institutional units (other than the monetary authorities) in the reporting economy hold legal title to external foreign currency assets and are permitted to do so only on terms specified by the monetary authorities or only with their express approval, such assets can be considered reserve assets.

This is because such assets are under the direct and effective control of the monetary authorities.

26.97 Reserve assets must be readily available in the most unconditional form.
A reserve asset is liquid in that the asset can be bought, sold and liquidated for foreign currency (cash) with minimum cost and time, and without unduly affecting the value of the asset.

This concept refers to both non-marketable assets, such as demand deposits, and marketable assets, such as securities where there are ready and willing sellers and buyers.
In order to be readily available to the authorities to meet balance of payments financing needs and other related purposes under adverse circumstances, reserve assets generally should be of high quality.

26.98 Reserve assets are limited to assets, but a memorandum item is provided for reserve-related liabilities that are included in other functional categories, mainly portfolio and other investment.

(This is why the liabilities cell for reserves in table 26.3 is shaded.)
Special international accounts considerations E. 1.

Global imbalances 26.99 In recent years, the IMF has done extensive work on global statistical imbalances.

By summing data for all economies, global totals can be derived.

(Although as a functional category, reserve assets have no counterpart liability, the constituent instruments can be allocated to their counterpart liabilities for an exercise of the type described here.)
The extent of actual inconsistency has been used to identify systematic biases that can indicate reporting problems, for example, that services credits have higher coverage than services debits.

26.101 Exceptional financing is presented in the “analytic” presentation of the balance of payments, as published in the Balance of Payments Statistics Yearbook (International Monetary Fund, annual).
In this presentation, entries relating to reserves, IMF credit and exceptional financing are presented “below-the-line” while all the other entries, which will require funding, are shown above-the-line.

This presentation facilitates analysis of the monetary authorities’ international liquidity.

26.102 There is more discussion on exceptional financing in appendix 1 of BPM6.

2.

Exceptional financing 3.


Debt instruments 26.100 Exceptional brings together financing financial arrangements made by the authorities to meet balance of payments needs.

Exceptional financing therefore identifies transactions according to their motivation.

In addition, the incurrence of arrears is included in exceptional financing.

Although it is not a transaction, it is an action the monetary authorities may their payments requirements.
to manage take 26.103 It is useful to group the different types of debt instruments, because debt instruments have particular implications for international liquidity and risk.

Debt instruments are those instruments that require the payment of principal or interest or both at some point(s) in the future.
Debt instruments comprise special drawing rights, currency and deposits, debt securities, loans, insurance technical reserves and provision for calls under standardized guarantees, and other 496 The rest of the world accounts and links to the balance of payments accounts receivable/payable.

Financial derivatives are not debt instruments, but an overdue obligation on a financial derivative contract is classified as an account payable and thus is included as a debt instrument.
26.108 Debt repudiation, write-offs and write-downs of debt on a unilateral basis are not treated as transactions in either the SNA or BPM6 and so are not considered part of debt reorganization.

26.104 Debt instruments can be contrasted with equity and investment shares in the nature of the liability and risk.
While equity gives a residual claim on the assets of the entity, a debt instrument involves an obligation to pay an amount of principal or interest or both usually according to a predefined formula, which means that the creditor has a more limited risk exposure.

In contrast, the return on equity is largely dependent on the economic performance of the issuer, so the holders bear more of the risk.

Additional information is provided in the External Debt Guide.
26.105 Debt instrument flows and positions are shown divided between long-term and short-term.

Primarily, this split is according to their original maturity, that is, the period from issue until contractually scheduled final payment.
In addition, because of the international accounts concern with international liquidity issues, liability data can also be prepared on the basis of remaining maturity, that is, the period from the reference date until contractually scheduled final payment, on a supplementary basis.

4.
4.

Debt reorganization 26.106 Debt reorganization (also referred as debt restructuring) is defined as arrangements involving both the creditor and the debtor (and sometimes third parties) that alter the terms established for servicing an existing debt.

Governments are often involved in debt reorganization, as a debtor, or a creditor or a guarantor, but debt reorganization can also involve the private sector, such as through debt exchanges.
Debt reorganization involves a range of different types of transactions as well as valuation and timing issues.

26.107 The four main types of debt reorganization are: a.

Debt forgiveness; a reduction in the amount of, or the extinguishing of, a debt obligation by the creditor via a contractual arrangement with the debtor; b.
Debt rescheduling or refinancing; a change in the terms and conditions of the amount owed, which may or may not result in a reduction in burden in present value terms; c. Debt conversion; the creditor exchanges the debt claim for something of economic value, other than another debt claim on the same debtor, such as debt-for-equity swaps, debt-for- development swaps, debt-for-nature swaps, and for debt prepayments, debt-for-cash; and debt-for-real-estate swaps, 5.
Regional arrangements, including currency unions 26.109 Regional arrangements include: a. monetary and currency unions, which provide for a single monetary policy across an area.

Some of the same issues apply when one economy unilaterally adopts the currency of another economy, such as with “dollarization”; b. economic unions, which harmonize certain economic policies to foster greater economic integration; and c. customs unions, which have common tariff and other trade policies with non-member economies.
BPM6 gives detailed guidance on the treatments of these arrangements.

Among the issues that are dealt with are the production of consolidated data for a union as a whole, the treatment of regional organizations, including the central bank, treatment of bank notes in a currency union, and revenue-sharing arrangements in a customs union.

6.
6.

Currency conversion, including multiple exchange rates 26.110 Exchange rates must be considered carefully when measuring international transactions and positions, as changes can distort measurement.

Flows denominated in a foreign currency are converted to their value in the domestic currency at the rate prevailing when the flows take place, and positions are converted at the rate prevailing on the balance sheet date.
The midpoint between the buying and selling rates should be used at the time of transaction (for transactions) and at the close of business on the reference date for positions.

The difference between buying/selling prices and midpoint prices represents a service charge and should be recorded as such.

26.111 In principle, the actual exchange rate applicable to each transaction should be used for currency conversion.
The use of a daily average exchange rate for daily transactions usually provides a very good approximation.

If daily rates cannot be applied, average rates for the shortest period should be used.

Some transactions occur on a continuous basis, such as the accrual of interest, over a period of time.

For such flows, therefore, an average exchange rate for the period in which the flows occur should be used for currency conversion.
d. Debt assumption and debt payments on behalf of others when a third party is also involved.

forgiveness across economies often Debt involves government and there is further guidance on the treatments of these arrangements in chapter 22, BPM6 and specialized manuals such as the External Debt Guide.

26.112 Under a multiple exchange rate regime, two or more exchange rates are applicable to different categories of transactions; the rates favour some categories and discourage others.
Such rates incorporate elements similar to taxes or subsidies.

Because the multiple rates influence the values and the undertaking of transactions expressed in domestic currency, net proceeds implicitly accruing to authorities as a result of these transactions are calculated as 497 System of National Accounts implicit taxes or subsidies.
The amount of the implicit tax or subsidy for each transaction can be calculated as the difference between the value of the transaction in domestic currency at the actual exchange rate applicable and the value of the transaction at a unitary rate that is calculated as a weighted average of all official rates used for external transactions.
For conversion of positions of external financial assets and liabilities in a multiple rate system, the actual exchange rate applicable to specific assets or liabilities at the beginning or end of the accounting period is used.

26.113 Parallel (unofficial) or black market rates cannot be ignored in the context of a multiple rate regime and can be treated in different ways.

For instance, if there is one official rate and a parallel market rate, the two should be handled separately.
Transactions in parallel markets should be converted using the exchange rate applicable in that market.

If there are multiple official rates and a parallel rate, the official rates and the parallel rate should be treated as distinct markets in any calculation of a unitary rate.

Transactions effected at the parallel rate usually should be separately converted at that rate.

However, in some instances, parallel markets may be considered effectively integrated with the official exchange rate regime.
Such is the case when most or all transactions in the parallel market are sanctioned by the authorities or when the authorities actively intervene in the market to affect the parallel rate, or do both.

In this instance, the calculation of the unitary rate should include both the official and parallel market rates.

If only limited transactions in the parallel market are sanctioned by the authorities, the parallel rate should not be included in the calculation of a unitary rate.
498 Chapter 27: Links to monetary statistics and the flow of funds A.

Introduction 27.1 Chapter 11 describes the financial account of the sequence of accounts of the SNA.

It shows transactions in each category of financial assets and liabilities for each of the institutional sectors of the national economy and of the rest of the world.
27.2 As explained when describing the principle of quadruple accounting in both chapter 11 and chapter 4, each transaction leads to two pairs of entries in the SNA accounts.

For many transactions, one pair is recorded in one of the non-financial accounts and one pair in the financial account.

For others, which are concerned with changing the composition of a portfolio of financial assets and liabilities, both pairs of entries are recorded in the financial account.
It is for this reason that only by including the financial account in the sequence of accounts is the full articulation of the accounting system achieved.

27.3 However, the information in the financial account is of analytical and policy interest in its own right and represents an important part of monetary and financial statistics.

These statistics are used to monitor the state of the money and other capital markets in particular and as an indicator of the state of the economy in general.
For the latter, the link to the rest of the SNA accounts is usually implicit rather than explicit.

27.4 The purpose of this chapter is to give an introduction to the sorts of analyses involved in monetary and financial statistics more generally and to show how the data in the sequence of accounts can be linked to these other presentations.
Further detail on monetary and financial statistics can be found in the MFSM and its companion Compilation Guide (International Monetary Fund (IMF) 2008), the Manual on Sources and Methods for the Compilation of ESA 95 Financial Accounts (Eurostat, 2002b), the Monetary Financial Institutions and Market Statistic Manual (European Central Bank, 2007) and in Financial Production, Flows and Stocks in the SNA.

the European Central Bank, (United Nations and forthcoming).

1.
1.

Monetary statistics 27.5 Monetary statistics cover the stocks and flows of the assets and liabilities of financial corporations, both within an economy and between units in the economy and units in the rest of the world.

However, a more aggregate level of subsectoring the SNA.

Financial corporations are divided into two subsectors only at the highest level, depository corporations and the other financial corporations subsector.
The former is then further subsectored into the central bank subsector and the other depository corporations subsector.

More information on monetary statistics is given in section B. is used than in 2.

Financial statistics 27.6 27.7 Financial statistics extend the range of monetary statistics to include the stocks and flows of financial assets and liabilities between all sectors of the economy and between the sectors of the economy and the rest of the world.
The basic accounting rules, concepts of residence, time of recording and the classification of financial assets and liabilities are consistent between the SNA, BPM6 and MFSM.

The MFSM uses a more aggregate level of sectoring than the SNA but one that is strictly consistent with it.

27.8 Some further aspects of financial statistics building on the classifications used in the financial account are discussed in section C. 3.
Flow of Funds 27.9 The flow of funds is a three dimensional presentation of financial statistics where both parties to a transaction as well as the nature of the financial instrument being transacted are elaborated.

A similar three dimensional presentation is also presented in respect of the stocks of financial assets and liabilities where the creditor and debtor of each instrument are shown.

The flow of funds is discussed in section D. 499 System of National Accounts A.

Monetary statistics 1.


Defining depository corporations the other established.

financial corporations subsector, can be 27.10 Money is very important as a financial variable, but the wide range of ways in which money is defined in different countries precludes a simple definition within the SNA.
27.11 The composition of broad money and other monetary aggregates varies widely among countries and encompasses many classes of deposits and certain categories of short- term securities, particularly negotiable certificates of deposit.

In addition, many countries compile a range of money measures, as well as broader liquidity measures.
Even within a single country, innovation, deregulation or technical progress may cause definitions of broad money to shift over time in response to changes in financial instruments and the organization of money markets.

27.12 In the MFSM, a country-specific concept of broad money as nationally defined is used.
Although the specific components of broad money may vary across countries, in all cases the nationally defined concept is used to identify those financial corporations that issue liabilities included in broad money.

Such corporations are described as depository corporations.

2.

Presentation of monetary statistics 27.15 Monetary statistics are presented for all corporations, with the following disaggregation: financial a.
Depository corporations subsector, • Central bank subsector, • Other depository corporations subsector, b.

Other financial corporations subsector.

27.16 The instrument classification is the standard one from the financial account, as shown in table 27.2, with possibly the some further breakdown according instrument is denominated in local currency or foreign currency.
to whether 27.17 For each instrument, a set of entries equivalent to an asset account is shown, that is: it should be possible 27.13 The set of nine subsectors of the financial corporations sector described in chapter 4 and listed in table 27.1 is such that identify depository corporations as just defined as a combination of two or more of these subsectors.

At a minimum, the group will include the central bank and deposit-taking institutions.
In some countries money market funds may also be included because they are considered to be part of broad money.

to a.

Opening stock, b.

Transactions, c. Valuation changes, 27.14 Once depository corporations are identified, the three subsectors used for monetary statistics, the central bank subsector, the other depository corporations subsector and d. Other changes in volume, e. Closing stock.

Table 27.1: Subsectors of the financial corporations sector 1.

Central Bank 2.
Central Bank 2.

Deposit-taking corporations except the Central Bank 3.

Money market funds (MMF) 4.

Non-MMF investment funds 5.

Other financial intermediaries except insurance corporations and pension funds 6.

Financial auxiliaries 7.

Captive financial institutions and money lenders 8.

Insurance corporations (IC) 9.

Pension funds (PF) 500 Links to monetary statistics and the flow of funds B.
Financial statistics 27.18 As noted in the introduction, financial statistics extend the range of monetary statistics to include the stocks and flows of financial assets and liabilities between all sectors of the economy and between the sectors of the economy and the rest of the world.

Financial statistics include the financial account, balance sheets, other changes in assets account and the capital account to the extent that net borrowing or net lending is taken from there.
The format used for financial statistics is similar to that used for monetary statistics except that all sectors are covered.

In addition, disaggregation of the financial sector into subsectors is common.

As indicated, though, the sectors outside the financial corporations sector may be aggregated.

It is usual to show general government separately and also the rest of the world.

If it is of particular interest, public non-financial corporations may also be shown as a separate sector.
Table 27.2: The classification of financial assets and liabilities Monetary gold and special drawing rights (SDRs) Monetary gold Special drawing rights Currency and deposits Currency Transferable deposits Interbank positions Other transferable deposits Other deposits Debt securities* Short-term Long-term Loans Short-term Long-term Equity and investment fund shares** Equity Listed shares Unlisted shares Other equity Investment fund shares/units* Money market fund shares/units Other investment fund shares/units Insurance, pension and standardized guarantee schemes Non-life insurance technical reserves Life insurance and annuity entitlements Pension entitlements Claims by pension funds on pension managers Provisions for calls under standardized guarantees Financial derivatives and employee stock options Financial derivatives Options Forwards*** Employee stock options Other accounts receivable / payable Trade credit and advances Other Memorandum item: Foreign direct investment Equity Loans Debt securities Trade Credit Other The listed/unlisted split is relevant for debt securities and investment funds also.
Reinvested earnings can exist under any of these.

* ** *** Credit default swaps to cover for guarantees are included within this item.

501 System of National Accounts negotiability, 27.19 The classification of financial assets, shown in table 27.2, is based primarily on two kinds of criteria: the liquidity of the asset and the legal characteristics that describe the form of the underlying creditor/debtor relationship.
The concept of liquidity embraces other more specific characteristics such as or convertibility.

These characteristics play a major role in determining the categories, although they are not separately identified in a systematic way.

The classification is designed to facilitate the analysis of transactions of institutional units and is a framework for assessing the sources and uses of financing and degree of liquidity for these units.
transferability, marketability 27.20 Maturity distinction recognized as a secondary classification criterion.

Short-term is defined for the is classification as one year or less, while long-term is defined as more than one year.

To monitor possible liquidity risks, it may also be helpful to distinguish those long-term instruments with a remaining maturity of one year or less.

(Remaining maturity is the period from the reference date until contractually scheduled final payment.)
27.21 The classification does not contain functional categories, such as direct investment, portfolio investment, and international reserves, which are basic classification criteria for the balance of payments financial account.

In view of the importance of these categories, the classification does provide for memorandum items for financial account transactions investment relationships.
This topic is treated in greater detail in chapters 21 and 26. foreign direct related to C. Flow of funds 27.22 The form of table described under the section on monetary statistics shows how the closing stock of a comprehensive set of assets for a particular sector may be analysed by seeing how the opening stock is changed by transactions in the asset, revaluation changes and other changes in the volume of assets to reach the closing stock.
This is a particular application of the asset accounts described in chapter 13. of assuming the net lending or net borrowing total is already determined.

(This still assumes that saving is determined correctly.

The act of balancing the flow of funds table may suggest a re-examination of the current accounts if it is difficult to reconcile the saving figure for a sector with the recorded capital and financial transactions.)

1.
1.

Flow accounts 27.23 Another popular form of table is that known as a flow of funds table.

This may take one of several forms.

The most common presentation consists of an articulation of flows (or stocks) showing for each instrument which sector or subsector is the creditor and which the debtor.

Another variation is to combine the elements of the capital and financial accounts to examine all accumulation transactions and not just those concerning financial assets.
The rationale for this is that the balancing item on the right-hand side of the financial account should be exactly equal in magnitude but opposite in sign to that on the left-hand side of the capital account.
By including the items from the capital account, discrepancies in this account may be revealed by the exercise of completing the flow of funds table, instead 27.24 The financial account, as presented in table 11.1 and repeated for convenience here as table 27.3, records the net acquisition of financial assets and net incurrence of liabilities for all institutional sectors by type of financial asset.
For each sector, the financial account shows the liabilities that the sector incurs to mobilize financial resources and the financial assets that the sector acquires.

For each financial asset and liability, the financial account shows the effects of transactions on the level of assets acquired by each sector and on the level of liabilities incurred by each sector.
This information is very valuable in identifying the financial assets that net borrowing sectors use to finance their deficits and the assets that net lending sectors use to allocate their surpluses.
Although the Table 27.3: The financial account - concise form - changes in assets Changes in assets Transactions and balancing items Net acquisition of financial assets Monetary gold and SDRs Currency and deposits Debt securities Loans Equity and investment fund shares Insurance, pension and standardized guarantee schemes Financial derivatives and employee stock options Other accounts receivable/payable l i a c n a n i f - n o N s n o i t a r o p r o c 83 39 7 19 10 1 3 4 502 l i a c n a n F i s n o i t a r o p r o c 172 - 1 10 66 53 28 - 10 - 26 4 3 3 1 0 5 189 64 10 3 66 39 3 4 2 2 - 1 0 0 0 0 1 y m o n o c e l a t o T 436 - 1 89 86 78 107 48 14 15 47 1 11 9 4 12 0 0 10 483 0 100 95 82 119 48 14 25 movement of financial flows can be mapped at this level of recording, the question of who is financing whom is not answered.
Table 27.3 shows that non-financial corporations incur liabilities predominantly in the form of loans and other equities and investment fund shares.

Financial corporations incur net liabilities by using the full range of financial instruments.

While the instrument by which the liabilities are incurred is clearly presented in this account, it is not possible to identify the sector that is providing the funds.

Similarly, the net acquisition of financial assets can be tracked.
Households acquire net financial assets spread across a range of assets, while financial corporations acquire net financial assets mostly in the form of loans and securities.

However, it cannot be determined from this level of recording to which sectors the financing is being provided.
27.25 For a full understanding of financial flows and the role they play in the economy, it is often important to know more detailed financial relationships between sectors and the financial assets by which these relationships are carried out.

For example, it is useful to show what types of liabilities government is using to finance its deficit and which sectors (or the rest of the world) are providing the financing.
For financial corporations (and those supervising them), it is interesting to show not only the composition of financial assets (loans and securities) that they have acquired but also which sectors these are claims upon.
In addition, it is often desirable to analyse financial flows between subsectors within a sector (central government financial transactions with local governments or central bank financial transactions with deposit-taking institutions) and across sector boundaries (changes in deposit-taking institutions’ claims on public non-financial corporations).

Such detailed information is necessary to understand how financing is carried out and how it changes over time.
27.26 This more detailed approach is particularly important in spelling out the role that financial corporations play in financial transactions.

Financial corporations often have very small net in comparison with their total transactions in both financial assets and liabilities.
This reflects the basic role of financial intermediation of mobilizing financial resources and making them available to other sectors in forms suitable to these sectors through transformation of the maturity of lending or borrowing balances Links to monetary statistics and the flow of funds exact form of the assets available.
More generally, financial corporations play a major role assisting institutional units to rebalance their portfolios of assets and liabilities taking account of their preferences between investment safety and rate of return, liquidity preference and convenience amid constantly changing market conditions.
Thus, financial corporations play a critical role in directing financing flows from net lending sectors to net borrowing sectors and allow lenders to choose their asset instruments and borrowers their forms of indebtedness.
The format of the account 27.27 Table 27.4 facilitates the more detailed financial analysis just described by showing transactions in assets cross- classified by type of asset and by the debtor sector in the first part and the type of liability cross-classified by the creditor sector in a similar, second part.

The sectors transacting in assets or liabilities form the columns of the table while the type of asset, disaggregated by sector of debtor, is shown in the rows.
It would be conceptually possible to present all the relationships between creditors and debtors in a single table but this would require a table of very many cells, many of which would be blank.

27.28 Table 27.4 is merely illustrative of the type of detail that a country may wish to develop.
Initially it may be possible to show columns only for general government, the financial sector and the rest of the world separately from all other sectors, but even at this level if monetary statistics exist, it should be possible to disaggregate the financial sector into three subsectors as described earlier.

27.29 Ultimately it is desirable to show all the institutional sectors of the SNA and possibly subsectors such as central government and publicly controlled corporations.
27.30 The degree of detail shown for the financial instruments will depend on data availability and the relative importance of each.

What follows is a list of possible disaggregations.
27.31 Currency and deposits may be distinguished according to currency, transferable deposits and other deposits identifying that part of each that is denominated in Table 27.3 (cont): The financial account - concise form - changes in liabilities and net worth Changes in liabilities and net worth Transactions and balancing items Net lending (+) / net borrowing (–) Net acquisition of liabilities Monetary gold and SDRs Currency and deposits Debt securities Loans Equity and investment fund shares Insurance, pension and standardized guarantee schemes Financial derivatives and employee stock options Other accounts receivable/payable l i a c n a n i f - n o N s n o i t a r o p r o c - 56 139 6 21 83 3 26 l i a c n a n F i s n o i t a r o p r o c - 1 173 65 30 0 22 48 8 0 t n e m n r e v o g l a r e n e G l s d o h e s u o H - 103 93 174 15 s H S P N I 37 38 9 0 0 9 0 11 0 4 y m o n o c e l a t o T 10 426 102 74 47 105 48 11 39 - - 10 57 - 2 21 35 14 0 3 - 14 0 483 100 95 82 119 48 14 25 503 System of National Accounts domestic currency or foreign currency and whether the creditor or debtor is a resident or non-resident.
27.32 Debt securities and loans may be divided by maturity (short and long-term) as well as by sector.

27.33 For equity a distinction between resident and non-resident enterprises as well as the distinction between listed, unlisted and other equity may be helpful.

27.34 For insurance, standardized guarantee schemes and for financial derivatives the presentation may be simplified because one party to the transaction must be a financial corporation, either resident or non-resident.
For employee stock options, the debtor must be either a financial or non- financial corporation.

Most pension schemes are operated by financial corporations but some may be operated by non-financial employers without involving a financial corporation.

27.35 Trade credits and advances may be made by any sector.

The claims of pension funds on pension managers may, in principle, relate to any sector but are likely not to involve households.
Other accounts receivable or payable may be separated into whether they are with residents or non- residents.

27.36 The form of table 27.4 should be interpreted as a general model, and substantial flexibility should be allowed in specific country circumstances.

In many countries, the dimensions of the tables will be severely constrained by data availability.
It should also be noted that these tables are extensions of the basic financial account and that the third dimension to the analysis can be added on a selective basis by identifying particular asset or sector (or subsector) relationships for which this level of detail would be useful.

Analytical uses of course, would be complementary to similar work on data from other accounts in the SNA.
In particular it is useful, when using the flow of funds accounts to facilitate the study of the operation of the financial system in the economy, to relate these transactions to the behaviour of the non-financial economy.

Similarly, the flow of funds accounts facilitate study of the process of making the equality between saving and investment, by tracing the channels by which net lending reaches ultimate borrowing, after passing through various financial corporations and assets.
27.38 In the policy area, a few examples will illustrate the usefulness of these tables.

Common policy problems faced by many nations include questions such as: How will the central government’s deficit be financed?

How will the major non-financial public corporations be financed and by whom?

In each of these examples, the provision of answers to the questions requires an impact analysis on various sectors and types of transaction.
The articulation of the accounts within the flow of funds facilitates the analysis and provides a framework in which to assess the answers.
27.39 In the area of financial projections, the use of time-series from relevant parts of the flow of funds tables enables an examination for consistency of a number of separately prepared sector or market forecasts, and the implications for future financial transactions of a particular set of assumptions about future events (for example, interest rates, exchange rates, growth, sector surpluses or deficits).
27.40 Other policy areas where these projections and studies can be of assistance are long-term development of financial markets and institutions in the economy and assessments of the need for new types of assets to satisfy the potential demand of savers and investors requiring access to reliable liquid assets.

in considering the 2.

Stock accounts 27.37 A detailed flow of funds table can be used in at least three important areas related to economic policy.
Data from these tables can be used in economic analysis and description of activity and trends in current periods.

They can be used as an aid to projections in the context of the production of economic plans or to assess the effect of current economic policies, or changes in them, on the future path of the economy.

They can also be used in projects that undertake modelling of the economy to study economic behaviour as an aid to the formulation of economic policy.
Such studies, 27.41 Just as tables like those above can be compiled and very usefully analysed in terms of flows, so it is instructive to compile exactly similar tables in terms of the stocks of financial assets and liabilities.

Where flows may be fairly volatile from one period to the next, the level of stocks is likely to be more stable and the degree of fluctuation from the stock level may convey particularly useful additional information.
504 Table 27.4: Format for detailed flow of funds table or stocks of financial assets analysed by debtor and creditor Links to monetary statistics and the flow of funds Sectors and sub-sectors Part 1: Asset and creditor Part 2: Liability and debtor Monetary gold and SDRs Monetary gold SDRs Currency and deposits Currency Local currency Residents Non-residents Foreign currency Transferable deposits Interbank positions Other transferable deposits Local currency Residents Non-residents Foreign currency Residents Non-residents Other deposits Local currency Residents Non-residents Foreign currency Residents Non-residents Debt securities Short-term {Sectors} Long-term {Sectors} Loans Short-term {Sectors} Long-term {Sectors} Equity and investment fund shares Equity Listed shares Resident enterprises Non-resident enterprises Unlisted shares Resident enterprises Non-resident enterprises Other equity Resident enterprises Non-resident enterprises Investment fund shares/units Money market fund shares/units Resident enterprises Non-resident enterprises Other investment fund shares/units Resident enterprises Non-resident enterprises Insurance, pension and standardized guarantee schemes Non-life insurance technical reserves Life insurance and annuity entitlements Pension entitlements Claims of pension funds on pension managers Entitlements to non-pension benefits Provisions for calls under standardized guarantees Financial derivatives and employee stock options Financial derivatives Options Forwards Employee stock options Other accounts receivable/payable Trade credits and advances {Sectors} Other accounts receivable/payable {Sectors} 505 System of National Accounts 506 Chapter 28: Input-output and other matrix-based analyses A.
Introduction 28.1 The purpose of this chapter is to build on the presentation of the supply and use tables in chapter 14 to examine in greater detail the possibilities offered by using a matrix form of presentation of the accounts.

As has been noted on a number of occasions, the SNA is intended to offer a degree of flexibility in implementation as long as the inherent accounting rules are observed.
The fact that the requirement to balance uses and resources is immediately obvious within a matrix framework makes this a powerful way in which to explore different options while still ensuring the balances are satisfied.

One aim of this chapter is to demonstrate the power of a matrix presentation in this way.

1.

Input-output tables 28.2 A second aim is to describe the basic ideas of input-output matrices.
Supply and use tables are an integral part of the SNA and the process of compiling these tables is a powerful way of ensuring consistency between the various data sources available to the compiler.

For many analytical purposes, though, a transformation from a pair of supply and use tables into a single input-output table where row and column totals are equal brings very considerable advantages.
Input-output tables cannot be compiled without passing through the supply and use stage (except under very restrictive assumptions).

They are therefore analytical constructs that inevitably involve some degree of modelling in their compilation.

28.3 There is a vast literature on the compilation and use of input-output tables and it is impossible in a short chapter to give a full appreciation of the range of complexities of compilation and inventiveness of applications.
The chapter aims only to give a feel for the sort of operations necessary to transform supply and use tables into input-output tables and to give some ideas of their possible applications.

The Manual of Supply, Use and Input-Output Tables and a visit to the International Input-Output Association (www.iioa.org) are good places to start a more detailed investigation of the potential in this field.

the web site of 2.
the web site of 2.

Social accounting matrices 28.4 Both the supply and use tables and input-output tables are matrix representations of the goods and services account.

It is possible to cast the whole of the sequence of accounts, including the goods and services account, in a matrix format also.

Such a matrix is called a social accounting matrix (SAM).
28.5 It is possible to extend and elaborate a SAM by introducing alternative disaggregations of existing flows or new types of flows, just as long as the use and resource of these flows balance in the usual way.

This is such a common extension of a SAM that the usual understanding of what a SAM is often goes further than a matrix encompassing the standard sequence of accounts to include extensions, particularly of the household sector.

3.
3.

The structure of the chapter 28.6 28.7 Chapter 14 describes how the supply and use tables may be used in order to ensure the internal consistency of disparate data sets.

Section B of this chapter looks at two particular aspects of the supply and use tables where it may be useful to adopt a different approach to that described in chapter 14.
The first of these concerns the treatment of insurance and freight on imported goods and the second concerns the treatment of goods that are processed by a unit that is not the legal owner of them.

Section B also discusses how information cross-classified by establishment and industry can be transformed into information relating to institutional sectors.

Section C is concerned with how a pair of supply and use tables may be transformed into a single symmetric input- output matrix.
Each of the supply and use tables shows disaggregation by products and industries.

In an input- output table, one of these dimensions is eliminated.

Thus a single table may show the relationship between the supply and use of products or alternatively the output of industries and the demand for the output of industries.

28.8 Section D goes on to show how the whole of the accounting system can be represented in matrix form.
This is a useful pedagogical tool and may be instructive as a stepping-off point for extensions of the accounts such as social accounting matrices.

507 System of National Accounts B.

Flexibility in the supply and use tables 1.

The treatment of margins on imports 28.9 transport charges should be In discussing valuation in section B of chapter 14, consideration is given to how transport margins should be incorporated into the accounts and in particular how international recorded.
Paragraphs 14.61 to 14.77 explain that the parallel between basic and producer prices does not carry forward simply to a distinction between CIF and FOB-based prices.

The distinction depends on whether it is the unit providing the goods or the unit taking delivery of the goods that is responsible for providing the transport and insurance.

Paragraph 14.77 ends by discussing briefly the practical problems in deriving the desired valuation from the for It available data sources.

convenience.
convenience.

reproduced here is the value of 28.10 It may not be possible to determine from customs declarations which unit is responsible for the transport costs and, even when it is and conceptually the transport costs should be separated from the goods themselves, there may be no information and no resources available to make the separation in practice.

In such a case the CIF value of imports may be the only source with a disaggregation by type of good.
If the disaggregated CIF figures are used for imports of goods, though, that part of the transport costs and insurance also included in imports of services would be double-counted.

In order to avoid this, therefore, an adjustment column is inserted into the supply table.

The adjustment column consists of a deduction from the services items for transport and insurance equal to the CIF-to-FOB adjustment for these items with an offsetting global adjustment made to imports of goods.
Table 14.4, reproduced here as table 28.1 gives an example of such an adjustment.
Table 28.1:An example of imports entries in the supply table with the global CIF to FOB adjustment CIF/FOB adjustment Goods Services Agriculture, forestry and fishery products (0) Ores and minerals; electricity, gas and water (1) Manufacturing (2-4) Construction (5) Trade, accommodation, food & beverages; transport services (6) Finance and Insurance (7 less 72-73) Real estate services; and rental and leasing services (72-73) Business and production services (8) Community and social services (92-93) Other services (94-99) Public administration (91) CIF/FOB adjustment Purchases abroad by residents Total 37 61 284 -10 20 392 -6 -4 10 0 62 17 5 23 107 28.11 This adjustment column shows the reallocation of service margins from the industries where they are produced (by resident or non-resident producers) to an adjustment row for the CIF/FOB adjustment.
In the column for goods, the 508 values given industry by industry include an element of these service margins, but this is deducted on the CIF/FOB adjustment row to leave the total equal to the total of imports FOB.

The adjustments this column are analogous to a similar column that could be shown illustrating the adjustment between purchasers’ and basic prices.
in 28.12 A simpler procedure than that just described, though one not strictly consistent with BPM6 recommendations, is to ignore the balance of payments division between goods and services and adjust the figures for imports of services by the amount of services provided by non-residents that are included in the detailed figures for imports of goods.
This ensures that the total of imports of goods and services agrees with the total in the balance of payments but will not agree with the total of imports of goods FOB and of services shown there.

This makes compiling the supply and use tables simpler but means that it is not possible to use imports of goods on a FOB basis to match exports of those goods from other countries.
Even in this simpler version, however, the amount of freight and insurance on imports provided by residents must be shown as an export of services.

2.

Goods processed by a unit not assuming economic ownership 28.13 A producer may carry out the same activity under quite different economic conditions.

Consider farmers growing grain which is milled into flour before use.

Suppose one farmer acquires a mill to process his own grain but once this is acquired he may offer to mill grain for others for a fee.
The production account for the farmer with a mill will look somewhat different from that for a farmer who does not have a mill but pays the first farmer a fee for milling even though both produce flour for sale.

28.14 In the case of milling the reasons for subcontracting the activity to another may be the availability of suitable fixed capital.
Increasingly, however, similar processes are being carried out internationally and in respect of activities more the usually associated with manufacturing such as assembling of component parts.

Here the motivation is less one of the availability of capital than of the costs of labour.
If the average wages in country X are half of those in country Y, it may be cost-effective for a unit in Y to dispatch the components to a unit in X for assembly and then have the completed product returned to Y or even shipped directly to a final purchaser.
28.15 Previous editions of the SNA have recommended that components for assembly should be recorded as delivered to the unit in country X and that the whole of the value of the completed product should be recorded as output of X and exports from X to Y.

This does not match the treatment of grain milling or, for example, repairs to machinery where no such change of ownership of the goods being processed is imputed.
Imputing a change of ownership of the parts to be assembled gives rise to significant data compilation problems because the value of the assembled product may be greater than the cost of the components plus the fee to assemble them.

The value of the finished product may incorporate the results of research and development of the unit contracting the assembly, for instance.
The SNA now recommends that products should only be recorded as being delivered to another unit if there is a change of ownership or, in the case where both producing units belong to the same enterprise, the producing unit taking delivery also assumes responsibility for subsequent risks and rewards of production such as deciding how much to process, what price to charge and when to sell.
28.16 The question arises of how to record the activity of assembling goods to order for another unit in the supply and use tables and the input-output table.

The processes of assembly for oneself and for another are physically similar but the economics are different.

28.17 Suppose in year 1 a processing unit converts products only on own account.

In year 2 the unit processes the same amount on its own account but also processes a similar amount on behalf of another.
Suppose the cost of items processed in year 1 is 90, the cost of associated products needed to assemble them is 10 and the value added is 35.

The total value of output is thus 135.

In year 2, all other things being equal, intermediate consumption increases by another 10 to 110 and value added to 70 bringing the value of output to 180.
The change in the structure of production is difficult to understand in the absence of information on the change in the role of the producer who is operating no longer only on his own behalf but also on behalf of others.

28.18 There are essentially two ways to proceed.

The first is to treat processing on own account and on behalf of another as different types of activity and different products.
In this way in the second year the producer would have one activity with inputs of 100, value added of 35 and output of 135 as in the first year, plus another activity with inputs of 10, value added 35 and output of 45.
Table 28.2: Options for recording goods not changing economic ownership Cost of materials Other costs Total intermediate consumption Value added Output Year 1 Year 2 90 20 90 10 Option 1 90 10 100 35 135 110 70 180 100 35 135 Option 2 180 20 200 70 270 10 10 35 45 28.19 The second alternative is to show the intermediate inputs in the second year as 200, value added as 70 and output as 270.
Value added is the same under both options and the comparison between the second and the first year makes more sense from a transformation point of view under option 2.

However, adding an extra 90 to both output and intermediate consumption is essentially artificial.

Further, as noted above, it may be difficult for the processor to put a value on the components he receives and the output he provides to the other unit.
The chances are that he only knows that he receives a fee of 45 to cover his incidental Input-output and other matrix-based analyses expenses of 10 and leave an amount of value added, 35 in this case.

These options are shown in table 28.2.

28.20 It should be emphasized that it is option 1 that is the recommendation of the SNA and, for goods sent abroad for processing, BPM6.

Option 2 is shown as a supplementary presentation that may be adopted for reasons of continuity with past practices.
Option 1 more accurately reflects the economic processes taking place while option 2 focuses on the physical transformation process.

28.21 When goods are sent abroad for processing, they are recorded as neither exports of goods by the country holding economic ownership, nor as imports of goods by the processing country in either the SNA or BPM6.

Similarly, after processing they are recorded neither as exports by the processing country nor as imports of goods by the country of economic ownership.
The only item recorded as imports and exports is the fee agreed between the economic owner and the processor.

28.22 The physical flows of the goods will continue to appear in the merchandise trade figures.

However, the product code after processing may be different from the code on entry, making it difficult to match the incoming and outgoing flows.
28.23 The presentation of option 2 suggests that the fee can be derived as the difference between the value of the goods on arrival and departure from the processing country but while this may sometimes give a reasonable approximation of the processing fee, there are many reasons why this may not be so.

a.

If processing takes any significant amount of time, there may be holding gains and losses affecting the value of the goods.

These accrue to the economic owner, not the processor.

b.
b.

Goods may be lost or damaged or may simply become obsolete while in process.

(This has been observed in the case of electronic components.)

These other volume changes also apply to the economic owner and not the processor.

c. The value of the processed goods may be greater than the costs of the components and the processing fee to the extent that the finished product incorporates part of the value of R&D treated as fixed capital formation of the economic owner.
28.24 All these situations reinforce the preference for option 1 over option 2 in table 28.2.

3.

Supply and use tables and sector accounts 28.25 As explained in chapter 14, it is possible to derive the three estimates of GDP from a set of supply and use tables.

Since these tables can be expressed in volume terms, estimates can also be made of growth rates based on the tables.

However, to complete the sequence of accounts, production accounts are needed by institutional sector.
To ensure that the supply and use table and the sequence of accounts are perfectly integrated and consistent, it is desirable to take the 509 System of National Accounts part of the use table showing intermediate consumption and the components of value added and allocate the columns to institutional sectors.

28.26 The starting point for the compilation is the part of the use table in table 14.12 relating to intermediate consumption and value added.
This is shown in a somewhat aggregated form in table 28.3.

28.27 The easiest allocation is for financial corporations since typically such corporations do not undertake secondary activity and other institutional units do not undertake any financial activity.

When these conditions prevail, the column for the finance and insurance activity can be taken in its entirety as appropriate for the institutional sector.
It is possible that financial corporations may undertake some production for own final use (as capital formation), in which case some part of an appropriate column in the section of table 28.3 relating to own account production should be added.

No such adjustment has been made in this example.

28.28 The columns relating to non-market producers must be allocated between general government and NPISHs.
In addition, though not in this example, it is possible that either general government or NPISHs may have an establishment undertaking market production.

This is how it is possible that non-market producers may have small amounts of operating surplus.

It is also possible that both general government and NPISHs may have some production for own final use (as capital formation) but none has been assumed here.
28.29 The last step is to allocate all columns not yet accounted for between non-financial corporations and households.

An indication that some part of a market production activity should be allocated to households is the presence of mixed income as part of the value added of the activity.

Thus, in this example, some parts of market production of agriculture, manufacturing, construction and trade are attributable to households as well as production for own final use.
(As noted in general some of production for own final use will be attributable to other sectors.

It is not done so here for reasons of simplicity at such an aggregate level.)

28.30 Once these calculations are complete, table 28.4 results, showing for each sector not just total intermediate consumption but also a product breakdown of this as well as the items for value added.
28.31 The figures shown for intermediate consumption, output and the elements of value added for each institutional Table 28.3:The use table from table 14.12 s e c i r p ' Use of products s t c u d o r p n o i i s e d s b u S Intermediate consumption of industries (by ISIC categories) Market d n a y r t s e r o f , , t r o p s n a r t , , - b u S (1) (2) (3) (4) (5) (A) (6) (B-E) (7) (F) (8) (G-I) (9) (J) (10) (K) (11) (L) (12) (M-N) (P-Q) R-T and U (13) (14) (15) (16) 128 263 2 161 261 216 159 195 272 275 95 168 43 0 4 236 Products (by CPC section) Total uses 1 Agriculture, forestry and fishery products (0) 2 Ores and minerals; electricity, gas and water (1) 3 Manufacturing (2-4) 4 Construction (5) Trade, accommodation, food & beverages; transport services (6) 5 6 Finance and Insurance (7 less 72-73) Real estate services; and rental and leasing services (72-73) 7 8 Business and production services (8) 9 Community and social services (92-93) 10 Other services (94-99) 11 Public administration (91) 12
 Direct purchases abroad by residents 13 Domestic purchases by non-residents 14 Total 15 Total gross value added/GDP 16 Compensation of employees 17 Taxes less subsidies on production and imports 18 Mixed income, gross 19 Operating surplus, gross 20 Consumption of fixed capital -mixed income 21 Consumption of fixed capital - other 22 Total output 23 Labour inputs (hours worked) 24 Gross fixed capital formation 25 Closing stocks of fixed assets 2 3 27 1 3 1 1 2 0 1 0 41 37 19 - 2 4 16 1 8 78 1 840 10 142 71
2 0 1 0 41 37 19 - - 5 9 33 1 30 262 4 244 8 143 8 786 49 731 1 3 16 1 4 1 2 10 0 1 0 39 61 32 - - 8 - 8 510 sector are those that appear in the production account and generation of income account in the sequence of accounts.
Input-output and other matrix-based analyses C. Deriving an input-output table 1.

What is an input-output table?

28.32 Essentially an input-output table is derived from a use table where either the columns representing industries in the two left-most quadrants are replaced by products or where the products in the two topmost quadrants are replaced by industries.

The resulting intermediate consumption matrix is then square, showing products in both rows and columns or industries in both.
In both cases the row totals for the complete matrix match the column totals for the complete matrix, product by product or industry by industry as the case may be.

The resulting matrices are therefore referred to as being symmetric.

28.33 The process of replacing the product dimension by an industry one is based on one of several possible models, to be discussed below.
This process necessarily means that a symmetric input-output matrix is further removed from basic data sources than a supply and use table and it is therefore useful to review why making this transition is so useful.

28.34 Note that in table 14.12, there is a product for ores and minerals, electricity and water but no column for it.
If there is no industry for which this is the principal product, identifying the primary producers rather than the number of products will determine the final size of the symmetric (square) matrix.
Table 28.3 (cont):The use table from table 14.12 Intermediate consumption of industries (by ISIC categories) Own final use Non-market Final consumption expenditure Gross capital formation d n a y r t s e r o f , , - b u S i n o i t a r t s n m d A c i i l b u P t e k r a m - n o n l a t o t - b u S y r t s u d n i l a t o T y m o n o c e l a t o T Exports - b u S General government - - (A) (17) (F) (18) (L) (19) (P-Q) (21) (O) (22) (20) (23) (24) (25) (26) (27) (28) (29) (30) (31) (32) (33) (34) (35) (36) (37) (38) - 29 1 399 28 40 570 2 42 53 115 40 21 85 5 43 - - 1 176 213 2 0 161 190 1 - 17
370
System of National Accounts 2.
Analytical potential of an input-output matrix (I-A) x = y 28.35 Such tables have algebraic properties that make them particularly suitable for analyses that enable estimates to be made of the effects of changing relative prices, of labour and capital requirements in the face of changing output levels, of the consequences of changing patterns of demand and so on.
They may also be used as the basis for an expanded version that may be used to estimate the demands made by the economy on the environment, for instance.

28.36 As noted in the introduction, there is a vast literature on how to compile and use input-output tables.

The purpose of this section is simply to indicate the key aspects of converting a pair of supply and use tables into an input- output table.
28.37 Suppose the entries in the inter-industry matrix are each divided by the figure for output at the bottom of the corresponding column, and is designated as A; the vector of outputs is written as x and the vector of total final demand is written as y.

Then the resulting matrix Ax + y = x This can be rewritten as or x=(I-A)-1y.

28.38 The matrix (I-A) is known as the Leontief matrix, after the man who pioneered the use of input-output tables and the matrix (I-A)-1 is known as the Leontief inverse.
It is the last formulation that gives the analytical power to input-output analysis.

28.39 Suppose there is an increase in demand, for manufactured products, say.

Looking at even the supply and use table it can be seen that to increase the output of these goods, more inputs of almost all types of products are needed.

This increase in demand for a range of products is called the direct effect of a change in demand.
However, the increase in demand in all these products causes a further round of increases in output for all products and this in turn triggers another set of increases in output and so on.

Each round of effects is smaller than the last until it eventually becomes insignificant.

The total of all second and subsequent round effects is called the indirect effect of a change in demand.
Table 28.4:Intermediate consumption and value added cross-classified by industry and institutional sector Non-financial corporations Financial corporations i g n h s i f d n a y r t s e r o f , e r u t l u c i r g A 2 3 24 1 3 1 1 2 0 1 0 38 31 69 18 15 - 68 182 643 8 61 36 15 68 1 1 0 1 083 691 1 774 540 108 43 80 n o i t a d o m m o c c a , t r o p s n a r t , e d a r T d o o f d n a 3 6 38 3 23 18 8 14 0 1 0 114 127 241 99 32 - 4 31 n o i t c u r t s n o C 0 1 61 5 3 5 1 11 0 0 0 87 115 202 79 31 5 11 , 16 1 4 2 2 9 0 1 0 39 61 100 32 30 - Use of products Goods and services, (by CPC section) Total uses 1.
Agriculture, forestry and fishery products (0) 2.

Ores and minerals; electricity, gas and water (1) 3.

Manufacturing (2-4) 4.

Construction (5) 5.

Trade, accommodation, food and beverages; transport services (6) 6.

Finance and Insurance (7) excluding real estate 7.Real estate services; and rental and leasing services (72-73) 8.Business and production services (8) 9.Community, social services (92,93) 10.

Other services (94-99) 11.

Public Administration (91) 14.

Total 17.


Total gross value added/GDP 28.
Total output Compensation of employees Gross mixed income Gross operating surplus Taxes less subsidies on production and imports Consumption of fixed capital of which Mixed income Net mixed income Net operating surplus In terms of the algebra just introduced, the direct effect is equal to Ay, the second round effect to A2y, the third round effect to A3y and so on.
It can be shown that (I-A)-1 can be written as A+A2+A3+A4 etc.

This is where the power of having a symmetric matrix comes from since A needs to be square for this formulation to work.

28.41 As long as changes in demand, y, are sufficiently small that the average coefficients in A are likely to be good approximations to the new situation, the new level of x can be calculated.
The approach breaks down if the changes in demand are so great that significant changes in A are likely to follow and marginal rather than average coefficients are needed.

28.42 The matrix A is also sometimes called a matrix of technological coefficients and can provide insights into the way an economy works.

In an economy dominated by primary products with little processing carried out in the domestic economy, there are relatively few significant non- zero elements in A.
As the economy develops and becomes more processing commonplace, A becomes more populated with entries reflecting greater vertical and horizontal integration of activities within the economy.

By exploring different industries associated with different stages in the production process it is possible to say where value added is generated.

products primary of Input-output and other matrix-based analyses For example, cotton is grown as an agricultural product.
It is then subject to separation into lint and seed (ginning), then the lint is converted to yarn and the yarn to fabric.

If each of these activities appears in a different industry, it is possible to see where the value added between the growing of the cotton and the eventual fabric in which it is used arises.

3.

Secondary products 28.43 An industry classification such as ISIC essentially identifies industries in terms of the sorts of goods or services they typically produce.
However, there are more products than industries and, for all sorts of reasons, some products may be made in several industries.

28.44 In order to limit the number of products per unit and to allow integration with basic production statistics, the concept of establishment is introduced.

In principle, an establishment produces only one product at one location but the SNA recognizes that in practice it is not possible to separate production into such fine detail.
Dealing with the fact that many establishments produce more than one product is fundamental to the idea of calculating a symmetric input-output matrix.

Table 28.4 (cont):Intermediate consumption and value added cross-classified by industry and institutional sector General government NPISHs Households d n a h t l a e h n a m u h , n o i t a c u d E Use of products Goods and services, (by CPC section) Total uses 1.

Agriculture, forestry and fishery products (0) 2.


Ores and minerals; electricity, gas and water (1) 3.

Manufacturing (2-4) 4.

Construction (5) 5.

Trade, accommodation, food and beverages; transport services (6) 6.

Finance and Insurance (7) excluding real estate 7.Real estate services; and rental and leasing services (72-73) 8.Business and production services (8) 9.Community, social services (92,93) 10.

Other services (94-99) 11.

Public Administration (91) 14.

Total 17.


Total gross value added/GDP 28.
Total output Compensation of employees Gross mixed income Gross operating surplus Taxes less subsidies on production and imports Consumption of fixed capital of which Mixed income k r o w l i a c o s 3 4 36 9 4 5 7 13 21 1 1 104 76 180 59 17 0 17 i n o i t a r t s n m d A c i i l b u P 2 5 4 8 38 7 59 17 10 24 8 2 3 1 2 118 50 168 39 10 1 1 10 Net operating surplus 0 0 0 d n a h t l a e h n a m u h , n o i t a c u d E y r t s u d n i l a t o T 74 16 22 17 37 29 222 126 348 98 27 27 i g n h s i f d n a y r t s e r o f , , t r o p s n a r t , - y r t s u d n i l a t o T l a t o T 88 217 75 40 6 104 57 16 34 10 2 115 155 270 11 61 84 - 1 23 8 53 69 990 119 222 1 883 1 721 3 604 1 150 61 452 58 222 53 238 513 System of National Accounts 28.45 The reason that manipulation of supply and use tables is needed to produce an input-output table is the existence of secondary products.
If there were the same number of industries as products, and if each industry only produced one product, the supply table for the domestic economy would be unnecessary; the column totals for industries would be numerically equal to the row totals for products and the inter-industry matrix would be square as originally compiled.
As noted elsewhere, the intent behind using establishments rather than enterprises, and working at a fairly detailed level in the supply and use tables, is to get as close to this situation as is reasonably practicable.

Inevitably though some secondary production remains.

28.46 There are three types of secondary production a.

Subsidiary products: those that are technologically unrelated to the primary product.
Just a few examples include a large retailer with a fleet of trucks used primarily for its own purposes that may occasionally offer transport services to another unit, a farmer who use part of his land as a caravan site, or a mining company that builds access roads and accommodation for its workers.

b. By-products: products produced simultaneously with another product but which can be regarded as secondary to that product, for example gas produced by blast furnaces.
that are c. Joint products: produced simultaneously with another product that cannot be said to be secondary (for example beef and hides).

products that are In order to reduce the supply and use tables to one single input-output matrix two possibilities exist.

One is to express the input-output matrix in terms of products only; the other is to express the input-output table in terms of industries.

4.

Reallocating secondary products 28.47 There are two basic approaches to eliminating secondary products.
Both come from applying information from the use matrix to the supply matrix to reduce it to a purely diagonal one.

Once this is done, the supply matrix contains no further useful information and is no longer presented.

The transformed use matrix is what is referred to as an input-output matrix.

28.48 In deriving a product by product matrix in the simplest possible way, the final demand quadrant of the use matrix is unaltered.

It already expresses demand by product and does not need changing.
The intermediate consumption and value added parts of the matrix, though, need to be changed from an industry dimension to a product one.

The row totals of the matrix already show the correct product totals so the exercise consists of reallocating entries from one column to another within the given row total.

This is called a technology approach.

It assumes that the demand for intermediate consumption and labour and capital inputs are determined by the nature of the products made.
28.49 In deriving an industry by industry matrix in the simplest possible way, the value added part of the use matrix is unaltered and because the level of output will not alter, only the composition of intermediate consumption changes, not its total.

Thus the exercise is one of reallocating items between rows but not between columns.
In contrast to the product by product case, the quadrant relating to final demand will change and will show demand related to the industry supplying the products and not to the products themselves.

This is called a sales structure approach.

It assumes that as the level of output of an industry changes, the pattern of sales will remain the same.
Table 28.5:A numerical example of reallocating products from construction to manufacturing Use of products 1 Agriculture, forestry and fishery products (0) 2 Ores and minerals; electricity, gas and water (1) 3 Manufacturing (2-4) 4 Construction (5) 5 Trade, accommodation, food & beverages; transport services (6) 6 Finance and Insurance (7 less 72-73) 7 Real estate services; and rental and leasing services (72-73) 8 Business and production services (8) 9 Community and social services (92-93) 10 Other services (94-99) 11 Public administration (91) Total Total gross value added Total output Use table Coefficient form Industry technology Product technology -0.2 0.4 60.8 5.0 2.8 4.9 1.0 11.8 0.0 0.0 0.0 86.3 115.7 202 514 28.50 Both these assumptions, the technology assumption and the sales structure
 assumption, are rather simplistic and in practice a more generalized approach may be used but it is helpful first to examine each of the assumptions in a little more detail.
Product by product tables 28.51 There are two ways in which a product by product matrix can be derived.

These are: a.

The industry technology assumption where each industry has its own specific means of production irrespective of its product mix.

b.

The product technology assumption where each product is produced in its own specific way irrespective of the industry where it is produced.

28.52 It is simplest to explain these by example.


In the upper part of table 14.12, the construction industry is shown as producing 6 units (out of 208) of manufacturing products.

In the lower part of table 14.12, reproduced as table 28.3, the inputs necessary for manufacturing and for construction are shown.

These are reproduced in the first two numeric columns in table 28.5.

The next two numeric columns express these in percentage form.
Thus, for example, one unit of manufacturing requires 0.038 units of agricultural products, 0.102 units of ores and minerals and so on.

Construction uses no agricultural products, 0.005 units of ores and minerals and so on.

28.53 In order to create the product by product matrix, it is necessary to deduct the costs associated with the production of 6 units of manufactured goods from the column for construction and add it to the column for manufacturing.
On completion of this exercise for all secondary production, the columns will represent products rather than industries.

Industry technology assumption 28.54 Under the industry technology assumption, the coefficients showing how manufactured products are produced are assumed to depend on the industry they happen to be produced in.
Thus to reallocate the 6 units of manufacturing products from the construction industry to a column that will now refer to manufactured products only (ignoring other secondary products for the moment) a set of inputs, derived as 6 times the coefficients for construction is added to the manufacturing column and deducted from the construction column.

The results of this are shown in the fifth and sixth numeric columns of table 28.5.
Product technology assumptions 28.55 Under the product technology assumption, the coefficients showing how manufactured products are produced are those of the manufacturing industry regardless of where they are actually produced.

In this case, to reallocate the 6 units of manufacturing products from the construction industry a set of inputs derived as 6 times the coefficients for manufacturing is added to the manufacturing column and deducted from the construction column.
The results are Input-output and other matrix-based analyses shown in the seventh and eighth numeric columns of table 28.5.

28.56 It is important to note a problem that arises under this assumption.

When the product technology assumption is used, manufactured products produced by the construction industry are assumed to use a small amount of food.
However, no agricultural products are actually recorded as being used in the construction industry so deducting these inputs from the recorded entries for construction leads to a negative entry.

Negative entries cannot appear under the industry technology assumption.

Since negative entries are logically impossible, this is one argument in favour of using the industry assumption rather than the product assumption.
Industry by industry tables 28.57 Just as there are two ways in which a product by product matrix can be derived, there are two ways in which an industry by industry matrix can be derived.

These are: a.

The fixed product sales structure where it is assumed the allocation of demand to users depends on the product and not the industry from where it is sold.

b.

The fixed industry sales structure where it is assumed that users always demand the same mix of products from an industry.
28.58 Although a table similar to table 28.5 is not presented for the industry by industry tables, its construction is similar and straightforward but would show the entries across the rows of the use tables rather than down the columns.

28.59 In order to create an industry by industry table, it is necessary to move the use of 6 units of manufactured products from the row for the manufacturing to the row for the construction.
On completion of this exercise for all secondary production, the rows will represent industries rather than products.

Fixed product sales structure 28.60 In this case, to allocate the 6 units of manufactured goods supplied by the construction industry to the row for construction, a proportion of the row for manufacturing is allocated to the construction row using the proportions in the manufacturing row.

It follows that such a matrix will not contain negative entries.
Fixed industry sales structures 28.61 Here the 6 units of manufactured goods supplied by the construction industry are reallocated to the construction row from the manufacturing row using the proportions of the construction row.

Such a matrix can contain negative elements.

The choice of approach to be used 28.62 There are four basic choices open to the input-output compiler.
515 System of National Accounts Table 28.6:Example of a product by product input-output matrix Total economy Acquisition less disposals of valuables 0 0 0 0 0 0 0 0 0 0 0 0 1 Changes in inventories 1 4 3 2 0 0 0 0 0 0 0 0 0 Gross fixed capital formation 2 0 8 3 7 1 3 0 2 2 1 0 0 0 1 2 4 7 Sub-total gross capital formation 3 4 8 6 9 1 3 0 2 2 1 0 0 0 1 2 4 8 Individual Collective Sub-total NPISHs Households - Sub-total final consumption expenditure - Services Goods Total industry Public Administration Other services work Education, human health and social Business and information services Real estate activities Finance and insurance 0 1 1 2 1 2 6 2 2 8 1 1 4 0
Finance and insurance food Trade, transport, accommodation and Construction 3 9 3 3 8 1 6 1 7 2 1 0 1 0 2 0 1 0 1 1 3 2 1 0 9 4 - Manufacturing and other industry Agriculture, forestry and fishing - 2 1 6 8 1 7
1 1 4 1 1 2 0 1 0 1 0 6 4 1 4 9 1 2 - , t r o p s n a r t , , 516 , - : s t n e m t s u d A j P D G / ' , , s u p r u s g n i t a r e p O t t u p u o l t a o T Table 28.7:Example of an industry by industry input-output matrix Input-output and other matrix-based analyses Total economy Acquisition less disposals of valuables 0 0 0 0 0 0
 0 0 0 0 0 0 1 Changes in inventories 1 5 2 2 0 0 0 0 0 0 0 0 0 Gross fixed capital formation 2 1 8 5 6 1 7 0 1 2 4 0 0 0 1 2 4 7 Sub-total gross capital formation 3 5 8 7 8 1 8 0 1 2 5 0 0 0 1 2 4 8 Individual Collective Sub-total NPISHs Households - Sub-total final consumption expenditure 8 1 5 3 4 5 5 4 3 5 6 1 1 1 4 9 3 2 3 7 6 6 1 4
- Services Goods Total industry Public Administration Other services Education, human health and social work Business and information services Real estate activities Finance and insurance Trade, transport, accommodation and food 3 3 4 3 1 2 8 1 8 4 1 0 1 0 2 0 1 3 2 1 9 3 1 9 4 5 0 0 0 - Construction 0 2 7 5 7 7 1 7 1 0 0 0 5 0 4 1 1 0 3 1 8 5 0 2 1 0 Manufacturing and other industry Agriculture, forestry and fishing - , t r o p s n a r t , e d a r T i g n h s i f d n a y r t s e r o f , o
, : - a
/ ' , s u p r u s l g n i t a r e p O s s o r g , e m o c n i d e x M i t u p t u o l a t o T 517 System of National Accounts a.
A product by product approach using a product technology assumption, tables.

Indeed some countries prefer to work with very detailed supply and use tables and not produce symmetric tables at all.

b.

A product by product approach using an industry technology assumption, c. An industry by industry approach assuming a fixed product sales structure, d. An industry by industry approach assuming a fixed industry sales structure.

Options a and d may result in negative entries; options b and c do not.
28.63 Both product by product and industry by industry tables may be compiled.

They serve different analytical functions.

For example, to ensure that price indices are strictly consistent, a product by product matrix is to be preferred.

For a link to labour market questions, an industry by industry table may be more useful.
Although traditionally a lot of interest focused on the product by product tables, this was accompanied in large part by an attention to the underlying economic interaction of different industries has brought more interest in the industry by industry tables.

Increasingly technology.

the Hybrid approaches 28.64 In practice, no single method is used on its own.
Knowledge of the type of product or industry in question should dictate whether an industry-based conversion procedure or a product-based one is most appropriate.

Some secondary products may be dealt with one way and others another despite the fact that, on occasion, negative values may initially appear.
28.66 As an illustration of the differences involved, tables 28.6 and 28.7 show the results of converting the supply and use tables in chapter 14 to, first, a product by product matrix using only the industry technology assumption and then an industry by industry matrix using only the product sales structure.

The database required for the transformation 28.67 The starting point for the production of a symmetric input- output table is a pair of supply and a use tables both at basic prices.
Even the calculation of a use table in basic prices is one step away from basic statistics and actual observations, reinforcing the fact that the input-output tables are analytical constructs, not a compilation of directly observed phenomena.

28.68 Further, it is advantageous to separate the use table at basic prices into two, one showing those elements relating to domestic output and the other those elements relating to imports.
The statistical requirements for such a separation are demanding but the results allow considerable flexibility in the treatment of imports and permit a clear analysis of the impact of demand on supplies from resident producers and on foreign suppliers.

28.69 The exact manner of dealing with imports is a subject of considerable complexity where a number of options are available also.
In some economies, some important products will only be imported and so separating these “non-competing” imports from the rest may be of particular interest.

28.65 The extent of variation between the various approaches will depend on a number of factors, including in particular the extent of secondary production in the supply matrix.
In general, the greater the degree of disaggregation and thus the less secondary production to be reallocated, the closer the input-output tables will resemble the supply and use 28.70 Another topic that requires careful consideration is the degree of detail that is desirable for product and industry classifications.

This may vary depending on the resources available to the statistical office and the sort of use to be made of the results.
Table 28.8:The goods and services account in matrix form Goods and services account Exports Imports Output Goods and services account Production account Total supply E R E R 518 Production account Use of income accounts Capital accounts Total use E R E R E R E R Intermediate consumption Final consumption Gross capital formation 540 1 883 1 399 414 4 236 499 3 737 4 236 Input-output and other matrix-based analyses D. Social accounting matrices 1.
Expressing the sequence of accounts in matrix form successive sets of rows and columns can be introduced until the whole sequence of accounts is covered, as in table 28.10.

28.71 The part of the use table relating to the destination of products represents one side of the goods and services account in matrix form.

However, it can also be expressed as a series of sub-matrices; one for intermediate consumption, one for final consumption, one for capital formation and one for exports.
These sub-elements can be associated with the production account, the use of income account, the capital account and the rest of the world account respectively.

Similarly the supply table represents the other side of the goods and services account but can also be written as two sub-matrices, one associated with the production account (output) and one with the rest of the world (imports).
By writing the supply table horizontally and the supply table vertically in terms of these sub- matrices and their associated accounts, table 28.8 emerges.

The rows and columns labelled E denote the total economy and those labelled R the rest of the world.

28.72 The attraction of this format is that the total across the set of rows for the goods and services account is equal to the total down the columns for the same account.
There is no match for the second set of rows for the production account, but it is not difficult to bring this about.

The entries for value added can be inserted in a third set of rows with the entries underneath intermediate consumption.

In this way the sum down the columns for the production account is then equal to the rows for the same account.

But there is now an unmatched third set of rows containing value added.
Since value added ultimately carries forward to the allocation of primary income account, the third set of rows can be so labelled as in table 28.9.
28.73 If, to match this third set of rows, a third set of columns is inserted between the production account columns and those for the use of income account, property income can be inserted at the intersection of the third set of rows and columns and a fourth set of rows inserted to show the balance of primary income as it appears in the secondary distribution of income account.
Proceeding in this way, 28.74 By including the entries for the rest of the world as well as for the total economy, the balancing items from the balance of payments can be shown as, for instance, the -41 in table 28.9.

28.75 It is also possible to extend table 28.10 to show the incorporation of the balance sheets as in table 28.11.

For this, a row above the initial table is introduced to show the opening balance sheet and three rows below it.
The first of these shows the entries for the other changes in the volume of assets account, the second relates to the revaluation account and the last is the closing balance sheet.

Two adjustments also need to be made to table 28.6.

The first concerns the item for the consumption of fixed capital, which is transposed from the row for the capital account and column for the production account and placed in the column for the capital account and row for the production account but with a negative sign.
The second is to subdivide the capital account with the first set of rows and columns covering all items in the account but the second set covering the product details for gross capital formation and thus forming part of the asset account for non-financial assets.
28.76 Reading down the columns starting with the opening balance sheet entry for fixed assets, for example, this value plus the value of capital formation, less consumption of fixed capital, plus other changes in the volume of assets plus revaluation items is equal to the value on the closing balance sheet.

For financial assets less liabilities the matching identity holds.

2.
2.

Expanding the matrix 28.77 It is possible to expand and rearrange the rows and columns of the matrix so long as this is done consistently in both dimensions.
It is not strictly necessary to adhere to the Table 28.9:The supply and use table in matrix form Goods and services account Production account Use of income accounts Capital accounts Total E R E R E R E R Goods and services account Production account Primary distribution of income accounts Total Intermediate consumption Final consumption Gross capital formation 540 1 883 1 399 414 Exports Imports Output E R E R 499 3 737 Value added 1 854 3 737 4 236 - 41 499 4 236 499 3 737 519 System of National Accounts order of the sequence of accounts or the degree of detail shown there.
The transactions to be included can be expanded or contracted as can the sets of institutional units to be identified.

Mapping individuals to households is necessarily difficult and depends to a greater or lesser extent on a set of assumptions.

Any analysis of how government policies will affect households and their consumption depends on making such a mapping.
28.78 The example of transposing consumption of fixed capital from being a positive entry on one side of the account to a negative entry on the other demonstrates how the matrix formulation may be used to enhance the articulation of the asset accounts.

28.79 It is also possible to include alternative classifications of key items.
For example a row called “human needs” could be included showing how much food, housing etc was needed for each group of households, based on the functional classification of household consumption.

In the column for consumption expenditure, the set of needs can be then cross-classified by product and household group.

28.80 A further expansion of the matrix may be to show the from- whom-to-whom details of such flows as property income and transfers.
28.81 The matrix presentation is very powerful in terms of the flexibility the it can encompass, and interaction of the accounts in a compact and graphic manner.

On the other hand, there are disadvantages to the matrix presentation also.

in displaying a.

Without explanatory text describing each of the main elements, a reader has to have a very good understanding of the SNA to interpret the numeric entries in the table.

b.
b.

Such a table always contains lots of white space which means that it is not an effective way of presenting a large amount of data.

In general, the matrix format is best used to explain the structure of the accounts being presented with individual cells, or a combination of cells, following in a more traditional format.

4.

A SAM for labour accounts 28.83 One example of where a SAM is useful is in the case of labour accounts, showing the level and composition of employment and unemployment.
SAMs have often provided additional information on this issue, via a subdivision of compensation of employees by type of person employed.

This subdivision applies to both the use of labour by industry, as shown in the supply and use table, and the supply of labour by socio-economic subgroup, as shown in the allocation of primary income account for households.
It implies that the matrix presents not only the supply and use of various products, but also the supply and use of various categories of labour services.

28.84 In order to have a comprehensive picture of the relationship between households and the labour market, the following sets of information are likely to be needed: a.
Various stocks underlying the flows in the SAM, such as size and composition of the population by household group (including the potential labour force) and production capacity by industry; b.
For the self-employed, it may be desirable to have information on the possession of assets (for example, agricultural land, consumer durables) as well as information on financial assets and liabilities; c. Related non-monetary socio-economic indicators, such as life expectancy, infant mortality, adult literacy, nutrient intake, access to (public) health and education facilities, and housing situation by household group (see Towards a System of Social and Demographic Statistics (United Nations, 1975)); 3.
Disaggregating households d. Some re-routings such as social transfers in kind by groups of households.

28.82 Expanding the accounting matrix of the sequence of accounts to incorporate the disaggregation of households is the usual form of a satellite account known as a social accounting matrix (SAM).

As such it moves beyond a rigorous accounting structure based on observations to make an allocation of income into household groups possibly based on a household income and expenditure survey.
In some cases this is based on a single survey.

The problem, as explained in chapter 24 on the household sector, is that income flows in the SNA relate to individuals whether as employees, recipients of property income or transfer recipients while expenditure relates to households.
520 28.85 Comparing labour incomes of all employed persons as shown in the SAM, a decomposition of these incomes into full-time equivalent employment and average wage rates, and the potential labour force by type of person and household group (expressed in “full-time” equivalents), yields detailed the composition of unemployment and an aggregate indicator (“full-time equivalent unemployment”) which is consistent, both conceptually other macroeconomic indicators; these can also be derived from the SAM framework.
numerically, with information on and the Table 28.10:The flow accounts in the sequence of accounts in matrix form Input-output and other matrix-based analyses - 0 2 1 2 4 3 3 8 2 3 1 - 5 1 6 1 9 - 9 8 4 0 1 0 1 - - - 1 4 1 6 3 1 - - - 0 1 - 0 1 9 8 4 3 1 - 5 1 6 1 4 3 3 8 2 1 - r
521 System of National Accounts Table 28.11:The sequence of accounts including the balance sheets in matrix form 9 9 4 6 3 2 4 0 5 1 5 3 1 - 9 7 0 2 4 3 3 8 2 3 1 - 5 1 6 1 9 - - n o N s t e s s a l i a c n a n F i l a t o T s t n u
- - - 0 0 1 0 1 8 7 8 4 0 1 0 8 2 3 0 1 5 0 2 9 1 9 - 0 1 - - n o n s t e s s a 3 1 - - 4 0 6 1 e m o c n i l e b a s o p s D i 3 1 - 5 1 6 1 4 3 3 8 2 1 - e
522 Chapter 29: Satellite accounts and other extensions A.
Introduction 29.5 29.1 The sequence of accounts is fully integrated in large part because of the underlying rigour of the accounting system.

However, the guidelines given in earlier chapters are not necessarily to be followed without variation.

A great strength of the SNA is that its articulation is sufficiently robust that a great deal of flexibility can be applied in its integrated, still implementation while economically complete and internally consistent.
The purpose of this chapter is to illustrate some of the ways in which this flexibility can be applied.

remaining 1.

Functional classifications 29.2 As noted in several earlier chapters, moving away from what is purchased to answer the question of why outlays are incurred adds considerably to the analytical power of the system.

One approach to this question is the use of functional classifications of expenditure and outlays.

A description of these classifications is given in section B.
These functional classifications are central to the SNA and also provide a useful starting point for some types of satellite accounts.

2.

Key sector accounts 29.3 Instead of using the product and industry classifications (CPC and ISIC) in their standard order and at the same level of their hierarchies, it can be very instructive to select a group of products or industries of particular importance to the economy, designated here as a key sector.
The choice might be very specific, for example concentrating on a single agricultural crop or mineral output, or may be more general such as all the goods and services primarily serving tourism.

In either case, a set of supply and use tables may the key sector and be compiled concentrating on aggregating other products and industries.
In some cases, where the activity is undertaken by relatively few, relatively large enterprises, it may be possible to go further and compile a complete sequence of accounts for the key sector also.

These approaches are described in section C. 3.

Satellite accounts 29.4 A further and more extensive form of flexibility is that of a satellite account.

As its name indicates, it is linked to, but distinct from, the central system.
Many satellite accounts are possible but, though each is consistent with the central system, they may not always be consistent with each other.

29.6 29.7 29.8 the and type introduction involves some Broadly speaking, there are two types of satellite accounts.

rearrangement of central One classifications of possible complementary elements.
Such satellite accounts mostly cover accounts specific to given fields such as education, tourism and environmental protection expenditures and may be seen as an extension of the key sector accounts just referred to.

They may involve some differences from the central system, such as an alternative treatment of ancillary activities, but they do not change the underlying concepts of the SNA in a fundamental way.
The main reason for developing such a satellite account is that to encompass all the detail for all sectors of interest as part of the standard system would simply overburden it and possibly distract attention from the main features of the accounts as a whole.

Many elements shown in a satellite account are invisible in the central accounts.
Either they are explicitly estimated in the making of the central accounts, but they are merged for presentation in more aggregated figures, or they are only implicit components of transactions which are estimated globally.

The second type of satellite analysis is mainly based on concepts that are alternatives to those of the SNA.
The sorts of variations in the basic concepts that may be considered are discussed in section D. These include a different production boundary, an enlarged concept of consumption or capital formation, an extension of the scope of assets, and so on.

Often a number of alternative concepts may be used at the same time.

This second type of analysis may involve, like the first, changes in classifications, but in the second type the main emphasis is on the alternative concepts.
Using those alternative concepts may give rise to partial complementary aggregates, the purpose of which is to supplement the central system.

Section E suggests some sorts of tables that might be useful in the context of a satellite account.

Again, flexibility in the presentation of tables is recommended but the subjects of the tables given in section E have proved to be useful in a number of cases.
The emphasis on the flexibility of the SNA extends to allowing complete flexibility about how many and what sort of satellite or other extended accounts may be developed.

Satellite accounts, especially of the second sort, and allow methodologies, with a much wider degree of freedom than is possible within the central system.
When a number of countries develop similar satellites, exchanging experience can lead to beneficial refinements and the establishment of experimentation with concepts new 523 System of National Accounts international guidelines in a particular topic and ultimately the possibility of changes in the central system itself.

Some examples of this sort of research are reported in section F of this chapter.
B. Functional classifications 29.9 special classifications The SNA uses to analyse consumption, or more generally outlays, by different sectors according to the purpose for which the expenditure is undertaken.

Such classifications are referred to as functional classifications.

The classifications concerned are: a.

Classification Of Individual COnsumption by Purpose (COICOP); b.
Classification Of the Functions Of Government (COFOG); c. Classification Of the Purposes of Non-profit Institutions serving households (COPNI); d. Classification of Outlays of Producers by Purpose (COPP).

29.10 Full details of all the classifications can be found in Classifications of Expenditure According to Purpose (United Nations, 2000).

29.11 The main purpose of these classifications is to provide statistics which experience has shown to be of general interest for a wide variety of analytical uses.
For example, COICOP shows items such as household expenditure on food, health and education services all of which are important indicators of national welfare; COFOG shows government expenditure on health, education, defence and so on and is also used to distinguish between collective services and individual consumption goods and services provided by government; COPP may provide information on the “outsourcing” of business services, that is, on the extent to which producers buy-in catering, cleaning, transport, auditing and other services that were previously carried out as ancillary activities within the enterprise.
29.12 Functional classifications also provide the means to recast key aggregates of the SNA for particular kinds of analyses, some of which are described in later sections of the chapter.

For example: It can be argued that, for several analytical purposes, the SNA definition of gross capital formation is too narrow.

In studies of the causes of labour productivity, researchers would often like to have a measure of “human capital” which is normally derived from information on past expenditures on education.
The four identify expenditures on education and thus it is possible to derive education expenditure incurred by households, government, non-profit institutions and producers; classifications functional each a.

524 b.

In studies of household expenditure and saving, some researchers have considered expenditures on consumer durables as capital rather than current expenses.
COICOP facilitates this by identifying expenditures on durable goods; c. In studies of the impact of economic growth on the environment, researchers often wish identify environmental protection expenditure.

COFOG and COPP both include this as one of their first level categories.

to 1.

COICOP last 29.13 There are 14 main categories in COICOP.

The first 12 sum to total individual consumption expenditure of households.
The those parts of consumption expenditure by NPISHs and general government that are treated as social transfers in kind.

Together all 14 items represent actual final consumption by households.

The 14 categories are as follows: identify two 1.

Food and non-alcoholic beverages, 2.

Alcoholic beverages, tobacco and narcotics, 3.

Clothing and footwear, 4.

Housing, water, electricity, gas and other fuels, 5.

Furnishings, household household maintenance, equipment and routine 6.

Health, 7.

Transport, 8.


Communication, 9.

Recreation and culture, 10.

Education, 11.

Restaurants and hotels, 12.

Miscellaneous goods and services, 13.

Individual consumption expenditure of NPISHs, 14.

Individual consumption expenditure of general government.

Satellite accounts and other extensions 29.14 Household budget surveys frequently use a classification scheme based on COICOP to collect household expenditure information.
This then has to be reallocated to products for use in a supply and use table as discussed in chapters 14 and 28.

2.

COFOG 29.15 There are ten main categories of COFOG as follows: 2.

Health, 3.

Recreation and culture, 4.

Education, 5.

Social protection, 6.

Religion, 1.

General public services, 2.

Defence, 3.

Public order and safety, 4.

Economic affairs, 5.

Environmental protection, 6.

Housing and community amenities, 7.

Health, 8.

Recreation, culture and religion, 9.

Education, 10.
Education, 10.

Social protection.

7.

Political parties, labour and professional organizations.

29.18 This classification is a somewhat reduced version of the classification for all non-profit institutions given in chapter 23.

4.

COPP 29.19 There are six main categories in COPP as follows: 1.

Outlays on infrastructure, 2.

Outlays on research and development, 3.

Outlays on environmental protection, 4.

Outlays on marketing, 5.


Outlays on human resource development, 29.16 As noted in chapter 22, COFOG is used in the analysis and presentation of the government finance presentation of statistics.

6.

Outlays on current production programmes, administration and management.

3.

COPNI 29.17 There are seven main categories in COPNI as follows: 1.
Housing, 29.20 In principle, COPP applies to all producers, whether market or non-market, although not all categories are of equal interest for both kinds of producers.

It is probable that, in practice, classification of outlays of producers by purpose will mainly be of interest for classifying transactions of market producers.
C. Satellite accounts for key sector and other special sector accounts 29.21 The sequence of accounts is normally compiled for the whole economy or for all institutional units belonging to the same institutional sector or subsector.

Within the supply and use tables, production units may be grouped to show the elements of the production account and generation of income account, even if the production units are not complete institutional units.
Although the rows and columns of the supply and use tables often follow CPC and ISIC, at similar levels of their respective hierarchies, it is quite possible to select a number of industries that are of special interest in a given country.

It is common practice to refer to such groupings of industries as “sectors” even though they do not constitute institutional sectors as the term is used in the SNA.
29.22 It can be very useful for economic analysis to identify particular activities that play a key role in the economy’s external transactions.

These key activities may include the petroleum sector, mining activities or crops (coffee, for example), when they account for an important part of foreign exchange assets and, very often, exports, government resources.

29.23 The SNA does not try to provide specific and precise criteria for the definition of what identifies a key sector or activity.
It is a matter of judgement in a given country, based on economic analysis and economic and social policy requirements.

For instance, even a small industry at an infant stage might deserve to be treated as a key activity.

525 System of National Accounts 29.24 The first step in drawing up key sector accounts is to identify the key activities and their corresponding products.

This may involve grouping together items shown in different parts of ISIC or CPC.
For example, accounting for oil and natural gas may cover extraction of crude petroleum and natural gas (ISIC division 06), manufacture of refined petroleum products (ISIC class 1920), transport via pipelines (ISIC class 4930), wholesale of solid, liquid and gaseous fuels and related products (ISIC class 4661) and retail sale of automobile fuel (ISIC class 4730).

The extension of local circumstances; for example, it may be useful for the energy sector to cover petrochemical processing.
the key sector(s) depends on 29.25 The key products and key industries accounts may be analysed in the context of a supply and use table.

Key industries are shown in detail in columns and other industries may be aggregated.

In the rows, key products are similarly shown in detail and other products aggregated.

Below the supply and use table, extra rows may show labour inputs, gross fixed capital formation and stocks of fixed assets.
In the use part of the table, columns for gross fixed capital formation and changes inventories respectively may be broken down between one or more key sectors or industries and other sectors or industries.
In a country where the key activity is carried out by very heterogeneous types of producers, such as small farmers and large plantations owned and operated by corporations, it may be useful to show the two groups of producers separately, as they have wholly different cost structures and behave differently.

in secondary activities.

It is useful to know the nature of the secondary products, but not necessarily their destination.
29.27 When the key sector relates to an agricultural industry or product, such as coffee in certain countries, the situation is more complex.

Many producers may be unincorporated enterprises that do not qualify as quasi-corporations.

Ideally, the key sector accounts would include a complete set of accounts for the households that carry out these productive activities.
Because this may be difficult to do in practice, it may be necessary to show only the accounts and transactions which are most closely linked with the key activity such as the production and generation of income accounts from the one side and main transactions of the capital and financial accounts from the other.

receipts, regulatory activity or 29.28 In many cases, government plays an important role in connection with key activities, either via taxes and property income subsidies.
Accordingly, the detailed study of transactions between the key sector and general government is very important.

The classification of transactions may be extended to identify those flows connected with the key activity, including the relevant taxes on products.

These flows may be received by various government agencies, such as ministries for special purposes, universities, funds or special accounts.
Similarly, it is very useful for economic analysis to indicate what uses are made by government of these resources, especially in the case when they are routed via a government agency.

This calls for a specific analysis by purpose of this part of government expenditure.

29.26 Thereafter, a set of accounts, following the sequence of accounts as far as possible, may be compiled for the key sector.
In the case of energy and mining activities, the key sector generally consists of a limited number of large corporations where access to the commercial accounts of the corporations is usually possible.

All transactions of the corporations are covered, even when they carry out 29.29 The distinction between public, foreign controlled or national private corporations is fundamental when dealing with a key sector.
29.30 One more step may consist in showing in additional tables the “from-whom-to-whom?” relationship between the key sector and each other sector and the rest of the world.

D. Satellite accounts; options for conceptual variations 29.31 This section looks at some of the options that might be adopted in developing a satellite account of the second type, where some of the basic concepts of the central system are intentionally varied.

It is deliberately illustrative rather than exhaustive.
classification, but the inputs of secondary activities are not separated from those of the principal activities.

Ancillary activities, on the other hand, are not analysed and classified according to their own nature and the related products do not appear as autonomous products.

1.

Production and products 29.32 Within the production boundary of the central framework of the SNA, producer units are establishments, classified according to their principal economic activity.
Such units are classified according to ISIC.

29.33 When establishments, and consequently industries, are not homogeneous at a given level of the ISIC, they undertake both a principal activity and one or more secondary activities.
The output of these secondary activities is identified according to its nature, following a product 29.34 When examining certain kinds of activity and products, it may be useful not only to separate secondary from principal activity, but also to identify and recognize the ancillary activities in order to obtain a full picture of the inputs corresponding to the activity being examined.

29.35 Consider the example of transportation.


The output of transportation activities in the central framework covers only transport services rendered to third parties, whether as a principal or secondary product.

Own-account transportation is treated as an ancillary activity; its inputs are unidentified components of the costs of the producing units it serves.

To obtain a broader picture of transportation 526 activity, own-account transportation of producing units may be identified and measured.
29.36 In some instances, it may be useful to consider enlarging the production boundary.

For instance, to make an overall estimate of the transportation function in an economy, it might be useful to cover transport services rendered by households using their own cars and to try to value the time people spend using transport facilities.

Generally speaking, the scope of non-market activities may be extended considerably.
29.37 The process of identifying principal, secondary and ancillary activities works well when the activity in question is identified in one of the standard classifications and so appears in the central framework.

However, in some important cases, such as tourism and environmental protection activities, is complex because not all the relevant activities and products appear in the central framework classifications.
In this case, the use of the word “industry” is not in strict accordance with the normal usage just as “sector” is used in a special sense in the context of key sector accounts.

the process of identification 2.

Income Primary incomes 29.38 When the production boundary is extended, as suggested above, the magnitude of primary incomes is increased, income being imputed for the additional activities which are inserted within the boundary of production.
29.39 In conditions of high inflation, nominal interest may be judged not to be an appropriate measure of the return to lent funds.

Nominal interest includes an implicit or explicit component as compensation for the change inflation causes in the real value of monetary assets and liabilities.

This component may be analysed as a holding gain for the borrower and a holding loss for the lender, rather than as an element of property income.
Transfers and disposable income 29.40 Several kinds of transfers in addition to those in the central framework may be delineated, if meaningful.

Some examples follow.

to tax benefits 29.41 Implicit transfers may be made explicit.

Implicit transfers change the situation between units without any flow being treated as an imputed transfer in the central framework.
For instance, the advantages or refer disadvantages economic units incur as a consequence of tax legislation by reference to an average situation.

Another example is the case of non-market services provided free of charge by government units to market producers.

In the central framework these services are treated as collective consumption of government.
If a further analysis were to treat them as an addition to intermediate consumption of market producers, a counterpart should be introduced, preferably in subsidies on production.

This approach may be undertaken systematically to measure all types of transfers between government and particular sectors, such as agriculture.
The implicit benefits resulting from tax Satellite accounts and other extensions concessions, equity participation, soft loans, differential exchange rates, differential domestic prices, etc., may then be added to subsidies, other current transfers, or capital transfers embodied in the central framework data.
29.42 Externalities are impacts on third parties that are not accounted for in the value of monetary transactions between two economic units or that result from actions of these units in the absence of any monetary transaction.

As such, externalities may give rise to a wide range of implicit transfers.

For example, pollution and nuisance created by producers may have negative effects on final consumers.
These negative effects might (with difficulty) be estimated and recorded as negative transfers from producers to households.

In order to balance these negative transfers, one possibility might be to introduce a concept of production of externalities which would result in an output of negative or positive services and the corresponding final consumption.
for enlarged concepts of 29.43 Flows in the other changes in volume of assets account and the revaluation account of the central framework are candidates transfers and disposable income.

Uncompensated seizures, for example, could be recorded as a transfer (albeit unwillingly on the part of the former owner).
In countries where holding gains or losses on financial assets or liabilities are significant, real holding gains and losses on financial assets and liabilities could be added to disposable income in order to derive a broader measure of income.

3.

Uses of goods and services 29.44 The coverage of uses of goods and services, either for intermediate or final consumption or capital formation, obviously changes as a result of enlarging the concept of production.
For example, if services rendered to each other by members of the same household were included in production, they would have to be also included in final consumption.

29.45 The borderline between intermediate consumption, final consumption and capital formation may also be modified in various ways.

Two often mentioned cases refer to human capital and consumer durables.
If at least part of final consumption on education and health were treated as fixed capital formation, the corresponding central framework transactions would be reclassified from consumption to fixed capital formation resulting in human capital assets.

As an immediate consequence, the concept of consumption of fixed capital would be extended.
29.46 An alternative to the inclusion of expenditures on consumer durables such as cars and furniture in household final consumption would be to treat them as fixed capital formation.

Only that part of the resulting fixed asset estimated as the capital services provided by the durable would then enter final consumption.

Strictly speaking, this procedure implies enlarging the concept of production to include household services.
(This is one subject discussed further in section E.) 29.47 As a consequence of the changes just considered, the concept of saving would be extended.

527 System of National Accounts 4.

Assets and liabilities 29.48 The scope of non-financial assets could be modified as a consequence of extending the concept of production or modifying the borderline between consumption and capital formation, as indicated in the previous paragraphs.
29.49 The scope of financial assets and liabilities could also be broadened by including contingent assets and liabilities in the classification of instruments.

Further, financial alternative rules about the valuation of financial assets may be used, for example using fair value estimates instead of market value.

5.

Purposes 29.50 Section B describes the functional classifications.

In the standard version, headings at a given level are mutually exclusive.
For example, teaching in hospitals must be classified as either education or health expenditure but not both.

Consequently, for an education or health account, it might be desirable to reclassify a number of transactions.

In order to preserve as great a degree of consistency with the central system as possible, any reclassifications should be treated as removing an item from one heading and placing it in another rather than allowing double counting.
Double counting would mean that transactions classified by purpose were no longer additive since some of them would appear under two or more headings.

However, even without double counting, it should be noted that different satellite accounts, each with a different focus, may not be consistent with respect to other headings.
For example, if an education satellite account treats some teaching done in hospitals as education rather than health, the measure of health in that satellite will differ from that in any other satellite where such a displacement has not been made.

6.

Aggregates 29.51 A number of the complementary or alternative analyses mentioned above may modify the main aggregates as shown in the central framework either directly or indirectly.
Examples of direct modifications are the increase in output and value added when final consumption of household services for own use is included within the boundary of production, or the increase in fixed capital formation if human capital is considered an economic asset.

Other aggregates are indirectly modified; saving in the latter case, disposable income in the former.

29.52 In some types of analysis the objective is to focus on one specific field of concern, such as education or tourism.
Changes in some concepts and aggregates of the central framework may be introduced, but this is not the primary intention, nor is it intended to give a different picture of the overall economic process.

E. Possible tables for a satellite account 29.53 The previous section described what variations in the basic concepts, accounting rules and classifications of the SNA could be applied in a satellite account.
This section suggests some sorts of tables that it might be useful to compile for a satellite account.

29.56 In addition, for many products of special interest, there may be particular taxes or subsidies associated with their production or use.

Taking these two factors together, therefore, in addition to the items above, the following is required: 1.

Scoping a functionally orientated account c. An analysis of any transfers associated with either production or use.
29.54 The starting point is to decide which products are of interest and which are the industries involved in their production.

The resources devoted to the production of the items include not only current costs but also fixed capital used in production.

Once the items are produced, the question arises of how they are used.

This leads to requiring information on the following topics: 29.57 It is also useful in many cases to associate non-monetary figures with the monetary ones.
This means assembling the following information: d. Information on employment and the availability of assets.

a.

A detailed analysis of the supply and use of the products in question; b.

Information on the fixed capital used in the production process.
29.55 For many items, the products are the units using responsible for bearing the expense of acquiring the product but satellite accounts may frequently be compiled for areas, such as health or education, where there may be an important distinction between who pays for the product and who consumes it.
29.58 Once these four sets of data are assembled, it should be possible to develop a satellite account that covers the analysis of uses of, or benefits from, the expenditure on the labour and capital items, production employed, transfers and other ways of financing the uses.

All of this can be expressed in value terms and, when relevant, in physical quantities.

including the 2.
including the 2.

Determining the products of interest 29.59 For any field of interest, the starting point is to identify the products specific to this field.

It is customary, in the context 528 of a satellite account, to identify these as characteristic products and connected products.

Characteristic products are those that are typical of the field; for instance, for health, characteristic products are health services, public administration services, education and R&D services in health.
29.60 The second category, connected goods and services, includes products whose uses are interesting because they are clearly covered by the concept of expenditure in a given field, without being typical, either by nature or because they are classified in broader categories of products.

In health, for example, transportation of patients may be considered connected services; also pharmaceutical products and other medical goods, such as spectacles, are very often treated as connected goods and services.
29.61 Together characteristic products and connected products are referred to as specific products.

3.

Measuring production 29.62 For characteristic products, the satellite account should show the way these goods and services are produced, what kinds of producers are involved, what kinds of labour and fixed capital they use and the efficiency of the production process and, hence, of the allocation of resources.
the then 29.63 For connected products, there is no particular interest in their conditions of production because they are not typical of the field of interest.

If the conditions of production are important, should be considered items characteristic products and not connected products.

For example, pharmaceutical products might be considered characteristic in the account for health of a country in the first stages of developing a domestic industry.
The precise borderline between characteristic and connected products depends on the economic organization in a given country and the purpose of a satellite account.

4.

Components of uses/national expenditure 29.64 The components of uses or national expenditure are the following: 1.

Consumption of specific goods and services, 2.

Capital formation in specific goods and services, 3.

Fixed capital formation of characteristic activities in non-specific products, 4.

Specific current transfers, 5.


Specific capital transfers.

Each of these items is discussed below.

Consumption 29.65 Item 1 is consumption of specific goods and services.

It covers actual final consumption (as defined in the central Satellite accounts and other extensions in the the central framework and framework) and intermediate consumption.
Market products, products for own final use and non-market last-named, products are distinguished and, for individual and collective consumption may be shown separately.

Intermediate consumption generally has a broader coverage than in the central framework, as the output of the relevant ancillary activities is identified with recorded.

As a intra-establishment deliveries being consequence, it covers (actual) intermediate consumption as defined internal intermediate consumption.
In some cases, such as transport services, the last component may be important in size.

Sometimes, it could be considered that this internal intermediate consumption should be treated as final consumption and added to actual final consumption, as in the use of ancillary education and health services, thus broadening final consumption.
Alternatively, the scope of consumption may be narrowed, if the use of certain services is treated as fixed capital formation instead of intermediate or final consumption as in the central framework.

scope of household actual in a satellite account the Capital formation item 2 29.66 Item 2 is capital formation in specific goods and services.

if Since, appropriate, it may cover work-in-progress in specific services.
In an account for culture, for example, there may also be acquisition less disposals of valuables.

includes changes inventories, in 29.67 Item 3, fixed capital formation of characteristic activities in non-specific products and their acquisitions less disposals of non-produced non-financial assets is a bit more complex: a.

It does not cover the total fixed capital formation of these activities because that part consisting of specific products is already included in item 2. b.
Only the fixed capital formation of activities whose output consists of characteristic goods and services is covered in item 3.

(If the exclusion of capital formation of activities whose output consists of connected goods and services proves important, the products and activities in question may have to be redefined to be characteristic.)

c. An analysis based on establishments may give a broader coverage than normal because they may cover some secondary activities.
d. Item 3 includes acquisitions less disposals of non- produced non-financial assets.

Transfers 29.68 Items 4 and 5, specific current transfers and specific capital transfers, are the most important components of national in cases such as social protection or expenditure development aid.

In these fields, items 1 and 2 refer only to the administrative costs, both current and capital, of the agencies managing social protection or international aid.

The core of the expenditure consists of transfers.


529 System of National Accounts 29.69 In some situations, there may be subsidies designed to reduce the prices paid by final consumers for certain goods or services, such as food, transport services, or housing services.

They are commonly called consumption subsidies.

In the central framework, when these goods and services are considered market products, they are included in final consumption at purchasers’ prices.
In a satellite account there are two options: either consumption (item 1) is valued differently from the central framework in order to include the value of consumption subsidies or consumption is valued as it is in the central framework and specific current transfers (item 4) must include consumption subsidies.

Subsidies included in item 4 may also be directed toward reducing the prices of intermediate consumption.

Item 4 may also include other subsidies on production.
29.70 In each field a classification of specific transfers has to be established.

As it is used for analysing both uses and financing, this classification covers all specific transfers, independently of whether they are counterparts of items 1 to 3 or not.

Total uses and national expenditure 29.71 The total uses of resident units are the sum of the five components above.

From this, current uses financed by the to reach national rest of expenditure.
National expenditure is thus equal to total uses of resident units financed by resident units.

It is desirable if possible to distinguish between current and capital uses financed by the rest of the world.

the world are deducted 29.72 National expenditure, as defined above, does not include transactions in financial instruments.

However, for certain types of analysis, such as development aid, loans which are given or received at preferential conditions must be accounted for.
Benefits or costs resulting from rates of interest lower than the market ones involve implicit transfers as described in chapter 22.

29.73 Uses/national expenditure may be shown by type of products and transfers or by type of purpose (programmes).

The main emphasis may be put on one or the other of these two alternatives, or they might be used jointly, depending on the field covered or the aim of the analysis pursued.
The approach by programme is particularly relevant in the case of environmental protection or social protection.

5.

Users or beneficiaries 29.74 For users or beneficiaries, the terminology used may differ from one satellite account to another.

“Users” is more relevant to tourism or housing for example, “beneficiaries” to social protection or development aid.

In both cases, the terms refer to who is using the goods and services or benefitting from the transfers involved.
29.75 At the most aggregated level, the classification of users or beneficiaries is simply a rearrangement of the central framework classification of institutional sectors and types of producers, in which the production and consumption aspects are separated.

It may be as follows: a.

Market producers; 530 b.

Producers for own final use; c. Non-market producers; d. Government as a collective consumer; e. Households as consumers; f. Rest of the world.
29.76 Households as consumers are the most important type of users or beneficiaries in many satellite accounts.

In order to be useful for social analysis and policy, a further breakdown of households is necessary.

For this purpose, one of the sorts of subsectoring of households discussed in chapter 24 could be considered.

6. Financing 29.77 Because users do not always bear the expenses themselves, it may be desirable to try to analyse the units that ultimately bear the expenses.
This is more feasible when the field of interest covers complete institutional units than when it concerns establishments (or units of homogeneous production) covering only part of the output of the whole enterprise.

29.78 One way to approach the question of financing is to first establish what types of financing are used and then identify which sorts of units provide each type of financing.

The question of “ultimate” bearer of the cost also needs addressing.
Some household consumption is provided by government as social transfers in kind, which in turn is largely financed by taxes received by government from households and enterprises.

In one sense, therefore, it could be argued that social transfers in kind are ultimately financed by households and enterprises.

Some conventions have to be established about how far back down the financing chain to go to determine the “ultimate”, or perhaps more correctly the indirect, source of financing.
29.79 Another problem that arises is that, except in cases of transactions in kind, there is no necessary link between one source of funding and one type of expenditure.

However, it is convenient to pair various types of financing and expenditure to see how far they correspond, as follows: a.

Intermediate consumption of market producers compared with revenue from sales; b.
Intermediate and final consumption of government compared with taxes; c. Intermediate and final consumption of NPISHs compared with contributions received; d. Final consumption expenditure by households compared with compensation of employees and transfers such as pensions.

29.80 Capital formation may be funded in a number of ways; from revenue from sales, from the disposal of assets (including financial assets), from the receipt of a transfer in kind or from borrowing.
In the case of capital formation by government, this may be funded by the issue of securities or by capital transfers or loans from the rest of the world.

29.81 The source of financing of transfers depends in large part on the field being studied.

If social benefits are included, they should be treated as mainly financed by social contributions from other households.

Governments will be the provider of transfers in some cases (including subsidies) and the recipient in others (including taxes).
29.82 In a number of cases, it may be particularly relevant to identify financing from the rest of the world.

F. Examples of satellite accounts 29.85 As explained in the introduction, there are two types of satellite accounts, serving two different functions.

The first type, sometimes called an internal satellite, takes the full set of accounting rules and conventions of the SNA but focuses on a particular aspect of interest by moving away from the standard classifications and hierarchies.
Examples tourism, coffee production and environmental are protection expenditure.

The second type, called an external satellite, may add non-economic data or vary some of the accounting conventions or both.

It is a particularly suitable way to explore new areas in a research context.

An example may be the role of volunteer labour in the economy.

Some sets of satellite accounts may include features of both internal and external satellites.
29.86 The boundary between satellite accounts and a straightforward elaboration of the SNA or even with other systems is not clear cut.

The links to balance of payments and the international accounts as presented in BPM6, government finance statistics as in GFSM2001 or MFSM could all be seen as a form of satellite account.

The treatment of NPIs in chapter 23 and the informal sector in chapter 25 are clearly satellite accounts.
Even the pension table in chapter 17 could be seen as a form of satellite account, even though its compilation is part of the central guidelines of the SNA.

29.87 In this section, some further satellite accounts are described.

The descriptions are brief, being intended to give a flavour of the accounts only; references are given for further information.

Four areas in total are described.


For two of these, the tourism satellite account and the environmental satellite account, the international manuals are now in their second version.

The health satellite account is still in a preliminary version but under active revision.

The fourth area covers unpaid household production activities.
This has been an area of interest for very many years but the difficulties in determining how to measure unpaid activities has so far been a stumbling block in reaching international agreement on how to proceed.

Satellite accounts and other extensions 7.

Production and products 29.83 As with key sector accounts, it will almost always be useful to develop a set of supply and use tables for the characteristic and connected products of interest and the producers of the characteristic products.
This may be extended to cover the generation of income account also and non-monetary data concerning employment and indicators of output.

8.

Physical data 29.84 Data measured in physical or other non-monetary units should not be considered a secondary part of a satellite account.

They are essential components, both for the information they provide directly and in order to analyse the monetary data adequately.

Nevertheless, some of the most recent work in this is reviewed for those interested.
29.88 Other satellite accounts have been developed or are under development.

Some, such as a satellite investigating productivity across a number of countries reported in Productivity in the European Union: A Comparative Industry Approach (EU KLEMS Project, 2003), have been conducted to date as a research exercise.
Others, such as accounts for water and forests, have been developed as elaborations of the main environmental satellite account SEEA to the point where international guidelines on these are now accepted.

Further satellite accounts for agricultural products would be useful for a number of developing countries.

Here and elsewhere, as there is agreement on how to compile a new form of satellite account, new international guidelines can be developed.
International guidelines on satellite accounts themselves may be subject to revision and may eventually move towards an accepted international standard as is planned for the SEEA.

1.

Tourism satellite accounts 29.89 The tourism satellite account (TSA) is a long established satellite account with more than 70 countries having compiled one at some stage.
A manual of international guidelines, known as the 2008 Tourism Satellite Accounts: (Eurostat, Recommended Methodological Framework Organisation and Economic Development, World Tourism Organization, United Nations, 2008) updates the first version of 2000.

The coverage of second homes and the activity of meetings and conferences are extensions to the TSA made in the 2008 update.

Co-operation for 29.90 The goal of the tourism satellite account is to provide the following information: a.
Macroeconomic aggregates that describe the size and the economic contribution of tourism such as tourism 531 System of National Accounts direct gross value added (TDGVA) and tourism direct gross domestic product (TDGDP), consistent with similar aggregates for the total economy and other productive economic activities and functional areas of interest; b.
Detailed data on tourism consumption, a more extended concept associated with the activity of visitors as consumers, and the description of how this demand is met by domestic supply and imports, integrated within tables derived from supply and use tables that can be compiled both at current values and in volume terms; c. Detailed production accounts of the tourism industries, including data on employment linkages with other productive economic activities and gross fixed capital formation; d. A link between economic data and non-monetary information on tourism such as number of trips (or visits), duration of stay, purpose of trip, modes of transport, etc.
which are required to specify the characteristics of the economic variables.

Defining visitors and tourists 29.91 At the centre of the TSA is the idea of a visitor.

A visitor is defined as someone who is outside their usual environment but not employed by an entity resident in the place he is visiting.

The usual environment is not identical with country of residence.

It refers to the area within which a person is normally to be found.

It includes the area around the home and also the place of work.
Thus border workers, although they cross a country boundary, are not visitors.

Visitors are therefore a subset of travellers.

29.92 Visitors may be divided into two categories: those that are overnight visitors called tourists and those that are same day visitors called excursionists.

Further, it is important to divide tourists according to their country of residence into domestic and external tourists.
A resident visiting a country abroad is undertaking outbound tourism; a non-resident visiting the domestic economy is undertaking inbound tourism.

The total amount of tourism undertaken by residents, known as national tourism, is the sum of domestic tourism (tourism within the domestic economy undertaken by residents) plus outbound tourism.

Internal tourism is the sum of domestic tourism plus inbound tourism.
Within the country Outside the country Total Domestic tourism Outbound tourism National tourism Inbound tourism Internal tourism Residents Non-resi- dents Total 29.93 Tourism is not restricted to activities normally thought of includes all activities typical of recreation but as 532 undertaken by the tourist.

Travelling for business or for education or training is included.

The purpose of the tourist’s visit is categorized according to whether it is personal or business and professional.
The personal heading is further divided into eight categories: holidays, leisure and recreation; visiting friends and relatives; education and training; health and medical care; religion or pilgrimages; shopping; transit and other.
Definition and scope of tourism expenditure 29.94 Tourism expenditure is defined as the amount paid for the acquisition of consumption goods and services as well as valuables for own use or to give away after or during tourism includes expenditures by visitors themselves as well as expenses that are paid for or reimbursed by others.

trips.
trips.

It Definition and scope of tourism consumption 29.95 The concept of tourism consumption goes beyond that of tourism expenditure in that it also includes services associated with occasional accommodation on own account, tourism social transfers in kind and other imputed consumption.

While information on tourism expenditure can be obtained by surveys of tourists, the adjustments to tourism consumption have to be estimated from other sources.
29.96 Tourism consumption can be characterized according to where the tourism takes place and whether the tourist is a resident or non-resident in a manner similar to that already described for tourism.

Characteristic products 29.97 The consumption products considered by the TSA are divided into tourism characteristic products and other consumption products.
Tourism characteristic products are further subdivided into internationally comparable tourism characteristic products and country specific tourism characteristic products.

The TSA manual includes a list of the first.

Other consumption products are divided between tourism connected products and non-tourism related products.

Non-consumption products include all products that do not constitute consumption goods and services.
These include valuables, tourism gross fixed capital formation and collective consumption.

A list of 12 classifications of products and activities characteristic of tourism are given in the TSA manual.

Tourism industries product.
Tourism 29.98 A tourism industry represents the grouping of those establishments whose main activity corresponds to a characteristic cover accommodation for visitors, the food and beverage serving industry, railway, road, water and air passenger transport, transport equipment rental, travel agencies and other reservation service industries, the cultural industry, the sports and recreational industry, the retail trade of country specific tourism characteristic goods and country specific tourism characteristic industries.
industries m s i r u o T ) % ( ( y l p p u s ' s r e s a h c r u p ) * ) s e c i r p c i s a b t a ( - 2 1 s e i r t s u d n i m s i r u o t … .
b - ) e u a v l n i ( e r a h s ) e u a v l n i ( ) e u a v l n i ( ) e u a v l n i ( e r a h s ) e u a v l n i ( e r a h s ) e u a v l n i ( m s i r u o t e r a h s ) e u a v l n i ( ) e u a v l n i ( e r a h s ) e u a v l n i ( b - 1 .
a - 1 n o i t a d o m m o c c a - ) e u a v l n i ( t u p t u o m s i r u o t e r a h s ) e u a v l n i ( t u p t u o s t c u d o r P ) * ( ) s e c i r p ' s r e s a h c r u p t a ( Table 29.1:Table 6 from the Tourism Satellite Accounts Satellite accounts and other extensions = ) 5 .
6 ( 0 0 1 x ) 3 .

4 ( ) 4 .

6 ( ) 3 .

4 ( = ) 4 .

6 ( ) 1 .

6 ( + ) 5 1 .

5 ( ) 3 .

6 ( + ) 2 .

6 ( + ) 3 .

6 ( ) 2 .

6 ( ) 1 .

6 ( = ) 5 1 .

5 ( + ) 3 1 .

5 ( ) 4 1 .

5 ( ) 4 1 .

5 ( ) 3 1 .

5 ( ) 2 1 .

5 ( ) … 5 ( ) b 1 .

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 – a 1 .
i s e c v r e s n o i t a d o m m o c c A – b 1 .
– – – – – s e c i v r e s t r o p s n a r t r e g n e s s a p r i A – – - y r t n u o C – - y r t n u o C – – 0 1 s e c i v r e s l a r u t l u C – 9 ) d ( ) a ( s t c u d o r p n o i t p m u s n o c r e h t O 2 A . )
d ( s t c u d o r p n o i t p m u s n o c n o N .

B l s e b a u a V 1 B .

l ) s e c i r p c i s a b t a ( D E D D A E U L A V S S O R G L A T O T ) I I - I ( ) c ( ) e c i r p s r e s a h c r u p t a ( I N O T P M U S N O C E T A D E M R E T N I I L A T O T .

I I ) d ( ) b ( ) * * ( s t c u d o r p n o i t p m u s n o c n o n r e h t O 2 B . )

s e c i r p c i s a b t a ( T U P T U O L A T O T .
– 1 ) d ( . )

* ( s t c u d o r p n o i t p m u s n o C .


 …* I . )

.

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4 .

a r a p e e s ( e b s s o p i l f i , , s e s a c h t o b n I . )
" - n o n " d n a " s t c u d o r p d e t c e n n o c m s i r u o t " ( , i l e b s a e f d n a t n a v e e r l f I ) a ( ) .

6 1 .

4 .

a r a p e e s ( e b s s o p l i f i , ) b ( ) .

7 1 .

4 .
7 1 .

4 .

a r a p e e s ( e b s s o p l i f i i l , d e d v o r p e b d u o h s n w o d k a e r B ) c ( i .

 , , s t c u d o r p n o i t p m u s n o C .

A f l o e u a v e h T ) * ( .


 ) * * ( ) 4 l x e n n A e e s ( , s d o o g r o F ) d ( 533 System of National Accounts 29.99 Based on this information a full set of TSA accounts consisting of 10 tables can be compiled.
The first three consist of tourism expenditure.

Table 4 shows a breakdown between domestic and inbound tourism and the adjustments that need to be made to move from tourism expenditure to tourism consumption.

Table 5 shows the supply of the tourism industry.

Table 6 is the heart of the TSA and shows the main aggregates derived; the aggregates are listed below.

Table 7 covers employment.

Tables 8 and 9 cover fixed capital and collective consumption.

Table 10 covers non-monetary information.


Main aggregates e. encouraging the development of comprehensive and consistent data sets over time; f. facilitating international comparisons.

29.104 As with the SNA, the SEEA accounts provide a score- keeping function from which key indicators can be derived and a management function in that they can be used in the analysis of policy options.
The accounts provide a sound basis for the calculation of measures which may already be included in sets of sustainable development indicators, but they may also be used to develop new indicators, such as environmentally adjusted macroaggregates which would not otherwise be available.

29.100 The following aggregates are taken to be a set of relevant indicators of the size of tourism in an economy.

They include: The different parts of the SEEA a.

Internal tourism expenditure; b.


Internal tourism consumption; c. Gross value added of the tourism industry (GVATI); d. Tourism direct gross value added (TDGVA); e. Tourism direct gross domestic product (TDGDP).

29.101 The derivation of these items is shown in table 6 of the TSA manual which is included as table 28.1.

2.
2.

Environmental accounting 29.102 Environmental accounts aim to reflect within a framework based on the SNA the impacts of using (and sometimes using up) natural resources and the generation of residuals that pollute the air and water.

They also identify specific activities undertaken the environmental impacts of human activity.

to prevent or combat 29.103 An interim version of SEEA, the satellite for Integrated Environmental and Economic Accounts was published in 1993.
An updated version was released in 2003.

Work is in hand to revise this further with a view to publication in 2012.
The goals of the SEEA are to assist in: a. encouraging the adoption of standard classifications in environmental statistics, which extends the value and relevance of existing environmental information; b. bringing a new dimension to environmental statistics by applying the economic accounting traditions linking stocks and flows; c. providing a link with the economic information contained within the traditional economic accounts, the reliability and leading coherence of both sets of information; improvements in to d. identifying use and ownership and hence responsibility for environmental impacts; 534 29.105 The SEEA should be seen as a satellite account to the SNA with features of both internal and external satellites.
The full system consists of three main sections, two of which can be implemented more or less independently and a third which is designed to integrate the first two with each other and with the SNA.

The three sections consist of: a.


An extended form of supply and use tables capable of incorporating physical data alone or in addition to monetary data; b. Elaborations of parts of the central framework of the SNA with some extensions; and c. Consideration of extending the SNA to allow the effects of depletion and degradation to impact the macroaggregates such as GDP.

Physical and hybrid supply and use tables 29.106 Four different types of flows are distinguished in the SEEA.

a.
a.

Products are goods and services produced within the economic sphere and used within it, including flows of goods and services between the national economy and the rest of the world.

b.

Natural resources cover mineral and energy resources, soil, water and biological resources.

c. Ecosystem inputs cover air and the gases necessary for combustion and the water to sustain life.
d. Residuals are the unintended and undesired outputs from the economy which have zero price and may be recycled or discharged the environment.

“Residuals” is the single word used to cover solid waste, effluents (discharges to water) and emissions (discharges to air).

into 29.107 The first set of environmental accounts consists of a link to environmental statistics formed by structuring physical environmental data in a supply and use or input-output framework.
Physical flow accounts consist of merging accounts for products, natural resources, ecosystem inputs and residuals, each account being expressed in terms of Satellite accounts and other extensions supply to the economy and use by the economy.

Purely physical accounts can show the relative importance of different economic activities in terms of their effect on the environment.

a.

Relevant ancillary activities should be treated as secondary products; b.
A set of characteristic products should be identified; to compare and contrast 29.108 However, the power of this approach comes from being able to draw parallels between the physical and monetary flows this environmental importance with the corresponding importance of the activities in economic terms.

The hybrid supply and use or input-output tables superimpose monetary values for products on their physical equivalents and add the balancing item of value added.
Hybrid input-output tables have been successfully used to explore environmental themes such as greenhouse effects or solid waste.

Examples can be found in the SEEA manual.

29.109 An example of a hybrid SEEA input-output table is given in table 29.2. c. Transfers specific to environmental protection need to be identified; d. National expenditure on environmental protection can be calculated; e. The sectors financing the expenditure can be identified.
29.115 All these steps are described in detail in the SEEA manual.

There is discussion there also on a set of characteristic products identified as the “environment industry” for comparable international use.

An example of an environmental protection expenditure account is shown in table 29.3.
Identifying environmental aspects of the central framework Asset accounts 29.110 The second strand of the accounting system is to identify precisely those monetary transactions in the SNA that are directly related to the environment.

In terms of flows, this concerns environmental income and property rights, and environmental protection, natural resource use and management expenditure.
taxes, property Environmental taxes, property income and property rights 29.111 An environmental tax is one whose tax base is a physical unit (or proxy of it) that has a proven specific negative impact on the environment.

Four types of taxes can be considered to be environmental; energy taxes, transport taxes, pollution taxes and resource taxes.

As elsewhere in the SNA, care has to be taken to distinguish between taxes and fees for a service.
Landfill charges, for example, may fall levied by the in government.

latter category even though 29.112 Resource rent on natural assets is shown in the SNA as property income when paid to another unit.

As shown in chapter 20, however, it is possible to identify the element of operating surplus corresponding to the resource rent on a natural asset used by the owner also.
29.113 Another aspect of importance for the use of natural resources is the question of permits to use these over an extended period, as discussed in chapter 17.

Permits may relate to extraction of natural resources or the use of them as a sink.
A set of accounts for environmental protection expenditure 29.114 A set of environmental protection accounts can be compiled using fairly standard satellite account techniques according to the following steps: 29.116 For stocks and changes in stocks, the asset accounts described in chapter 11 are used for natural resources, in both value terms and physical units.
In the SEEA, asset accounts may be compiled in physical terms for natural resources that have no monetary value and thus do not appear within the SNA asset boundary.

For resources such as air and water that may not have a monetary value, nor even a stock value, accounts of changes in physical units may still be useful.

Integrating environmental adjustments in the flow accounts 29.117 The third and last main section of the SEEA is the external part of the satellite account.
It relaxes the constraint which has been respected in the accounts described so far not to make any fundamental change to the SNA.

The idea is simple, to convert hybrid tables to fully monetized tables by placing monetary values on those flows below and to the right of a hybrid table which have so far been expressed in physical terms only.

However, although the idea is simple, implementing it is not.

This part of the SEEA is more experimental and consensus on proposals made so far has not been reached.
Depletion 29.118 Valuing inputs into the economic system is the first and easier step.

Since these inputs are incorporated into products which are sold in the market place, in principle it is possible to use direct means to assign a value for them based on market principles.

Even within the SNA, such valuations are sometimes made though the results are placed in the other changes in assets account rather than in the flow accounts.
Thus another way of looking at the process of incorporating the use of environmental inputs into the system is to relocate some of the other changes in assets items into the accounts portraying transactions.
In particular, if an environmental resource is not being used sustainably, an alternative measure of income allowing for the consumption of natural capital as well as consumption 535 System of National Accounts Table 29.2:Example of a hybrid supply and use table from the SEEA * )
( $ , & % ( ’ $ ’ ’ ’ ’ / 0
$ ( & % 0 ( " ( & %
( 0 ) / ’
/ ’ ) ’ " , " & % ( ) 1 # .
) ’ # 1 / , - " , - ’ )
# " # & % $ 0 ( / 0 ( .
- & % , - & % ) - ( ’ - & % ( 536 ’ $ $ / " .
’ , * Table 29.3:Example of a combined supply and use table for environmental protection goods and services Satellite accounts and other extensions ’ ’ ’ ’ 8 8 8 8 ’ ’ $ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ $ ’ ’ ’ ’ / ’ ’ 8 8 8 8 8 8 ’ ’ $ ’ ’ ’ $ ’ ’ ’ ’ ’ ’ $ ’ ’ $ .
# # # & # # % ’ ’ + ’ ’ # 7 ’ " ’ $ / ’ ’ /
’ $ / ’ ’ / 50 ’ ’ .
# # # & # # # & # # ’ ’ % ’ ’ " ’ ’ ’ ’ ’ 8 ’ 6 0 40 0 20 00
50 0 (0-
#6 40 20 500 # # # $ # # # # # & # # # % ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ $ / ’ ’ ’ " ’ 8 ’ ’ ’ ’ !
’ ’ # # # % # # # & # # # # # $ # # # & # # # # # $ ’ ’ 8 ’ 8 ’ ’ 8 ’ $ # # # % ’ $ ’ $ ’
* 0 - 0 ( 6 # 0 0 5 0 2 0 4 +
+ * 6
# + # % 0 5 2 4 !
- ( 4 2 3 2 + 5 9 # : 537 System of National Accounts of fixed capital may be considered to take account of the depletion of natural resources.
the level of NDP of environmental impacts on natural and man-made capital and on human health?

Defensive expenditure 29.119 Some actions are already taken to limit residuals generation or to mitigate the impact of those which are emitted.

These expenditures are sometimes referred to as defensive expenditures.

One possible way the macroeconomic aggregates is to treat this expenditure as capital formation with offsetting depreciation.
adjust to Accounting for environmental degradation 29.120 This is the most difficult part of environmental accounting and one where there is still a wide divergence of views.

There are two problems raised by the question of how to incorporate the effects of degradation in the SNA.

The first is how to place a value on degradation; the second how to locate this valuation in the accounts.

29.121 The variety of approaches advocated can be illustrated briefly in terms of the focus of attention.
29.122 One approach is to focus on maintenance costing.

(This is the approach taken in the 1993 version of the SEEA.)

The object of the exercise is to answer the question: What would the value of net domestic product have been if hypothetical environmental standards were met using current costs and current technologies?
29.123 The problem with this approach is that if the question is posed in respect of significant changes in environmental standards, the resultant price rises involved are likely to bring about a change in behaviour that would affect the level of demand for those products.

In turn this would show up either as a change in the level of output of those products or a change in the technology of production to reduce dependence on the newly expensive products.
Nevertheless, for marginal changes in standards, this technique may be used to give an upper bound on the impact on NDP rigorous from moving environmental standards.

The aggregates from such an exercise are referred to as “environmentally adjusted”.

to more 29.124 A second type of cost-based estimates, known as “greened economy modelling” attempts to resolve the problems raised by maintenance cost approaches for the non- marginal cases of changes in environment standards.
They attempt to answer the question: What level of GDP could be achieved if steps were taken to internalize maintenance costs?

29.125 A particular application of greened economy models aims not just to determine a set of values for output, demand and so on which satisfy the national accounting balances but to determine levels of output which lead to levels of income that are sustainable over a given time period.

It attempts to answer income and environmental functions can be sustained indefinitely?
the question: What level of 29.127 “Damage-adjusted income” is thus a first step on the way to converting GDP-type measures to welfare indices but many other aspects of welfare are deliberately ignored.

3.

Health satellite accounts 29.128 The health care industry is of significant size and importance in many countries in terms of the number of people employed and level of turnover and is always a matter of significant policy concern.
The System of Health Accounts (SHA) (Organisation for Economic Co-operation and Development, 2000) builds on experience over the previous 15 years of information being collected on health care data.

One of the main purposes of the manual was to provide a framework for analysing health care systems from an economic point of view, consistent with national accounting rules.

As part of this, the conceptual links between the SHA and health satellite accounts were examined.
The manual is currently in the process of being updated as a joint effort by the OECD, Eurostat and WHO, with a revised version expected about the end of 2010.

29.129 In order to see how a health satellite account can be developed it is useful to begin by looking at the SHA.

There are four categories of information provided: a functional classification of health care, an analysis of health care provider units, information on expenditure on health care and information about the funding of health care.
Each of these is described briefly in turn.

Functional classification of health care 29.130 The activities of health care cover the application of medical, paramedical and nursing knowledge and technology, either by institutions or individuals, in pursuit of the following goals: a.
Promoting health and preventing disease; b. Curing illness and reducing premature mortality; c. Caring for persons affected by chronic illness who require nursing care; d. Caring for persons with health-related impairment, disability and handicaps who require nursing care; e. Assisting patients to die with dignity; f. Providing and administering public health; g. Providing and administering health programmes, health insurance and other funding arrangements.
29.131 Following from this there are three main functional classifications of health care; 29.126 Damage-based measures derive from the impact of actual residual generation.

The biggest impact is on human health.

They attempt to answer the question: What is the impact on a.

Personal health care services and goods; b.

Collective health care services; 538 c. Health care related functions.
e. Health administration and health insurance; Satellite accounts and other extensions 29.132 Each of these headings is broken down into a number of finer categories.

Personal health care distinguishes services of curative care, services of rehabilitative care, services of long-term nursing care, ancillary services to health care and medical goods dispensed to outpatients.
Collective health care services are divided between preventive and public health services on the one hand and health administration and health insurance on the other.
Health-related functions include capital formation of health care provider institutions, education and training of health personnel, research and development in health, food, hygiene and drinking water health, administration and provision of social services in kind to assist those living with disease and impairment, and administration and provision of health-related cash benefits.
environmental control, f. Total current expenditure on health (the sum of the above); g. Gross capital formation in health care industries; h. Total expenditure on health.

29.137 The production boundary of health care services is very close to that of the SNA but with two exceptions.

Occupational health care is included within the SHA whereas it is treated as an ancillary service in the SNA.
The cash transfers to private households (the caregivers at home) are treated as output of domestic services paid for by the transfers.

Health care provider units Funding of health care 29.133 The providers of health care are divided into the following categories: a.

Hospitals; b.
Hospitals; b.

Nursing and residential care facilities; c. Providers of ambulatory health care; d. Retailers and other providers of medical goods; 29.138 The funding of health care is divided between that provided by general government, that from the private sector and that from the rest of the world.

Within general government a distinction is made between the levels of government and social security funds.
Within the private sector a distinction is made between private social insurance, other private insurance, private households, NPISHs and corporations excluding health insurance.
Converting the SHA to health satellite accounts e. Provision and administration of public health programmes; 29.139 The following steps are required in order to translate the economic framework of the SHA into a health satellite account: f. Health administration and insurance; g. Other industries (rest of the economy); h. Rest of the world.

29.134 Each of these providers can be allocated to one or more of the institutional sectors of the SNA.
Expenditure on health care 29.135 Total expenditure on health measures the final use by resident units of health care goods and services plus gross capital formation industries (institutions where health care is the predominant activity).

in health care provider a.

A comprehensive listing of goods and services considered specific to the production of health care services needs to be determined; b.
The boundary line of production to define total expenditure on health needs to be determined; c. The activities for which capital formation will be recorded need to be determined; d. Specific transactions need to be identified; e. The detailed analysis of transfers as an integral part of health accounting needs to be provided; 29.136 Expenditure on health can be divided into the following categories; f. Ultimate users and ultimate bearers of health expenses need to be identified.

a.
a.

Personal health care services; b.

Medical goods dispensed to outpatients; c. Total personal expenditure on health; d. Prevention and public health services; 29.140 One of list of the difficulties with establishing a characteristic products is that the CPC does not deal with categories of health care services in the detail that is required for health accounts.

Therefore a more detailed classification is required.
Further, since health care is often a public from administrative data is often inadequate to provide the degree of detail that is required for a satellite account.
information drawn responsibility 539 System of National Accounts Table 29.4:Example of a supply and use table from the System of Health Accounts s e c i v r e s ) e r a c e m o h ( * ’ y : y l p p u s s e c r u o s e R ) 1 t r a p ( e l b a t e s u d n a y l p p u s A H S .
.

2 8 e l b a T 540 s t n e i t a p - t u o o t d e s n e p s i d s d o o g l a c i d e M 5 C H .

e r a c g n i s r u n m r e t - g n o l f o s e c i v r e S 3 C H .

 .

 .

 .

.
.

 : ) * ( otal .

 .
Table 29.4 (cont):Example of a supply and use table from the System of Health Accounts Satellite accounts and other extensions ) e r a c e m o h ( * ’ .
e r a c e v i t a r u c f o s e c i v r e S 1 C H .

e r a c g n i s r u n m r e t - g n o l f o s e c i v r e S 3 C H .

 .

s t n e i t a p - t u o o t d e s n e p s i d s d o o g l a c i d e M 5 C H .

 .

s e c i v r e s d n a s d o o G s e c r u o s e R : s e s u ) 2 t r a p ( e l b a t t u p t u o - t u p n i A H S .

.
/ otal , s u l p r u s g n i t a r e p O t e n , e m o c n i d e x i M .
: ) * ( 541 s s o r g , s u l p r u s g n i t a r e p O s s o r g , , System of National Accounts 29.141 Despite these difficulties it is proposed that four additional accounts would extend the SHA into a satellite account for health: the value of leisure when some of these activities are valued but this is not considered in this section.
a.

Production account and health care value added by the health care industry; b.

Intermediate inputs to the production of health care industries by type of input; c. Gross capital stock of the health care industry; d. An input-output table of health care industries.

29.147 There is fairly widespread agreement that the way in which to start measuring household services for own consumption is by means of measuring the amount of time spent on them.
There is increasing interest in conducting time use surveys that make such information available.

Time use surveys, however, are not unambiguous.

There is the question of multitasking.

For example, it is possible for somebody to prepare a meal, keep an eye on a small child and help an older child with their homework all at the same time.

Should the total amount of time be divided by three or should each activity count the whole amount of time spent?
29.142 Table 29.4 shows indicative supply and use tables that might be drawn up for health care.

4.

Unpaid household activity 29.143 This section is not concerned with a normal satellite account.

It is difficult to determine products that are characteristic solely of unpaid household activity nor are there agreed standard tables to be produced.

However, it is an area of considerable analytical and policy interest and an area where there is considerable research work being undertaken currently.
The purpose of this section therefore is simply to report on the approaches being considered and give some indication of where further information on ongoing research may be found.

29.144 It is convenient to separate the consideration into three areas; a. unpaid household services; b. a consideration of the treatment of consumer durables; c. the question of volunteer labour in general.
Unpaid household services 29.145 The question of valuing household services produced for own consumption is interesting in its own right.

In addition it is often argued that the growth of GDP in industrialized countries since the end of the Second World War is due in part to the increasing participation in the labour force of the women previously undertaking only household activities.
It is often argued that, had household activities been valued, the women’s change of occupation would not have led to such large increases in GDP.

For long-term analysis therefore, there may be quite considerable interest in placing a value on unpaid household activities.

29.146 There is no ambiguity in the central framework of the SNA; unpaid household services are excluded the production boundary.
However, in a satellite account it is perfectly possible to extend the production boundary so that such services may be included.

Even with an extended production boundary, however, it is unlikely that services that cannot be performed by a third party such as eating, sleeping and exercising would be treated as part of the production boundary.

Some work has been done to estimate from 542 29.148 There is a question about the borderline with leisure.
Some people would regard gardening as a chore; others may see it as a leisure activity.

While looking after children on a full- time basis clearly counts as a household service, does the amount of their grandchildren necessarily count as household services or is this a leisure activity?

time grandparents spend with 29.149 There is a question about how to value household activity.
One possibility is to have a complete production account and, for example, to consider the food purchased by a household as an input into the preparation of meals.

In this way households would consume very few goods directly; many of intermediate consumption to some kind of service output.

The alternative, which is usually the approach adopted, is to leave the inputs as household consumption expenditure and simply make separate estimates of the time that has not been previously valued.
them would be treated as 29.150 The basic question in valuing the time spent on household services is whether to use the opportunity cost of the person performing the task or a comparator cost.

Both of these present difficulties.

The opportunity cost seems appealing because application of economic theory suggests that somebody capable of earning more money than the comparator would indeed earn the extra money and pay somebody else to undertake the household tasks.
But this is clearly not what happens in practice.

Comparator costs may be difficult to come by and may be unrealistic.

A professional plumber, for example, may be able to fix a leaking tap in a matter of minutes whereas an amateur may spend an hour over it.

If the plumber’s wage is applied to the time spent by the amateur, clearly the amount of production estimated will be unrealistically high.

29.151 Various attempts to resolve the question of valuing output can be found in the literature.
Examples include Household Production and Consumption: Proposal for a Methodology of Household Satellite Accounts (Eurostat, 2003), Household Production and Consumption in Finland, 2001 - Household Satellite Account (Statistics Finland and the National Consumer Research Centre, 2006) and Beyond the Market: Designing Non-market Accounts for the United States (United States National Research Council, 2005).
Consumer durables 29.152 It is frequently argued that consumer durables should be treated as a form of fixed capital formation by households and not simply as final consumption expenditure.

It is true that there is a grey area concerning some household equipment.

In some circumstances, the cost of a house may include all kitchen equipment such as cookers, refrigerators and washing machines; in other cases these appliances are treated as consumption expenditure.
29.153 The main reason for excluding consumer durables from the asset boundary is linked to the exclusion of household services.

If washing clothes for the household were to be an activity within the production boundary when undertaken by machine, it is not clear why it would be excluded when undertaken by hand.

29.154 Nevertheless there is certainly interest in monitoring the acquisition of consumer durables.
The acquisition is often in cyclical expenditure may simply follow the introduction of a new product.

in nature, although sometimes variation 29.155 There are two approaches that could be taken in a satellite account.

The first is to adopt an alternative treatment for consumer durables at the same time as valuing unpaid household production.
The other is to leave unpaid household production excluded from the production boundary but consider replacing consumer durables by an estimate of the services they provide.

Treating consumer durables as assets is also of interest in the context of measuring household saving and wealth.

Examples of this type of analysis can be found in Durable Goods and their Effect on Household Saving Ratios in the Euro Area (Jalava et al, 2006).
Volunteer labour 29.156 The provision of unpaid services to households is excluded from the production boundary.

This exclusion applies whether the household being provided with the services is the one to which the volunteer belongs or another.

29.157 If a volunteer is providing services to a non-market producer or to a market NPI, the activity in which they participate is included within the production boundary.

However, the value of the services provided appears at cost.
This may be strictly zero or it may be nominal, including wages and salaries in kind.

For example, religious orders offering health and education services may not pay the Satellite accounts and other extensions individuals providing the services a wage but may provide them with food and accommodation.

In principle, these costs should be treated as wages and salaries in kind.

29.158 It is possible for there to be some volunteer labour within government, for example teaching assistants.
There may be some unpaid people working in corporations, for example as part of a work experience scheme, but volunteer labour in market NPIs is quite common, for example in a museum or art gallery as guides or custodians.

29.159 Even if the owner of a quasi-corporation or an enterprise does not take his salary, it could be argued that in principle this should be treated as first the receipt of compensation of employees and then an injection of capital of the same amount into the enterprise.
It is unlikely to be recorded as such but this case is clearly different in kind from the normal understanding of voluntary labour.

29.160 The question of valuing volunteer labour is the same as that of valuing the time spent on unpaid household activities and the same alternatives are available.
If voluntary labour were valued, the following accounting entries would be necessary: a. compensation of employees of the unit employing the volunteer labour; b. income for the household to which the volunteer belongs; c. a transfer of the same amount by the volunteer to the employing unit; d. final consumption expenditure of the employing unit; e. almost always social transfers in kind.

This is the same as the way it is recommended that labour inputs to collective construction projects are measured.
29.161 Even in the case of market NPIs, as explained in chapter 23, it is possible that in a satellite context the market NPI could be regarded as undertaking non-market activity also and this would include the activity of volunteers.

543 System of National Accounts 544 Annex 1: The classification hierarchies of the SNA and associated codes A.
Introduction A1.1 As explained in chapter 2, the accounts of the SNA are built around a small number of conceptual elements, in particular sectors, transactions and classifications of the items subject to transactions and other flows, especially assets and liabilities.

For each of these elements, a hierarchical classification exists.

Accounts can be compiled at greater or lesser degrees of detail by using higher or lower levels of these hierarchies.
In some cases, a full specification requires information about two or even three hierarchies.

For example, entries in the accounts typically refer to a sector and a transaction or other flow and may specify what type of product or asset is the subject of the entry.
A1.2 As well as the classification hierarchies of the conceptual elements particular to the SNA, use is also made of other classification systems, including those describing the industrial classification used for production and classifications of goods and services, some of which describe the nature of the items and others that describe the purpose they are intended to serve.
A1.3 Summary accounts are regularly collected by international agencies and to facilitate this, a set of standardized codes is used to identify the items, usually in time series form, that are the subject of data transmission.

A1.4 The purpose of this annex is to provide more information on each of these aspects.

Section B lists in full detail the various classification hierarchies of the system.
International data collection does not cover all the detail shown but where collection is common and codes are developed, these are shown alongside the entries in the classification.

A1.5 The main international classification systems external to the SNA that are frequently used and referred to are the following: COFOG, COICOP and COPNI Publication reference: United Nations.

2000.
2000.

Classification of expenditure according to purpose: Classification of the functions of government (COFOG), Classification of individual consumption according to purpose (COICOP), Classification of the purposes of nonprofit institutions serving households (COPNI), Classification of the outlays of producers according to purpose (COPP).

Department of Economic and Social Affairs, Statistics Division, Statistical papers, Series M, No 84.

United Nations, New York.


Web reference: http://unstats.un.org/unsd/class/default.asp ISIC Publication reference: United Nations.

2008. International Standard Industrial Classification of all Economic Activities (ISIC) Revision 4.

Department of Economic and Social Affairs, Statistics Division, Statistical papers, Series M, No 4, Rev.

4.

United Nations, New York.

Web reference: http://unstats.un.org/unsd/class/default.asp CPC Publication reference: United Nations.

2008.
2008.

Central Product Classification (CPC) Version 2.

Department of Economic and Social Affairs, Statistics Division, Statistical papers, Series M, No 77, Ver.

2.

United Nations, New York.

Web reference: http://unstats.un.org/unsd/class/default.asp SITC Publication reference: United Nations.

2006.

Standard Industrial Trade Classification Revision.

Department of Economic and Social Affairs, Statistics Division, Statistical papers, Series M, No 34, Rev 4.

United Nations, New York.


Web reference: http://unstats.un.org/unsd/trade/default.htm HS Publication reference: World Customs Organization.

2007.

Harmonized Commodity Description and Coding System, Revision 4 Brussels.

Web reference: http://publications.wcoomd.org/index.php 545 System of National Accounts B.

The classification hierarchies of the SNA A1.6 Four sets of hierarchies are described.

The first of these relates to sectors.

The second covers transactions and the third covers other flows.
The last set relates to stocks.

Each set is described in turn in the following sections.

1.

Sectors (S codes) A1.7 The sectoring principles of the SNA are described in chapter 4.

The following list brings all the aspects of the potential types of disaggregation together in a comprehensive list.

The list is extensive and it is unlikely that all aspects will be covered by any country in all periods as a matter of course.
Some of the possible breakdowns may not contain any institutional units and others may contain so few that publication at this degree of detail is not possible.

Nevertheless, the full list is shown for the sake of completeness.

A1.8 Some abbreviations, standard within the SNA, are used in detailing sector codes.

A special group of units are those known as non- profit institutions, designated as NPIs.
Within the corporations sectors, units that are not NPIs are referred to as for-profit institutions, or FPIs.

It is worth reiterating that an NPI is not prohibited from making a profit, it is simply prohibited from distributing any profit it makes to its owners.

Thus NPIs within the corporations sectors are market producers just as the FPIs are.

A1.9 Not all NPIs are market producers.


Those that are not are divided between those controlled by government, where they are still referred to as NPIs, and those not controlled by government.

All of these serve households and form a separate sector of their own.

They are known as non-profit institutions serving households, or NPISHs.

A1.10 Not all entries in the classification have an assigned code; only those that are regularly used in international transmission programmes.
A1.11 The full list of institutional sectors and subsectors is shown below.
Total economy (S1) Non-financial corporations (S11) Non-financial corporations – NPIs Non-financial corporations – FPIs Public non-financial corporations Public non-financial corporations – NPIs Public non-financial corporations – FPIs National private non-financial corporations National private non-financial corporations – NPIs National private non-financial corporations – FPIs Foreign controlled non-financial corporations Foreign controlled non-financial corporations – NPIs Foreign controlled non-financial corporations – FPIs Financial corporations (S12) Central bank (S121) Deposit-taking corporations, except the central bank (S122) Deposit-taking corporations – NPIs Deposit-taking corporations – FPIs Public deposit-taking corporations Public deposit-taking corporations – NPIs Public deposit-taking corporations – FPIs National private deposit-taking corporations National private deposit-taking corporations – NPIs National private deposit-taking corporations – FPIs Foreign controlled deposit-taking corporations Foreign controlled deposit-taking corporations – NPIs Foreign controlled deposit-taking corporations – FPIs 546 The classification hierarchies of the SNA and associated codes Money market funds (S123) Money market funds – NPIs Money market funds – FPIs Public money market funds Public money market funds – NPIs Public money market funds – FPIs National private money market funds National private money market funds – NPIs National private money market funds – FPIs Foreign controlled money market funds
 Foreign controlled money market funds – NPIs Foreign controlled money market funds – FPIs Non-MMF investment funds (S124) Non-MMF investment funds – NPIs Non-MMF investment funds – FPIs Public non-MMF investment funds Public non-MMF investment funds – NPIs Public non-MMF investment funds – FPIs National private non-MMF investment funds National private non-MMF investment funds – NPIs National private non-MMF investment funds – FPIs Foreign controlled non-MMF investment funds Foreign controlled non-MMF
 investment funds – NPIs Foreign controlled non-MMF investment funds – FPIs Other financial intermediaries, except insurance corporations and pension funds (S125) Other financial corporations – NPIs Other financial corporations – FPIs Public other financial corporations Public other financial corporations – NPIs Public other financial corporations – FPIs National private other financial corporations National private other financial corporations – NPIs National private other financial corporations – FPIs Foreign controlled other financial corporations Foreign controlled other financial corporations – NPIs Foreign controlled other financial corporations – FPIs Financial auxiliaries (S126) Financial auxiliaries – NPIs Financial auxiliaries – FPIs Public financial auxiliaries Public financial auxiliaries –NPIs Public financial auxiliaries – FPIs National private financial auxiliaries National private financial auxiliaries – NPIs National private financial auxiliaries – FPIs Foreign controlled financial auxiliaries Foreign controlled financial auxiliaries – NPIs Foreign controlled financial auxiliaries – FPIs Captive financial institutions and money lenders (S127) Captive financial institutions – NPIs Captive financial institutions – FPIs Public captive financial institutions Public captive financial institutions – NPIs Public captive financial institutions – FPIs National private captive financial institutions National private captive financial institutions – NPIs National private captive financial institutions – FPIs Foreign controlled captive financial institutions Foreign controlled captive financial institutions – NPIs Foreign controlled captive financial institutions – FPIs 547 System of National Accounts Insurance corporations (S128) Insurance corporations – NPIs Insurance corporations – FPIs Public insurance corporations Public insurance corporations – NPIs Public insurance corporations – FPIs National private insurance corporations National private insurance
 corporations – NPIs National private insurance corporations – FPIs Foreign controlled insurance corporations Foreign controlled insurance corporations – NPIs Foreign controlled insurance corporations – FPIs Pension funds (S129) Pension funds – NPIs Pension funds – FPIs Public pension funds Public pension funds – NPIs Public pension funds – FPIs National private pension funds National private pension funds – NPIs National private pension funds – FPIs Foreign controlled pension funds Foreign controlled pension funds – NPIs Foreign controlled pension funds – FPIs A1.12 General government social security is organized differently in different countries and two coding systems of general government are presented to allow for this.
When social security is organized by one unit for all levels of government, total general government consists of four subsectors, one for each level of government and one for the social security unit.

When each level of government includes its own social security provision, then there are only three subsectors, one for each level of government including social security provision.

The theoretical hierarchical structure for government is as follows.
General government (S13) General government social security General government excluding social security General government non-profit institutions Central government Central government social security Central government excluding social security Central government non-profit institutions State government State government social security State government excluding social security State government non-profit institutions Local government Local government social security Local government excluding social security Local government non-profit institutions A1.13 In practice, the alternative partial structures, with associated codes, are as follows.
General government (S13) General government (S13) Social security is one separate institutional unit for all levels of general government Social security is not a separate institutional unit but is included at the appropriate levels of general government Central government excluding social security (S1311) Central government including social security (S1321) State government excluding social security (S1312) State government including social security(S1322) Local government excluding social security (S1313) Local government including social security (S1323) General government social security (S1314) 548 The classification hierarchies of the SNA and associated codes Households (S14) Employers (S141) Own account workers (S142) Employees (S143) Recipients of property and transfer income (S144) Recipients of property income (S1441) Recipients of pensions (S1442) Recipients of other transfers (S1443) Non-profit institutions serving households (S15) National private Foreign controlled Rest of the world (S2) 2.
Classifications of transactions A1.14 The transaction classifications relate to: a.

Products (including produced assets); b. Non-produced assets; c. Distributive transactions.

Transactions in products (P codes) A1.15 Product codes are used to describe the supply and use of goods and services produced within the SNA.

All the items listed appear in the goods and services account.
In addition, output and intermediate consumption appear in the production account, final and actual consumption expenditure appear in the use of income accounts and capital formation appears in the capital account.

A1.16 All entries in the classification can be further elaborated by applying a second classification to that shown here.

For capital formation the asset classification (codes AN1) is used within the accumulation accounts.
For output, intermediate consumption and final consumption product codes as in the CPC could be used.

For final consumption, functional codes could be used, COFOG for government consumption, COICOP for households and COPNI for NPISHs.

For imports and exports, either SITC or HS codes could be used.

A1.17 Capital formation and fixed capital formation (as well as some of the balancing items) may be shown either gross or net of consumption of fixed capital.
Gross entries are shown with a trailing g, net entries by a trailing n. The qualifier c is used for consumption of fixed capital, the difference between gross and net fixed capital measures.
Output (P1) Market output (P11) Output for own final use (P12) Non-market output (P13) Intermediate consumption (P2) Final consumption expenditure (P3) Individual consumption expenditure (P31) Collective consumption expenditure (P32) Actual final consumption (P4) Actual individual consumption (P41) Actual collective consumption (P42) 549 System of National Accounts Capital formation (P5) Gross fixed capital formation (P51g) Consumption of fixed capital (-) (P51c) Consumption of fixed capital on gross operating surplus (-) (P51c1) Consumption of fixed capital on gross mixed income (-) (P51c2) Net fixed capital formation (P51n) Acquisitions less disposals of fixed assets (P511) Acquisitions of new fixed assets (P5111) Acquisitions of existing fixed assets (P5112) Disposals of existing fixed assets (P5113) Costs of ownership transfer on non-produced assets (P512) Changes in inventories (P52) Acquisitions less disposals of valuables (P53) Exports of goods and services (P6) Exports of goods (P61) Exports of services (P62) Imports of goods and services (P7) Imports of goods (P71) Imports of services (P72) Transactions in non-produced assets (NP codes) A1.18 Non-produced assets can be the subject of some of the same transactions as products (capital formation, imports and exports).
The codes used for transactions in non-produced assets can be further disaggregated if desired by appending the classification of non- produced non-financial assets, AN2.
Acquisitions less disposals of non-produced assets (NP) Acquisitions less disposals of natural resources (NP1) Acquisitions less disposals of contracts, leases and licences (NP2) Purchases less sales of goodwill and marketing assets (NP3) Distributive transactions (D codes) A1.19 Distributive transaction codes appear in all the sequence of accounts from the generation of income account up to and including the capital account.
As their name implies, they show the impact of distribution and redistribution of income (and saving in the case of capital transfers).

For all distributive transactions, the receivable entries for all sectors including the rest of the world must balance the payable entries.

A1.20 Four groups of transactions appear in the generation of income account and the allocation of primary income account.

These are compensation of employees, taxes on production and imports, subsidies and property income.
Compensation of employees (D1) Wages and salaries (D11) Employers’ social contributions (D12) Employers’ actual social contributions (D121) Employers’ actual pension contributions (D1211) Employers’ actual non-pension contributions(D1212) Employers’ imputed social contributions (D122) Employers’ imputed pension contributions (D1221) Employers’ imputed non-pension contributions (D1222) Taxes on production and imports (D2) Taxes on products (D21) Value added type taxes (VAT) (D211) Taxes and duties on imports excluding VAT (D212) Import duties (D2121) Taxes on imports excluding VAT and duties (D2122) 550 The classification hierarchies of the SNA and associated codes Export taxes (D213) Taxes on products except VAT, import and export taxes (D214) Other taxes on production (D29) Subsidies (D3) Subsidies on products (D31) Import subsidies (D311) Export subsidies (D312) Other subsidies on products (D319) Other subsidies on production (D39) Property income (D4) Investment income Interest (D41) Distributed income of corporations (D42) Dividends (D421) Withdrawals from income of quasi-corporations (D422) Reinvested earnings on foreign direct investment (D43) Investment income disbursements (D44) Investment income attributable to insurance policyholders (D441) Investment income payable on pension entitlements (D442) Investment income attributable to collective investment fund share holders (D443) Rent (D45) A1.21 Four groups of transactions appear in the secondary distribution of income account.
These are current taxes on income, wealth, etc., net social contributions, social benefits and other current transfers.

Together they represent all current transfers in the SNA except social transfers in kind.

A1.22 Employers’ contributions appear in both the generation of income account and allocation of primary income account as payable by employers and receivable by employees.
In the secondary distribution of income account, these amounts are payable by households and receivable by those administering social insurance schemes.

In order to show exactly the same value in each case, the deduction of the charge that represents part of the output of the schemes and final consumption of the beneficiary households is also shown in the secondary distribution of income account as a separate item.
The item social insurance scheme service charges is thus an adjustment item only and not a distributive transaction in itself.

Current transfers (other than social transfers in kind) Current taxes on income, wealth, etc.
(D5) Taxes on income (D51) Other current taxes (D59) Net social contributions (D61) Employers’ actual social contributions (D611 = D121) Employers’ actual pension contributions (D6111 = D1211) Employers’ actual non-pension contributions (D6112 = D1212) Employers' imputed social contributions (D612 = D122) Employers’ imputed pension contributions (D6121 = D1221) Employers’ imputed non-pension contributions (D6122 = D1222) Households’ actual social contributions (D613) Households’ actual pension contributions (D6131) Households’ actual non-pension contributions (D6132) Households’ social contribution supplements (D614) Households’ pension contribution supplements (D6141) Households’ non-pension contribution supplements (D6142) Social insurance scheme service charges(-) Social benefits other than social transfers in kind (D62) Social security benefits in cash (D621) Social security pension benefits (D6211) Social security non-pension benefits in cash (D6212) Other social insurance benefits (D622) Other social insurance pension benefits (D6221) 551 System of National Accounts Other social insurance non-pension benefits (D6222) Social assistance benefits in cash (D623) Other current transfers (D7) Net non-life insurance premiums (D71) Net non-life direct insurance premiums (D711) Net non-life reinsurance premiums (D712) Non-life insurance claims (D72) Non-life direct insurance claims (D721) Non-life reinsurance claims (D722) Current transfers within general government (D73) Current international cooperation (D74)
 Miscellaneous current transfers (D75) Current transfers to NPISHs (D751) Current transfers between resident and non-resident households (D752) Other miscellaneous current transfers (D759) A1.23 Transactions concerning social transfers in kind and the adjustment for the change in pension entitlements appear in the redistribution of income in kind account, the use of income account and the use of adjustable disposable income account.
Social transfers in kind (D63) Social transfers in kind - non-market production (D631) Social transfers in kind - purchased market production (D632) Adjustment for the change in pension entitlements (D8) A1.24 Capital transfers appear in the capital account.

By convention, as explained in chapter 10, all capital transfers are shown on the right-hand side of the account, with the payables having a negative sign.
The codes for capital transfers, therefore, have either r for receivable or p for payable appended to the basic code.
Capital transfers, receivable (D9r) Capital taxes (D91r) Investment grants (D92r) Other capital transfers (D99r) Capital transfers, payable (D9p) Capital taxes (D91p) Investment grants (D92p) Other capital transfers (D99p) Transactions in financial assets and liabilities (F codes)) A1.25 The codes for transactions in financial assets and liabilities follow a slightly different pattern from those used for non-financial assets because there is only one type of transaction shown in the financial account, either acquisition of or disposals of financial assets and liabilities.
The hierarchical element comes from itemizing the assets and liabilities concerned.

There is a perfect match between the codes used for stock levels (positions) of financial assets and liabilities and the flows in them, except that the stocks have prefix AF and the transactions F. A1.26 The full list of codes for transactions in financial assets and liabilities is shown below.
Net acquisition of financial assets/Net incurrence of liabilities (F) Monetary gold and SDRs (F1) Monetary gold (F11) SDRs (F12) Currency and deposits (F2) Currency (F21) Transferable deposits (F22) Inter-bank positions (F221) 552 The classification hierarchies of the SNA and associated codes Other transferable deposits (F229) Other deposits (F29) Debt securities (F3) Short-term (F31) Long-term (F32) Loans (F4) Short-term (F41) Long-term(F42) Equity and investment fund shares (F5) Equity (F51) Listed shares (F511) Unlisted shares (F512) Other equity (F519) Investment fund shares/units (F52) Money market fund shares/units (F521) Non-MMF investment fund shares/units (F522) Insurance, pension and standardized guarantee schemes (F6) Non-life insurance technical provisions (F61) Life insurance and annuity entitlements (F62) Pension entitlements (F63) Claims of pension funds on pension managers (F64) Entitlements to non-pension benefits (F65) Provisions for calls under standardized guarantees (F66) Financial derivatives and employee stock options (F7) Financial derivatives (F71) Options (F711) Forwards (F712) Employee stock options (F72) Other accounts receivable/payable (F8) Trade credits and advances (F81) Other accounts receivable/payable (F89) 3.
Other flows A1.27 Other flows comprise the entries appearing in the other changes in assets account and balancing and net worth items.

Entries in the other changes in assets account (K codes) A1.28 Codes K1 to K6 relate to other flows in the changes in the volume of assets account.

K7 codes show the holding gains and losses appearing in the revaluation account.
Economic appearance of assets (K1) Economic disappearance of non-produced assets (K2) Depletion of natural resources (K21) Other economic disappearance of non-produced assets (K22) Catastrophic losses (K3) Uncompensated seizures (K4) Other changes in volume n.e.c.
(K5) 553 System of National Accounts Changes in classification (K6) Changes in sector classification and structure (K61) Changes in classification of assets and liabilities (K62) Nominal holding gains and losses (K7) Neutral holding gains and losses (K71) Real holding gains and losses (K72) Balancing and net worth items (B codes) A1.29 The balancing items of the current accounts appear with codes B1 to B8.

Each of these may be shown gross or net of consumption of fixed capital.
To indicate which is the case, g or n is appended to the end of the code.

A1.30 The B10 codes all relate to changes in net worth.

Like balancing items, these are accounting constructs derived by deducting entries on one side of the account from the entries on the other.

However, while balancing items show the excess of right-hand side entries over those on the left-hand side, net worth items show the excess of entries on the left-hand side of the account over those on the right-hand side.
A1.31 Code B11, external balance of goods and services, is an item from the rest of the world account.

It has no direct counterpart in the total economy sectors but added to gross (or net) domestic expenditure for the total economy gives gross (or net) domestic product.

Code B12, current external balance, is also from the rest of the world account and is analogous to saving for a domestic sector when the external balance of goods and services is taken in place of value added.
A1.32 Code B90, unlike all the other codes in this section, relates to stock positions and not flows.

It shows the value of net worth calculated as the excess of assets over liabilities.

A1.33 The full list of balancing and net worth items is shown below.
Value added, gross / Gross domestic product (B1g) Operating surplus, gross (B2g) Mixed income, gross (B3g) Entrepreneurial income(B4g) Balance of primary incomes, gross / National income, gross (B5g) Disposable income, gross (B6g) Adjusted disposable income, gross (B7g) Saving, gross (B8g) Net lending (+) / net borrowing (–) (B9) Changes in net worth (B10) Changes in net worth due to saving and capital transfers (B101) Changes in net worth due to other changes in volume of assets (B102) Changes in net worth due to nominal holding gains and losses(B103) Changes in net worth due to neutral holding gains and losses (B1031) Changes in net worth due to real holding gains and losses (B1032) External balance of goods and services (B11) Current external balance (B12) Net worth (B90) 554 The classification hierarchies of the SNA and associated codes 4.
Entries related to stocks of assets and liabilities Balance sheet entries (L codes) A1.34 For a single balance sheet, as for the financial account, the only codes necessary are those giving the details of assets by type, using AN and AF codes.

However, an account can be drawn up showing the stock levels at the start (LS) and end (LE) of a period, and the total changes between them (LX).

All three codes need to be qualified by asset types.
The LX entries are the sum of the entries of P5, NP, F and K codes for the assets in question for the period covered.

A1.35 From the entries in the opening balance sheet a value of net worth (B90) can be calculated.

The difference between this and the value of B90 in the closing balance sheet must be equal to the balance of all the LX codes, which must also be equal to the value for B10.
Opening balance sheet (LS) Changes in balance sheet (LX) Closing balance sheet (LE) Non-financial assets (AN codes) A1.36 Transactions in non-financial assets are classified by the purpose for which the assets are acquired.

All assets serve as a store of value but, with the exception of valuables that are solely a store of value, other non-financial assets are primarily acquired for use in production.

The AN codes, given in full below, combine some elements of function with a descriptive code.
A desk, for example, could be part of AN113, machinery and equipment, or almost any of the inventory codes or even as a valuable.

A1.37 The classification of non-financial assets is split initially between produced (AN1) and non-produced assets (AN2).

The three major subheadings for produced assets are fixed assets (AN11), inventories (AN12) and valuables (AN13).
The three major sub- headings for non-produced assets are natural resources (AN21), contracts, leases and licences (AN22) and purchases less sales of goodwill and marketing assets (AN23).

A1.38 The entry for costs of ownership transfer on non-produced assets (AN116) is anomalous.

The flow exists and is treated as part of fixed capital formation, that is as the acquisition of fixed assets.
However, when stock levels are itemized, the value of these costs of ownership transfer is included with the non-produced assets to which they refer and so are not shown separately as part of AN11.

The item is included in the full list, shown below, for expository purposes only.
Produced non-financial assets (AN1) Fixed assets by type of asset (AN11) Dwellings (AN111) Other buildings and structures (AN112) Buildings other than dwellings (AN1121) Other structures (AN1122) Land improvements (AN1123) Machinery and equipment (AN113) Transport equipment (AN1131) ICT equipment (AN1132) Other machinery and equipment(AN1133) Weapons systems (AN114) Cultivated biological resources (AN115) Animal resources yielding repeat products (AN1151) Tree, crop and plant resources yielding repeat products (AN1152) (Costs of ownership transfer on non-produced assets (AN116)) Intellectual property products (AN117) Research and development (AN1171) Mineral exploration and evaluation (AN1172) Computer software and databases (AN1173) Computer software (AN11731) Databases(AN11732) Entertainment, literary or artistic originals (AN1174) Other intellectual property products (AN1179) Inventories by type of inventory (AN12) Materials and supplies (AN121) Work-in-progress (AN122) Work-in-progress on cultivated biological assets (AN1221) 555 System of National Accounts Other work-in-progress (AN1222) Finished goods (AN123) Military inventories (AN124) Goods for resale (AN125) Valuables (AN13) Precious metals and stones (AN131) Antiques and other art objects (AN132) Other valuables (AN133) Non-produced non-financial assets (AN2) Natural resources (AN21) Land (AN211) Mineral and energy reserves (AN212) Non-cultivated biological resources (AN213) Water resources (AN214) Other natural resources (AN215) Radio spectra
 (AN2151) Other (AN2159) Contracts, leases and licences (AN22) Marketable operating leases (AN221) Permissions to use natural resources (AN222) Permissions to undertake specific activities (AN223) Entitlement to future goods and services on an exclusive basis (AN224) Purchases less sales of goodwill and marketing assets (AN23) Financial assets (AF codes) A1.39 As explained in the section on transactions in financial assets and liabilities, conceptually there is a one-to-one match between those F codes and the stock levels or positions (AF codes).
In practice, though, balance sheet data may be less detailed and not exist beyond the first-level breakdown, shown below.

If desired, however, the AF codes can be disaggregated in line with the detail provided for F codes.
Monetary gold and SDRs (AF1) Currency and deposits (AF2) Debt securities (AF3) Loans (AF4) Equity and investment fund shares/units (AF5) Insurance, pension and standardized guarantee schemes (AF6) Financial derivatives and employee stock options (AF7) Other accounts receivable/payable (AF8) C. Supplementary items A1.40 At various places, mention is made of the possibility of itemizing supplementary or memorandum items.
A full list of such suggestions follows with an indication of how supplementary codes may be constructed.

A general convention is that a supplementary code begins with X and is linked to the code of a standard item by building on the code of that item.

1.

Non-performing loans A1.41 The following codes apply to stocks and flows of non-performing loans mentioned in chapters 11 and 13.

Since loans have the codes AF4 and F4, the supplementary codes begin XAF4 for stocks and XF4 for flows.
The codes for stocks are: XAF4_NNP Loans: nominal value, non-performing 556 The classification hierarchies of the SNA and associated codes XAF4_MNP Loans: market value, non-performing and the associated flows XF4_NNP XF4_MNP Loans: nominal value, non-performing Loans: market value, non-performing In both sets of codes, the underscore is a placeholder for the detailed codes for loans where relevant, for example, on the balance sheet.
XAF41NNP Short-term loans: nominal value, non-performing XAF42MNP Long-term loans: market value, non-performing 2.

Capital services A1.42 The following codes apply to capital services described in chapter 20.
XCS XCSC P51c1 XRC XOC XCSU P51c2 XRU XOU Capital services Capital services – Corporations and general government Consumption of fixed capital Return to capital Other costs of capital Capital services – Unincorporated enterprises Consumption of fixed capital Return to capital Other costs of capital 3.

Pensions table A1.43 The following codes apply to the supplementary table described in part 2 of chapter 17.

Different codes are proposed for the columns and rows of the table.
Columns A1.44 In the Column description the letter “W” corresponds to “non-government” and the numbers in these codes refer to the corresponding institutional sectors.

a.
a.

Liabilities recorded in the main sequence of accounts · Schemes where responsibility for the design and implementation lies outside general government XPC1W XPB1W XPCB1W Defined contribution schemes Defined benefit schemes Total · Schemes where responsibility for the design and implementation lies within general government XPCG Defined contribution schemes · General government employee defined benefit schemes XPBG12 XPBG13 In the financial corporations sector In the general government sector b.
Liabilities not recorded in the main sequence of accounts XPBOUT13 XP1314 XPTOT XPTOTNRH Of which: Non-resident households In the general government sector Social security pension schemes Total pension schemes 557 System of National Accounts Rows a.

Opening balance sheet XAF63LS Pension entitlements b.
Transactions XD61p XD6111 XD6121 XD6131 XD6141 XD619 XD62p XD8 XD91 XD92 Social contributions relating to pension schemes Employer actual social contributions Employer imputed social contributions Household actual social contributions Household social contribution supplements Other (actuarial) accumulation of pension entitlements in social security funds Pension benefits Adjustment for the change in pension entitlements Change in pension entitlements due to transfers of entitlements Changes in entitlements due to negotiated changes in scheme structure c. Other economic flows XK7 XK5 Revaluations Other changes in volume d. Closing balance sheet XAF63LE Pension entitlements e. Related indicators XP1 XAFN Output Assets held by pension schemes at end-year 4.
Consumer durables A1.45 Consumer durables are referred to in chapters 3 and 13.

They are coded using X as a prefix plus DHHCE (durable household consumption expenditure) plus a one digit affix for subgroups and two digits for the items.

The corresponding COICOP numbers are also provided.
Personal transport equipment Furniture and household appliances SNA codes XDHHCE1 XDHHCE11 Furniture and furnishings XDHHCE12 Carpets and other floor coverings XDHHCE13 Major household appliances whether electric or not XDHHCE14 Major tools and equipment for house and garden XDHHCE2 XDHHCE21 Motor cars XDHHCE22 Motor cycles XDHHCE23 Bicycles XDHHCE24 Animal drawn vehicles XDHHCE3 XDHHCE31 Telephone and telefax equipment XDHHCE32 Equipment for the reception, recording and reproduction of sound and pictures XDHHCE33 Photographic and cinematographic equipment and optical instruments XDHHCE34 XDHHCE35 Major durables for outdoor recreation XDHHCE36 Musical instruments and major durables for indoor recreation XDHHCE4 Other durable goods XDHHCE41 Jewellery, clocks and watches XDHHCE42 Therapeutic medical appliances and equipment Recreational and entertainment goods Information processing equipment COICOP 05.1.1 05.1.2 05.3.1 05.5.1 07.1.1 07.1.2 07.1.3 07.1.4 08.2.0 09.1.1 09.1.2 09.1.3 09.2.1 09.2.2 12.3.1 06.1.3 558 The classification hierarchies of the SNA and associated codes 5.
Foreign direct investment A1.46 Supplementary items for foreign direct investment (FDI), referred to in, for example, chapters 11 and 13, can be coded with X as prefix plus the F or AF code plus a FDI suffix, for example: XF42FDI Foreign direct investment transaction in long-term loans 6.
Contingent positions A1.47 Supplementary codes for contingent positions, mentioned in chapters 11 and 12, can be coded with X as prefix plus the AF code plus a CP suffix, for example: XAF11CP when the pledge of monetized gold may affect its usability as reserve asset 7.
Currency and deposits A1.48 Supplementary items for the classification of national and foreign denominated currency and deposits, as mentioned in chapter 11, can be coded with X as prefix plus the F or AF code plus a suffix NC indicating currency and deposits in national currency or an affix FC with an international currency code indicating currency and deposits in foreign currency, for example: a.

For transactions XF21LC XF22FC Local currency notes and coins Deposits in foreign currency b.
For stocks XAF21LC XAF22FC Local currency notes and coins Deposits in foreign currency 8.

Classification of debt securities according to outstanding maturity A1.49 Chapter 11 suggests classifying debt securities according to outstanding maturity.

This can be achieved by using an X prefix plus the AF code plus a suffix indicating a maturity date, for example: XAF32Y20 Debt securities maturing in 2020 9.
Listed and unlisted debt securities A1.50 Supplementary items on debt securities can be coded with X as prefix plus the F or AF code plus a 1 for listed and 2 for unlisted, for example: a.

For transactions XF321 XF322 Listed debt securities Unlisted debt securities b.

For stocks XAF321 XAF322 Listed debt securities Unlisted debt securities shares 10.
Long-term loans with outstanding maturity of less than one year and long-term loans secured by a mortgage A1.51 Long-term loans with outstanding maturity of less than one year and long-term loans secured by mortgage can be coded with X as prefix plus the F of AF code plus an affix L1 indicating outstanding maturity of less than one year and a suffix LM indicating loans secured by a mortgage, for example: 559 System of National Accounts a.
For transactions XF42L1 XF42LM Long-term loans with outstanding maturity of less than one year Long-term loans secured by a mortgage b.

For stocks XAF42L1 XAF42LM Long-term loans with outstanding maturity of less than one year Long-term loans secured by a mortgage 11.

Listed and unlisted investment shares A1.52 Listed and unlisted investment fund shares can be coded with X as prefix plus the F or AF code plus 1 for listed and 2 for unlisted, for example: a.
For transactions XF5291 XF5292 Listed investment fund shares Unlisted investment fund shares b.

For stocks XAF5291 XAF5292 Listed investment fund shares Unlisted investment fund shares 12.

Arrears in interest and repayments A1.53 Arrears in interest and repayments can be coded with X as prefix plus the AF code plus an IA affix for interest arrears and PA affix for repayment arrears, for example: XAF42IA XAF42PA Interest arrears on long term loans Repayment arrears on long term loans 13.
Personal and total remittances A1.54 Personal remittances and total remittances between resident and non-resident households, mentioned in chapter 8, can be coded with X as prefix plus the current transfer code plus a suffix PR for personal remittances and TR for total remittances, as follows: XD5452PR XD5452TR Personal remittances between resident and non-resident households Total remittances between resident and non-resident households 560 The sequence of accounts Annex 2: The sequence of accounts The production account..................................................................................................... 562-3 The generation of income account.................................................................................... 562-3 The allocation of primary income account......................................................................... 564-5 The entrepreneurial income account................................................................................. 564-5 The allocation of other primary income account ............................................................... 566-7 The secondary distribution of income account .................................................................. 566-7 The use of disposable income account............................................................................. 568-9 The redistribution of income in kind account..................................................................... 568-9 The use of adjusted disposable income account .............................................................. 568-9 The capital account ........................................................................................................... 590-1 The financial account ........................................................................................................ 592-3 The other changes in the volume of assets account......................................................... 594-5 The revaluation account.................................................................................................... 596-7 The balance sheets........................................................................................................... 598-9 Shaded cells are those where the value is determined using the accounting rules of the system; Cells with a zero entry are those where an entry is possible but in practice it may be negligible.
Blank cells indicate either an entry is not possible or a disaggregation is not provided.
561 S11 l i a c n a n i f - n o N s n o i t a r o p r o c S12 S13 S14 S15 S1 S2 499 392 107 3 604 3 077 147 380 141 - 8 540 462 78 - 41 499 392 107 540 462 78 3 604 3 077 147 380 1 883 141 - 8 1 854 222 1 632 - S12 S13 S14 S15 S1 S2 S11 l i a c n a n i f - n o N s n o i t a r o p r o c - 44 - 8 0 0 - 8 - 36 452 61 214 8 238 53 1 150 950 200 181 168 13 19 18 1 235 141 121 17 17 0 1 2 94 - 44 - 8 0 0 - 8 - 36 452 61 238 53 88 4 1 0 1 - 35 292 157 135 0 46 12 34 0 27 27 0 - 1 84 61 15 8 69 53 0 3 3 0 System of National Accounts Production account Uses Transactions and balancing items Imports of goods and services Imports of goods Imports of services Exports of goods and services Exports of goods Exports of services Output Market output Output for own final use Non-market output Intermediate consumption Taxes on products Subsidies on products (-)
 Value added, gross / Gross domestic product Consumption of fixed capital Value added, net / Net domestic product External balance of goods and services Generation of income account Uses Code P7 P71 P72 P6 P61 P62 P1 P11 P12 P13 P2 D21 D31 B1g P51c B1n B11 Code Transactions and balancing items D1 D11 D12 D121 D1211 D1212 D122 D1221 D1222 D2 D21 D211 D212 D2121 D2122 D213 D214 D29 D3 D31 D311 D312 D319 D39 B2g B3g P51c1 P51c2 B2n B3n Compensation of employees Wages and salaries Employers social contributions
 Employers actual social contributions Employers' actual pension contributions Employers' actual non-pension contributions Employers imputed social contributions Employers' imputed pension contributions Employers' imputed non-pension contributions Taxes on production and imports Taxes on products Value added type taxes (VAT) Taxes and duties on imports excluding VAT Import duties Taxes on imports excluding VAT and duties Export taxes Taxes on products except VAT, import and export taxes Other taxes on production Subsidies Subsidies on products Import subsidies Export subsidies Other subsidies on products Other subsidies on production Operating surplus, gross Mixed income, gross Consumption of fixed capital on gross operating surplus Consumption of fixed capital on gross mixed income Operating surplus, net Mixed income, net 562 Code P7 P71 P72 P6 P61 P62 P1 P11 P12 P13 P2 D21 D31 Code B1g B1n D1 D11 D12 D121 D1211 D1212 D122 D1221 D1222 D2 D21 D211 D212 D2121 D2122 D213 D214 D29 D3 D31 D311 D312 D319 D39 The sequence of accounts S12 S13 S14 S15 S1 S2 Resources S11 l i a c n a n i f - 499 392 107 540 462 78 1 883 l a t o T 499 392 107 540 462 78 3 604 3 077 147 380 1 883 141 - 8 2 808 2 808 0 146 146 0 348 0 0 348 270 123 147 32 0 0 32 3 604 3 077
 147 380 141 - 8 Production account Transactions and balancing items Imports of goods and services Imports of goods Imports of services Exports of goods and services Exports of goods Exports of services Output Market output Output for own final use Non-market output Intermediate consumption Taxes on products Subsidies on products (-) Generation of income account S11 l i a c n a n i f - n o N s n o i t a r o p r o c 1 331 1 174 Transactions and balancing items Value added, gross / Gross domestic product Value
 added, net / Net domestic product Compensation of employees Wages and salaries Employers social contributions Employers actual social contributions Employers' actual pension contributions Employers' actual non-pension contributions Employers imputed social contributions Employers' imputed pension contributions Employers' imputed non-pension contributions Taxes on production and imports Taxes on products Value added type taxes (VAT) Taxes and duties on imports excluding VAT Import duties Taxes on imports excluding VAT and duties Export taxes Taxes on products except VAT, import and export taxes Other taxes on production Subsidies Subsidies on products Import subsidies Export subsidies Other subsidies on products Other subsidies on production S12 S13 S14 S15 S1 S2 Resources l i a c n a n F i s n o i t a r o p r o c 94 82 126 99 155 132 15 12 1 854 1 632 l a t o T 1 854 1 632 563 System of National Accounts Allocation of primary income account Uses Code Transactions and balancing items D1 D11 D12 D121 D1211 D1212 D122 D1221 D1222 D2 D21 D211 D212 D2121 D2122 D213 D214 D29 D3 D31 D311 D312 D319 D39 D4 D41 D42 D421 D422 D43 D44 D441 D442 D443 D45 B5g B5n Compensation of employees Wages and salaries Employers social contributions Employers actual social contributions Employers' actual pension contributions
 Employers' actual non-pension contributions Employers imputed social contributions Employers' imputed pension contributions Employers' imputed non-pension contributions Taxes on production and imports Taxes on products Value added type taxes (VAT) Taxes and duties on imports excluding VAT Import duties Taxes on imports excluding VAT and duties Export taxes Taxes on products except VAT, import and export taxes Other taxes on production Subsidies Subsidies on products Import subsidies Export subsidies Other
 subsidies on products Other subsidies on production Property income Interest Distributed income of corporations Dividends Withdrawals from income of quasi-corporations Reinvested earnings on foreign direct investment Investment income disbursements Investment income attributable to insurance policy holders Investment income payable on pension entitlements Investment income attributable to collective investment funds share holders Rent Balance of primary incomes, gross / National income, gross Balance of primary income, net / National income, net Entrepreneurial account Uses Code Transactions and balancing items S11 l i a c n a n i f - n o N s n o i t a r o p r o c 134 56 47 39 8 0 31 254 97 S11 l i a c n a n i f - n o N s n o i t a r o p r o c S12 S13 S14 S15 S1 S2 S12 S13 S14 S15 S1 S2 D4 D41 D42 D421 D422
l a t o T l i a c n a n F i D4 D41 D42 D421 D422 D43 D44 D441 D442 D443 D45 B4g B4n Property income Interest Distributed income of corporations Dividends Withdrawals from income of quasi-corporations Reinvested earnings on foreign direct investment Investment income disbursements Investment income attributable to insurance policy holders Investment income payable on pension entitlements Investment income attributable to collective investment funds share holders Rent Entrepreneurial income, gross Entrepreneurial income, net 87 56 153 106 47 25 8 14 0 42
income, net Code B2g B3g B2n B3n D1 D11 D12 D121 D1211 D1212 D122 D1221 D1222 D2 D21 D211 D212 D2121 D2122 D213 D214 D29 D3 D31 D311 D312 D319 D39 D4 D41 D42 D421 D422 D43 D44 D441 D442 D443 D45 Code B2g B3g B2n B3n D4 D41 D42 D421 D422 D43 D44 D441 D442 D443 D45 The sequence of accounts S12 S13 S14 S15 S1 S2 Resources Allocation of primary income account Transactions and balancing items Operating surplus, gross Mixed income, gross Operating surplus, net Mixed income, net Compensation of employees Wages and salaries Employers social contributions Employers actual social contributions Employers' actual pension contributions Employers' actual non-pension contributions Employers imputed social contributions Employers' imputed pension contributions Employers' imputed non-pension contributions Taxes on production and imports Taxes on products Value added type taxes (VAT) Taxes and duties on imports excluding VAT Import duties Taxes on imports excluding VAT and duties Export taxes Taxes on products except VAT, import and export taxes Other taxes on production Subsidies Subsidies on products Import subsidies Export subsidies Other subsidies on products Other subsidies on production Property income Interest Distributed income of corporations Dividends Withdrawals from income of quasi-corporations Reinvested earnings on foreign direct investment Investment income disbursements Investment income attributable to
 insurance policy holders Investment income payable on pension entitlements Investment income attributable to collective investment funds share holders Rent S11 l i a c n a n i f - n o N s n o i t a r o p r o c 292 135 l i a c n a n F i s n o i t a r o p r o c 46 34 t n e m n r e v o g l a r e n e G 27 0 235 141 121 17 17 0 1 2 94 - 44 - 8 0 0 - 8 - 36 22 14 7 5 2 0 1 0 1 0 96 33 10 10 4 8 5 3 41 149 106 25 25 7 8 0 8 3 l s d o h e s u o H 84 61 69 53 1 154 954 200 181 168 13 19 18 1 123 49 20 13 7 3 30 20
- 44 - 8 0 0 - 8 - - 44 - 8 0 0 - 8 - 36 435 230 79 67 12 14 47 25 8 14 65 0 0 Entrepreneurial account Transactions and balancing items Operating surplus, gross Mixed income, gross Operating surplus, net Mixed income, net Property income Interest Distributed income of corporations Dividends Withdrawals from income of quasi-corporations Reinvested earnings on foreign direct investment Investment income disbursements Investment income attributable to insurance policy holders Investment income payable on pension entitlements Investment income attributable to collective investment funds share holders Rent S11 l i a c n a n i f - n o N s n o i t a r o p r o c 292 135 96 33 10 10 4 8 5 3 41 S12 S13 S14 S15 S1 S2 Resources l i a c n a n F i t n e m n r e v o g l a r e n e G 27 0 l s d o h e s u o H 84 61 69 53 s n o i t a r o p r o c System of National Accounts Allocation of other
 primary income account Uses Code Transactions and balancing items S11 l i a c n a n i f - n o N s n o i t a r o p r o c S12 S13 S14 S15 S1 S2 Compensation of employees Taxes on production and imports Subsidies Property income Interest Distributed income of corporations Dividends Withdrawals from income of
 quasi-corporations Reinvested earnings on foreign direct investment Investment income disbursements Investment income attributable to insurance policy holders Investment income payable on pension entitlements Investment income attributable to collective investment funds share holders Rent D1 D2 D3 D4 D41 D42 D421 D422 D43 D44 D441 D442 D443 D45 B5g B5n Balance of primary incomes, gross / National income, gross Balance of primary income, net / National income, net 254 97 27 15 Secondary distribution of income account Uses 7 198 171 27 1 381 1 358 0 4 1 S12 S13 S14 S15 S1 S2 S11 l i a c n a n i f - n o N s n o i t a r o p r o c 98 24 20 4 l i a c n a n F i s n o i t a r o p r o c 1
Code Transactions and balancing items D5 D51 D59 D61 D611 D6111 D6112 D612 D6121 D6122 D613 D6131 D6132 D614 D6141 D6142 D62 D621 D6211 D6212 D622 D6221 D6222 D623 D7 D71 D711 D712 D72 D721 D722 D73 D74 D75 D751 D752 D759 B6g B6n Current transfers Current taxes on income, wealth, etc.
Taxes on income Other current taxes Net social contributions Employers actual social contributions Employers' actual pension contributions Employers' actual non-pension contributions Employers' imputed social contributions Employers' imputed pension contributions Employers' imputed non-pension contributions Households' actual social contributions Households' actual pension contributions Households' actual non-pension contributions Households' social contributions supplements Households' pension contribution supplements Households' non-pension contribution supplements Social insurance scheme service charges Social benefits other than social transfers in kind Social security benefits in cash Social security pension benefits Social security non-pension benefits in cash Other social insurance benefits Other social insurance pension benefits Other social insurance non-pension benefits Social assistance benefits in cash Other current transfers Net non-life insurance premiums Net non-life direct insurance premiums Net non-life reinsurance premiums Non-life insurance claims Non-life direct insurance claims Non-life reinsurance claims Current transfers within general government Current international cooperation Miscellaneous current transfers Current transfers to NPISHs Current transfers between resident and non-resident households Other miscellaneous current transfers Disposable income, gross Disposable income, net 566 Allocation of other primary income account Transactions and balancing items Entrepreneurial income, gross Entrepreneurial income, net Compensation of employees Taxes on production and imports Subsidies Property income Interest Distributed income of corporations Dividends Withdrawals from income of quasi-corporations Reinvested earnings on foreign direct investment Investment income disbursements Investment income attributable to insurance policy holders Investment income payable on pension entitlements Investment income attributable to collective investment funds share holders Rent Secondary distribution of income account Transactions and balancing items Balance of primary incomes, gross / National income, gross Balance of primary income, net / National income, net Current transfers Current taxes on income, wealth, etc.
Taxes on income Other current taxes Net social contributions Employers actual social contributions Employers' actual pension contributions Employers' actual non-pension contributions Employers' imputed social contributions Employers' imputed pension contributions Employers' imputed non-pension contributions Households' actual social contributions Households' actual pension contributions Households' actual non-pension contributions Households' social contributions supplements Households' pension contribution supplements Households' non-pension contribution supplements Social insurance scheme service charges Social benefits other than social transfers in kind Social security benefits in cash Social security pension benefits Social security non-pension benefits in cash Other social insurance benefits Other social insurance pension benefits Other social insurance non-pension benefits Social assistance benefits in cash Other current transfers Net non-life insurance premiums Net non-life direct insurance premiums Net non-life reinsurance premiums Non-life insurance claims Non-life direct insurance claims Non-life reinsurance claims Current transfers within general government Current international cooperation Miscellaneous current transfers Current transfers to NPISHs Current transfers between resident and non-resident households Other miscellaneous current transfers S11 l i a c n a n i f - n o N s n o i t a r o p r o c 301 144 S11 l i a c n a n i f - n o N s n o i t a r o p r o c 254 97 72 66 31 27 4 12 12 0 25 19 6
 2 6 6 6 0 Code B4g B4n D1 D2 D3 D4 D41 D42 D421 D422 D43 D44 D441 D442 D443 D45 Code B5g B5n D5 D51 D59 D61 D611 D6111 D6112 D612 D6121 D6122 D613 D6131 D6132 D614 D6141 D6142 D62 D621 D6211 D6212 D622 D6221 D6222 D623 D7 D71 D711 D712 D72 D721 D722 D73 D74 D75 D751 D752 D759 The sequence of accounts S12 S13 S14 S15 S1 S2 Resources l i a c n a n F i s n o i t a r o p r o c 42 30 o
154 123 49 20 13 7 3 30 20 8 2 21 235 - 44 22 14 7 5 2 0 1 0 0 1 0 343 174 1 154 235 - - 44 190 91 44 32 12 3 31 20 8 3 21 S12 S13 S14 S15 S1 S2 Resources l i a c n a n F i s n o i t a r o p r o c 27 15 275 213 110 104 6 2 1 1 94 90 4 10 8 2 3 62 47 44 3 15 15 0 t n e m n r e v o g l a r e n e G 198 171 367 213 204 9 50 38 35 3 4 4 0 9 6 3 1 104 1 1 96 1 6 6 l s d o h e s u o H 1 381 1 358 420 s H S P N I l a t o T System of National Accounts Use of disposable income account Uses Code Transactions and balancing items S11 l i a c n a n i f - n o N s n o i t a r o p r o c S12 S13 S14 S15 S1 S2 P3 P31 P32 D8 B8g B8n B12
t o T l i a c n a n F i P3 P31 P32 D8 B8g B8n B12 Code D63 D631 D632 B7g B7n Final consumption expenditure Individual consumption expenditure Collective consumption expenditure Adjustment for the change in pension entitlements Saving, gross Saving, net Current external balance Redistribution of income in kind account Uses Transactions and balancing items 352 184 168 0 - 35 - 62 1 015 1 015 215 192 32 31 1 0 5 2 1 399 1 230 169 11 427 205 0 228 71 11 14 2 0 - 13 1 399 1 230 169 11 427 205 - 13 S11 l i a c n a n i f - n o N s n o i t a r o p r o c S12 S13
 S14 S15 S1 S2 Social transfers in kind Social transfers in kind - non-market production Social transfers in kind - purchased market production Adjusted disposable income, gross Adjusted disposable income, net S11 l i a c n a n i f - n o N s n o i t a r o p r o c S12 S13 S14 S15 S1 S2 168 168 0 - 35 - 62 1 230 1 230 215 192 1 1 0 5 2 1 399 1 230 169 11 427 205 0 228 71 11 14 2 0 - 13 1 399 1 230 169 11 427 205 - 13 Use of adjusted disposable income account Uses Code Transactions and balancing items P4 P41 P42 D8 B8g B8n B12 Actual final consumption Actual individual consumption Actual collective consumption Adjustment for the change in pension entitlements Saving, gross Saving, net Current external balance 568 The sequence of accounts Use of disposable income account Transactions and balancing items Disposable income, gross Disposable income, net Final consumption expenditure Individual consumption expenditure Collective consumption expenditure Adjustment for the change
 in pension entitlements Redistribution of income in kind account Transactions and balancing items Disposable income, gross Disposable income, net Social transfers in kind Social transfers in kind - non-market production Social transfers in kind - purchased market production Use of adjusted disposable income account Transactions and balancing items Adjusted disposable income, gross Adjusted disposable income, net Actual final consumption Actual individual consumption Actual collective consumption Adjustment
 for the change in pension entitlements Code B6g B6n P3 P31 P32 D8 Code B6g B6n D63 D631 D632 Code B7g B7n P4 P41 P42 D8 S11 l i a c n a n i f - n o N s n o i t a r o p r o c 228 71 S11 l i a c n a n i f - n o N s n o i t a r o p r o c 228 71 S11 l i a c n a n i f - n o N s n o i t a r o p r o c 228 71 S12 S13 S14 S15 S1 S2 l i a c n a n F i s n o i t a r o p r o c 25 13 t n e m n r e v o g l a r e n e G 317 290 l s d o h e s u o H 1 219 1 196 s H S P N I y m o n o c e l a t o T 37 34 1 826 1 604 399 1 230 169 11 11 0 S12 S13 S14 S15 S1 S2 l i a c n a n F i s n o i t a r o p r o c 25 13 t n e m n r e v o g l a r e n e G 317 290 l s d o h e s u o H 1 219 1 196 215 211 4 s H S P N I 37 34 y m o n o c e l a t o T 1 826 1 604 215 211 S12 S13 S14 S15 S1 S2 l i a c n a n F i s n o i t a r o p r o c 25 13 t n e m n r e v o g l a r e n e G 133 106 l s d o h e s u o H 1 434 1 411 s H S P N I y m o n o c e l a t o T 6 3 1 826 1 604 399 1 230 169 11 11 0 Resources l a t o T 1 826 1 604 1 399 1 230 169 11 Resources l a t o T 1 826 1 604 215 211 4 Resources l a t o T 1 826 1 604 1 399 1 230 169 11 569 System of National Accounts Capital account Changes in assets Code Transactions and balancing items P5g P5n P51g P511 P5111 P5112 P5113 P512 P51c AN11 AN111 AN112 AN1121 AN1122 AN1123 AN113 AN1131 AN1132
 AN1139 AN114 AN115 AN1151 AN1152 AN116 AN117 AN1171 AN1172 AN1173 AN11731 AN11732 AN1174 AN1179 P52 AN12 AN121 AN122 AN1221 AN1222 AN123 AN124 AN125 P53 AN13 NP NP1 AN21 AN211 AN212 AN213 AN214 AN215 AN2151 AN2159 AN22 AN221 AN222 AN223 NP2 AN224 NP3 AN23 D9r D91r D92r D99r D9p D91p D92p D99p Gross capital formation Net capital formation Gross fixed capital formation Acquisitions less disposals of fixed assets Acquisitions of new fixed assets Acquisitions of existing fixed assets Disposals of existing
 fixed assets Costs of ownership transfer on non-produced assets Consumption of fixed capital Gross fixed capital formation by type of asset Dwellings Other buildings and structures Buildings other than dwellings Other structures Land improvements Machinery and equipment Transport equipment ICT equipment Other machinery and equipment Weapons systems Cultivated biological resources Animal resources yielding repeat products Tree, crop and plant resources yielding repeat products Costs of ownership transfer on non-produced assets Intellectual property products Research and development Mineral exploration and evaluation Computer software and databases Computer software Databases Entertainment, literary or artistic originals Other intellectual property products Changes in inventories Materials and supplies Work-in-progress Work-in-progress on cultivated biological assets Other work-in-progress Finished goods Military inventories Goods for resale Acquisitions less disposals of valuables Acquisitions less disposals of non-produced assets Acquisitions less disposals of natural resources Natural resources Land Mineral and energy reserves Non-cultivated biological resources Water resources Other natural resources Radio spectra Other Acquisitions less disposals of contracts, leases and licences Contracts, leases and licences Marketable operating leases Permits to use natural resources Permits to undertake specific activities Entitlement to future goods and services on an exclusive basis Purchases less sales of goodwill and marketing assets Capital transfers, receivable Capital taxes, receivable Investment grants, receivable Other capital transfers, receivable Capital transfers, payable Capital taxes, payable Investment grants, payable Other capital transfers, payable S12 S13 S14 S15 S1 S2 c
S11 l i a c n a n i f - n o N s n o i t a r o p r o c 308 151 280 263 262 5 - 4 17 - 157 8 - 4 8 8 8 0 38 11 35 35 38 0 - 3 55 32 48 48 45 3 0 - 12 - 27 - 23 5 2 5 5 5 1 - 1 - 3 414 192 376 359 358 9 - 8 17 - 222 26 0 0 2 0 28 2 - 7 - 6 0 0 0 3 2 2 5 4 3 0 1 1 10 0 0 - 1 0 0 1 0 0 0 0 0 0 0 414 192 376 359 358 9 - 8 17 - 222 28 10 0 0 0 0 0 B9 Net lending (+) / net borrowing () - 56 - 1 - 103 174 - 4 10 - 10 570 Capital account Code B8n B12 P5g P5n P51g P511 P5111 P5112 P5113 P512 P51c AN11 AN111 AN112 AN1121 AN1122 AN1123 AN113 AN1131 AN1132 AN1139 AN114 AN115 AN1151 AN1152 AN116 AN117 AN1171 AN1172 AN1173 AN11731 AN11732 AN1174 AN1179 P52 AN12 AN121 AN122 AN1221 AN1222 AN123 AN124 AN125 P53 AN13 NP NP1 AN21 AN211 AN212 AN213 AN214 AN215 AN2151 AN2159 AN22 AN221 AN222 AN223 NP2 AN224 NP3 AN23 D9r D91r D92r D99r D9p D91p D92p D99p B101 Transactions and balancing items Saving, net Current external balance Gross capital formation Net capital formation Gross fixed capital formation Acquisitions less disposals of fixed assets Acquisitions of new fixed assets Acquisitions of existing fixed assets Disposals of existing fixed assets Costs of ownership transfer on non-produced assets Consumption of fixed capital Gross fixed capital formation by type of asset Dwellings Other buildings and structures Buildings other than dwellings Other structures Land improvements Machinery and equipment Transport equipment ICT equipment Other machinery and equipment Weapons
 systems Cultivated biological resources Animal resources yielding repeat products Tree, crop and plant resources yielding repeat products Costs of ownership transfer on non-produced assets Intellectual property products Research and development Mineral exploration and evaluation Computer software and databases Computer software Databases Entertainment, literary or artistic originals Other intellectual property products Changes in inventories Materials and supplies Work-in-progress Work-in-progress on
 cultivated biological assets Other work-in-progress Finished goods Military inventories Goods for resale Acquisitions less disposals of valuables Acquisitions less disposals of non-produced assets Acquisitions less disposals of natural resources Natural resources Land Mineral and energy reserves Non-cultivated biological resources Water resources Other natural resources Radio spectra Other Acquisitions less disposals of contracts, leases and licences Contracts, leases and licences Marketable operating leases Permits to use natural resources Permits to undertake specific activities Entitlement to future goods and services on an exclusive basis Purchases less sales of goodwill and marketing assets Capital transfers, receivable Capital taxes, receivable Investment grants, receivable Other capital transfers, receivable Capital transfers, payable Capital taxes, payable Investment grants, payable Other capital transfers, payable Changes in net worth due to saving and capital transfers The sequence of accounts S12 S13 S14 S15 S1 S2 Changes in liabilities and net worth S11 l i a c n a n i f - 71 2 - 62 192 2 205 - 13 414 192 376 359 358 9 - 8 17 - 222 l a t o T 205 - 13 414 192 376 359 358 9 - 8 17 - 222 28 28 10 0 0 10 0 0 33 23 10 - 16 0 - 16 88 0 0
 0 - 7 0 - 7 - 5 6 2 0 4 - 34 0 - 27 - 7 - 90 23 0 23 - 5 - 2 - 3 210 0 0 0 - 3 0 - 3 - 1 62 2 23 37 - 65 - 2 - 27 - 36 202 4 4 - 1 0 - 1 - 10 66 2 27 37 - 66 - 2 - 27 - 37 192 571 S12 S13 S14 S15 S1 S2 l i a c n a n F i s n o i t a r o p r o c 172 - 1 0 - 1 10 15 - 5 - 5 0 0 66 13 53 53 4 49 28 25 23 - 10 189 2 - 26 2
o o G i s e c v r e s l a t o T - 10 189 2 - 26 2 - 27 - 27 - - 1 0 - 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 436 - 1 0 - 1 89 33 26 - - System of National Accounts Financial account Changes in assets Code Transactions and balancing items F1 F11 F12 F2 F21 F22 F221 F229 F29 F3 F31 F32 F4 F41 F42 F5 F51 F511 F512 F519 F52 F521 F522 F6 F61 F62 F63 F64 F65 F66 F7 F71 F711 F712 F72 F8 F81 F89 Net acquisition of financial assets Monetary gold and SDRs Monetary gold SDRs Currency and deposits Currency Transferable deposits Interbank positions Other transferable deposits Other deposits Debt securities Short-term Long-term Loans Short-term Long-term Equity and investment fund shares Equity Listed shares Unlisted shares Other equity Investment fund shares/units Money market fund shares/units Non MMF investment fund shares/units Insurance, pension and standardized guarantee schemes Non-life insurance technical reserves Life insurance and annuity entitlements Pension entitlements Claim of pension fund on pension managers Entitlements to non-pension benefits Provisions for calls under standardized guarantees
 Financial derivatives and employee stock options Financial derivatives Options Forwards Employee stock options Other accounts receivable/payable Trade credits and advances Other accounts receivable/payable S11 l i a c n a n i f - n o N s n o i t a r o p r o c 83 39 5 30 30 4 7 10 - 3 19 14 5 10 10 5 3 2 0 0 0 1 1 0 0 3 3 1 2 0 4 3 1 572 Financial account Transactions and balancing items Net lending (+) / net borrowing () Net acquisition of liabilities Monetary gold and SDRs Monetary gold SDRs Currency and
 deposits Currency Transferable deposits Interbank positions Other transferable deposits Other deposits Debt securities Short-term Long-term Loans Short-term Long-term Equity and investment fund shares Equity Listed shares Unlisted shares Other equity Investment fund shares/units Money market fund shares/units Non MMF investment fund shares/units Insurance, pension and standardized guarantee schemes Non-life insurance technical reserves Life insurance and annuity entitlements Pension entitlements Claim of pension fund on pension managers Entitlements to non-pension benefits Provisions for calls under standardized guarantees Financial derivatives and employee stock options Financial derivatives Options Forwards Employee stock options Other accounts receivable/payable Trade credits and advances Other accounts receivable/payable Code B9 F1 F11 F12 F2 F21 F22 F221 F229 F29 F3 F31 F32 F4 F41 F42 F5 F51 F511 F512 F519 F52 F521 F522 F6 F61 F62 F63 F64 F65 F66 F7 F71 F711 F712 F72 F8 F81 F89 S11 l i a c n a n i f - n o N s n o i t a r o p r o c - 56 139 6 2 4 21 4 17 83 83 77 3 3 3 2 2 0 1 26 6 20 The sequence of accounts S12 S13 S14 S15 S1 S2 Changes in liabilities and net worth l i a c n a n F i s n o i t a r o p r o c - 1 173 - 103 93 174 15 - 4 6 l a t o T y m o n o c e 10 426 e h t f o t s e R d l r o w - 10 57 65 26 - 4
- - 2 1 0 - 3 21 5 16 35 14 21 14 9 3 2 4 5 2 3 0 0 0 0 0 0 0 3 3 1 2 - 14 - 1 - 13 d n a s d o o G i s e c v r e s l a t o T 0 483 0 100 36 28 - S1 y m o n o c e l a t o T S2 o
33 3 30 26 4 0 - 11 - 8 - 8 - 3 0 - 1 - 2 - 11 - 9 - 2 0 0 0 0 0 2 1 0 1 0 2 0 0 2 - 2 - 2 0 0 13 - 7 - 2 - 3 - 2 17 11 6 0 3 0 0 0 0 2 1 0 0 33 3 30 26 4 0 - 11 - 8 - 8 - 3 0 - 1 - 2 - 11 - 9 - 2 0 0 0 0 0 2 1 0 1 0 2 0 0 2 - 2 - 2 0 0 13 - 7 - 2 - 3 - 2 17 11 6 0 3 0 0 0 0 2 1 0 0 System of National Accounts Other changes in the volume of assets account Changes in assets S11 S12 S13 S14 S15 - 2 - 2 - 2 0 - 6 - 4 - 2 5 1 4 0 - 4 - 4 - 3 - 1 0 0 0 0 - 3 - - 2 0 - 2 - 2 0 0 - 1 - 2 - 2 0 0 1 1 K1 AN1 AN2 AN21 AN22 AN23 K2 K21 K22 AN21 AN21 AN22 AN23 K3 K4 K5 K6 K61 K62 AN1 AN2 AF AN1 AN2 AF AN1 AN2 AF AN1 AN2 AF AN1 AN2 AF AN1 AN11 AN12 AN13 AN2 AN21 AN22 AN23 AF AF1 AF2 AF3 AF4 AF5 AF6 AF7 AF8 Other flows Economic appearance of assets Produced non-financial assets Non-produced non-financial assets Natural resources Contracts, leases and licences Goodwill and marketing assets Economic disappearance of non-produced non-financial assets Depletion of natural resources Natural resources Other economic disappearance of non-produced non-financial assets Natural resources Contracts, leases and licences Goodwill and marketing assets Catastrophic losses Produced non-financial assets Non-produced non-financial assets Financial
 assets/liabilities Uncompensated seizures Produced non-financial assets Non-produced non-financial assets Financial assets/liabilities Other changes in volume n.e.c.
Produced non-financial assets Non-produced non-financial assets Financial assets/liabilities Changes in classification Changes in sector classification and structure Produced non-financial assets Non-produced non-financial assets Financial assets Changes in classification of assets and liabilities Produced non-financial assets Non-produced non-financial assets Financial assets Total other changes in volume Produced non-financial assets Fixed assets Inventories Valuables Non-produced non-financial assets Natural resources Contracts, leases and licences Goodwill and marketing assets Financial assets Monetary gold and SDRs Currency and deposits Debt securities Loans Equity and investment fund shares/units Insurance, pension and standardized guarantee schemes Financial derivatives and employee stock options Other accounts receivable/payable l i a c n a n i f - n o N s n o i t a r o p r o c 26 26 22 4 - 9 - 6 - 6 - 3 - 1 - 2 - 5 - 5 - 5 - 1 - 4 1 1 6 6 3 1 2 0 0 0 14 - 2 1 - 3 14 10 4 0 2 2 574 Other changes in the volume of assets account S11 S12 S13 S14 S15 - n o N s n o i t a r o p r o c The sequence of accounts Changes in liabilities and net worth S1 y m o n o c e l a t o T S2 K1 AN1 AN2 AN21 AN22 AN23 K2 K21 K22 AN21 AN21 AN22 AN23 K3 K4 K5 K6 K61 K62 AN1 AN2 AF AN1 AN2 AF AN1 AN2 AF AN1 AN2
 AF AN1 AN2 AF AN1 AN11 AN12 AN13 AN2 AN21 AN22 AN23 AF AF1 AF2 AF3 AF4 AF5 AF6 AF7 AF8 B102 Other flows Economic appearance of assets Produced non-financial assets Non-produced non-financial assets Natural resources Contracts, leases and licences Goodwill and marketing assets Economic disappearance of non-produced non-financial assets Depletion of natural resources Natural resources Other economic disappearance of non-produced non-financial assets Natural resources Contracts, leases and licences Goodwill and marketing assets Catastrophic losses Produced non-financial assets Non-produced non-financial assets Financial assets/liabilities Uncompensated seizures Produced non-financial assets Non-produced non-financial assets Financial assets/liabilities Other changes in volume n.e.c.
Produced non-financial assets Non-produced non-financial assets Financial assets/liabilities Changes in classification Changes in sector classification and structure Produced non-financial assets Non-produced non-financial assets Financial assets Changes in classification of assets and liabilities Produced non-financial assets Non-produced non-financial assets Financial assets Total other changes in volume Produced non-financial assets Fixed assets Inventories Valuables Non-produced non-financial assets Natural resources Contracts, leases and licences Goodwill and marketing assets Financial assets Monetary gold and SDRs Currency and deposits Debt securities Loans Equity and investment fund shares/units Insurance, pension and standardized guarantee schemes Financial derivatives and employee stock options Other accounts receivable/payable Changes in net worth due to other changes in volume of assets 14 - 1 - 2 - 1 0 10 1 1 2 2 2 0 0 0 0 3 3 0 2 1 575 S1 y m o n o c e l a t o T S2 - 52 - 4 - 30 15 - 28 6 - 7 - 4 7 4 3 12 2 3 1 2 1 3 - 5 0 - 2 1 - 1 1 - 1 - - 57 - 4 - 32 16 -
29 28 8 0 7 82 5 3 2 77 76 1 - 57 - 4 - 32 16 - 29 7 - 8 - 7 System of National Accounts Revaluation account Changes in assets S11 S12 S13 S14 S15 44 21 18 1 2 23 23 1 1 32 20 18 1 1 12 12 8 2 3 3 12 1 0 0 1 11 11 0 - 7 - 1 - 3 0 - - 20 0 - 17 2 0 1 - 5 0 - 1 8 5 5 3 3 2 1 1 6 5 5 1 1 3 2 1 2 0 0 0 0 2 2 0 - 1 0 - 57 11 30 16 3 2 2 1 1
t a r o p r o c 4 2 2 2 1 1 57 11 30 16 3 2 2 1 1 71 14 18 24 14 1 1 0 0 0 0 1 0 1 - 14 - 3 0 12 - 24 2 - 1 0 0 AN AN1 AN11 AN12 AN13 AN2 AN21 AN22 AN23 AF AF1 AF2 AF3 AF4 AF5 AF6 AF7 AF8 AN AN1 AN11 AN12 AN13 AN2 AN21 AN22 AN23 AF AF1 AF2 AF3 AF4 AF5 AF6 AF7 AF8 AN AN1 AN11 AN12 AN13 AN2 AN21 AN22 AN23 AF AF1 AF2 AF3 AF4 AF5 AF6 AF7 AF8 Other flows Non-financial assets Produced non-financial assets Fixed assets Inventories Valuables Non-produced non-financial assets Natural resources Contracts, leases and licences Goodwill and marketing assets Financial assets/liabilities Monetary gold and SDRs Currency and deposits Debt securities Loans Equity and investment fund shares/units Insurance, pension and standardized guarantee schemes Financial derivatives and employee stock options Other accounts receivable/payable Non-financial assets Produced non-financial assets Fixed assets Inventories Valuables Non-produced non-financial assets Natural resources Contracts, leases and licences Goodwill and marketing assets Financial assets/liabilities Monetary gold and SDRs Currency and deposits Debt securities Loans Equity and investment fund shares/units Insurance, pension and standardized guarantee schemes Financial derivatives and employee stock options Other accounts receivable/payable Non-financial assets Produced non-financial assets Fixed assets Inventories Valuables Non-produced non-financial assets Natural resources Contracts, leases and licences Goodwill and marketing assets Financial assets/liabilities Monetary
 gold and SDRs Currency and deposits Debt securities Loans Equity and investment fund shares/units Insurance, pension and standardized guarantee schemes Financial derivatives and employee stock options Other accounts receivable/payable l i a c n a n i f - n o N s n o i t a r o p r o c - 10 0 - 8 1 - 1 2 - 1 0 - n
576 Revaluation account Revaluation account Changes in assets S11 S11 S12 S12 S13 S13 S14 S14 S15 S15 S1 S1 S2 S2 Changes in liabilities and net worth The sequence of accounts AN AN AN1 AN1 AN11 AN11 AN12 AN12 AN13 AN13 AN2 AN2 AN21 AN21 AN22 AN22 AN23 AN23 AF AF AF1 AF1 AF2 AF2 AF3 AF3 AF4 AF4 AF5 AF5 AF6 AF6 AF7 AF7 AF8 AF8 B103 AN AN AN1 AN1 AN11 AN11 AN12 AN12 AN13 AN13 AN2 AN2 AN21 AN21 AN22 AN22 AN23 AN23 AF AF AF1 AF1 AF2 AF2 AF3 AF3 AF4 AF4 AF5 AF5 AF6 AF6 AF7 AF7 AF8 AF8 B1031 AN AN AN1 AN1 AN11 AN11 AN12 AN12 AN13 AN13 AN2 AN2 AN21 AN21 AN22 AN22 AN23 AN23 AF AF AF1 AF1 AF2 AF2 AF3 AF3 AF4 AF4 AF5 AF5 AF6 AF6 AF7 AF7 AF8 AF8 B1032 Other flows Other flows Non-financial assets Non-financial assets Produced non-financial assets Produced non-financial assets Fixed assets Fixed assets Inventories Inventories Valuables Valuables Non-produced non-financial assets Non-produced non-financial assets Natural resources Natural resources Contracts, leases and licences Contracts, leases and licences Goodwill and marketing assets Goodwill and marketing assets Financial assets/liabilities Financial assets/liabilities Monetary gold and SDRs Monetary gold and
 SDRs Currency and deposits Currency and deposits Debt securities Debt securities Loans Loans Equity and investment fund shares/units Equity and investment fund shares/units Insurance, pension and standardized guarantee schemes Insurance, pension and standardized guarantee schemes Financial derivatives and employee stock options Financial derivatives and employee stock options Other accounts receivable/payable Other accounts receivable/payable Changes in net worth due to nominal holding gains/losses
 Non-financial assets Non-financial assets Produced non-financial assets Produced non-financial assets Fixed assets Fixed assets Inventories Inventories Valuables Valuables Non-produced non-financial assets Non-produced non-financial assets Natural resources Natural resources Contracts, leases and licences Contracts, leases and licences Goodwill and marketing assets Goodwill and marketing assets Financial assets/liabilities Financial assets/liabilities Monetary gold and SDRs Monetary gold and SDRs Currency and deposits Currency and deposits Debt securities Debt securities Loans Loans Equity and investment fund shares/units Equity and investment fund shares/units Insurance, pension and standardized guarantee schemes Insurance, pension and standardized guarantee schemes Financial derivatives and employee stock options Financial derivatives and employee stock options Other accounts receivable/payable Other accounts receivable/payable Changes in net worth due to neutral holding gains/losses Non-financial assets Non-financial assets Produced non-financial assets Produced non-financial assets Fixed assets Fixed assets Inventories Inventories Valuables Valuables Non-produced non-financial assets Non-produced non-financial assets Natural resources Natural resources Contracts, leases and licences Contracts, leases and licences Goodwill and marketing assets Goodwill and marketing assets Financial assets/liabilities Financial assets/liabilities Monetary gold and SDRs Monetary gold and SDRs Currency and deposits Currency and deposits Debt securities Debt securities Loans Loans Equity and investment fund shares/units Equity and investment fund shares/units Insurance, pension and standardized guarantee schemes Insurance, pension and standardized guarantee schemes Financial derivatives and employee stock options Financial derivatives and employee stock options Other accounts receivable/payable Other accounts receivable/payable Changes in net worth due to real holding gains/losses
 l l i a c n a n i f - - n o N - 19 - 10 0 0 - 1 - 8 1 0 - 18 - 1 3 2 0 - 1 0 0 - 3 - 3 52 44 21 18 1 2 23 23 7 1 1 7 l s d o h e s u o H l s d o h e s u o H 80 35 28 2 5 45 45 s H S P N s H S P N I I - 5 - 20 0 0 0 - 17 2 0 - 3 0 0 1 0 - 5 0 0 - 2 - 1 9 2 1 1 1 1 6 2 0 0 0 0 2 2 0 - 3 - 1 0 0 - 1 - 2 0 0 - 1 0 0 1 0 0 0 0 - 1 0 4 6 27 1 0 0 0 0 1 0 1 - 17 - 14 - 3 0 0 - 26 13 12 0 - 24 2 3 - 7 - 1 0 0 0 0 4 12 1 0 0 1 11 11 0 - 6 - 7 0 - 1 - 3 - 2 0 3 - 7 - 3 0 0 0 0 0 0 0 0 11 y y m m o o n n o o c c e e l l a a t t o o T T - 50 - 52 - 4 0 - 30 - 30 15 16 - 28 - 29 6 6 - 7 - 7 0 - 4 - 6 80 15 12 2 4 1 3 - 8 12 22 16 2 2 3 2 1 2 1 1 3 1 - 10 - 7 - 5 0 - 4 - 2 - 2 1 0 - 1 0 1 1 - 1 -
 1 0 - 3 - - 57 - 57 - 4 - 4 - 32 - 32 16 16 - 29 - 29 7 7 - 8 - 8 0 - 7 - 7 66 577 S1 y m o n o c e l a t o T S2 621 2 818 2 579 114 125 1
n u o c c a l a t o T System of National Accounts S11 S12 S13 S14 S15 t n e m n r e v o g l a r e n e G 789 497 467 22 8 292 286 6 396 80 150 115 12 20 0 19 57 29 23 1 5 28 26 2 0 - 9 1 - 26 4 3 3 1 0 5 846 526 490 23 13 320 312 8 0 387 81 124 4 118 15 21 0 24 l s d o h e s u o H 1 429 856 713 48 95 573 573 s H S P N I l i s n o i t a r o p r o c a c n a n i f - n o N 2 151 1 274 1 226 43 5 877 864 13 l i a c n a n F i s n o i t a r o p r o c - 2 - 4 - 2 0 - 2 2 1 1 0 230 10 10 96 53 44 8 8 1 91 63 50 0
0 - AN AN1 AN11 AN12 AN13 AN2 AN21 AN22 AN23 AF AF1 AF2 AF3 AF4 AF5 AF6 AF7 AF8 AN AN1 AN11 AN12 AN13 AN2 AN21 AN22 AN23 AF AF1 AF2 AF3 AF4 AF5 AF6 AF7 AF8 AN AN1 AN11 AN12 AN13 AN2 AN21 AN22 AN23 AF AF1 AF2 AF3 AF4 AF5 AF6 AF7 AF8 Stocks and changes in assets Non-financial assets Produced non-financial assets Fixed assets Inventories Valuables
 Non-produced non-financial assets Natural resources Contracts, leases and licences Goodwill and marketing assets Financial assets/liabilities Monetary gold and SDRs Currency and deposits Debt securities Loans Equity and investment fund shares/units Insurance, pension and standardized guarantee schemes Financial derivatives and employee stock options Other accounts receivable/payable Non-financial assets Produced non-financial assets Fixed assets Inventories Valuables Non-produced non-financial assets Natural resources Contracts, leases and licences Goodwill and marketing assets Financial assets/liabilities Monetary gold and SDRs Currency and deposits Debt securities Loans Equity and investment fund shares/units Insurance, pension and standardized guarantee schemes Financial derivatives and employee stock options Other accounts receivable/payable Non-financial assets Produced non-financial assets Fixed assets Inventories Valuables Non-produced non-financial assets Natural resources Contracts, leases and licences Goodwill and marketing assets Financial assets/liabilities Monetary gold and SDRs Currency and deposits Debt securities Loans Equity and investment fund shares/units Insurance, pension and standardized guarantee schemes Financial derivatives and employee stock options Other accounts receivable/payable 578 The sequence of accounts S11 S11 S12 S12 S13 S13 S14 S14 S15 S15 S1 S1 S2 S2 AN AN AN1 AN1 AN11 AN11 AN12 AN12 AN13 AN13 AN2 AN2 AN21 AN21 AN22 AN22 AN23 AN23
 AF AF AF1 AF1 AF2 AF2 AF3 AF3 AF4 AF4 AF5 AF5 AF6 AF6 AF7 AF7 AF8 AF8 B90 AN AN AN1 AN1 AN11 AN11 AN12 AN12 AN13 AN13 AN2 AN2 AN21 AN21 AN22 AN22 AN23 AN23 AF AF AF1 AF1 AF2 AF2 AF3 AF3 AF4 AF4 AF5 AF5 AF6 AF6 AF7 AF7 AF8 AF8 B10 B101 B102 B103 B1031 B1032 AN AN AN1 AN1 AN11 AN11 AN12 AN12 AN13 AN13 AN2 AN2 AN21 AN21 AN22 AN22 AN23 AN23 AF AF AF1 AF1 AF2 AF2 AF3 AF3 AF4 AF4 AF5 AF5 AF6 AF6 AF7 AF7 AF8 AF8 B90 Stocks and changes in liabilities Stocks and changes in assets Non-financial assets Non-financial
 assets Produced non-financial assets Produced non-financial assets Fixed assets Fixed assets Inventories Inventories Valuables Valuables Non-produced non-financial assets Non-produced non-financial assets Natural resources Natural resources Contracts, leases and licences Contracts, leases and licences Goodwill and marketing assets Goodwill and marketing assets Financial assets/liabilities Financial assets/liabilities Monetary gold and SDRs Monetary gold and SDRs Currency and deposits Currency and deposits Debt securities Debt securities Loans Loans Equity and investment fund shares/units Equity and investment fund shares/units Insurance, pension and standardized guarantee schemes Insurance, pension and standardized guarantee schemes Financial derivatives and employee stock options Financial derivatives and employee stock options Other accounts receivable/payable Other accounts receivable/payable Net worth Non-financial assets Non-financial assets Produced non-financial assets Produced non-financial assets Fixed assets Fixed assets Inventories Inventories Valuables Valuables Non-produced non-financial assets Non-produced non-financial assets Natural resources Natural resources Contracts, leases and licences Contracts, leases and licences Goodwill and marketing assets Goodwill and marketing assets Financial assets/liabilities Financial assets/liabilities Monetary gold and SDRs Monetary gold and SDRs Currency and deposits Currency and deposits Debt securities Debt securities Loans Loans Equity and investment fund shares/units Equity and investment fund shares/units Insurance, pension and standardized guarantee schemes Insurance, pension and standardized guarantee schemes Financial derivatives and employee stock options Financial derivatives and employee stock options Other accounts receivable/payable Other accounts receivable/payable Changes in net worth, total Saving and capital transfers Other changes in volume of assets Nominal holding gains/losses Neutral holding
 gains/losses Real holding gains/losses Non-financial assets Non-financial assets Produced non-financial assets Produced non-financial assets Fixed assets Fixed assets Inventories Inventories Valuables Valuables Non-produced non-financial assets Non-produced non-financial assets Natural resources Natural resources Contracts, leases and licences Contracts, leases and licences Goodwill and marketing assets Goodwill and marketing assets Financial assets/liabilities Financial assets/liabilities Monetary gold and SDRs Monetary gold and SDRs Currency and deposits Currency and deposits Debt securities Debt securities Loans Loans Equity and investment fund shares/units Equity and investment fund shares/units Insurance, pension and standardized guarantee schemes Insurance, pension and standardized guarantee schemes Financial derivatives and employee stock options Financial derivatives and employee stock options Other accounts receivable/payable Other accounts receivable/payable Net worth - - n n o o N N 2 151 1 274 1 226 43 5 877 864 13 982 3 221 40 382 90 44 50 897 280 1 987 12 25 5 4 237 150 - i
93 67 52 15 26 23 3 3 421 3 544 690 1 281 1 053 950 1 187 765 551 435 30 10 13 - 30 - 2 - 4 - 2 0 - 2 2 1 1 0 224 230 10 65 10 64 96 0 53 39 44 48 8 8 8 0 1 4 - 5 - 0
346 1 117 1 046 0 1 240 804 595 483 38 18 21 1 0 - - 9 1 37 - 26 45 4 9 3 2 3 0 1 0 0 9 5 - 54 - 90 - l l s s d d o o h h e e s s u u o o H H 1 429 856 713 48 95 573 573 s H S P N I I s H S P N - - y y m m o o n n o o c c e e l l a a t t o o T T 105
R R t n u o c c a t n u o c c a 805 1 274 770 105 116 125 77 70 17 203 345 25 26 0 7 134 59 - 469 72 54 1 12 11 - 2 13 23 4 35 15 15 0 0 3 0 - 14 10 - 18 - 10 - 8 - 10 2 859 1 346 1 782 116 114 138 100 52 74 360 218 26 25 0 10 144 45 - 487 l l a t o T a t o T 9
System of National Accounts 580 Annex 3: Changes from the 1993 System of National Accounts A.
Introduction A3.1 The System of National Accounts 2008 (2008 SNA) retains the basic theoretical framework of its predecessor, the System of National Accounts 1993 (1993 SNA).

However, in line with the mandate of the United Nations Statistical Commission, the 2008 SNA introduces treatments for new aspects of economies that have come into prominence, elaborates on aspects that have increasingly become the focus of analytical attention and clarifies guidance on a wide range of issues.
The changes in the 2008 SNA bring the accounts into line with developments in the economic A3.2 environment, advances in methodological research and needs of users.

In sections B through G, the changes in the 2008 SNA are grouped together in six sections.

The descriptions given only highlight the main differences between the 1993 and 2008 exhaustive descriptions.

The discussion of the changes also includes cross-references to the corresponding paragraphs in the chapters.
In section H a check-list of changes by chapter is given.

SNA while refraining from B.

Further specifications of statistical units and revisions in institutional sectoring 1.

Producer unit undertaking ancillary activities to be recognized as a separate establishment in certain cases 2.
Artificial subsidiaries not regarded as institutional units unless resident in an economy different from that of their parents Reference: chapter 5, paragraphs 5.41to 5.42 Reference: chapter 4, paragraphs 4.62 to 4.64 A3.3 The 2008 SNA recommends that if the activity of a unit is statistically undertaking purely ancillary activities observable, in that separate accounts for the production it undertakes are readily available, or if it is located in a geographically different location from the establishments it serves, it should be recognized as a separate establishment.
When such an ancillary establishment is recognized, it is classified according to its own principal activity and seen as producing primary output.

A3.4 The value of output of an ancillary establishment should be derived on a sum of costs basis, including the costs of the capital used by the unit.
The output of the ancillary unit is treated as intermediate consumption of the establishments it serves and the output should be allocated across those establishments using an appropriate indicator such as the output, value added or employment.

The output is deemed to be market output when the parent enterprise is a market producer or producing for own final use and non-market otherwise.

In the latter case, the cost of the capital should not be included in estimating the value of the output.
A3.5 In the 1993 SNA, a producer unit undertaking purely ancillary activities was always regarded as an integral part of the establishments it served.

A3.6 Ancillary corporations as described in the 1993 SNA are named as artificial subsidiaries in the 2008 SNA.
Artificial subsidiaries are subsidiary corporations wholly owned by the parent corporation and created to provide services to the parent corporation, or other corporations in the same group, often in order to avoid taxes, to minimize liabilities in the technical event of bankruptcy, or advantages under the tax or corporation legislation in force in a particular country.

An artificial subsidiary is not treated as an institutional unit unless it is resident in an economy different from that of its parent.
to secure other 3.

Branch of a non-resident unit recognized as an institutional unit Reference: chapter 4, paragraph 4.47 A3.7 The 1993 SNA simply stated that an unincorporated enterprise owned by a non-resident institutional unit should be treated as a notional resident unit in the country where it is located.

Such a unit is identified as a branch in the 2008 SNA and treated as an institutional unit.
The 2008 SNA specifies indicative criteria to help recognize the branch of a non-resident unit as an institutional unit; namely, the unit engages in significant production of goods and services for 581 System of National Accounts a long period of time in that territory and is subject to the income tax laws, if any, of the economy in which it is located even if it may have a tax-exempt status.

4.
4.

Residence of multiterritory enterprises clarified Reference: chapter 4, paragraph 4.13 A3.8 The 2008 SNA provides guidelines for determining the residence of multiterritory enterprises that operate a seamless operation over more than one economic territory.

Such enterprises are typically involved in cross-border activities and include shipping lines, airlines, hydroelectric schemes on border rivers, pipelines, bridges, tunnels and undersea cables.
When it is not possible to identify a parent or separate branches, it is recommended to prorate the total operations of a multiterritory enterprise by the individual economic territories in which it operates.

A3.9 The 1993 SNA did not give explicit guidance for determining the residence of multiterritory enterprises.

5.
5.

Special purpose entities recognized Reference: chapter 4, paragraphs 4.55 to 4.58; chapter 22, paragraphs 22.51 to 22.54 A3.10 The 2008 SNA provides guidance on the treatment of units with no employees and no non-financial assets, units known variously as special purpose entities (SPEs) or special purpose vehicles.
There is no common definition of an SPE but some of its characteristics are that it has little physical presence, is always related to another corporation, often as a subsidiary, and it is often resident in a territory other than the territory of residence of its parent.
A3.11 Such a unit is treated as an institutional unit and allocated to sector and industry according to its principal activity unless it falls into one of three categories; (a) captive financial subsidiaries of corporations, and (c) special purpose units of government.

(b) artificial institutions, A3.12 The 1993 SNA did not give explicit guidance for treatment of such units.

6.

Holding company allocated to the financial corporations sector Reference: chapter 4, paragraph 4.54 A3.13 ISIC Rev.
4, in section K class 6420, describes a holding company as one that holds the assets of subsidiary corporations but does not undertake any management activities.

Such a unit, therefore, produces only a financial service.

Accordingly, the 2008 SNA recommends that holding companies should always be allocated to the financial corporations sector and treated as captive financial institutions even if all of their subsidiary corporations are non-financial corporations.
A3.14 The 1993 SNA recommended that holding companies were to be assigned to the institutional sector in which the main 582 of the group activity subsidiaries was concentrated.

Consequently, they were to be classified as financial corporations only when the main activity of the group of corporations they controlled was financial.

of 7.
of 7.

Head office to be allocated to the institutional sector of the majority of its subsidiaries Reference: chapter 4, paragraph 4.53 A3.15 The term “holding company” is sometimes mistakenly used where “head office” is more correct.

The activities of a head office, as defined in section M class 7010 of the ISIC Rev.
4, includes the overseeing and managing of other units of the enterprise; undertaking the strategic or organizational planning and decision making role of the enterprise; exercising operational control and managing the day-to-day operations of their related units.

Such a unit therefore, produces non-financial or financial services depending upon the type of output of its subsidiaries.
The 2008 SNA recommends that the head office should be allocated to the non-financial corporations sector unless all or most of its subsidiaries are financial corporations, in which case it is treated by convention as a financial auxiliary in the financial corporations sector.

A3.16 The 1993 SNA did not give explicit guidance for treatment of head offices.

8.
8.

Subsector for non-profit institutions introduced Reference: chapter 4, paragraphs 4.35, 4.94, 4.103 and 4.128 (NPIs) A3.17 Like the 1993 SNA, the 2008 SNA assigns non-profit institutions institutional sectors, to different regardless of motivation, tax status, type of employees or the activity they are engaged in.
Recognizing the increasing interest in considering the full set of NPIs as evidence of “civil society”, the 2008 SNA recommends that NPIs within the corporate and government sectors be identified tables in distinct subsectors so summarizing all NPI activities can be separately derived in a straightforward manner as and when required.

that supplementary 9.


Definition of financial services enlarged Reference: chapter 4, paragraph 4.98 and chapter 6, paragraph 6.158 A3.18 The 2008 SNA defines financial services more explicitly than in the 1993 SNA to ensure that the increase in financial services other than the financial intermediation, specifically financial risk management and liquidity transformation, are captured.
Financial services include monitoring services, convenience services, liquidity provision, risk assumption, underwriting and trading services.

Chapter 17 gives guidance on when both explicit and implicit financial services should be identified, including margins on foreign exchange dealing and dealing in securities.

Changes from the 1993 System of National Accounts 10.
Subsectoring of the financial corporation sector revised to reflect new developments in financial services, markets and instruments Reference: chapter 4, paragraphs 4.98 to 4.116. its liabilities.
The subsectors are (i) Central Bank, (ii) Deposit-taking corporations except the central bank, (iii) Money market funds (MMFs), (iv) Non-MMF investment funds, (v) Other financial intermediaries except insurance corporations and pension funds, (vi) Financial auxiliaries, (vii) Captive financial institutions and money lenders, (viii) Insurance corporations (ICs) and (ix) Pension funds (PFs).
A3.19 The 2008 SNA has introduced a slightly more detailed classification of the financial corporations sector to allow more flexibility and better consistency with other monetary and financial statistics systems such as those of the International Monetary Fund and the European Central Bank.
The financial corporations sector is divided into nine subsectors (as opposed to five in the 1993 SNA) according to the activity of the unit in the market and the liquidity of A3.20 Due to the substantial variations among countries in defining money, the 2008 SNA does not include a definition of money.

However, the classification of financial corporations and instruments is designed to be compatible with national money definitions.
Because “Money market funds” are separately distinguished, they can be included or excluded as desired.

C. Further specifications of the scope of transactions including the production boundary 1.

Research and development is not an ancillary activity Reference: chapter 6, paragraph 6.207 A3.21 The 2008 SNA does not treat the research and development activity as an ancillary activity.
Research and development is creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and enable this stock of knowledge to be used to devise new applications.

This does not extend to including human capital as assets within the SNA.

It is recommended that a separate establishment should be distinguished for research and development when possible.
A3.22 The 2008 SNA recommends that the output of research and development should be valued at market prices if purchased (outsourced) or at the sum of total production costs plus an appropriate mark-up representing the costs of fixed assets used in production if undertaken on own account.

Research and development undertaken by specialized commercial research laboratories or institutes is valued by receipts from sales, contracts, commissions, fees, etc.

in the usual way.
in the usual way.

Research and development undertaken by government units, universities, non-profit research institutes, etc.

is non- market production and should be valued on the basis of the total costs incurred excluding a return to capital used.

A3.23 The 1993 SNA recognized that research and development is undertaken with the objective of improving efficiency or productivity, or deriving other future benefits.
However, although these characteristics have the nature of investment activities, research and development was treated as part of intermediate consumption.

It was recommended, though, that it should not be treated as an ancillary activity but that a separate establishment should be identified as secondary activity.

2.

Method for calculating financial intermediation services indirectly measured (FISIM) refined Reference: chapter 6, paragraphs 6.163 to 6.165.
A3.24 The method for calculating financial intermediation services indirectly measured, widely known as FISIM, has been refined in the light of experience in implementing the 1993 SNA recommendations.

By convention the 2008 SNA recommends that FISIM applies only to loans and deposits and only when those loans and deposits are provided by, or deposited with, financial institutions.

The 2008 SNA calculates the output of FISIM on loans (yL) and deposits (yD) only, using a reference rate (rr).
Assuming that these loans and deposits attract interest rates of rL and rD respectively, the output of FISIM should be calculated according to the formula (rL - rr) yL + (rr - rD) yD.

just those made included, not A3.25 The method recommended in the 2008 SNA for the calculation of FISIM implies several changes to the 1993 SNA formula.

For financial intermediaries, all loans and deposits are from intermediated funds.
The reference rate should contain no service element and reflect the risk and maturity structure of deposits and loans.

The rate prevailing for inter-bank borrowing and lending may be a suitable choice as a reference rate.

However, different reference rates may be needed for each currency in which loans and deposits are denominated, especially when a non-resident financial institution is involved.
For banks within the same economy, there is often little if any service provided in association with banks lending to and borrowing from other banks.

A3.26 The 2008 SNA recommends that the consumption of FISIM should be allocated between users (lenders as well as borrowers) treating the allocated amounts either as intermediate consumption by enterprises or as final consumption or exports.
583 System of National Accounts A3.27 The 1993 SNA calculated FISIM as the difference between property income receivable and interest payable.

The property income receivable excluded that part which was receivable from investment of own funds.
The 1993 SNA recognized that in practice it may be difficult to find any method of allocating FISIM among different users and, therefore, accepted that some countries may prefer to continue to use the convention whereby the whole of the services are allocated to intermediate consumption of a notional industry.

This possibility has been removed in the 2008 SNA.

3.
3.

Output of central bank clarified Reference: chapter 6, paragraphs 6.151 to 6.156; chapter 7, paragraphs 7.122 to 7.126 A3.28 The services produced by the central bank are identified in three broad groups, namely financial intermediation, monetary policy services and supervisory services overseeing financial corporations.
The 2008 SNA that separate establishments should be recommends identified for units of the central bank undertaking production of these different services when the level of activity is significant for the accounts as a whole.

This facilitates the distinction between the market and non- market output of the central bank.
Financial intermediation services represent market production, monetary policy services represent non-market production and borderline cases, such as supervisory services, may be treated as market or non-market services depending on whether explicit fees are charged that are sufficient to cover the costs of providing such services or not.
A3.29 The 2008 SNA provides guidance that non-market activities are to be regarded as acquisition of collective services by general government with a matching transfer from the central bank to the government, so there is no net cost to the government for these services.

Market output is provided on an individual basis to all sectors of the economy against payment for the services.
A3.30 In cases when the interest rate set by the central bank is so high or so low as to imply the inclusion of an implicit subsidy or tax, the 2008 SNA recommends that these should be explicitly recorded as such if they are significant.

These taxes or subsidies should be shown as receivable by and payable by government but with a matching transfer from the government to the central bank in the case of a tax and a transfer from the central bank to government in the case of a subsidy.
financial intermediation A3.31 The 1993 SNA recommended that the services of central banks be measured on the basis of receipts from fees, commissions, and services indirectly measured.

Application of this method sometimes resulted in unusually large positive or negative estimates of output.

For this reason, in 1995 the Inter-Secretariat Working Group on National Accounts (ISWGNA) revised the recommendation for measuring the output of central banks.
If the traditional approach consistently leads to inappropriate results, countries may, as a second best option, measure output at cost as in the case for other non- market output.

However, the ISWGNA did not provide further guidance on the implications of the cost based 584 valuation on the recording of other transactions in which central banks are involved, such as interest payments and receipts.

Neither did it indicate which unit or units use the output of central banks thus valued.

4.
4.

Recording of the output of non-life insurance services improved Reference: chapter 6, paragraphs 6.184 to 6.190 and 6.199; chapter 17, paragraphs 17.13 to 17.42 A3.32 It is recognized that in cases of catastrophic losses the output of the insurance activity estimated using the basic algorithm of the 1993 SNA, depending on the balance of premiums and claims (on an accrual basis), could be extremely volatile (even negative).
The 2008 SNA, therefore recommends that the output of the non-life insurance activity should be calculated using adjusted claims and adjusted premiums supplements.

With the application of this method, the net premiums receivable and adjusted claims due may no longer be necessarily equal for each period.

A3.33 The 2008 SNA recommends insurance output, namely three approaches for estimating non-life the “expectation approach”, the “accounting approach” and the “cost approach”.
The expectation approach consists in replicating the ex ante model used by insurer corporations to set their premiums, on the basis of their expectations.

In accepting risk and setting premiums, insurers consider both their expectation of loss (claims) and of income (premiums and premium supplements).

This expected margin (premiums plus expected premium supplements minus expected claims) provides a much better measure of the insurance service than the 1993 SNA formula applied ex post.
Ideally, the micro data from the accounts of the insurance corporations could be used for the expectation approach for estimating output of the insurance corporation but this information is seldom available to the statistical organizations.

In the absence of such data, the 2008 SNA recommends the application of a statistical technique to simulate this approach by using macrostatistics, and using smoothed past data to forecast the expected claims.
A3.34 Alternatively, an accounting approach may be used whereby output is calculated as: actual premiums earned plus premium supplements less adjusted claims incurred; where adjusted claims are determined by using claims due plus the changes in equalization provisions and, if necessary, changes to own funds.
A3.35 If the necessary accounting data are not available and the historical statistical data are not sufficient to allow use of an expectations approach to estimate the output, the output of non-life insurance may be estimated as the sum of costs (including intermediate costs, labour and capital costs) plus an allowance for “normal profit”.

A3.36 For exceptionally large claims, such as those following a catastrophe, the claims may be recorded as capital transfers rather than, as normal, current transfers.
A3.37 The 2008 SNA changes the terminology from “claims due” to “claims incurred”.

5.

Reinsurance similarly treated as direct insurance A3.40 In the 1993 SNA reinsurance transactions were consolidated with those for direct insurance so that the division between direct insurance and reinsurance was not shown.
Changes from the 1993 System of National Accounts Reference: chapter 6, paragraph 6.200; chapter 17, paragraphs 17.56 to 17.65 6. in the same way as direct A3.38 The 2008 SNA recommends that reinsurance should be treated insurance.
The transactions between the direct insurer and the reinsurer are recorded as an entirely separate set of transactions and no consolidation takes place between the transactions of the direct insurer as issuer of policies to its clients on the one hand and the holder of a policy with the reinsurer on the other.

The premiums are shown as being first payable to the direct insurer and then a lesser premium is payable to the reinsurer.
This non-consolidation is referred to as gross recording on the part of the direct insurer.
Valuation of output for own final use by households and corporations to include a return to capital Reference: chapter 6, paragraph 6.125 A3.41 The 2008 SNA recommends that when estimating the value of the output of goods and services produced by households and corporations for own final use, it is appropriate to include a return to capital as part of the sum of costs when this approach is used for estimating output in the absence of comparable market prices.
However, no return to capital should be included when production for own final use is undertaken by non-market producers.

A3.39 The services produced by the reinsurance corporation are treated as the intermediate consumption by the direct insurer.

A3.42 The 1993 SNA did not include the return to capital in estimating the output of goods and services produced for own final use by households and corporations when these were estimated as the sum of costs.
D. Extension and further specification of the concepts of assets, capital formation and consumption of fixed capital 1.

Change of economic ownership introduced Reference: chapter 3, paragraphs 3.21, 3.26, 3.169; chapter 10, paragraph 10.5 A3.43 The principle of change of ownership is central to the determination of the timing of recording of transactions in goods, services and financial assets.
The term “economic ownership” better reflects the underlying reality economic accounts are attempting to measure.

Economic ownership takes account of where the risks and rewards of ownership lie.

A change in ownership from an economic point of view means that all risks, rewards, rights and responsibilities of ownership are transferred.
A3.44 The 2008 SNA gives guidance to distinguish between legal ownership and economic ownership and recommends that assets be recorded on the balance sheets of the economic rather than the legal owner.

For a non-financial asset, the user and not the legal owner may assume economic ownership if the legal owner agrees that the user is entitled to the benefits deriving from using the asset in production in return for assuming the risks involved.
Similarly when products change hands, it is the unit that assumes the risks in the case of destruction, theft, etc.

that is the economic owner.

Ownership is also associated with assuming risk in the case of financial assets.

When the time of recording depends on change of ownership, it is the change of economic ownership that is intended, unless otherwise specified.

A3.45 The 1993 SNA did not explicitly define ownership.
Often it seemed to imply legal ownership, but in some instances it relied on the concept of change of economic ownership when legal ownership remained unchanged.

2.

Asset boundary extended to include research and development Reference: chapter 10, paragraphs 10.103 to 10.105 A3.46 As noted in section C, in the 2008 SNA the activity of research and development is not treated as an ancillary activity.
The output of research and development should be capitalized as “intellectual property products” except in cases where it is clear that the activity does not entail any economic benefit to its producer (and hence owner) in which case it is treated as intermediate consumption.

With the inclusion of research and development in the asset boundary, the 1993 SNA asset category of patented entities as a form of non-produced assets disappears and is replaced by research and development under fixed assets.
A3.47 In order to treat R&D in this way, several issues have to be addressed.

These include deriving measures of research and development, price indices and service lives.

Specific guidelines, together with handbooks on methodology and practice, will provide a useful way of working towards solutions that give the appropriate level of confidence in the resulting measures.
A3.48 Treatment of research and development giving rise to produced assets has removed the 1993 SNA inconsistency 585 System of National Accounts of treating the patented entities as non-produced assets but treating royalty payments as payments for services.

Goods for resale Valuables 3.


Revised classification of assets introduced Reference: chapter 3, paragraphs 3.5, 3.30 to 3.31, 3.37 to 3.39; chapter 10, paragraph 10.8 A3.49 The definition of asset has been refined in the 2008 SNA, covering the issues such as risk, demonstrable value and constructive obligations.

It is defined as a store of value representing a benefit or series of benefits accruing to the economic owner by holding or using the entity over a period of time.
It is a means of transferring value from one accounting period to another.
Precious metals and stones Antiques and other art objects Other valuables Non-produced assets Natural resources Land Mineral and energy resources Non-cultivated biological resources Water resources Other natural resources Radio spectra Other Contracts, leases and licences A3.50 With regard to the classification of assets, the 2008 SNA, like its predecessor, distinguishes at the first level of the classification between non-financial assets and financial assets/liabilities.
Within it distinguishes between produced and non-produced assets.

Classification of produced and non-produced assets is no longer distinguished between tangible and intangible assets.

Non-produced assets in the 2008 SNA are split into three categories, natural resources, contracts leases and licences, and purchase and sale of goodwill and marketing assets.
non-financial assets, A3.51 The non-financial assets are classified in the 2008 SNA as follows: Produced assets Fixed assets Dwellings Other buildings and structures Non-residential buildings Other structures Land improvements Machinery and equipment Transport equipment ICT equipment Other machinery and equipment Weapons systems Cultivated biological resources Animal resources yielding repeat products.
Tree, crop and plant resources yielding repeat products Costs of ownership transfer on non-produced assets Intellectual property products Research and development Mineral exploration and evaluation Computer software and databases Computer software Databases Entertainment, literary or artistic originals Other intellectual property products Inventories Materials and supplies Work in progress Work-in-progress on cultivated biological resources Other work-in-progress Finished goods Military inventories 586 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 A3.52 In the 2008 SNA assets classification there are several changes within the fixed assets category.
a.

Within buildings and structures, a category has been added for land improvements.

This replaces the 1993 SNA term “major improvements to non-produced non- financial assets”.

The costs of ownership transfer on all land are to be included with land improvements.

b.

The information, computer and telecommunications (ICT) equipment has been included as a new category under machinery and equipment.

c. Weapons systems are recognized as produced assets and classified separately.
d. The term “intangible fixed assets” has been renamed as “intellectual property products”.

The word “products” is included to make clear that it does not include third party rights which are non-produced assets in the SNA.

e. Research and development products are included within intellectual property products.

As a result patented entities no longer appear as non-produced assets and are subsumed in research and development.
f. The item “mineral exploration” has been renamed “mineral exploration and evaluation” to emphasize that the coverage conforms to the international accounting standards.

g. Computer software has been modified to include two sub- databases; software and databases are components.

h. The term “other intellectual property products” replaces “other intangible fixed assets”.

A3.53 The only change to inventories is to show military inventories separately.
Changes from the 1993 System of National Accounts A3.54 Changes within the non-produced assets category are as 5. follows.

The asset category “computer software” modified to include databases a.

The “tangible non-produced assets” of the 1993 SNA are renamed as “natural resources”.

Reference: chapter 10, paragraphs 10.110 to 10.114 b.
Other natural resources such as radio spectra have been added, and the heading “intangible non-produced assets” has been split two subcategories, “contracts, leases and licences” and “goodwill and marketing assets”.

into · Contracts, leases and licences are split into four subcategories; leases, marketable permissions to use natural resources, permissions to undertake specific activities, and entitlement to future goods and services on an exclusive basis.
operating A3.59 The 1993 SNA asset category “computer software” has been modified in the 2008 SNA to include databases in the title as “computer software and databases” with a further split between “computer software” and “databases”.

A3.60 The 2008 SNA gives explicit guidance for valuation of the computer software and databases purchased from the market or developed in-house.
The computer software and databases purchased on the market should be valued at purchasers’ prices, while those developed in-house should be valued at their estimated basic price or at their costs of production (including a return to capital for market producers) if it is not possible to estimate the basic price.

· The previous category of purchased goodwill is changed to purchased goodwill and marketing assets with changes in coverage as described below in item 11.
A3.61 The 2008 SNA recommends treating all databases holding data with a useful life of more than one year as fixed assets.

Both databases created on own account and those for sale should be included if they meet this criterion.

4.
4.

Extension of the assets boundary and government gross capital formation to include expenditure on weapons systems Reference: chapter 10, paragraphs 10.87 and 10.144 A3.55 The military weapons systems comprising vehicles and other equipment such as warships, submarines, military aircraft, tanks, missile carriers and launchers, etc.

are used continuously in the production of defence services, even if their peacetime use is simply to provide deterrence.
The 2008 SNA, therefore, recommends that military weapons systems should be classified as fixed assets and that the classification of military weapons systems as fixed assets should be based on the same criteria as for other fixed assets; that is, produced assets that are themselves used repeatedly, or continuously, in processes of production for more than one year.
A3.56 Single-use items, such as ammunition, missiles, rockets, bombs, etc., delivered by weapons or weapons systems are treated as military inventories.

However, some single-use items, such as certain types of ballistic missiles with a highly destructive capability, may provide an ongoing service of deterrence against aggressors and therefore meet the general criteria for classification as fixed assets.
A3.57 Unlike in the 1993 SNA, strategic inventories are no longer separated from other inventories of the same type of products.

A3.58 The 1993 SNA treated as gross fixed capital formation only those expenditures by the military on fixed assets of a kind that could be used for civilian purposes of production.
On the other hand, military weapons, and vehicles and equipment whose sole purpose was to launch or deliver such weapons, were not treated as gross fixed capital formation but as intermediate consumption.

A3.62 In the 1993 SNA only “large” databases were recognized as assets.

6.
6.

Originals and copies recognized as distinct products Reference: chapter 10, paragraphs 10.100 to 10.101 A3.63 The 2008 SNA provides guidance on the treatment of originals and copies of intellectual property products as distinct products.

It recommends that if a copy is sold outright and is expected to be used in production for more than a year then it should be treated as a fixed asset.
A copy made available under a licence to use should also be treated as a fixed asset if it will be used in production for a period in excess of one year and the licensee assumes all the risks and rewards of ownership.

A3.64 If the acquisition of a copy with a licence to use is purchased with regular payments over a multiyear contract and the licensee is judged to have acquired economic ownership of the copy, then it should be regarded as the acquisition of an asset.
If regular payments are made for a licence to use without a long-term contract, then the payments should be treated as payments for a service of using the copy.

A3.65 If there is a large initial payment followed by a series of smaller payments in succeeding years, the initial payment should be recorded as gross fixed capital formation and the succeeding payments should be treated as payments for a service.
A3.66 If the licence allows the licensee to reproduce the original and subsequently assume responsibility for the distribution, support and maintenance of these copies, then this is described as a licence to reproduce and should be regarded as the sale of part or whole of the original to the unit holding the licence to reproduce.

587 System of National Accounts A3.67 The 1993 SNA did not provide guidance on the treatment of 9.

Mineral exploration and evaluation originals and copies as distinct products.
7.

The concept of capital services introduced Reference: chapter 20 A3.68 Capital services for assets used in market production were implicitly included within the 1993 SNA but were not separately identified.

Given the importance of identifying them for productivity measurement and other analysis, a new chapter has been added in the 2008 SNA explaining the role of capital services and their appearance in the accounts.
Details can be presented in a supplementary table for market producers, bringing into the SNA the advances in research in recent decades in the fields of growth and productivity and helping to satisfy the analytical needs of many users.

8.

Treatment of costs of ownership transfer elaborated Reference: chapter 10, paragraphs 10.48 to 10.52, paragraph 10.97 and paragraphs 10.158 to 10.162 A3.69 Like the 1993 SNA, the 2008 SNA continues to treat the costs of ownership transfer as fixed capital formation.
Costs of ownership transfer on acquisition of an asset should be written off over the period the asset is expected to be held by the purchaser rather than over the whole life of the asset (as was recommended in the 1993 SNA).

Costs of ownership transfer on the disposal of an asset should also be written off over the period the asset is held.
Recognizing this recommendation may be difficult to implement when there is no adequate data, the 2008 SNA recommends that these costs should still be recorded as gross formation but written off as consumption of fixed capital in the year they are incurred.

Installation and de-installation costs should be included in the costs of ownership transfer when they are separately invoiced and in the purchaser’s price of the asset otherwise.
fixed capital A3.70 Terminal costs (for example dismantling costs) should be written off over the whole life of the asset, regardless of the number of owners during the life of the asset.

In practice, it may be difficult to predict terminal costs accurately.

Any amount not already covered by consumption of fixed capital during the life of the asset is written off at the time the costs are incurred as consumption of fixed capital.
A3.71 In the 1993 SNA, costs of ownership transfer in acquiring an asset were recommended to be written down over the life of the asset.

If the asset was sold before the end of its life, transfer on acquisition not already written off were written off in the other changes in volume of assets account.

the remaining costs of ownership A3.72 The 1993 SNA was not explicit about the treatment of terminal costs.
588 Reference: chapter 10, paragraphs 10.106 to 10.108 A3.73 The 2008 SNA maintains the distinction between the act of exploring for mineral resources (treated as a produced asset) and the mineral resources themselves (treated as non- produced assets).

The term “mineral exploration” has been renamed as “mineral exploration and evaluation” to match the term used in the International Accounting Standards and has been defined accordingly.
A3.74 The 2008 SNA gives guidance that mineral exploration and evaluation should be valued at market prices if purchased or at the sum of costs plus an appropriate mark-up if undertaken on own account.

A3.75 The 2008 SNA recognizes that because the market price is seldom available for mineral resources, the default valuation is the present value of future receipts of resource rent.
A3.76 Payments by an extractor to the owner of the mineral resources corresponding to a share of the resource rent should be shown as property income even if they are described as taxes and treated as such in a government’s own accounts.
A3.77 The 1993 SNA recommended that when the legal owner of a mineral reserve contracts with another unit to undertake the resource may extraction, on pragmatic grounds continue to be shown on the balance sheet of the legal owner with payments by the extractor to the owner treated as property income.

10.

Land improvements Reference: chapter 10, paragraphs 10.79 to 10.81 A3.78 Land improvements continue to be treated as gross fixed capital formation.
The 2008 SNA recommends treating land improvements as a category of fixed assets distinct from the non-produced land asset as it existed before improvement.

In cases where it is not possible to separate the value of the land before improvement and the value of those improvements, the land should be allocated to the category that represents the greater part of the value.

The costs of ownership transfer on all land are to be included in the land improvements.
A3.79 The 1993 SNA recorded improvements to land as gross fixed capital formation, but in the balance sheet such improvements were included with land itself.

11.

Goodwill and marketing assets Reference: chapter 10, paragraphs 10.196 to 10.199 A3.80 The 2008 SNA renames “purchased goodwill” as “purchased goodwill and marketing assets”.
Purchased goodwill and marketing assets continue to be treated as non-produced assets, though at a higher level in the hierarchy than that in 1993 SNA, specifically at the same level as natural resources and contracts, leases and licences.

A3.81 In the 1993 SNA, goodwill was recorded only following the takeover of an enterprise.

For that reason it was described as “purchased goodwill”.

Goodwill was not recognized in any other context.


The 2008 SNA recognizes that this difference may actually include assets such as mastheads, logos, customer lists and so on which are described collectively as “marketing assets”.

Exceptionally, identified marketing assets may be sold individually and separately from the whole corporation in which case their sale should also be recorded under this item.
A3.82 The 2008 SNA recommends a consistent approach for calculating the value of the “purchased goodwill and marketing assets” as the excess of the value paid for an enterprise as a going concern over the sum of its assets less the sum of its liabilities, each item of which has been separately identified and valued irrespectively of whether the entity is a listed or unlisted corporation, a quasi- corporation or is unincorporated.
A3.83 In the 1993 SNA, purchased goodwill was calculated differently depending on whether the business was an unincorporated enterprise or a corporation.

For an unincorporated enterprise, purchased goodwill was derived as the excess of the purchase price over the separately identified and valued assets less liabilities.

For corporations it was described as the difference between the share price immediately before the sale and the actual sale price per share, multiplied by the number of shares.
It did not make any distinction between listed and unlisted corporations in the calculation of purchased goodwill.

12.

Water resources treated as an asset in some cases Reference: chapter 10, paragraph 10.184 A3.84 In the 2008 SNA the definition of water resources has been extended to potentially cover rivers, lakes, artificial reservoirs and other surface catchments in addition to aquifers and other groundwater resources.
It consists of surface and groundwater resources used for extraction to the extent that their scarcity leads to the enforcement of ownership or use rights, market valuation and some measure of economic control.

A3.85 The 2008 SNA recommends that water bodies should in principle be valued in a manner parallel to the valuation of mineral resources but with an indication that more pragmatic alternatives may have to be used such as estimates based on access fees.

13.
13.

Consumption of fixed capital to be measured at the average prices of the period with respect to a constant-quality price index of the asset concerned Changes from the 1993 System of National Accounts A3.86 The 2008 SNA recommends that the consumption of fixed capital should be measured at the average prices of the period with respect to a constant-quality price index of the asset concerned.
A3.87 The 1993 SNA did not give guidance about whether the prices to be used for measurement of the consumption of fixed capital should relate to the general price level or whether they should be asset specific.

14.
14.

Definition of cultivated biological resources made symmetric to uncultivated resources Reference: chapter 10, paragraph 10.88 A3.88 The definition of cultivated biological resources in the 2008 SNA has been clarified making it specific that their natural growth and regeneration are treated as production only in cases where these are under the direct control, responsibility and management of institutional units.
A3.89 Cultivated assets of the 1993 SNA have been renamed as cultivated biological resources in the 2008 SNA.

15.

Intellectual property products introduced Reference: chapter 10, paragraph 10.98 A3.90 The accounting treatment of assets previously called “intangible produced assets” and now labelled, more descriptively, “intellectual property products” has been clarified and expanded in the 2008 SNA.
These assets are further split into research and development; mineral exploration and evaluation; computer software and databases; entertainment, literary or artistic originals; and other intellectual property products.

16.
16.

Concept of resource lease for natural resources introduced Reference: chapter 7, paragraph 7.109 A3.91 The 2008 SNA introduces the concept of a resource lease to cover the situation where the natural resource continues to be shown in the balance sheet of the legal owner even though the lessee is the unit using the resource in production and is thus in effect the economic owner.

In return, the lessee makes a regular payment recorded as property income and described as rent.
By convention, no decline in the value of a natural resource is recorded in the SNA as a transaction similar to consumption of fixed capital.

In the SNA the natural resource is effectively treated as having an infinite life as far as income generation is concerned.

A resource lease may apply to any natural resource recognized as an asset in the SNA.

Reference: chapter 10, paragraph 10.156 lease for natural resources.
A3.92 The 1993 SNA did not discuss the concept of a resource 589 System of National Accounts 17.
Changes in the items appearing in the other changes in the volume of assets account introduced Economic appearance of assets Economic disappearance of non-produced assets Depletion of natural resources Other economic disappearance of non-produced Reference: chapter 12 A3.93 With a view to giving more structural listing of possible causes for changes in assets other than transactions, the list of items appearing in the other changes in volume of assets account has changed in the 2008 SNA.
The other changes in the volume of assets show changes in the assets/ liabilities in seven main categories and some subcategories as follows: assets Catastrophic losses Uncompensated seizures Other changes in volume n.e.c.
Changes in classification Changes in sector classification and structure Changes in classification of assets and liabilities Nominal holding gains and losses Neutral holding gains and losses Real holding gains and losses E. Further refinement of the treatment and definition of financial instruments and assets 1.

Treatment of securities repurchase agreement clarified Reference: chapter 11, paragraphs 11.74 to 11.77 The 2008 SNA adds explanation of securities repurchase agreement and gold loans and deposits.
A securities repurchase agreement (repo) is an arrangement involving the sale of securities or other assets at a specified price with a commitment to repurchase the same or similar assets at a fixed price on a specified future date.

A3.94 The 2008 SNA continues to treat a repo as a collateralized loan and recognizes the possibility of on-selling of securities that have been repoed.
In the case of on selling of the repoed security, a negative asset should be recorded for the lender to avoid double-counting.

A3.95 The 1993 SNA text suggested that on-selling of securities that have been repoed is either not allowed or not practised.

2.

Treatment of employee stock options described Reference: chapter 11, paragraph 11.124; chapter 17, paragraphs 17.384 to 17.398 A3.96 Employee stock options are a common tool used by companies to motivate their employees.
An employee stock option is an agreement made on a given date (the “grant” date) under which an employee may purchase a given number of shares of the employer’s stock at a stated price (the “strike” price) either at a stated time (the “vesting” date) or within a period of time (the “exercise” period) immediately following the vesting date.
The 2008 SNA recommends that transactions in employee stock options should be recorded in the financial account as the counterpart to the element of compensation of employees represented by the value of the stock option.

Ideally the value of the option should be spread over the period between the grant date and vesting date; if this is not possible they may be recorded at the vesting date.

A3.97 The 1993 SNA did not provide guidance on the treatment of employee stock options.

3.
3.

Treatment of non-performing loans elaborated Reference: chapter 11, paragraph 11.129; chapter 13, paragraphs 13.66 to 13.68 A3.98 Guidance on the treatment of impaired (non-performing) loans has been elaborated in the 2008 SNA.
It provides a definition of a non-performing loan as a loan on which payments of interest and/or principal are past due by 90 days or more, or interest payments equal to 90 days or more have been capitalized, refinanced, or delayed by agreement, or payments are less than 90 days overdue, but there are other good reasons (such as a debtor filing for bankruptcy) to doubt that payments will be made in full.
A3.99 The 2008 SNA recommends that the non-performing loan should continue to be recorded at nominal value in the main accounts and interest should be shown accruing until a loan is repaid or the principal is written off by mutual agreement.

Two memorandum items in respect of non- performing loans are recommended, the nominal value of loans deemed to be non-performing and the market equivalent value of these loans.
The closest approximation to market equivalent value is fair or “mark-to-market” value, which is “the value that approximates the value that would arise from a market transaction between two parties”.

In the absence of fair value data, the memorandum item will have to use a second best approach and show nominal value less expected loan losses.

In addition, interest receivable on the non-performing loans should be shown as an “of which” item.
590 A3.100 The 2008 SNA recommends that these memorandum items should be standard for the government sector, the financial corporations sector and for the rest of the world.

A3.101 The 1993 SNA did not give guidance on the criteria to be applied to the recording of non-performing loans.

4.

Treatment of guarantees elaborated Reference: chapter 17, paragraphs 17.207to 17.224 A3.102 The treatment of several classes of guarantees has been clarified in the 2008 SNA.
It recognizes three classes of guarantees and provides guidance for their treatment.

The first sort of guarantees are those provided by means of a financial derivative, such as a credit default swap.

These derivatives are actively traded on financial markets and the derivative presents no new features for the SNA.
A3.103 The second class of guarantees, standardized guarantees, is composed of the sorts of guarantees that are issued in large numbers, usually for fairly small amounts, along identical lines, such as export credit guarantees and student loan guarantees.

In this case, although it is not possible to establish the likelihood of any one loan defaulting, it is standard practice to estimate how many out of a batch of similar loans may default.
It operates on the same principle as for non-life insurance and should be treated similarly.

If the guarantor is part of general government and deliberately sets the fees below the level of expected defaults, a subsidy should be imputed to the guarantee holders.

A3.104 The third class of guarantees, described as one-off guarantees, consists of those where the risk is so particular that it is not possible for the probability of it being called to be estimated with any degree of accuracy.
In most cases, the granting of a one-off guarantee is considered a contingency and is not recorded as a financial liability.

A3.105 The initial discussion was in terms of loan guarantees, but the extension of standardized guarantees to other financial instruments in late 2008 suggested generalizing this treatment.

A3.106 The 1993 SNA treated guarantees as contingent liabilities and thus had no record of the existence of the guarantee until it was activated.
Further, it did not provide explicit guidance for the treatment of flows arising at activation.

5.

Treatment of index-linked debt securities elaborated Reference: chapter 17, paragraph 17.274 to 17.282 A3.107 The issue concerns the case where the coupon or principal payments, or both, payable on securities such as bonds are determined by indicators agreed by to the parties, but the values of the indicators are not known when the agreement is made.
Under such an arrangement, the amount of the increase in value of the security to be treated as interest cannot be known at the time of issue.

The 2008 SNA recommends two approaches to determine the interest accrued in each accounting period.

Changes from the 1993 System of National Accounts A3.108 When the coupons are linked to a broad index, the full amounts paid as coupons, after indexation, are accrued as interest.
When the value of the principal is index-linked the difference between the eventual redemption price and the issue price is treated as interest accruing over the life of the instrument.

A3.109 If the link is to a narrow index, interest accruals are determined by fixing the rate at which interest accrues at the time of issue.

Any deviation of the index from the expected path is treated as holding gains or losses.
Because the rate is settled at the time the security is issued, the holding gains and losses will not normally cancel out over the life of the instrument.

A3.110 In the 1993 SNA the guidance about how transactions relating to index-linked debt securities should be recorded was not precise.

6.
6.

Treatment of debt instruments indexed to a foreign currency revised Reference: chapter 17, paragraph 17.281 A3.111 The 2008 SNA recommends that debt instruments with both principal and coupon payments indexed to a foreign currency should be classified and treated as though the instrument is denominated in that foreign currency.
A3.112 The 1993 SNA recommended that in the case of debt instruments denominated in a foreign currency, changes in the value of the principal in domestic currency terms that arise from exchange rate variations should be treated as holding gains (non-transactions).

However, in the case of debt instruments indexed to a foreign currency, such changes are treated as interest (transactions).

The 2008 SNA recommendation removes the anomaly by treating instruments equivalent characteristics identically.
economically have that 7.

Flexibility on valuation of unlisted equity Reference: chapter 13, paragraphs 13.69 to 13.70 illiquid companies, A3.113 Not all equity is listed and quoted on stock exchanges.

This situation often arises for direct investment enterprises, private equity, equity in unlisted and delisted companies, listed but joint ventures and unincorporated enterprises.

The 2008 SNA provides guidance on alternative options of valuing such equity.
Some of the alternative recommended options are recent transaction price, net asset value, present value or price to earnings ratios, book values reported by enterprises with macrolevel adjustments by the statistical compiler, own funds at book value and apportioning global value.

A3.114 The 1993 SNA gave rather restricted guidance on how to value unlisted equity.
It recommended that the value of shares in corporations that are not quoted on stock traded regularly should be exchanges or otherwise estimated using the prices of quoted shares that are comparable in earnings and dividend history and prospects, adjusting downward, if necessary, to allow for the inferior marketability or liquidity of unquoted shares.

591 System of National Accounts 8.

Unallocated gold accounts treated as financial assets and liabilities 12.
Fees payable on securities lending and gold loans Reference: chapter 11, paragraph 11.45 Reference: chapter 17, paragraph 17.254 A3.115 The 2008 SNA recommends that the unallocated gold accounts should be treated as financial assets and liabilities and classified with deposits in foreign currency if these deposits denominated in gold are held with non-residents.

9.
9.

Definition of monetary gold and gold bullion revised Reference: chapter 11, paragraph 11.45 and 11.46 A3.116 The definition of monetary gold has changed in the 2008 SNA in order to align with BPM6.

The change stems from the recognition of allocated and unallocated gold accounts whereby the allocated gold account provides title to the physical gold and the unallocated gold account is a deposit denominated in gold.

The latter is treated as foreign currency if held with non-residents.
Gold bullion (that is, coins, ingots or bars with a minimum purity of at least 995 parts per thousand) is the only financial asset recognized with no corresponding liability when held as a reserve asset by the monetary authorities.

Monetary gold is defined as gold to which the monetary authorities (or others who are subject to the effective control of the monetary authorities) have title and is held as a reserve asset and comprises gold bullion and unallocated gold accounts with non-residents.
A3.121 The 2008 SNA recommends that all fees payable to the owners of securities used for securities lending and to the owners of gold used for gold loans (whether from allocated or non-allocated gold accounts) should be recorded by convention as interest.

The interest may have a FISIM component, separately identified, if the unit providing the loan is classified as a financial institution.

A3.122 The 1993 SNA did not give guidance on the issue of fees payable on securities lending and gold loans.

13.
13.

Financial asset classification Reference: chapter 11 A3.123 To reflect the innovations in the financial market since the adoption of the 1993 SNA, and to maintain its relevance, the financial asset classification has been changed in the 2008 SNA.

The classification of financial assets and liabilities in the 2008 SNA is as follows: Monetary gold and SDRs Monetary gold SDRs Currency and deposits Currency Transferable deposits A3.117 The 1993 SNA does not discuss allocated or unallocated metal accounts.
Inter-bank positions Other transferable deposits 10.

Liability in special drawing rights recognized Other deposits Debt securities Short-term Long-term Reference: chapter 11, paragraphs 11.47 to 11.49 Loans A3.118 The 2008 SNA recommends to treat special drawing rights (SDRs) issued by the International Monetary Fund as being an asset of the country holding the SDR and a claim on the participants in the scheme collectively.
Further, it is recommended that the allocation and cancellation of SDRs be recorded as transactions.

The asset and liability aspects of SDRs should be recorded separately.

As a result of the changed treatment of SDRs, it recommends that monetary gold and SDRs be shown as separate subitems.

A3.119 The 1993 SNA classified SDRs as assets without corresponding liabilities.

11.
11.

Distinction made between deposits and loans Reference: chapter 11, paragraph 11.56 A3.120 The 2008 SNA continues to distinguish between loans and deposits.

With a view to avoiding ambiguity between loans and deposits when both parties to the transaction are banks, it introduces a category “inter-bank positions”.
592 Short-term Long-term Equity and investment fund shares Equity Listed shares Unlisted shares Other equity Investment fund shares/units Money market fund shares/units Other investment fund shares/units Insurance, pension and standardized guarantee schemes Non-life insurance technical provisions Life insurance and annuity entitlements Pension entitlements Claims of pension funds on pension managers Entitlements to non-pension benefits Financial derivatives and employee stock options Financial derivatives Options Forwards Employee stock options Other accounts receivable/payable Trade credits and advances Other accounts receivable/payable A3.124 The 2008 SNA renames “securities other than shares” as “debt securities” and “shares and other equity” as “equity and investment fund shares”.
The category of financial derivatives introduced in an update to the 1993 SNA is extended to include employee stock options.

14.

Distinction between financial leasing and operating leasing based on economic ownership Reference: chapter 17, paragraphs 17.

301 to 17.309 A3.125 The 2008 SNA presents an overview setting out the principles of the appropriate treatment of leases and licences.
It recognizes the distinction between an operating lease and a financial lease according to whether the lessee is regarded as the economic owner of the asset or not.

A3.126 The distinction between operating leasing and the financial leasing in the 1993 SNA was interpreted to be based simply on the length of the time of lease.

15.

Changes in recommendations for recording pension entitlements Reference: chapter 17, paragraphs 17.
116 to 17.206 A3.127 The 2008 SNA recognizes that employment-related pension entitlements are contractual engagements, that are expected or likely to be enforceable.

They should be recognized as liabilities towards households, irrespectively of whether the necessary assets exist in segregated schemes or not.

A3.128 For pensions provided by government via social security however, countries have some flexibility to deviate from this procedure in the set of standard tables.
This is because the division between which pensions are provided by social security and which by other employment-related schemes varies considerably from country to country.

However, the full range of information required for a comprehensive analysis of pensions should be provided in a supplementary table that shows the liabilities and associated flows of all private and government pension schemes, whether funded or unfunded and including social security.
A3.129 The 1993 SNA stated that the actual social contributions by employer and employee in a period should be the amount actually paid into a pension fund.

For a defined contribution scheme, this is correct and complete since the eventual payment depends only on the amounts set aside in a pension fund.

For a defined benefit scheme, however, there is no guarantee that the amounts set aside will exactly match the liability of the employer to the pension entitlements of employee.
Changes from the 1993 System of National Accounts A3.130 The 2008 SNA recommends a number of changes to the 1993 SNA recommendations in the case of defined benefit schemes: a. the level of the employer’s contribution should be determined by assessing the increase in the net present value of the pension entitlement the employee has earned in the period in question, adding any costs charged by the pension fund for operating the scheme and deducting the amount of any contribution the employee makes; b. this amount should be determined actuarially, taking into account only the life expectancy of the employee and not any future earnings or the impact of any future pay increases on the ultimate pension benefit; c. an explicit liability of the pension fund to the employee should be shown in the financial account and balance sheet; and d. the assets of the fund are then to be regarded as belonging to the fund and not (as stated in the 1993 SNA) as belonging to the employee.
A3.131 Depending on the relationship between the fund and the employer, any excess of the liabilities over the available assets may represent a claim of the pension fund on the employer (and any excess of the assets over the liabilities a claim by the employer on the pension fund).

A3.132 The 2008 SNA recognizes that there is a cost to administering any pension scheme including non- autonomous schemes and unfunded schemes.

In principle, there should be a value of output of the pension fund.
This is to be determined on the basis of the sum of costs, and by convention is deemed to be payable by the employees holding the pension entitlements.

A3.133 The 2008 SNA recommends that when an obligation to pay pensions passes from one unit to another, this should be recorded as a transaction in pension liabilities even if neither unit has previously recorded such liabilities.

A3.134 The 1993 SNA recognized pension obligations on the balance sheet only for funded “private” schemes.
Hence, the activities of many pension schemes, such as social security and unfunded employer schemes, did not lead to recognition of financial assets/liabilities.

Further, the pension liabilities recognized were limited to the funds available and were not determined by the claims of employees and others on the schemes.

A3.135 The 1993 SNA treated the activity of non-autonomous pension funds and unfunded pension schemes as ancillary activities where the output was not separately recognized.
593 System of National Accounts F. Further specifications of the scope of transactions concerning government and public sector 1.

The boundary between private/public/ government sectors clarified 4.
Exceptional payments from public corporations should be recorded as withdrawals from equity Reference: chapter 4, paragraphs 4.25 and 4.77 to 4.80, chapter 22 Reference: chapter 22, paragraphs 22.135 A3.136 Recognizing the fact that the powers, motivation and functions of government are different from those of other sectors of the economy and that it organizes its operations through different institutional units, the 2008 SNA gives the distinction between general extra guidance for government and public corporations.
It provides a decision tree to help clarify the conceptual basis for allocating the institutional units to one of the mutually exclusive institutional sectors and to identify government and other public units.

2.

Treatment of restructuring agencies elaborated Reference: chapter 22, paragraphs 22.47 to 22.50 A3.137 Some public units are involved in the restructuring of corporations that may or may not be controlled by government.
Two examples of public restructuring agencies concern (a) the reorganization of the public sector and the indirect management of privatization, and (b) impaired assets, mainly in a context of a banking or other financial crisis.

The 2008 SNA provides guidelines for the treatment of restructuring agencies.

A3.138 The 1993 SNA did not provide guidance for the treatment of restructuring agencies.

3.
3.

Treatment of government issued permits clarified A3.141 The 2008 SNA recommends that exceptional payments from public corporations recorded as withdrawals from equity when these are made from accumulated reserves or sales of assets.

Only regular distributions income of corporations should be recorded as dividends.
entrepreneurial should be from the A3.142 The 1993 SNA guidance in this respect was different for corporations and quasi-corporations in that exceptional payments from a public corporation were recorded as regular payments of dividends while similar payments from public quasi-corporations were recorded as withdrawals from equity.

5.
5.

Exceptional payments from government to public quasi-corporations should be treated as capital transfers Reference: chapter 22, paragraphs 22.138 A3.143 The 2008 SNA recommends that exceptional payments from government to public quasi-corporations to cover accumulated losses should be treated as capital transfers as for public corporations.
However, exceptional payments by government to both public corporations and public quasi- corporations should be recorded as additions to equity when they are made with a clear commercial perspective reflected in a valid expectation of a return in the form of property income.

A3.144 In the 1993 SNA, exceptional payments from government to public corporations were recorded as capital transfers but exceptional payments from government to public quasi- corporations were recorded as additions to equity.
Reference: chapter 22, paragraphs 22.88 to 22.90 6.

Accrual recording of taxes A3.139 The 2008 SNA recommends that if a permit issued by the government does not involve the use of an underlying government owned asset, then the payment for the licence is a tax.

Notwithstanding, if the licence is legally and practically transferable to a third party, then it acquires the characteristics of an asset and it may be classified as an asset in the category of contracts, leases and licences.
A3.140 When the licence is to make use of a natural resource (including natural resources that qualify as assets and which the community), payments for the licence are treated either as the acquisition of an asset in the category of contracts, leases or licences or as the payment of rent.

the government controls on behalf of Reference: chapter 22, paragraphs 22.91 to 22.94 A3.145 The 2008 SNA confirms the accrual basis of recording of taxes.
However, it allows some practical flexibility in two cases in order to ensure that uncollectible taxes are not shown as accruing.

One of these relates to taxes on income to be recorded when the tax liability is assessed with some measure of certainty rather than when the income is earned.

The other refers to taxes arising from activities in the “parallel” economy when the timing of the taxable event is unlikely to be known.

In this case also the time of recording should be the time of assessment.
The 2008 SNA also gives guidance that in assessing the amount of taxes accruing, care must be taken not to include tax unlikely ever to be collected.

594 7.

Tax credits Reference: chapter 22, paragraphs 22.95 to 22.98 A3.146 Tax credits represent tax relief and so reduce the tax liability of the beneficiary.

Some tax credits are payable, that is any credit in excess of the tax liability is payable to the beneficiary.
Some subsidies or social benefits are made available via the tax system in the form of tax credits, and the incidence of linking payment systems with the tax increasing.

The 2008 SNA collection recommends that the payable credits should be recorded on a gross basis even the recommendations in GFSM2001 and Revenue Statistics.

The presentation should permit the derivation of tax credits on a net basis also.
is counter system though this to is A3.147 The 1993 SNA did not give guidance on the treatment of tax credits.

8.
8.

Treatment of ownership of fixed assets created through public-private partnerships clarified Reference: chapter 22, paragraphs 22.154 to 22.163 Changes from the 1993 System of National Accounts A3.148 Public-private partnerships (PPPs) are long-term contracts between two units, whereby a private unit acquires or builds an asset or set of assets, operates it for period and then hands the asset over to a unit in the public sector.
Such arrangements are usually between a private enterprise and government but other combinations are possible, with a public corporation as either party or a private NPI as the second party.

The 2008 SNA provides indicative guidance on the characteristics to be examined to determine whether the private or public partner is the economic (as opposed to legal) owner of the assets in question.

A3.149 The 1993 SNA did not give guidance on the treatment of public-private partnerships.

9.
9.

Taxes on holding gains continue to be shown as current taxes on income and wealth Reference: chapter 8, paragraph 8.61 A3.150 The 2008 SNA recommends that taxes on holding gains continue to be shown as current taxes on income and wealth even though the tax base (the realized holding gains) is not included in the SNA definition of income.

It recommends that where possible and relevant, it should be shown as a separate subcategory.
G. Harmonization between concepts and classifications of the SNA and BPM6 1.

Centre of predominant economic interest as the basic criterion for determining the residence of the unit owner of these items.

The changes should be recorded in the other changes in the volume of assets account and not as capital transfers.

Reference: chapter 4, paragraph 4.10 A3.151 With globalization, an increasing number of institutional units have connections to two or more economies.
The 2008 SNA and BPM6 use the concept of “centre of predominant economic interest” as the basic criterion for determining whether or not an entity is a resident in an economic territory.

A3.152 The 1993 SNA recommended the centre of economic interest as the criterion to determine the residence of institutional units but did not give guidance on the treatment of the residence of individuals having several international residences where they may remain for short periods.

2.
2.

Individuals changing residence Reference: chapter 26, paragraphs 26.37 to 26.39 A3.154 The 1993 SNA did not offer specific guidance on the treatment of flows of goods and changes in the financial account arising from a change in residence of individuals.

3.
3.

Goods sent abroad for processing are recorded on change of ownership basis Reference: Chapter 6, paragraphs 6.85 to 6.86 and chapter 14, paragraphs 14.37 to 14.42 A3.155 The 2008 SNA recommends that imports and exports should be recorded on a strict change of ownership basis.

That is, flows of goods between the country owning the goods and the country providing the processing services should not be recorded as imports and exports of goods.
Instead the fee paid to the processing unit should be recorded as the import of processing services by the country owning the goods and an export of processing services by the country providing it.

A3.153 The 2008 SNA confirms that when persons change their country of residence, there is no change of ownership of the non-financial assets, financial assets and liabilities owned by those persons.
All that is required is a reclassification of the appropriate country of residence of the (economic) A3.156 The same treatment is recommended for recording the goods of one establishment sent for processing to another establishment of the same enterprise within the same economy when the receiving establishment does not take on responsibility for the consequences of the continuation 595 System of National Accounts of the production process.
In such a case, the only output of the establishment receiving the goods is providing the processing services.

A3.157 The 1993 SNA treated goods that were sent abroad for processing and then returned to the country from where they were dispatched as undergoing an effective change of ownership.

The goods were therefore recorded in exports when they left the first country and again in imports when they returned to the country.
The country undertaking the processing was shown as producing goods that were recorded at their full value, even though the processor never had to pay for the value of the goods on entry.

4.

Merchanting the good entering A3.158 Merchanting is defined as the purchase of a good by a resident (of the compiling economy) from a non-resident and the subsequent resale of the good to another non- resident, without the merchant’s economy.
The 2008 SNA recommends that goods acquired by global manufacturers, wholesalers and retailers and those cases of commodity dealing being settled in the commodity should be recorded as negative exports on acquisition and positive exports on disposal.

The difference between the two appears in exports of goods but appears as the production of a service in the merchant’s economy, analogous to trade margins applied to domestically traded goods.
In the case where goods are acquired in one period and not disposed of until a subsequent period, they should appear in changes in inventories of the merchant even though these inventories are held abroad.

A3.159 The 1993 SNA did not give guidance on the treatment of Reference: chapter 14, paragraphs 14.73. merchanting.

H. A check-list of changes in each chapter 1.


Introduction A3.160 The purpose of this section of the chapter is to list the issues affecting each of the chapters of the 2008 SNA relative to the text in the 1993 SNA.

There is no intention to give a detailed list of the impact of these changes, simply to itemize which items affect the previous text.

A3.161 Nothing is shown for chapters 1 and 2.

Chapter 1, the introduction, is largely unaffected by the details of the changes.
Chapter 2, the overview, effectively includes all of the changes that appear later.

A3.162 Chapters 3 to 13 correspond to chapters of the same number in the 1993 SNA.

Changes to those chapters are presented but not the main thrust of the chapters, assuming this is familiar to readers.

Chapters 14 to 29 are reordered or contain new material or both.

Lists of changes, where appropriate, and a brief synopsis of the coverage of these chapters are provided.
A3.163 References to chapters and annexes of the 1993 SNA use Roman numerals, as in that publication.

Chapters and annexes referenced by Arabic numerals relate to the 2008 SNA.

Chapter 3: Stocks and flows and accounting rules · The major issue here is the introduction of the distinction between economic and legal ownership.

Chapter 4: Institutional units and sectors concept is described in exactly the same way in the SNA and BPM6.
· Figure 4.1 is introduced to show in the form of a flow chart how institutional units are allocated to sectors.

· Both financial and non-financial corporations are now disaggregated institutions as to show non-profit separate subsectors to facilitate the derivation of a satellite account for NPIs.

· A similar distinction is made for general government were NPIs may also be separately identified.
· · · · · The text makes clear the difference between a head office and a holding company to clarify the situation where a head office is loosely described as a holding company.

There is a section on special purpose entities making clear the sorts of considerations that need to be taken into account in order to classify them appropriately.

The 2008 SNA avoids the expression “ancillary corporation” that was referred to in the 1993 SNA and was the cause of some confusion.
There is new text to identify a set of indicators which can be used to determine whether the government controls corporations and non-profit institutions.

There has been an extension and refinement of the subsectors of financial corporations.

· The description of residence is not changed in substance but wording has been used so that this · At the end of the chapter there is a brief reference to central banks of currency boards.

596 Chapter 5: Enterprises establishments and industries.
· Text referring to enterprises that are horizontally integrated is now consistent with ISIC Rev.4.

· On vertically integrated enterprises, the SNA recommends identifying establishments where ISIC simply classifies the enterprise as a whole to the principal activity contributing largest share to the value added.

· There is new and more extensive discussion on ancillary activities.
Chapter 6: The production account · The term “knowledge-capturing products” has been introduced to cover those items that have some of the characteristics of goods and some of the characteristics of services.

· Reference is made to the non-observed economy.

There is more extensive discussion on this in chapter 25.
· · The text describes the revised treatment of deliveries between establishments of the same enterprise or indeed between different enterprises depending on whether there is a transfer of economic ownership and the degree of risk involved in further processing.

(This is the domestic equivalent to goods sent abroad for processing.)

The three-way distinction of production is now referred to as market production, production for own final use and non-market production.
· When output for own final use for market producers is estimated by the sum of costs it should now include a return to fixed capital.

Changes from the 1993 System of National Accounts · Revised text is available on the treatment of insurance taking account of the results of the task force on this subject.

· · Similarly there is a revised treatment on reinsurance.

There is discussion of how the output associated with the issuing of standardized guarantees should be treated.
· Research and development is no longer treated as intermediate consumption but in most cases as fixed capital formation.

· New text is presented on the appropriate treatment on originals and copies following the recommendations or of the Canberra group.

· Weapons systems are a new classification item within gross fixed capital formation.
· In describing consumption of fixed capital it is in now recommended that asset-specific prices should be used rather than a general deflation index to estimate the declining value of assets.

The process of estimating consumption of fixed capital should be linked to estimates of capital stock.

This subject is taken further in chapter 20.


Chapter 7: The distribution of income accounts · The entrepreneurial accounts and thus the allocation of other primary income account are now restricted to financial and non-financial corporations.
· References to measures of employment have been the updated International Conference of Labour Statisticians (ICLS) that was held in late 2008. the recommendations of include to · · · · There is more discussion on how to measure output that takes a long time to complete.

There is greater clarification on how to measure storage and how to identify when this is a productive activity rather than a holding gain.

This subject is elaborated in an annex to chapter 6.
· There are significant changes to the measurement of social contributions.

The first of these is that the distinction is made between contributions relating to pensions and those relating to other benefits.

Further, the fact that pension entitlements are now recorded in some cases even when there is no fund set aside to meet the needs has consequences for the measurement of social contributions.

There is more extensive discussion on how to measure the output of central banks.
· Investment income now includes the earnings on investment funds.

The treatment of financial services is treated in more detail in chapter 6 and in even greater detail in part 4 of chapter 17.

Some of the developments since the publication of the 1993 SNA on the treatment of financial intermediation service charges indirectly measured (FISIM) have been incorporated in the text.

· Within taxes on production, taxi and casino licences are now included.
· Within property income, a new subheading of investment income has been introduced parallel to that used in BPM6.

597 System of National Accounts · · · · The concept of the resource lease is introduced in relation to the payment of rent.

The possibility of implicit taxes and subsidies being recorded in respect of interest rates charged and paid by central banks is introduced.

The treatment of super dividends and withdrawals from income for both corporations and quasi-corporations has been rationalized.
In connection with this, the term retained earnings has been introduced explicitly for all enterprises.

The treatment for the investment income deemed payable under pensions is now changed in the case of defined benefit schemes to cover the whole of the increase in the entitlement regardless of whether such income is actually earned by the pension fund unit responsible.
Chapter 8: The redistribution of income accounts · The changes relating to social contributions mentioned in connection with chapter 7 carry through to chapter 8.

· Within transfers there is explicit mention of household remittances payable to and receivable from individuals working abroad.

· The disaggregation of social transfers in kind has been simplified.
Chapter 9: The use of income accounts · · The distinction between individual and collective services has been changed to follow the changes made to the COFOG classification.

It has been recognized that it is possible for NPISHs to have collective consumption though no excessive efforts should be made to try to identify such instances.
Chapter 10: The capital account · Non-produced assets are distinguished into three categories: natural resources; contracts, leases and licences; and purchased goodwill and marketing assets.

· Improvements to land are treated as a fixed asset separately from the natural asset that represents the value of the land in its unchanged state.
· On costs of ownership transfer, there is clarification on the treatment of terminal costs and the time over which consumption of fixed capital of ownership costs should be written down.

computer Information, telecommunications equipment is introduced as a new category of gross fixed capital formation.

and · 598 · Weapons systems are introduced as a new category.

· Intellectual property products are introduced as a new category.
· Research and development is now treated as fixed capital formation in most cases.

· · The title for mineral exploration has been changed to include evaluation line with data availability according to IASB recommendations.

in There has been a change to the software heading that now includes databases explicitly and greater clarification about when databases are included.

· Within inventories, a new category of military inventories is included.
· · There is greater clarification on the treatment of contracts, leases and licences and a further explanation of this appears in part 5 of chapter 17.

There is greater clarification on the measurement and inclusion of purchased goodwill and marketing assets.

Chapter 11: The financial account · · There is a changed treatment of monetary gold and of metal accounts in general.

Liabilities are now recognized for SDRs.


· Within the new classification of financial assets, a category is introduced for inter-bank positions.

· A revised treatment of index-linked securities when they are linked to a narrow index has been introduced.

· · · · Two items relating to investment funds have been introduced.
Insurance technical reserves are increased to include pension entitlements even where there is no fund, possible claims on the manager of the pension fund and reserves for standardized guarantees.

Employee stock options are included in a class along with financial derivatives.

There are recommended memorandum items in respect of non-performing loans.
Chapter 12: The other changes in assets accounts · A new classification of all the volume changes is presented each of which can be applied to any class of assets making the transition from one balance sheet to another simpler.

· · · · It is clarified that the only losses in inventories that appear in the other volume change account are those that are irregular.

Even if the losses are very large, if these appear on a regular basis they are to be recorded as withdrawals from inventories.
Chapter 13: The balance sheet The concept of an asset account is presented in this chapter.

Previously it appeared only in chapter 2.

Changes from the 1993 System of National Accounts Chapter 17: Cross-cutting and other special issues · This chapter replaces and extends in both the amount of detail and the range of subjects material included in annexes III and IV of the 1993 SNA.

It provides more detail on issues that were the subject of extensive consideration in the update.
These subjects are: a. insurance, including reinsurance and annuities; b. social insurance schemes and in particular pensions including a supplementary table; There is greater description of the possible ways to establish the valuation of equity.
c. standardized guarantees; The flow of funds analysis has been moved to chapter 27. d. financial services, showing where explicit and implicit charges are made on the complete set of financial instruments; Chapter 14: The supply and use tables and goods e. contracts, leases and licences, bringing together all and services account · · · · · The material here contains some from the previous chapter XV.

The rest is covered in chapter 28.

There is significant reformulation of the text in this chapter.
There is a greater description of how transport charges are to be recorded in a supply and use table and how they affect producer and purchaser prices.

The revised treatments for intra-enterprise deliveries and goods sent abroad for processing have major consequences for this chapter.

There is a description of deflation of supply and use tables.

Chapter 15: Price and volume actions · · In the 1993 SNA, chapter XVI was concerned with prices and volumes.
The present chapter includes significant revisions in the light of the various manuals that have been issued since 1993, those on consumer prices, producer prices, import and export prices and the International Comparison Program manuals.

revised The chapter includes text on the application of price indices to deflating national accounts.

Chapter 16: Summarizing and integrating the accounts aspects of such arrangements; f. employee stock options.
Chapter 18: Elaborating and presenting the accounts · Like chapter 16, this is new material about the synthesis of the accounts but concentrates mainly on practical issues.

Chapter 19: Population and labour inputs · · · · · This chapter is based on the previous chapter XVII but is less dependent on flowcharts for explanation of different labour-related concepts.

The consequences of the ICLS held in late 2008 are incorporated.

There is a short section on volunteer labour.


There is discussion of quality-adjusted labour inputs.

There is a section on labour productivity.

Chapter 20: Capital services and the national accounts · This is a new chapter in response to one of the items on the research agenda in the 1993 SNA.

It provides a non- technical introduction to the subject of capital services and the link to gross operating surplus.

It suggests a supplementary table that may be included on an optional basis.
Chapter 21: Measuring corporate activity · This brings into the main run of chapters material previously only appearing in chapter II.

· This is a new chapter discussing subjects such as the mergers globalization, acquisitions, and 599 System of National Accounts consequences of financial distress and a link to commercial accounting.

The material on mergers and acquisitions is drawn from The Benchmark Definition of Foreign Direct Investment.
ILO initiative with emphasis on informal employment as well as on production.

The subject remains on the research agenda.

Chapter 22: The general government and public sectors Chapter 26: The rest of the world accounts and links to the balance of payments · · This is a new chapter aimed at providing a link to government finance statistics, debt and deficit procedures and external debt in so far as the public sector is concerned.

The subject of the public sector was not discussed in the 1993 SNA.
· More specific information is given on how to determine when government controls corporations and non-profit institutions.

· The concept of economically significant prices is discussed and the definition provided.

· · · This chapter replaces the previous chapter XIV and annex II of the 1993 SNA.

It has been revised to be consistent with BPM6.

There has been extensive collaboration in the drafting of BPM6 and the SNA so that in many cases exactly the same wording is used in both manuals.
BPM6 introduces a new set of accounts closer to the SNA sequence of accounts making the bridge tables simpler from the SNA perspective.

The functional categories of BPM6, direct investment, financial derivatives, other portfolio investment and reserve assets, are introduced.

investment, · A link is presented presentation of accounts.

to the government finance Chapter 27: Links to monetary statistics and the flow of funds · The treatment of tax credits is made explicit.

· Debt operations are discussed.


· Some of this text was in the previous chapters XI and XII but is expanded to show the connection with monetary and financial statistics.

· · The recording of government guarantees is discussed.

· The flow of funds accounts are discussed here.

There is a discussion of how the relationship between government and corporations should be recorded in the case of financial distress.
Chapter 28: Input-output and other matrix-based analysis · Public-private partnerships are discussed.

Chapter 23: Non-profit institutions · This also is a new chapter which provides a link between the SNA and the handbook on satellite accounts of the non-profit institutions.

Chapter 24: The household sector · · This provides an elaboration of the question of subsectoring households.

It discusses some aspects of household production in detail.
· · This draws on the previous chapter XX and a research agenda item on the matrix presentation.

It also draws on material in the Eurostat manual on input-output tables available only in 2008.

The chapter includes the sector breakdown of the material in the supply and use table in order to provide a link to the sequence of accounts.

Chapter 29: Satellite accounts and other extensions · The material in this chapter is drawn in part from the previous chapters XVIII, XIX and XXI.
It also includes new material on satellite accounts that have been developed or revised since 1993.

Chapter 25: Informal aspects of the economy 2.

Annexes and other items This item was also part of the research agenda of the 1993 SNA.

A3.164 Annexes 1 and 2 correspond to the previous annex V. The chapter covers two themes, the non-observed economy and the informal sector.

The latter follows the A3.165 The present annex, annex 3, corresponds with the previous Annex I.
· · 600 Changes from the 1993 System of National Accounts A3.166 Annex 4 is new and includes information on the research agenda that was included in the front matter of the 1993 SNA.

A3.167 There is a list of references included in the 2008 SNA; no external references were provided in the 1993 SNA.

A3.168 The glossary is included with the publication instead of being a separate document.
A3.169 More information on the revision process is available on the United Nations Statistics Division website and further information about developments on the research agenda will be posted there.

601 System of National Accounts 602 Annex 4: Research Agenda A.

Introduction A4.1 The SNA is designed to give a realistic and compact view of the economy that is suitable for policy and analytical use.
As the economy changes and policy and analytical needs evolve, the SNA must be reviewed to see if it is still relevant for these purposes.

The most obvious example of a change in economic conditions that provokes a re- assessment of the adequacy of the national accounting framework is the financial crisis that evolved from late 2008 onwards.
Luckily, it was possible to make this assessment before this publication was finished and only minor changes were found necessary in addition to those already proposed for the update, in particular the treatment of standardized guarantees.

It had originally been proposed that these should apply only to loans; the events of the crisis suggested this should be applied to a wider range of financial instruments.
A4.2 It is unusual for economic perspectives to change so quickly and so dramatically as was the case in 2007-08.

However, there are always some emerging features that may cause national accountants to re-assess their current methodology.

One example is the introduction of tradable emission permits as one step to combat global warming.
How to record transactions in them is not fully addressed in the 2008 SNA, and given their rapid uptake and the large values concerned it is clear that this shortcoming needs to be remedied quickly.
A4.3 While the 2008 SNA addresses some of the issues connected with globalization, such as the changed treatment of goods for processing in response to increased outsourcing of services, it is clear that there may be other aspects of this trend that may lead to a reconsideration of how the phenomenon is reflected in the accounts.

One possibility is alternative, supplementary, presentations of multinational enterprises based on alternative definitions of residence and ownership.
A4.4 It is not possible to expect to capture all the issues that will arise even in the near future.

The objective of this chapter is to list those that have emerged in the course of the present revision but where more extensive consideration is needed than was possible in the course of the revision.

Some may result not in changes to the SNA but simply greater clarification of some points.
This list will be kept on the United Nations Statistics Division website and updated as new items emerge and those recommendations on existing items are agreed.

A4.5 In assessing the priority to be given to an item, three questions need to be addressed.

a.

How urgent and important is the topic to ensure that the SNA continues to be relevant to the users?

b.

How widespread are the consequences of change and how complicated will implementation be?
c. Is the topic completely new or has much of the preparation for considering the item been completed?

The process of selecting items for investigation is one that will involve widespread consultation and involvement of both compilers and users in the review process.

A4.6 All attempts to update the SNA, including the experience of the 1993 and 2008 revisions, show that it is very difficult to update only parts of the system because of the integrated nature of the accounting rules.
The list of issues that follows is grouped broadly by subject area but it should be recognized at the outset that each is likely to have consequences beyond the subject heading.

A4.7 The topics identified to date have been grouped into four broad headings.

These are: a.

Basic accounting rules; b.

The concept of income; c. Issues concerning financial instruments; d. Issues involving non-financial assets.

Each of these is the subject of one of the following sections.

603 System of National Accounts B.


Basic accounting rules 1.

The relationship of SNA and IASB A4.8 The International Accounting Standards Board is an independent, privately funded accounting standard-setter.

The Board members come from nine countries and have a variety of functional backgrounds.
The IASB is committed to developing, in the public interest, a single set of high quality, understandable and enforceable global accounting transparent and comparable standards information in general purpose financial statements.

require that A4.9 The IASB works with national commercial accounting standard-setters to achieve convergence in accounting standards around the world.
Nearly one hundred countries currently require or permit the use of IFRSs (International Financial Reporting Standards) or have a policy of convergence with them.

The development of IFRSs reflects the changing needs and circumstances of the global economy in ways that can be directly relevant to the use and requirements of the SNA.

The adoption of IFRSs by corporations can have a major impact on corporate accounting and the data available from corporate accounts.
A4.10 The IASB works in a three-stage process to develop a new standard.

The first is a draft with an invitation to comment (ITC); the second is an exposure draft (ED) also inviting comment; the third is the new standard.

At each stage the background to the issue is clearly explained and the reasons are given for the choice recommended.

In both the first two stages comments are invited from any interested party.
The development of a regular dialogue between the national accounts community and the IASB would be a way to assure the needs of national accountants were represented to the IASB and national accountants were aware of the possible developments in the data sources.

Already during the 2008 revision consultation of IASB standards and their counterpart (the International Public Sector Accounting Standards Board, IPSASB) has been extremely beneficial.
It is therefore desirable that a dialogue be established and maintained with the IASB with a view to amending the SNA to follow new accounting standards when appropriate.

for public accounting standards A4.11 One area of developing interest in international accounting, relating back to the question of multinational enterprises, is that of mergers and acquisitions.

The text in chapter 21 draws on information in the OECD Benchmark Definition of Foreign Direct Investment.
IASB work in this area should be monitored to see if these recommendations need amending.

2.

Consolidation of enterprise groups A4.12 Many enterprises operating within an economy are linked with other enterprises by complete or partial common ownership and a shared management structure to form an enterprise group.

Enterprises also often share common ownership and management with foreign affiliates.
It is common for enterprises within an enterprise group to trade with each other, sometimes exclusively, as when they perform an intermediate stage in a vertically integrated production process, and share the outputs and costs of 604 ancillary production.

They may also share the outputs and costs of research and development activities.

Given their close ties it may be sometimes desirable to consider an enterprise group as a single entity and to consolidate the accounts of its members.
(This is already the practice in some other statistics such as AMNE, FATS and Bank for International consolidated presentations.)

Members of an enterprise group are usually engaged in different activities and sometimes in more than one sector, and so consolidation could affect aggregates, such as industry value added, and sectoral balance sheets.

It is therefore probable that the most likely way forward would be by way of supplementary tables.
Settlements (BIS) A4.13 Separate consideration needs to be given to the case where some parts of the group are non-resident.

3.

Trusts A4.14 The SNA recommends that trusts be treated as quasi- corporations.

In some cases, though, when one is used in effect as an SPE for a corporation, it is not considered to be a separate institutional unit but is merged with its parent, so long as they are both resident in the same economy.
A4.15 No detailed description of trusts is given, though some may be owned by households and NPIs as well as by corporations.

Further clarification on the nature of trusts and when their assets should be treated as belonging to separate units and when merged with the assets of their owners would be helpful.

4.
4.

Final consumption of corporations A4.16 In the SNA, no final consumption is recorded for corporations because corporations are not considered to be final users of goods and services, except for capital products which, with the exception of valuables, are acquired for the purpose of production.

However, large corporations often undertake sponsorship of cultural and sporting events.
To date, the SNA regards the payments involved as a form of advertising but it could be argued that they are a form of individual consumption and could be treated as final consumption expenditure of corporations and social transfers in kind to households.

Further, by imposing regulations such as environmental standards, the government may achieve the same effect as if they levied taxes and spent the income on environmental protection, which would be treated as collective consumption.
There may thus be instances where it would be more appropriate to record some expenditures by corporations as final consumption.

5.

Measuring the output of government services A4.17 The SNA recommends that the value of non-market production provided without charge, or at prices that are not economically significant, should be estimated as the sum of the costs of production (paragraphs 6.128 to 6.132).
The basis for this recommendation is the lack of market Research Agenda prices for non-market production.

However, there is continuing research on trying to find alternative ways to measure the output of government.

6.

The treatment of social transfers in kind to the rest of the world A4.18 In the SNA, social transfers in kind only take place between government units, NPISHs and households.
Paragraph 8.141 explains that it is assumed that the amount of social transfers in kind payable to the rest of the world are probably negligible and, in any case, are offset by similar benefits receivable from the rest of the world.

In some cases, these assumptions may be inappropriate and an explicit way of recording these could be elaborated.

Such an elaboration would have to consider the consequences of having a difference between total consumption expenditure and total actual consumption.

7.
7.

Output of central banks: taxes and subsidies on interest rates applied by central banks A4.19 The treatment and measurement of the output of central banks is described in paragraphs 6.150 to 6.151.

Three broad groups of financial services are identified: monetary policy services, financial intermediation and borderline cases.
A4.20 One of the borderline cases arises when the financial intermediation of central banks includes policy measures, such as setting interest rates higher or lower than market interest rates.

This generates a number of issues.

The first is how to measure the output of the central bank, because the use of off-market interest rates by the central bank may cause distortions in measuring its output and value added.
The second issue concerns the use of off-market rates which implies that there are flows between the central bank and the counter-party in addition to those concerned with financial intermediation.

8.

The treatment of establishments in the SNA A4.21 At the present there are two reasons to have the concept of establishment within the SNA.

The first of these is to provide a link to source information when this is collected on an establishment basis.
In cases where basic information is collected on an enterprise basis, this reason disappears.

The second reason is for use in input-output tables.

Historically, the rationale was to have a unit that related as far as possible to only one activity in only one location so that the link to the physical processes of production was as clear as possible.
With the change of emphasis from the physical view of input-output to an economic view, and from product-by-product matrices to industry-by-industry ones, it is less clear that it is essential to retain the concept of establishment in the SNA.

9.

The inclusion of international organizations in the SNA A4.22 In the SNA, international organizations are treated as units that are resident in the rest of the world (paragraphs 4.173 to 4.175).
It would in principle be possible to treat international organizations as a standard subset of the rest of the world and indeed to compile a full set of accounts for them.

C. The concept of income 1.

Clarification of income concept in the SNA A4.23 As discussed in paragraph 8.24, the concept of income in the SNA differs from that generally understood in economics.

In particular, holding gains and losses are not considered to form part of income in the SNA.
It is not only economic theory that treats holding gains and losses as income, but also business accounting standards.

The SNA excludes holding gains and losses from production and then extends this to an exclusion from most income flows, though not interest which continues to be recorded in nominal terms.

A thorough review of the concept of income in the SNA, including the implications for all property income flows would be beneficial.

Some particular aspects are covered in some of the following items.
2.

GDP at basic prices A4.24 Gross domestic product (GDP) is equal to the sum of the gross value added of all the institutional units resident in a territory engaged in production (that is, gross value added at basic prices) plus any taxes, minus any subsidies, on products not included in the value of their outputs.

GDP is also equal to the sum of final expenditures minus expenditures on imports by institutional units resident in a territory.
The “natural” valuation of the production measure of GDP is basic prices, while the “natural’ valuation of the expenditure measure of GDP is market prices.

In the SNA it is the production measure that is adjusted (by adding taxes less subsidies on products) to achieve consistency.

Implicit in this is the idea that taxes less subsidies on products are a form of income and not just a form of redistribution of income.
A4.25 If it were decided to value GDP at basic prices then the sequence of accounts would need to be modified, and there are various possibilities as to how this might be done.

This might lead to showing the two primary functions of government, production of non-market services and redistribution of national income, separately.

3.

The role of taxes in the SNA A4.26 As just noted, taxes on products are treated as a form of income in the SNA.
Most economists, however, tend to regard these as taxes on consumption.

This category does 605 System of National Accounts not exist in the SNA and nor does consumer subsidies.

Taxes on financial transactions (such as taxes on issue, purchase, and sale of securities) are treated as taxes on production even though there is often no service involved.
It may be appropriate to review the SNA treatment of all taxes and subsidies to ensure that these accord with users’ understanding and need, or if not that the rationale for any differences is made quite explicit and prominent.

4.

Life insurance income accruing A4.27 At present in the SNA there is an inconsistency between the treatment of property to pension beneficiaries under a defined benefit scheme and other forms of life insurance.
For the pension beneficiaries, the amount of property income ascribed to them matches the increase in their claims with no reduction of property income made according to whether the source of funding is from holding gains or not.

For life insurance policies, insurance companies retain part of the holding gains made on reserves belonging to the policyholders but this retention is not treated as part of the fee charged by insurance companies.
Thus there may be an understatement of the output of insurance companies.

This question needs addressing and also the appropriate treatment when holding losses occur.

5.

Reinvested earnings A4.28 The SNA recommends that the retained earnings of a foreign direct investment enterprise should be treated as if they were distributed to foreign direct investors in proportion to their ownership of the equity of the enterprise.
These earnings are then reinvested by those owners as additions to equity in the financial account.

This amount is in addition to any actual distributions made out of the distributable income.

This approach is also adopted for the earnings of investment funds.

A4.31 The ISWGNA established an Electronic Discussion Group (EDG) in 1999 to obtain the views of a broad group of users and compilers on how macroeconomic statistics should record the accrual of interest on bonds and other tradable debt securities.
The moderator of the EDG provided a report in October 2002 that concluded that while the participants to the EDG were strongly divided, the majority were in favour of the debtor approach.

The ISWGNA report and supported its conclusion.

It then made a recommendation to the UNSC proposing that the SNA should recommend the debtor agreed.
The recommendation and descriptions of the two approaches can be found in paragraphs 17.252 to 17.254. subsequently considered the UNSC approach and the A4.32 Discussion of certain update issues, including the treatment of concessional loans, non-performing loans, interest on index-linked debt securities and interest in arrears, showed that the debtor/creditor debate has implications beyond the recording of interest on securities.
A full consideration of the definition of income in the SNA would have to reconsider this issue.

7.

Calculation of FISIM A4.33 The financial treatment of intermediation services indirectly measured (FISIM) is described in paragraphs 6.163 to 6.169.

The SNA recommends that FISIM should be calculated with respect to a reference rate that contains no service element and reflects the risk and maturity structure of deposits and loans.
Different reference rates may be needed for domestic and foreign financial institutions.

The assumption behind the FISIM approach is that it is the service element, and not the interest flows, that reflect varying degrees of risk, with riskier clients paying a higher service charge.

This assumption has been queried and is being investigated.

8.

High inflation A4.29 It has been proposed that this treatment could be extended to other types of unit, particularly public corporations.
If the attribution of retained earnings to the owners of corporations were adopted, it would mean that dividends would be replaced by reinvested earnings in the allocation of primary income account and this total less dividends actually paid would be shown as additions to (or in some case withdrawals from) equity in the financial account.
This would mean that distribution of earnings from corporations was measured on a strict accrual basis but would also mean that the saving of corporations would always be zero.

Such a change would have serious implications for interpretation of the accounts since it would be built on a different paradigm from the current treatment of dividends and corporate saving.
inflation was an A4.34 It has long been recognized that high inflation can distort measures of interest, since a portion is required simply to counteract the real holding losses that occur for financial instruments that are not indexed for inflation.

By the 1970s, when important problem throughout much of the world, the treatment of interest under high inflation was considered an important issue for national accounts.
However, contrary guidance is given by Annex B to chapter XIX of the 1993 SNA and chapter 7 of Inflation Accounting - A manual on National Accounting under Conditions of High Inflation (Organisation for Economic Co-operation and Development, 1996).

It is therefore recommended that the search for a single universally accepted treatment of interest under high inflation remains on the research agenda.

6.

Accruing interest in the SNA 9.


The measurement of neutral and real holding gains and losses A4.30 Through the 1990s and into the 2000s a vigorous international discussion was conducted among statistical community about the appropriate way to record interest on securities such as bonds.

Two general approaches were identified in the discussion, the so-called debtor and creditor approaches.
the A4.35 The SNA recommends the nominal holding gains and losses recorded in the revaluation account should be decomposed into neutral and real holding gains and losses.

In paragraph 12.85, the use of a comprehensive price index covering as wide a range of goods, services and assets as 606 possible is recommended.

Some national accountants have suggested that different price indices should be used for different classes of asset.

The full impact of this suggestion requires investigation.

10.
10.

Income arising from assets A4.36 The introduction of capital services the SNA recognizes that part of value added is due to the contribution of fixed assets and other non-financial assets to the income generated by production.

A question has been raised about whether some part of value added should also into Research Agenda be attributable to the financial resources available to the producer.

11.
11.

Income from activities undertaken on an informal basis A4.37 Establishing the connection between the work on the informal sector and the SNA was an important contribution of the 2008 update to the SNA.

Interest in this area continues to attract considerable attention especially in developing countries.

It is desirable that there should be continuing involvement of national accountants with the work of the Delhi Group and other initiatives in this field.

D. Issues involving financial instruments 1.


Issues arising from a financial crisis 4.

Provisions A4.38 As noted in the introduction, a financial crisis provides a crucial test of the robustness of the SNA and the adequacy of its recommendations in situations not encountered since the SNA was first adopted.
Until all the consequences of the situation in 2008 are revealed, and indeed thereafter, there will be a need to continue to examine the steps taken in response to the crisis to ensure both the steps and their consequences are adequately captured in the national accounts.

2.
2.

Recognition of social security entitlements as liabilities A4.39 As discussed in part 2 of chapter 17, social security entitlements are not recorded in the main accounts but they are shown in a supplementary table along with the pension entitlements of some other pension schemes managed by general government.

Provisional criteria for determining whether the entitlements are shown in the main accounts or only in the supplementary table are described in paragraph 17.187.
Work continues to refine these criteria and to find agreed methods to determine the value of these liabilities.

3.

Wider use of fair value for loans A4.40 The SNA recommends that the values of loans to be recorded in the balance sheets of both creditors and debtors should be at nominal value, that is, at the amounts of principal that the debtors are conceptually obliged to pay the creditors when loans mature.
However, it is common for the fair value of loans to differ from the nominal value for a number of reasons.

At present the SNA recommends memorandum items recording fair values only for loans specifically as non-performing.

The possibility of a more extensive use of fair value in place of nominal value could be considered.

characterized A4.41 In business accounting, three degrees of “promises”: liabilities, provisions and contingent liabilities.

Their definitions are the following.

there are a.


A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits or service potential.

b.

A provision is a liability of uncertain timing or amount.
c. A contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

A4.42 In the SNA, liabilities and provisions relating to financial instruments are generally recognized in the main accounts only if there is a corresponding financial asset of equal value held by a counter-party.
However, it is recommended that certain provisions that do not satisfy this criterion, such as those for non-performing loans, should be recorded as memorandum liabilities are not recognized at all in the core accounts, except in the case of standardized guarantees.

items.
items.

Contingent A4.43 The problem is that recognition of a reduction in the value of an asset in the SNA necessarily implies a reduction in the corresponding liability but the asset holder may not wish to reveal to the counter-party the fact that they regard some of the claim as uncollectable.

Not doing so however overstates the value of the assets.

5.
5.

Debt concessionality A4.44 Further work is required to clarify whether concessional loans involve a subsidy on any service charge associated with interest payments or a transfer representing the difference between the market rate of interest and the agreed rate.

If the latter, the next problem is whether the 607 System of National Accounts transfer should be paid period by period on an ongoing basis as a current transfer or as a one-off capital transfer at the time the loan is issued.

6.
6.

Equity valuation and its implications A4.45 At the moment there are a number of alternatives for valuing equity given in the SNA.

There is a question about whether more standardized recommendations can be made.

E. Issues involving non-financial assets 1.

Tradable emission permits A4.47 Tradable emission permits are a relatively new phenomenon, but they are gaining rapidly in importance.
The full treatment of all types of permits is not explicitly described in the SNA, and in order to remove uncertainty, this shortcoming should be addressed as quickly as possible.

2.

Leases to use or exploit natural resources A4.48 Part 5 of chapter 17 deals with the treatment of licences and permits to use a natural resource.

Because the treatment for individual resources was developed independently there are some inconsistent treatments recommended.
A4.49 In the case of a natural resource that has an infinite life and whose use in production does not affect the nature or value of the asset, the owner may allow the resource to be used for an extended period of time in such a way that, in effect, the user controls the use of the resource during this time with little if any intervention from the legal owner.

In the case of land, the SNA recommends that the agreement between the owner and the user constitutes a sale of the land.
In the case of a lease of the radio spectrum, the SNA recommends that the permission to use the spectrum does not change the ownership of the spectrum but constitutes a non-produced asset under the heading contracts, leases and licences.

In the case of permission to use the atmosphere or a water body as an environmental sink, the SNA recommends that the payment be treated as a tax.
A4.50 In the case of a natural resource that is subject to replenishment and which can be used indefinitely providing the use is restricted and the owner extends or withholds permission to continued use of the asset from one year to the next, payments by the user to the owner are recorded as rent.

No adjustment is made to the value of rent recorded as to whether the use is in fact sustainable or not.
If it were not sustainable, part of the payment should be seen as being compensation for the non-sustainable use.

A4.51 In the case of a natural resource that is not capable of replenishment on a human time-scale and the use in production eventually exhausts it, the owner may permit 608 7.

Reverse transactions take their name A4.46 Work on a complex group of transactions known as reverse transactions has been pursued for several years.
These transactions two common characteristics: (i) a commitment to reverse the transaction on a specified future date (or on demand), and (ii) that, although legal ownership is transferred to the purchaser, many of the risks and benefits of ownership remain with the original owner.

Reversible include repurchase agreements, securities lending without cash collateral, gold swaps, and gold loans/deposits.

transactions from the resource to be used to extinction.
In this case the SNA recommends that economic ownership of the natural resource remains with the lessor while the lessee pays royalties recorded as rent.

Only the lessee and not the lessor undertakes production.

This means that the reduction in the value of capital due to production is recorded in the balance sheet of the owner as an other change in volume of assets.

The link between the rundown in the value of the assets and its use in production is lost.
As in the previous case, the fact that part of the rent paid is compensation for the reduction in the value of the asset is not recognized.

3.

Broadening the fixed asset boundary to include other intellectual property assets Innovation the output of A4.52 The fixed asset boundary of the SNA has been expanded to include research and experimental development (R&D) that meets the general definition of an asset.

It is evident that R&D captures part, but not all, of the innovation process.
It may exclude many expenditures by the production and engineering departments of an enterprise.

These same departments may also be responsible for identifying a potential new product and referring it to the R&D department to develop the science behind it.

In addition, an enterprise may incur other expenditures before a new product goes to market.

These include market research to determine the demand for a new product and marketing expenditures to promote it.
Marketing assets A4.53 Marketing assets include brand names, mastheads, trademarks, logos and domain names.

Marketing is a key driver of brand value and big corporations invest heavily in building and supporting their brands by advertising, sponsorship and other measures to build a positive image with customers.

The SNA treats marketing assets as being non-produced and the expenditures incurred in their creation as intermediate consumption.

They appear in the balance sheet only when they are sold.
The major reason for not treating marketing assets as fixed assets is due to the difficulty of measuring their value.

Human capital A4.59 An overview and rationalization of these practices could be helpful.

Research Agenda A4.54 Apart from any staff training required in bringing a new product are disembodied from the people undertaking the innovation.

Therefore they exclude to a large extent the “investment in human capital”.
expenditures to market, innovation A4.55 Human input is the major input in most production processes, and the value of that input is to a large extent dependent on the knowledge that humans bring to the production process.

It is well recognized that an educated population is vital to economic well-being in most countries.
Despite the fact that there are major conceptual and practical problems with identifying the value of an educated labour force, there are repeated requests to address this issue within the SNA framework.

4.

Costs of ownership transfer of valuables and non-produced assets transfer A4.56 The SNA draws a distinction between the costs of ownership transfer incurred in acquiring and disposing of non-financial assets on the one hand and financial assets on incurred on the other.
Costs of ownership transactions in non-financial assets are recorded as gross fixed capital formation, while costs of ownership transfer incurred on transactions in financial assets are recorded as intermediate consumption.

The rationale for the different in treatments production and the income generated from production needs to be sufficient to cover the costs of using those assets, including costs of ownership transfer.
Financial assets are not used in production and are held as stores of value, to earn property income or in the expectation of holding gains.

It is also common for the ownership of financial assets and liabilities to change hands rapidly.

that non-financial assets are used is A4.57 Valuables are non-financial assets but they are held as stores of value and are not used in production.

As such, they have more in common with financial assets than they do with other non-financial assets.
Therefore, it is arguable that costs of ownership transfer on valuables should be recorded as intermediate consumption rather than, as at present, fixed capital formation.

A4.58 Costs of ownership transfer on fixed assets are not recorded separately but are added to the price paid by the purchaser and subtracted from the price received by the seller to obtain the acquisition and disposal values, respectively.
The costs of ownership transfer on non-produced assets are recorded in a separate category of gross fixed capital formation.

An exception is made in the case of land where costs of ownership transfer are treated by convention as land improvements.

5.
5.

Distinction between current maintenance and capital repairs A4.60 The SNA draws a distinction between ordinary maintenance and repairs to fixed assets and major renovations, (see paragraphs 6.225 to 6.228), but acknowledges that the distinction is not clear-cut.

The former are recorded as intermediate consumption and the latter as gross fixed capital formation.
reconstructions or enlargements A4.61 Major increase enlargements renovations or the performance or capacity of existing fixed assets or significantly extend the previously expected service life.

Ordinary maintenance and repairs are required so that an asset can be utilized over the whole of the service life expected on acquisition.
If the owner neglects maintenance and repairs, then the expected service life may be drastically reduced and unforeseen obsolescence must be recorded as an other volume change in the value of the asset.
A4.62 If the requirement for treatment as fixed capital were to prevent a reduction in service life, rather than necessarily extend it, the problem of the borderline between ordinary maintenance and major extensions would disappear and the problem the neglect of the consequences of maintenance are not reflected in a reduction in net domestic product could be avoided.

that 6.

Treatment of Private-Public Partnerships A4.63 Public private partnerships (PPPs) are described in chapter 22.
Further developments in their treatment in the SNA await the development and adoption of standards under development by the IASB and IPSASB.

The ISWGNA is monitoring developments.

7.

Transfer of ownership of an asset during its life A4.64 Both the case where a natural resource is leased for an extended period of time and the case of PPPs are ones where the economic ownership of an asset effectively changes hands part way through its life.
The terms of the arrangements are such that recompense from the initial user for the change of ownership to the second user is bundled into the arrangements for payments during the lease.

The transfer of the ownership has to be recorded as an other change in the classification of assets and is not reflected in the production or distribution of income accounts.

This is a deficiency that could be rectified by some elaboration of the concept of financial leasing.
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Also available from: http://go.worldbank.org/MWS20NNFK0 World Customs Organization (2007): Harmonized Commodity Description and Coding System, Revision 4.

Also available from: http://publications.wcoomd.org/index.php 615 System of National Accounts 616 A Glossary Acquisitions of goods and services by institutional units occur when they become the new owners of the goods or when the delivery of services to them is completed.
..............................................................................................................................9.36 Activity see also principal activity, secondary activity, ancillary activity Actual final consumption measures the amount of consumption goods and services acquired.
..................................................................9.7 Actual final consumption of general government is measured by the value of the collective consumption services provided to the community, or large sections of the community, by general government.

.............................................................................9.117 Actual final consumption of households is measured by the value of all the individual consumption goods and services acquired by resident households.
.........................................................................................................................................................9.116 Actual final consumption of NPISHs is measured by the value of the collective consumption services provided to the community, or large sections of the community, by NPISHs.
.............................................................................................................9.118 Actual premium see premium Adjusted disposable income is the balancing item in the redistribution of income in kind account.

It is derived from the disposable income of an institutional unit or sector by adding the value of the social transfers in kind receivable by that unit or sector and subtracting the value of the social transfers in kind payable by that unit or sector.
......................................8.32 Ancillary activity An ancillary activity is a supporting activity undertaken within an enterprise in order to create the conditions within which the principal or secondary activities can be carried out.
.......................................................................................5.36 Animal resources yielding repeat products cover animals whose natural growth and regeneration are under the direct control, responsibility and management of institutional units.
...............................................................................................................10.92 Asset An asset is a store of value representing a benefit or series of benefits accruing to the economic owner by holding or using the entity over a period of time.

It is a means of carrying forward value from one accounting period to another.
........................................................................................................................................ 3.5, 3.30, 10.8, 11.3 Asset boundary for fixed assets The asset boundary for fixed assets consists of goods and services that are used in production for more than one year.
..............................................................................................................................................................10.33 Asset-backed securities and collateralized debt obligations are arrangements under which payments of interest and principal are backed by payments on specified assets or income streams.
...............................................................................................11.67 B Balance of primary incomes The balance of primary incomes is defined as the total value of the primary incomes receivable by an institutional unit or sector less the total of the primary incomes payable.
...........................................................7.18 Balance sheet A balance sheet is a statement, drawn up in respect of a particular point in time, of the values of assets owned and of the liabilities owed by an institutional unit or group of units.
....................................................................................13.2 Balancing item A balancing item is an accounting construct obtained by subtracting the total value of the entries on one side of an account (resources or changes in liabilities) from the total value of the entries on the other side (uses or changes in assets).

It cannot be measured independently of the entries in the accounts.
As a derived entry, it reflects the application of the general accounting rules to the specific entries on the two sides of the account.

...................................................3.9 617 System of National Accounts Banker’s acceptance A banker’s acceptance involves the acceptance by a financial corporation, in return for a fee, of a draft or bill of exchange and the unconditional promise to pay a specific amount at a specified date.
.................................... 11.68 Barter A barter transaction is one where one basket of goods and services is exchanged for another basket of different goods and services without any accompanying monetary payment.
.................................................................................................. 9.49 Basic price The basic price is the amount receivable by the producer from the purchaser for a unit of a good or service produced as output minus any tax payable, and plus any subsidy receivable, by the producer as a consequence of its production or sale.

It excludes any transport charges invoiced separately by the producer.
.............................................................. 6.51 Bills are defined as securities that give the holders the unconditional rights to receive stated fixed sums on a specified date.

............. 11.64 Bonds and debentures are securities that give the holders the unconditional right to fixed payments or contractually determined variable payments, that is, the earning of interest is not dependent on earnings of the debtors.
..................................... 11.64 Boundary see production boundary, asset boundary Buildings other than dwellings include whole buildings or parts of buildings not designated as dwellings.

Fixtures, facilities and equipment that are integral parts of the structures are included.
......................................................................................... 10.74 C Capital taxes consist of taxes levied at irregular and infrequent intervals on the values of the assets or net worth owned by institutional units or on the values of assets transferred between institutional units as a result of legacies, gifts inter vivos or other transfers.
........................................................................................................................................................... 10.207 Capital transfers are unrequited transfers where either the party making the transfer realizes the funds involved by disposing of an asset (other than cash or inventories), relinquishing a financial claim (other than accounts receivable) or the party receiving the transfer is obliged to acquire an asset (other than cash) or both conditions are met.
............................... 8.10, 10.19 Captive financial institutions and money lenders consist of institutional units providing financial services, where most of either their assets or liabilities are not transacted on open financial markets.

................................................................................ 4.113 Central bank The central bank is the national financial institution that exercises control over key aspects of the financial system.
..... 4.104 Changes in inventories are measured by the value of the entries into inventories less the value of withdrawals and less the value of any recurrent losses of goods held in inventories during the accounting period.

................................................... 10.118 Changes in net worth due to nominal holding gains/losses is defined as the algebraic sum of the positive or negative nominal holding gains on all the assets and liabilities of an institutional unit.
...................................................................................... 12.77 Changes in net worth due to saving and capital transfers represent the positive or negative amount available to the unit or sector for the acquisition of non-financial and financial assets.
.............................................................................................. 10.21 Claim A claim (benefit) is the amount payable to the policy holder by the direct insurer or reinsurer in respect of an event covered by the policy occurring in the period for which the policy is valid.
.................................................................... 6.187, 17.5 Claims outstanding cover claims that have not been reported, have been reported but are not yet settled or have been both reported and settled but not yet paid.
......................................................................................................................................... 6.187, 17.5 Collective consumption service A collective consumption service is a service provided simultaneously to all members of the community or to all members of a particular section of the community, such as all households living in a particular region.
... 9.4 Compensation of employees is defined as the total remuneration, in cash or in kind, payable by an enterprise to an employee in return for work done by the latter during the accounting period.

.......................................................................................... 7.5 Computer software consists of computer programs, program descriptions and supporting materials for both systems and applications software.
........................................................................................................................................................... 10.110 Consumer durable A consumer durable is a good that may be used for purposes of consumption repeatedly or continuously over a period of a year or more.
..................................................................................................................................................... 9.42 618 Consumption good or service A consumption good or service is defined as a good or service that is used (without further transformation in production as defined in the SNA) by households, NPISHs or government units for the direct satisfaction of individual needs (or wants) or for the collective needs of members of the community.
........................................9.2 Consumption of fixed capital is the decline, during the course of the accounting period, in the current value of the stock of fixed assets owned and used by a producer as a result of physical deterioration, normal obsolescence or normal accidental damage.
................................................................................................................................................... 6.240, 10.25 Consumption of goods and services is the act of completely using up the goods and services in a process of production or for the direct satisfaction of human needs or wants.
..................................................................................................................9.39 Consumption The activity of consumption consists of the use of goods and services for the satisfaction of individual or collective human needs or wants.
......................................................................................................................................................9.39 Contracts, leases and licences are treated as assets only when both the following conditions are satisfied.

The terms of the contract, lease or licence specify a price for the use of an asset or provision of a service that differs from the price that would prevail in the absence of the contract, lease or licence.
One party to the contract must be able legally and practically to realize this price difference.

..............................................................................................................................10.16, 10.186 Corporation The term corporation covers legally constituted corporations and also cooperatives, limited liability partnerships, notional resident units and quasi-corporations.
....................................................................................................................4.7 Costs of ownership transfer The costs of ownership transfer consist of the following kinds of items (i) All professional charges or commissions incurred by both units acquiring or disposing of an asset such as fees paid to lawyers, architects, surveyors, engineers and valuers, and commissions paid to estate agents and auctioneers.
(ii) Any trade and transport costs separately invoiced to the purchaser, (iii) All taxes payable by the unit acquiring the asset on the transfer of ownership of the asset.

(iv) Any tax payable on the disposal of an asset.

(v) Any delivery and installation or disinstallation costs not included in the price of the asset being acquired or disposed of.
(vi) Any terminal costs incurred at the end of an asset’s life such as those required to render the structure safe or to restore the environment in which it is situated.

.........................................................................................................................................10.51 Credit derivatives are financial derivatives whose primary purpose is to trade credit risk.
...................................................................11.123 Cross-country interest rate swap A cross-currency interest rate swap, sometimes known as a currency swap, involves an exchange of cash flows related to interest payments and an exchange of principal amounts at an agreed exchange rate at the end of the contract.
............................................................................................................................................................11.121 Cultivated biological resources cover animal resources yielding repeat products and tree, crop and plant resources yielding repeat products whose natural growth and regeneration is under the direct control, responsibility and management of an institutional unit.
.....................................................................................................................................................................10.88 Currency consists of notes and coins that are of fixed nominal values and are issued or authorized by the central bank or government.
........................................................................................................................................................11.52 Current international cooperation consists of current transfers in cash or in kind between the governments of different countries or between governments and international organizations.
....................................................................................................8.128 Current taxes on capital consist of taxes that are payable periodically, usually annually, on the property or net wealth of institutional units, excluding taxes on land or other assets owned or rented by enterprises and used by them for production, such taxes being treated as other taxes on production.
..........................................................................................................8.63 Current taxes on income, wealth, etc.

consist mainly of taxes on the incomes of households or profits of corporations and of taxes on wealth that are payable regularly every tax period (as distinct from capital taxes levied infrequently).
.........................8.15 Current transfer A current transfer is a transaction in which one institutional unit provides a good, service or asset to another unit without receiving from the latter any good, service or asset directly in return as counterpart and does not oblige one or both parties to acquire, or dispose of, an asset.
.............................................................................................................8.10 Current transfers between households consist of all current transfers made, or received, by resident households to or from other resident or non-resident households.
....................................................................................................................................8.133 619 System of National Accounts Current transfers to NPISHs consist of transfers received by NPISHs from other resident or non-resident institutional units in the form of membership dues, subscriptions, voluntary donations, etc.

whether made on a regular or occasional basis.


... 8.132 Current transfers within general government consist of current transfers between different government units.

.................................... 8.126 D Databases consist of files of data organized in such a way as to permit resource-effective access and use of the data.
...................... 10.112 Debt reorganization (also referred as debt restructuring) is defined as arrangements involving both the creditor and the debtor (and sometimes third parties) that alter the terms established for servicing an existing debt.

................................. 26.106 Debt restructuring see debt reorganization Debt securities are negotiable instruments serving as evidence of a debt.
.............................................................................................. 11.64 Deductible VAT is the VAT payable on purchases of goods or services intended for intermediate consumption, gross fixed capital formation or for resale that a producer is permitted to deduct from his own VAT liability to the government in respect of VAT invoiced to his customers.
.................................................................................................................................... 6.58 Defined benefit scheme A defined benefit scheme is one where the benefits payable to an employee on retirement are determined by the use of a formula, either alone or as a minimum amount payable.
.......................................................................... 17.129 Defined contribution scheme A defined contribution scheme is one where the benefits payable to an employee on retirement are defined exclusively in terms of the level of the fund built up from the contributions made over the employee’s working life and the increases in value that result from the investment of these funds by the manager of the scheme.
..... 17.128 Deposit-taking corporations except the central bank have financial intermediation as their principal activity.

To this end, they have liabilities in the form of deposits or financial instruments (such as short-term certificates of deposit) that are close substitutes for deposits.
........................................................................................................................................................ 4.105 Direct investment is a category of cross-border investment associated with a resident in one economy having control or a significant degree of influence on the management of an enterprise that is resident in another economy.
.................................... 26.84 Disposable income is the balancing item in the secondary distribution of income account.

It is derived from the balance of primary incomes of an institutional unit or sector by adding all current transfers, except social transfers in kind, receivable by that unit or sector and subtracting all current transfers, except social transfers in kind, payable by that unit or sector.
... 8.20 Distributable income of a corporation is equal to entrepreneurial income, plus all current transfers receivable, less all current transfers payable and less the adjustment for the change in pension entitlements relating to the pension scheme of that corporation.
........................................................................................................................................................ 7.131 Dividends are a form of investment income to which shareholders become entitled as a result of placing funds at the disposal of corporations.
............................................................................................................................................................................. 7.128 Durable good A durable good is one that may be used repeatedly or continuously over a period of more than a year, assuming a normal or average rate of physical usage.

A consumer durable is a good that may be used for purposes of consumption repeatedly or continuously over a period of a year or more.
............................................................................... 9.42 Dwellings are buildings, or designated parts of buildings, that are used entirely or primarily as residences, including any associated structures, such as garages, and all permanent fixtures customarily installed in residences.

............................ 10.68 E Economic flows reflect the creation, transformation, exchange, transfer or extinction of economic value.
They involve changes in the volume, composition, or value of an institutional unit’s assets and liabilities.

..................................................... 3.6 Economic owner The economic owner of entities 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 entity in question in the course of an economic activity by virtue of accepting the associated risks.
............................................................................ 3.26 620 Economic owner The economic owner of entities 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 entity inquestion in the course of an economic activity by virtue of accepting the associated risks.
.............................................................................10.5 Economically significant prices are prices that have a significant effect on the amounts that producers are willing to supply and on the amounts purchasers wish to buy.
These prices normally result when (a) the producer has an incentive to adjust supply either with the goal of making a profit in the long run or, at a minimum, covering capital and other costs and (b) consumers have the freedom to purchase or not purchase and make the choice on the basis of the prices charged.
......................................................................................................................................................6.95, 22.28 Employee stock option An employee stock option is an agreement made on a given date (the “grant” date) under which an employee may purchase a given number of shares of the employer’s stock at a stated price (the “strike” price) either at a stated time (the “vesting” date) or within a period of time (the “exercise” period) immediately following the vesting date.
...................................................................................................................................................................11.125 Employees are persons who, by agreement, work for a resident institutional unit and receive remuneration for their labour.
..............19.20 Employers’ social contributions are social contributions payable by employers to social security funds or other employment-related social insurance schemes to secure social benefits for their employees.

........................................................................7.56 Employment is defined as all persons, both employees and self-employed persons, engaged in some productive activity that falls within the production boundary of the SNA.
.......................................................................................................................19.19 Enterprise An enterprise is the view of an institutional unit as a producer of goods and services.
.............................................................5.1 Entertainment, literary and artistic originals consist of the original films, sound recordings, manuscripts, tapes, models, etc., on which drama performances, radio and television programming, musical performances, sporting events, literary and artistic output, etc., are recorded or embodied.
.........................................................................................................................10.115 Entitlement to future goods and services on an exclusive basis relates to the case where one party which has contracted to purchase goods or services at a fixed price at a time in the future is able to transfer the obligation of the second party to the contract to a third party.
..................................................................................................................................................10.195 Equity comprises all instruments and records acknowledging claims on the residual value of a corporation or quasi-corporation after the claims of all creditors have been met.
................................................................................................................11.83 ESO see employee stock option Establishment An establishment is an enterprise, or part of an enterprise, that is situated in a single location and in which only a single productive activity is carried out or in which the principal productive activity accounts for most of the value added.
.............................................................................................................................................................5.2, 5.14 Existing fixed asset An existing fixed asset is one whose value was included in the stock of fixed capital of at least one producer unit in the domestic economy at some earlier point in time either in the current period or in the immediately previous accounting period.
.................................................................................................................................................................10.38 Expenditure measure of GDP The expenditure measure of gross domestic product (GDP) is derived as the sum of expenditure on final consumption plus gross capital formation plus exports less imports.
................................................................16.47 Expenditures on goods and services are defined as the values of the amounts that buyers pay, or agree to pay, to sellers in exchange for goods or services that sellers provide to them or to other institutional units designated by the buyers.
........................9.32 Export subsidies consist of all subsidies on goods and services that become payable by government when the goods leave the economic territory or when the services are delivered to non-resident units.

.....................................................................7.103 Export taxes consist of taxes on goods or services that become payable to government when the goods leave the economic territory or when the services are delivered to non-residents.
..........................................................................................................7.95 F Final consumption expenditure is the amount of expenditure on consumption goods and services.
...........................................................9.7 621 System of National Accounts Final consumption expenditure of households see household final consumption expenditure Final consumption expenditure of general government see general government final consumption expenditure Final consumption expenditure of NPISHs consists of the expenditure, including expenditure whose value must be estimated indirectly, incurred by resident NPISHs on individual consumption goods and services and possibly on collective consumption services.
.............................................................................................................................................................. 9.115 Financial assets consist of all financial claims, shares or other equity in corporations plus gold bullion held by monetary authorities as a reserve asset.
............................................................................................................................................... 3.36, 11.8 Financial auxiliaries consist of financial corporations that are principally engaged in activities associated with transactions in financial assets and liabilities or with providing the regulatory context for these transactions but in circumstances that do not involve the auxiliary taking ownership of the financial assets and liabilities being transacted.
.................................... 4.111 Financial claim A financial claim is the payment or series of payments due to the creditor by the debtor under the terms of a liability.
....................................................................................................................................................... 3.35, 11.7 Financial corporations consist of all resident corporations that are principally engaged in providing financial services, including insurance and pension funding services, to other institutional units.
................................................................................... 4.98 Financial derivatives are financial instruments that are linked to a specific financial instrument or indicator or commodity, through which specific financial risks can be traded in financial markets in their own right.
................................................. 11.111 Financial intermediaries are institutional units that incur liabilities on their own account for the purpose of acquiring financial assets by engaging in financial transactions on the market.

.............................................................................................. 4.101 Fines and penalties are compulsory payments imposed on institutional units by courts of law or quasi-judicial bodies.
...................... 8.135 Finished goods consist of goods produced as outputs that their producer does not intend to process further before supplying them to other institutional units.

............................................................................................................................................. 10.142 Fixed assets are produced assets that are used repeatedly or continuously in production processes for more than one year.
................ 10.11 Foreign exchange swap A foreign exchange swap is a spot sale/purchase of currencies and a simultaneous forward purchase/sale of the same currencies.

........................................................................................................................................................ 11.121 Forward contract A forward contract is an unconditional financial contract that represents an obligation for settlement on a specified date.
Futures and other forward contracts are typically, but not always, settled by the payment of cash or the provision of some other financial instrument rather than the actual delivery of the underlying item and therefore are valued and traded separately from the underlying item.
.................................................................................................... 11.120 Forward foreign exchange contract A forward foreign exchange contract involves two counterparties who agree to transact in foreign currencies at an agreed exchange rate in a specified amount at some agreed future date.
.............................. 11.121 Forward rate agreement A forward rate agreement (FRA) is an arrangement in which two parties, in order to protect themselves against interest rate changes, agree on an interest rate to be paid, at a specified settlement date, on a notional amount of principal that is never exchanged.
.................................................................................................................... 11.121 Full-time equivalent employment is the number of full-time equivalent jobs, defined as total hours actually worked by all employed persons divided by the average number of hours actually worked in full-time jobs.
..................................................... 19.43 G GDP see expenditure measure of GDP, income measure of GDP, production measure of GDP General government final consumption expenditure consists of expenditure, including expenditure whose value must be estimated indirectly, incurred by general government on both individual consumption goods and services and collective consumption services.
.............................................................................................................................................................. 9.114 622 GNI Gross national income (GNI) is defined as GDP plus compensation of employees receivable from abroad plus property income receivable from abroad plus taxes less subsidies on production receivable from abroad less compensation of employees payable abroad less property income payable abroad and less taxes plus subsidies on production payable abroad.
................................................................................................................................................................16.54 Goods and services account The goods and services account shows the balance between the total goods and services supplied as resources to the economy as output and imports (including the value of taxes less subsidies on products not already included in the valuation of output) and the use of the same goods and services as intermediate consumption, final consumption, capital formation and exports.
......................................................................................................16.27 Goods are physical, produced objects for which a demand exists, over which ownership rights can be established and whose ownership can be transferred from one institutional unit to another by engaging in transactions on markets.

............................6.15 Goods for resale are goods acquired by enterprises, such as wholesalers or retailers, for the purpose of reselling them to their customers.
.........................................................................................................................................................10.145 Goodwill and market assets The value of goodwill and marketing assets is defined as the difference between the value paid for an enterprise as a going concern and the sum of its assets less the sum of its liabilities, each item of which has been separately identified and valued.
........................................................................................................................................10.199 Government units are unique kinds of legal entities established by political processes that have legislative, judicial or executive authority over other institutional units within a given area.
...................................................................................................4.9 Gross capital formation shows the acquisition less disposal of produced assets for purposes of fixed capital formation, inventories or valuables.
............................................................................................................................................................10.24 Gross fixed capital formation in a particular category of fixed asset consists of the value of producers’ acquisitions of new and existing products of this type less the value of their disposals of fixed assets of the same type.
....................................10.64 Gross fixed capital formation is measured by the total value of a producer’s acquisitions, less disposals, of fixed assets during the accounting period plus certain specified expenditure on services that adds to the value of non-produced assets.

..............10.32 Gross national income is the aggregate value of the gross balances of primary incomes for all sectors.
..................................................7.20 Gross national income see GNI Gross or net national disposable income may be derived from gross or net national income by adding all current transfers in cash or in kind receivable by resident institutional units from non-resident units and subtracting all current transfers in cash or in kind payable by resident institutional units to non-resident units.
.......................................................................8.26 Gross value added at basic prices is defined as output valued at basic prices less intermediate consumption valued at purchasers’ prices.
....................................................................................................................................................................6.77 Gross value added at producers’ prices is defined as output valued at producers’ prices less intermediate consumption valued at purchasers’ prices.
....................................................................................................................................................................6.78 Gross value added is the value of output less the value of intermediate consumption.
...............................................................................6.8 H Horizontal integration A horizontally integrated enterprise is one in which several different kinds of activities that produce different kinds of goods or services for sale on the market are carried out in parallel with each other.
......................................5.21 Household A household is a group of persons who share the same living accommodation, who pool some, or all, of their income and wealth and who consume certain types of goods and services collectively, mainly housing and food.
............................4.4 Household final consumption expenditure consists of the expenditure, including expenditure whose value must be estimated indirectly, incurred by resident households on individual consumption goods and services, including those sold at prices that are not economically significant and including consumption goods and services acquired abroad.
.................9.113 623 System of National Accounts Households’ actual social contributions are social contributions payable on their own behalf by employees, self-employed or non-employed persons to social insurance schemes.
................................................................................................................... 8.85 Households’ social contribution supplements consist of the property income earned during the accounting period on the stock of pension and non-pension entitlements.
............................................................................................................................. 8.86 I Import duties consist of customs duties, or other import charges, that are payable on goods of a particular type when they enter the economic territory.
............................................................................................................................................................... 7.93 Import subsidies consist of subsidies on goods and services that become payable when the goods cross the frontier of the economic territory or when the services are delivered to resident institutional units.
..................................................................... 7.101 Income in kind received by employees is measured by the value of the goods and services provided by employers to their employees in remuneration for work done.
................................................................................................................................ 9.51 Income measure of GDP The income measure of gross domestic product (GDP) is derived as compensation of employees plus gross operating surplus plus gross mixed incomes plus taxes less subsidies on both production and imports.
......... 16.48 Index-linked securities are instruments for which either the coupon payments (interest) or the principal or both are linked to an index such as a price index or the price of a commodity.

.................................................................................................... 11.70 Individual consumption good or service An individual consumption good or service is one that is acquired by a household and used to satisfy the needs or wants of members of that household.
................................................................................................ 9.3 Industry An industry consists of a group of establishments engaged in the same, or similar, kinds of activity.

............................... 5.46, 5.2 Information, computer and telecommunications (ICT) equipment consists of devices using electronic controls and also the electronic components forming part of these devices.
........................................................................................................ 10.85 Institutional unit An institutional unit is an economic entity that is capable, in its own right, of owning assets, incurring liabilities and engaging in economic activities and in transactions with other entities.
............................................................... 4.2 Insurance claim see claim Insurance corporations consist of incorporated, mutual and other entities whose principal function is to provide life, accident, sickness, fire or other forms of insurance to individual institutional units or groups of units or reinsurance services to other insurance corporations.
...................................................................................................................................... 4.115 Insurance premium, see premium Intellectual property products are the result of research, development, investigation or innovation leading to knowledge that the developers can market or use to their own benefit in production because use of the knowledge is restricted by means of legal or other protection.
................................................................................................................................................. 10.98 Interest is a form of income that is receivable by the owners of certain kinds of financial assets, namely deposits, debt securities, loans and (possibly) other accounts receivable for putting the financial asset at the disposal of another institutional unit.
.................................................................................................................................................................... 7.113 Interest rate swap An interest rate swap contract involves an exchange of cash flows related to interest payments, or receipts, on a notional amount of principal, which is never exchanged, in one currency over a period of time.
................................ 11.121 Intermediate consumption consists of the value of the goods and services consumed as inputs by a process of production, excluding fixed assets whose consumption is recorded as consumption of fixed capital.
.......................................................... 6.213 Inventories are produced assets that consist 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.

........................................................... 10.12 Investment funds are collective investment undertakings through which investors pool funds for investment in financial or non-financial assets.
................................................................................................................................................................. 11.94 624 Investment grants consist of capital transfers made by governments to other resident or non-resident institutional units to finance all or part of the costs of their acquiring fixed assets.
.......................................................................................................10.208 Investment income is the income receivable by the owner of a financial asset in return for providing funds to another institutional unit.

.....................................................................................................................................................................7.108 Invoiced VAT is the VAT payable on the sales of a producer.
It is shown separately on the invoice that the producer presents to the purchaser.

...............................................................................................................................................................................6.58 J Joint venture A joint venture involves the establishment of a corporation, partnership or other institutional unit in which each party legally has joint control over the activities of the unit.
..................................................................................................22.56 K Kind-of-activity unit A kind-of-activity unit is an enterprise, or a part of an enterprise, that engages in only one kind of productive activity or in which the principal productive activity accounts for most of the value added.
...........................................5.12 L Labour force The labour force consists of those who are actively prepared to make their labour available during any particular reference period for producing goods and services that are included within the production boundary of the SNA.
.........19.17 Land consists of the ground, including the soil covering and any associated surface waters, over which ownership rights are enforced and from which economic benefits can be derived by their owners by holding or using them.

.............................10.175 Land improvements are the result of actions that lead to major improvements in the quantity, quality or productivity of land, or prevent its deterioration.
.......................................................................................................................................................10.79 Lease see financial lease, operational lease, resource lease, contracts, leases and licences, permits Lease - financial A financial lease is one where the lessor as legal owner of an asset passes the economic ownership to the lessee who then accepts the operating risks and receives the economic benefits from using the asset in a productive activity.
17.304 Legal entity A legal or social entity is one whose existence is recognized by law or society independently of the persons, or other entities, that may own or control it.
......................................................................................................................................4.6 Legal owner The legal owner of entities 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 entities.
................3.21, 10.5 Legally constituted corporation A legally constituted corporation is a legal entity, created for the purpose of producing goods or services for the market, that may be a source of profit or other financial gain to its owner(s).

It is collectively owned by shareholders who have the authority to appoint directors responsible for its general management.
...................4.39 Liability A liability is established when one unit (the debtor) is obliged, under specific circumstances, to provide a payment or series of payments to another unit (the creditor).

................................................................................................3.5, 3.33, 11.5 Life insurance and annuities entitlements show the extent of financial claims policy holders have against an enterprise offering life insurance or providing annuities.
......................................................................................................................................11.106 Licences see Contracts, leases and licences Life insurance is an activity whereby a policy holder makes regular payments to an insurer in return for which the insurer guarantees to provide the policy holder (or in some cases another nominated person) with an agreed sum, or an annuity, at a given date or earlier if the policy holder dies beforehand.
.............................................................................................17.6 Listed shares are equity securities listed on an exchange.

........................................................................................................................11.86 Loans are financial assets that are created when a creditor lends funds directly to a debtor, and are evidenced by documents that are not 625 System of National Accounts negotiable.
.......................................................................................................................................................... 11.72 Local unit A local unit is an enterprise, or a part of an enterprise, that engages in productive activity at or from one location.

............. 5.13 M Machinery and equipment covers transport equipment, machinery for information, communication and telecommunications (ICT) equipment, and other machinery and equipment.
.............................................................................................. 10.82 Market output consists of output intended for sale at economically significant prices.

............................................................................ 6.99 Market producers are establishments, all or most of whose output is market production.
...................................................................... 6.133 Marketable operating leases are third-party property rights relating to fixed assets.

............................................................................ 10.190 Marketing assets consist of items such as brand names, mastheads, trademarks, logos and domain names.
....................................... 10.198 Materials and supplies consist of all products that an enterprise holds in inventory with the intention of using them as intermediate inputs into production.

................................................................................................................................................ 10.131 Military inventories consist of single-use items, such as ammunition, missiles, rockets, bombs, etc., delivered by weapons or weapons systems.
............................................................................................................................................................ 10.144 Mineral and energy resources consist of mineral and energy reserves located on or below the earth’s surface that are economically exploitable, given current technology and relative prices.
.............................................................................. 10.179 Mineral exploration and evaluation consists of the value of expenditures on exploration for petroleum and natural gas and for non-petroleum deposits and subsequent evaluation of the discoveries made.
......................................................................... 10.106 Miscellaneous current transfers consist of current transfers other than insurance-related premiums and claims, current transfers within general government and current international cooperation.
.............................................................................. 8.129 Monetary gold is gold to which the monetary authorities (or others who are subject to the effective control of the monetary authorities) have title and that is held as a reserve asset.
............................................................................................................... 11.45 Monetary transaction A monetary transaction is one in which one institutional unit makes a payment (receives a payment) or incurs a liability (receives an asset) stated in units of currency.
..................................................................................................... 3.55 Money market fund shares or units represent a claim on a proportion of the value of an established money market fund.

.................. 11.99 Money market funds (MMFs) are collective investment schemes that raise funds by issuing shares or units to the public.
The proceeds are invested primarily in money market instruments, MMF shares/units, transferable debt instruments with a residual maturity of not more than one year, bank deposits and instruments that pursue a rate of return that approaches the interest rates of money market instruments.

MMF shares can be transferred by cheque or other means of direct third- party payment.
.................................................................................................................................................... 4.107 N Natural resources consist of naturally occurring resources such as land, water resources, uncultivated forests and deposits of minerals that have an economic value.
.................................................................................................................................... 10.15 NDP Net domestic product (NDP) is defined as gross domestic product (GDP) less the consumption of fixed capital.
....................... 16.52 Net borrowing see net lending Net lending is defined as the difference between changes in net worth due to saving and capital transfers and net acquisitions of non-financial assets (acquisitions less disposals of non-financial assets, less consumption of fixed capital).

If the amount is negative it represents net borrowing.
................................................................................................................. 10.28 Net national disposable income see NNDI 626 Net national income see NNI Net non-life insurance premiums comprise both the actual premiums payable by policyholders to obtain insurance cover during the accounting period (premiums earned) and the premium supplements payable out of the property income attributed to insurance policyholders less the service charges payable to the insurance corporation.
...............................8.117 Net social contributions are the actual or imputed contributions made by households to social insurance schemes to make provision for social benefits to be paid.

Fees charged by the administrators of the schemes are excluded from contributions payable.
.................................................................................................................................................................8.82 Net value added is the value of output less the values of both intermediate consumption and consumption of fixed capital.

....................6.8 Net worth is defined as the value of all the assets owned by an institutional unit or sector less the value of all its outstanding liabilities.
..............................................................................................................................................................13.4 Neutral holding gains and losses A neutral holding gain (loss) over a period is the increase (decrease) in the value of an asset that would be required, in the absence of transactions and other changes in the volume of assets, to maintain command over the same amount of goods and services as at the beginning of the period.
..............................................................12.75 NNDI Net national disposable income (NNDI) is defined as net national income (NNI) plus current transfers receivable from abroad less current transfers payable abroad.

........................................................................................................................16.57 NNI Net national income (NNI) is defined as gross national income (GNI) less the consumption of fixed capital.
..............................16.55 Nominal holding gain - financial asset The nominal holding gain on a financial asset is the increase in value of the asset, other than transactions in the assets (including the accrual of interest over a period of time) and other changes in the volume of assets.
..................................................................................................................................................................12.74 Nominal holding gain - liability The nominal holding gain on a liability is the decrease in value of the liability, other than by transactions or by other volume changes.
...................................................................................................................................12.74 Nominal holding gain - non-financial asset The nominal holding gain on a non-financial asset is the value of the benefit accruing to the owner of that asset as a result of a change in its price over a period of time.
...............................................................12.74 Non-cultivated biological resources consist of animals, birds, fish and plants that yield both once-only and repeat products over which ownership rights are enforced but for which natural growth and/or regeneration is not under the direct control, responsibility and management of institutional units.
......................................................................................10.182 Non-deductible VAT is VAT payable by a purchaser that is not deductible from his own VAT liability, if any.

....................................6.58 Non-financial corporations are corporations whose principal activity is the production of market goods or non-financial services.
......4.94 Non-life insurance claims are the amounts payable in settlement of damages that result from an event covered by a non-life insurance policy during the current accounting period.

.................................................................................................................8.118 Non-life insurance is an activity similar to life insurance except that it covers all other risks, accidents, sickness, fire, etc.
...................17.6 Non-life insurance technical reserves consist of prepayments of net premiums and reserves to meet outstanding non-life insurance claims.
...............................................................................................................................................................11.105 Non-market output consists of goods and individual or collective services produced by non-profit institutions serving households (NPISHs) or government that are supplied free, or at prices that are not economically significant, to other institutional units or the community as a whole.
.................................................................................................................................6.128 Non-market producers consist of establishments owned by government units or NPISHs that supply goods or services free, or at prices that are not economically significant, to households or the community as a whole.

................................................6.133 Non-monetary transactions are transactions that are not initially stated in units of currency.
...................................................................3.75 Non-money-market (MMF) investment funds are collective investment schemes that raise funds by issuing shares or units to the public.

The proceeds are invested predominantly in financial assets other than short-term assets and in non-financial assets 627 System of National Accounts (usually real estate).
........................................................................................................................................... 4.108 Non-performing loan A loan is non-performing when payments of interest or principal are past due by 90 days or more, or interest payments equal to 90 days or more have been capitalized, refinanced, or delayed by agreement, or payments are less than 90 days overdue, but there are other good reasons (such as a debtor filing for bankruptcy) to doubt that payments will be made in full.
.................................................................................................................................................. 13.66 Non-produced assets consist of three categories (i) natural resources, (ii) contracts, leases and licences, and (iii) purchased goodwill and marketing assets.
................................................................................................................................................ 10.14 Non-profit institutions are legal or social entities created for the purpose of producing goods and services but whose status does not permit them to be a source of income, profit or other financial gain for the units that establish, control or finance them.
.............................................................................................................................................................. 4.8, 4.83 Non-profit institutions serving households (NPISHs) consist of non-market NPIs that are not controlled by government.
.................... 4.93 O Operating lease An operating lease is one where the legal owner is also the economic owner and accepts the operating risks and receives the economic benefits from the asset by using it in a productive activity.
............................................................ 17.301 Options are contracts that give the purchaser of the option the right, but not the obligation, to buy (a “call” option) or to sell (a “put” option) a particular financial instrument or commodity at a predetermined price (the “strike” price) within a given time span (American option) or on a given date (European option).
............................................................................... 11.117 Other buildings and structures comprise non-residential buildings, other structures and land improvements.

...................................... 10.73 Other capital transfers consist of all capital transfers except capital taxes and investment grants.
....................................................... 10.210 Other current transfers consist of all current transfers between resident institutional units, or between resident and non-resident units, other than current taxes on income, wealth, etc., social contributions and benefits, and social benefits in kind.

........ 8.19 Other deposits comprise all claims, other than transferable deposits, that are represented by evidence of deposit.
............................... 11.59 Other employment-related social insurance benefits are social benefits payable by social insurance schemes other than social security to contributors to the schemes, their dependants or survivors.

.............................................................................. 8.109 Other equity is equity that is not in the form of securities.
...................................................................................................................... 11.88 Other financial corporations are institutional units providing financial services, where most of their assets or liabilities are not available on open financial markets.
...................................................................................................................................... 4.101 Other financial intermediaries except insurance corporations and pension funds consist of financial corporations that are engaged in providing financial services by incurring liabilities, in forms other than currency, deposits or close substitutes for deposits, on their own account for the purpose of acquiring financial assets by engaging in financial transactions on the market.
.......................................................................................................................................................... 4.109 Other flows are changes in the value of assets and liabilities that do not result from transactions.
................................................... 3.7, 3.99 Other intellectual property products include any such products that constitute fixed assets but are not captured as research and development, mineral exploration and evaluation, computer software and databases or entertainment, literary and artistic originals.
........................................................................................................................................................................... 10.117 Other investment fund shares or units represent a claim on a proportion of the value of an established investment fund other than a money market fund.
..................................................................................................................................................... 11.100 Other investment is a residual category that includes positions and transactions other than those included in direct investment, portfolio investment, financial derivatives and employee stock options and reserve assets.
........................................... 26.94 Other machinery and equipment consists of machinery and equipment not elsewhere classified.

......................................................... 10.86 628 Other structures include structures other than buildings, including the cost of the streets, sewer, etc.
...................................................10.76 Other subsidies on production consist of subsidies except subsidies on products that resident enterprises may receive as a consequence of engaging in production.
......................................................................................................................................7.106 Other subsidies on products consist of subsidies on goods or services produced as the outputs of resident enterprises, or on imports, that become payable as a result of the production, sale, transfer, leasing or delivery of those goods or services, or as a result of their use for own consumption or own capital formation.
....................................................................7.105 Other taxes on production consist of all taxes except taxes on products that enterprises incur as a result of engaging in production.

....7.97 Other transferable deposits are those where one party or both parties to the transaction, or either the creditor or debtor or both of the positions, is not a bank.
.......................................................................................................................................................11.58 Other work-in-progress consists of output (other than on cultivated biological resources) that is not yet sufficiently processed to be in a state in which it is normally supplied to other institutional units.
............................................................................10.141 Output for own final use consists of products retained by the producer for his own use as final consumption or capital formation.
....6.114 Output is defined as the goods and services produced by an establishment, excluding the value of any goods and services used in an activity for which the establishment does not assume the risk of using the products in production, and excluding the value of goods and services consumed by the same establishment except for goods and services used for capital formation (fixed capital or changes in inventories) or own final consumption.
...................................................................6.89 Owner, see legal owner, economic owner P Payments of compensation consist of current transfers paid by institutional units to other institutional units in compensation for injury to persons or damage to property caused by the former that are not settled as payments of non-life insurance claims.
.................................................................................................................................................................8.140 Pension entitlements show the extent of financial claims both existing and future pensioners hold against either their employer or a fund designated by the employer to pay pensions earned as part of a compensation agreement between the employer and employee.
..........................................................................................................................................................11.107 Pension fund sub-sector The pension fund sub-sector consists of only those social insurance pension funds that are institutional units separate from the units that create them.
..........................................................................................................................4.116 Permit to undertake a specific activity A permit to undertake a specific activity is one where the permits are limited in number and so allow the holders to earn monopoly profits, the monopoly profits do not come from the use of an asset belonging to the permit-issuer, a permit holder is able both legally and practically to sell the permit to a third party.
.............10.192 Permits to use natural resources are third-party property rights relating to natural resources.

..............................................................10.191 Permits see also Contracts, leases and licences Population The population of a country is most simply defined as all those persons who are usually resident in the country.
..............19.10 Portfolio investment is defined as cross-border transactions and positions involving debt or equity securities, other than those included in direct investment or reserve assets.

....................................................................................................................26.91 Premium - actual The actual premium is the amount payable to the direct insurer or reinsurer to secure insurance cover for a specific event over a stated time period.
...........................................................................................................................6.186, 17.4 Premium - earned The premium earned is the part of the actual premium that relates to cover provided in the accounting period.

........17.5 Premium - net Net premiums are defined as actual premiums plus premium supplements less the insurance service charge payable by the policy holders.
.....................................................................................................................................................17.35 629 System of National Accounts Premium - unearned The unearned premium is the amount of the actual premium received that relates to the period past the accounting point.
............................................................................................................................................................................... 17.5 Premium earned The premium earned is the part of the actual premium that relates to cover provided in the accounting period.

....... 6.187 Premium see actual premium, premium earned, unearned premium, net premium Price The price of a good or service is defined as the value of one unit of that good or service.
........................................................... 15.11 Primary incomes are incomes that accrue to institutional units as a consequence of their involvement in processes of production or ownership of assets that may be needed for purposes of production.
..................................................................................... 7.2 Principal activity The principal activity of a producer unit is the activity whose value added exceeds that of any other activity carried out within the same unit.
.............................................................................................................................................. 5.8 Producer’s price The producer’s price is the amount receivable by the producer from the purchaser for a unit of a good or service produced as output minus any VAT, or similar deductible tax, invoiced to the purchaser.

It excludes any transport charges invoiced separately by the producer.
................................................................................................................... 6.51 Product balance The product balance for any product recognizes that the sum of output at basic prices plus imports plus trade and transport margins plus taxes on products less subsidies on products is equal to the sum of intermediate consumption, final consumption and capital formation, all expressed at purchasers’ prices, plus exports.
....................................... 14.5 Production boundary The production boundary of the SNA includes the following activities (a) The production of all goods or services that are supplied to units other than their producers, or intended to be so supplied, including the production of goods or services used up in the process of producing such goods or services.

(b) The own-account production of all goods that are retained by their producers for their own final consumption or gross capital formation.
(c) The own-account production of knowledge-capturing products that are retained by their producers for their own final consumption or gross capital formation but excluding (by convention) such products produced by households for their own use.

(d) The own-account production of housing services by owner occupiers.

(e) The production of domestic and personal services by employing paid domestic staff.
......................................................................................................... 6.27 Production is an activity, carried out under the responsibility, control and management of an institutional unit, that uses inputs of labour, capital, and goods and services to produce outputs of goods and services.
........................................................... 6.2 Production measure of GDP The production measure of gross domestic product (GDP) is derived as the value of output less intermediate consumption plus any taxes less subsidies on products not already included in the value of output................. 16.47 Products are goods and services (including knowledge-capturing products) that result from a process of production.
........................... 6.14 Property income is the sum of investment income and rent.

................................................................................................................... 7.107 Provisions for calls under standardized guarantees consist of prepayments of net fees and provisions to meet outstanding calls under standardized guarantees.
.................................................................................................................................. 11.110 Public monuments are identifiable because of particular historical, national, regional, local, religious or symbolic significance.
....... 10.78 Purchased goodwill see goodwill and marketing assets Purchaser’s price The purchaser’s price is the amount paid by the purchaser, excluding any VAT or similar tax deductible by the purchaser, in order to take delivery of a unit of a good or service at the time and place required by the purchaser.

The purchaser’s price of a good includes any transport charges paid separately by the purchaser to take delivery at the required time and place.
............................................................................................................................................................. 6.64 Purchasing power parity A purchasing power parity (PPP) is defined as the number of units of B’s currency that are needed in B to purchase the same quantity of individual good or service as one unit of A’s currency will purchase in A.
.................. 15.199 Q Quasi-corporation A quasi-corporation is either an unincorporated enterprise owned by a resident institutional unit that has sufficient 630 information to compile a complete set of accounts and is operated as if it were a separate corporation and whose de facto relationship to its owner is that of a corporation to its shareholders, or an unincorporated enterprise owned by a non-resident institutional unit that is deemed to be a resident institutional unit because it engages in a significant amount of production in the economic territory over a long or indefinite period of time.
...................................4.42 Quoted shares see listed shares R Real GDI Real gross domestic income (real GDI) measures the purchasing power of the total incomes generated by domestic production.
........................................................................................................................................................15.188 Real holding gains and losses A real holding gain (loss) is the amount by which the value of an asset increases (decreases) over the neutral holding gain for the period, in the absence of transactions and other changes in the volume of assets.
............12.76 Realized holding gain A holding gain (loss) is realized when an asset that has increased (decreased) in value due to holding gains (losses) since the beginning of the accounting period is sold, redeemed, used or otherwise disposed of, or a liability incorporating a holding gain or loss is repaid.
....................................................................................................12.80 Rent is the income receivable by the owner of a natural resource (the lessor or landlord) for putting the natural resource at the disposal of another institutional unit (a lessee or tenant) for use of the natural resource in production.
...................7.109, 7.154 Rental The rental is the amount payable by the user of a fixed asset to its owner, under an operating lease or similar contract, for the right to use that asset in production for a specified period of time.
................................................................................6.245 Repo A repo is a securities repurchase agreement where securities are provided for cash with a commitment to repurchase the same or similar securities for cash at a fixed price on a specified future date.
............................................................................11.74 Research and development consists of the value of expenditures on creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and use of this stock of knowledge to devise new applications.

This does not extend to including human capital as assets within the SNA.
.......................10.103 Reserve assets are those external assets that are readily available to and controlled by monetary authorities for meeting balance of payments financing needs, for intervention in exchange markets to affect the currency exchange rate and for other related purposes (such as maintaining confidence in the currency and the economy, and serving as a basis for foreign borrowing).

Reserve assets must be denominated and settled in foreign currency.
...........................................26.95 Residence The residence of each institutional unit is the economic territory with which it has the strongest connection, in other words, its centre of predominant economic interest.
.............................................................................................................4.10 Resource lease A resource lease is an agreement whereby the legal owner of a natural resource that the SNA treats as having an infinite life makes it available to a lessee in return for a regular payment recorded as property income and described as rent.
........................................................................................................................................................7.109, 17.310 Rest of the world The rest of the world consists of all non-resident institutional units that enter into transactions with resident units, or have other economic links with resident units.
...........................................................................................................4.172 Retained earnings of a corporation or quasi-corporation are equal to the distributable income less the dividends payable or withdrawal of income from the quasi-corporation respectively.
...............................................................................................7.139 S Saving represents that part of disposable income (adjusted for the change in pension entitlements) that is not spent on final consumption goods and services.
...............................................................................................................................................9.28 Secondary activity A secondary activity is an activity carried out within a single producer unit in addition to the principal activity and whose output, like that of the principal activity, must be suitable for delivery outside the producer unit.
.......................5.9 Securities repurchase agreement A securities repurchase agreement is an arrangement involving the provision of securities in exchange for cash with a commitment to repurchase the same or similar securities at a fixed price either on a specified future date 631 System of National Accounts (often one or a few days hence, but also further in the future) or with an “open” maturity.
............................. 11.74 Self-employed persons are persons who are the sole or joint owners of the unincorporated enterprises in which they work, excluding those unincorporated enterprises that are classified as quasi-corporations.

................................................................ 19.25 Services are the result of a production activity that changes the conditions of the consuming units, or facilitates the exchange of products or financial assets.
.................................................................................................................................................... 6.17 Social assistance benefits in cash are current transfers payable to households by government units or NPISHs to meet the same needs as social insurance benefits but which are not made under a social insurance scheme requiring participation usually by means of social contributions.
............................................................................................................................ 8.110 Social benefits are current transfers received by households intended to provide for the needs that arise from certain events or circumstances, for example, sickness, unemployment, retirement, housing, education or family circumstances.
...................... 8.17 Social contributions are actual or imputed payments to social insurance schemes to make provision for social insurance benefits to be paid.
............................................................................................................................................................................... 8.16 Social entity A legal or social entity is one whose existence is recognized by law or society independently of the persons, or other entities, that may own or control it.
..................................................................................................................................... 4.6 Social insurance benefit A social insurance benefit is a social benefit payable because the beneficiary participates in a social insurance scheme and the social risk insured against has occurred.
.................................................................................. 17.89 Social insurance contribution A social insurance contribution is the amount payable to a social insurance scheme in order for a designated beneficiary to be entitled to receive the social benefits covered by the scheme.
............................................... 17.89 Social insurance scheme A social insurance scheme is an insurance scheme where the following two conditions are satisfied, (a) the benefits received are conditional on participation in the scheme and constitute social benefits as this term is used in the SNA, and (b) at least one of the three conditions following is met.
(i) Participation in the scheme is obligatory either by law or under the terms and conditions of employment of an employee, or group of employees.

(ii) The scheme is a collective one operated for the benefit of a designated group of workers, whether employed or non-employed, participation being restricted to members of that group.

(iii) An employer makes a contribution (actual or imputed) to the scheme on behalf of an employee, whether or not the employee also makes a contribution.
........ 8.65, 17.88 Social security benefits in cash are social insurance benefits payable in cash to households by social security funds.

......................... 8.108 Social transfers in kind consist of goods and services provided to households by government and NPISHs either free or at prices that are not economically significant.
................................................................................................................................... 8.141 Special Drawing Rights (SDRs) are international reserve assets created by the International Monetary Fund (IMF) and allocated to its members to supplement existing reserve assets.

................................................................................................ 11.47 Stocks are a position in, or holdings of, assets and liabilities at a point in time.
........................................................................................ 3.4 Stripped securities are securities that have been transformed from a principal amount with coupon payments into a series of zero-coupon bonds, with a range of maturities matching the coupon payment date(s) and the redemption date of the principal amount(s).
.......................................................................................................................................................... 11.69 Subsidies are current unrequited payments that government units, including non-resident government units, make to enterprises on the basis of the levels of their production activities or the quantities or values of the goods or services that they produce, sell or import.
.............................................................................................................................................................. 7.98 Subsidy on product A subsidy on a product is a subsidy payable per unit of a good or service.
............................................................ 7.100 Supply table A supply table at purchasers’ prices consists of a rectangular matrix with the rows corresponding to the same groups of products as the matching use tables and columns corresponding to the supply from domestic production valued at basic prices plus columns for imports and the valuation adjustments necessary to have total supply of each ..................... 14.13 T 632 Taxes and duties on imports consist of taxes on goods and services that become payable at the moment when those goods cross the national or customs frontiers of the economic territory or when those services are delivered by non-resident producers to resident institutional units.
....................................................................................................................................7.90 Taxes are compulsory, unrequited payments, in cash or in kind, made by institutional units to government units.
........................7.71, 8.52 Taxes less subsidies on production consist of taxes payable or subsidies receivable on goods or services produced as outputs and other taxes or subsidies on production, such as those payable on the labour, machinery, buildings or other assets used in production.
..............................................................................................................................................................7.5 Taxes on imports, excluding VAT and duties consist of all taxes (except VAT and import duties) as defined in the GFSM/OECD classifications that become payable when goods enter the economic territory or services are delivered by non- residents to residents.
............................................................................................................................................7.94 Taxes on income consist of taxes on incomes, profits and capital gains.

...................................................................................................8.61 Taxes on products A tax on a product is a tax that is payable per unit of some good or service.
..............................................................7.88 Taxes on products, excluding VAT, import and export taxes, consist of taxes on goods and services that become payable as a result of the production, sale, transfer, leasing or delivery of those goods or services, or as a result of their use for own consumption or own capital formation.
................................................................................................................7.96 Terms of trade The terms of trade are defined as the ratio of the price of exports to the price of imports.

...........................................15.187 Total economy The total economy is defined as the entire set of resident institutional units.
...................................................................4.23 Trade margin A trade margin is defined as the difference between the actual or imputed price realized on a good purchased for resale and the price that would have to be paid by the distributor to replace the good at the time it is sold or otherwise disposed of.
........................................................................................................................................................................6.146 Trading gain or loss The trading gain or loss from changes in the terms of trade is the difference between real GDI and GDP in volume terms.
...........................................................................................................................................................................15.188 Transaction A transaction is an economic flow that is an interaction between institutional units by mutual agreement or an action within an institutional unit that it is analytically useful to treat like a transaction, often because the unit is operating in two different capacities.
........................................................................................................................................3.7, 3.51 Transaction, see also monetary transaction, non-monetary transaction Transfer A transfer is a transaction in which one institutional unit provides a good, service or asset to another unit without receiving from the latter any good, service or asset in return as a direct counterpart.
.........................................................8.10, 8.34 Transferable deposits comprise all deposits that are exchangeable for bank notes and coins on demand at par and without penalty or restriction and directly usable for making payments by cheque, draft, giro order, direct debit/credit, or other direct payment facility.
................................................................................................................................................11.54 Transport equipment consists of equipment for moving people and objects.

..........................................................................................10.84 Tree, crop and plant resources yielding repeat products cover plants whose natural growth and regeneration are under the direct control, responsibility and management of institutional units.
........................................................................................10.95 U Unearned premium The unearned premium is the amount of the actual premium received that relates to the period past the accounting point.
.............................................................................................................................................................................6.187 Unincorporated enterprise An unincorporated enterprise represents the production activity of a government unit, NPISH or household that cannot be treated as the production activity of a quasi-corporation.
......................................................................5.1 Unlisted shares are equity securities not listed on an exchange.

..............................................................................................................11.87 633 System of National Accounts Unquoted shares see unlisted shares Unrealized holding gain An unrealized holding gain is one accruing on an asset that is still owned or a liability that is still outstanding at the end of the accounting period.
............................................................................................................................. 12.80 Use table A use table at purchasers’ prices consists of a set of product balances covering all products available in an economy arranged in the form of a rectangular matrix with the products, valued at purchasers’ prices, appearing in the rows and the columns indicating the disposition of the products to various types of uses.
.................................................... 14.13 V Valuables are produced goods of considerable value that are not used primarily for purposes of production or consumption but are held as stores of value over time.
................................................................................................................................... 10.13 Value added tax A value added type tax (VAT) is a tax on goods or services collected in stages by enterprises but that is ultimately charged in full to the final purchasers.
.............................................................................................................................. 7.89 Vertical integration A vertically integrated enterprise is one in which different stages of production, which are usually carried out by different enterprises, are carried out in succession by different parts of the same enterprise.
........................................... 5.23 Volume index A volume index is an average of the proportionate changes in the quantities of a specified set of goods or services between two periods of time.
........................................................................................................................................... 15.13 W Warrants are tradable instruments giving the holder the right to buy, under specified terms for a specified period of time, from the issuer of the warrant (usually a corporation) a certain number of shares or bonds.
....................................................... 11.119 Water resources consist of surface and groundwater resources used for extraction to the extent that their scarcity leads to the enforcement of ownership and/or use rights, market valuation and some measure of economic control.

............................... 10.184 Weapons systems include vehicles and other equipment such as warships, submarines, military aircraft, tanks, missile carriers and launchers, etc.
...................................................................................................................................................................... 10.87 Withdrawal of income from a quasi-corporation consists of that part of distributable income that the owner withdraws from the quasi- corporation.
........................................................................................................................................................ 7.133 Work-in-progress consists of output produced by an enterprise that is not yet sufficiently processed to be in a state in which it is normally supplied to other institutional units.
................................................................................................................. 10.134 Work-in-progress on cultivated biological resources consists of output that is not yet sufficiently mature to be in a state in which it is normally supplied to other institutional units.
................................................................................................. 10.140 634 Index A abnormal flooding 12.46 absorption matrix 14.87 accidental damage 6.147, 6.243 accounting concepts 18.1 accounting framework 1.1 accounting period 3.15 accounting rules 2.4, 3.3, 3.16, 3.111 financial statistics 27.7 accounts in volume terms 18.2, 18.63 accounts receivable or payable 3.174, 11.73, 11.127, 22.93 accounts, articulation 1.14 accrual accounting 3.166 accrual adjustments 11.105 accrual recording 2.55, 7.41, 7.84, 18.34 interest 7.115 taxes 8.58, 22.91 accrued benefit obligation (ABO) 17.181 accumulation 1.6, 3.20, 14.11 accumulation accounts 1.20, 2.84, 2.107, 3.2 accuracy 18.3, 18.12 acid rain 12.52 acquisition 21.22 acquisition of consumption goods and services 9.17 acquisition of goods and services 9.36 acquisition of non-financial assets 10.22, 16.20 time of recording 10.53 acquisition vs. expenditure 9.31 activation of a one-off guarantee 22.129 Activities of Multinational Enterprises (AMNE statistics) 26.90 activity 15.120 deliberately concealed 6.40 facilitating financial intermediation 4.29 illegal 6.39 informal 6.39 non-economic 6.25 not treated as ancillary 5.37 acts of war 12.46 actual consumption 1.76 actual final consumption 9.6 general government 9.103, 9.117 households 2.104, 9.116 NPISHs 9.111, 9.118 actual hours worked 19.42 actual premiums 17.14, 17.35 definition 6.186, 17.4 actuarial estimates 7.150, 17.7, 17.144 actuarial reserves for life insurance 17.17 ad
 valorem taxes 7.88, 7.100, 7.105, 15.175 additions to equity 7.135 additivity and chaining 15.58 adjusted claims 6.189, 17.21 adjusted disposable income 2.100, 8.32, 8.144, 9.7 adjustment for seasonality 18.37 adjustment for the change in pension entitlements 9.9, 9.13, 16.15, 17.141 adjustment for working days 18.38 administrative data 19.77, 19.80 administrators of pension funds 8.86 advances 17.294, 27.35 advocacy groups 23.19 aerial and other surveys 10.106 after-tax rent 7.157 age-efficiency profile 20.17
 agencies of central government 4.138 age-price profile 20.17 aggregate real income measures 15.192 aggregate statistics 1.3 aggregation 3.191 aggregation of quarterly estimates preferable to an annual estimate 12.99 agricultural activities 25.46 agricultural output 6.137 agricultural production 25.72 agricultural products for own use - valuation 6.124 agriculture, subsistence 1.41 aid agencies 4.169 allocated gold 11.60 allocated gold accounts 11.45, 17.240 allocation of other primary income account 7.22 allocation of primary income account 2.92, 7.16, 11.90, 16.8, allowances for dependents 7.45 alternative method of sub-sectoring the general government sector 26.4, 28.72 4.148 analytic presentation of the balance of payments 26.101 analytical functions 28.63 analytical purposes 28.2 analytical unit 5.53 ancillary activity 4.66, 5.3, 5.10, 6.207, 14.33, 29.34, 29.65 characteristics 5.36 definition 5.36 exclusions 5.37 portrayal in a satellite account 5.45 treatment as a separate establishment 5.41 treatment as secondary activity 5.44 value added 5.39 ancillary services 6.215 animal resources yielding repeat products 10.92 annual chain volume series vs. quarterly 15.48 annual chained indices 15.53 annual overlaps 15.46 annuitant 17.66 annuity 6.179, 7.144, 8.139, 12.59, 17.6, 17.55, 17.66, 17.158, 17.217, 24.79 635 System of National Accounts initiation 17.74 purchase of 17.74 appearance and disappearance of assets 3.102, 12.12 appearance of new products 15.4
 appraisal costs 10.106 appropriation 22.142 approximation to market prices 3.123 arbitrage 11.112 arm’s-length prices 21.50 armed forces 19.21, 19.32, 19.33, 19.34 articulation of the accounts 2.14, 27.2 artificial subsidiaries 4.63, 26.28 arts and culture organizations 23.19 asset 2.33, 2.44, 10.8, 11.3 cross-classified by debtor 2.151 definition 3.5, 3.30 denominated in foreign currency, holding gains 12.120 developed under a contract of sale 10.55 entry into balance sheet 3.42 exit from balance sheet 3.42
 expected life length 20.55 infinite life 7.109 produced by communal effort 10.56 produced for own communal use 10.58 produced on own account 10.54, 10.89 relation to residence 3.39 residual value 20.51 shared ownership 17.344 with long production periods 10.54 asset account 13.1, 13.8, 29.116 asset boundary 3.31, 3.37, 10.33 services 10.37 asset valuation, effect of changes in the interest rate 12.40 asset-backed securities 11.64, 11.67 associate of corporation 26.85 definition 4.75 autonomous pension fund 8.78 autonomy 4.6, 4.69, 4.138, 22.20 auto-pilot 4.61 average service lives 6.253 average-year prices 20.34 B bad debts 21.56 bailout 21.54, 22.128, 22.143 balance of goods and services 16.29 balance of goods, services and primary income 26.70 balance of payments 16.22, 26.12, 26.46 balance of primary incomes 2.93, 7.18, 7.25, 8.10, 16.10, 16.29, 26.70, 28.73 balance sheet 1.14, 1.20, 1.22, 2.33, 2.85, 2.121, 3.2, 3.42, 3.155, 12.1, 13.1, 15.168, 26.8, 28.75 balancing item 1.14, 2.73, 2.83, 2.117, 3.10, 6.6, 16.29 analytical uses 13.6 definition 13.2 integral part of the SNA 16.31 definition 3.9, 3.107 financial account 11.1 gross and net 2.80, 6.9, 6.72 of a current account 6.70 of multi-regional units 18.49 636 price and volume dimensions 18.27 production account 6.8 public sector 22.168 balancing supply and use tables 25.33 bank 11.56 bank interest 6.164, 7.116, 8.24, 9.62, 13.62, 17.250 banker’s acceptance 11.25, 11.68 bankruptcy 21.13 barges 10.83 barter
 1.36, 2.24, 3.77, 3.79, 6.102, 8.22, 9.45, 9.75, 10.62, 10.146, 17.226 barter transaction definition 9.49 valuation 9.50 basic heading 15.206, 15.229 basic prices 2.63, 2.87, 3.146, 7.7, 14.45, 14.139, 16.49 definition 6.51 behaviour of economic agents 17.208 bench-marking 18.33, 18.39 quarterly series 15.48 benefit, social insurance see also insurance claim benefits 3.27, 6.198, 11.4, 17.4 bills 11.64 increase in value treated as interest 17.231 interest 7.118 binary method, ICP 15.217 Black-Scholes 13.83
 block method, ICP 15.213 advantages 15.215 bonds 11.64 deep-discounted 12.109 dirty price 13.59 discounted 17.258 holding gains and losses vs. interest 12.108 bonus shares 7.129, 11.89 bonuses 7.44 insurance 17.18 book value 3.157 border workers 16.53, 19.32, 19.33, 19.81, 26.68 residence 26.38 borderline between individual and collective services 9.98 borrowed funds 7.12 BPM6 16.28, 29.86 Branch undertakes production for one year or more 26.30 branch BPM6 definition 26.30 characteristics 4.47 complete set of accounts, with a balance sheet, exists 26.30 recognized as being subject to the income tax system of the economy where located 26.30 subject to the income tax system where located 26.30 undertakes production for one year or more 26.30 branches 4.13, 4.43, 11.88 brass plate company 4.56 breakdown by currency 27.16 bridge country 15.222 broad money 27.11 national measures 11.75 budget surplus or deficit 1.29 build, own, operate, transfer (BOOT) scheme 10.59 buildings and structures 15.145 business accounting 1.63, 2.56, 2.94, 3.112, 3.139, 7.24 business and professional licences 7.97 business register 21.8 business surveys 19.54, 19.77, 19.79, 19.82, 24.21 business travel expenses 8.99 by-products 5.8, 5.49, 28.46 C call option 11.117 calls under standardized guarantee schemes 17.220 Canberra group report 24.22 cancellation of debt by mutual agreement 10.210 capital account 1.20, 2.110, 8.25, 10.1, 16.18, 16.33, 28.71 capital formation by type of producing unit
 14.160 capital gains see holding gains capital injections 11.90, 11.91, 21.54, 22.47, 22.138 capital productivity 19.63 capital services 6.245, 7.13, 14.157, 18.67, 20.1, 20.5, 21.51 as data quality check 20.29 capital stock 6.249, 18.31, 20.1 fixed assets 13.9 valuation 20.8 capital taxes, definition 10.207 capital transfer 2.110, 3.60, 8.10, 8.25, 8.126, 8.128, 10.19, 10.200, 11.91, 16.18, 22.105, 22.129, 22.134, 22.145, 22.162, 26.7, 26.71 acquisition of equity 22.138 government guarantees 17.222 in kind
 19.41 one-off guarantee 17.212 transfer of pension entitlements 17.188 captive financial institution 4.59, 22.23 definition 4.113 car parking, subsidized 7.51 car tax 7.83 caravans 10.83 cars, company 8.100 cash accounting 2.56, 3.164 cash flow problem 21.52 casino licences 17.350 catastrophic losses 12.46 cattle, dairy 10.92 central bank 7.122, 22.150 as a financial institution 6.155 definition 4.104 dividends 22.152 exceptional payments 22.152 interest paid 22.153 of a currency union 4.176 central government 4.30, 4.118 central government agencies 4.138 central government sub-sector 4.134 centre of decision-making 2.16 centre of predominant economic interest 1.48, 2.19, 4.10, 19.10 certificates of deposit 11.99 chain indices 15.36 advantages and disadvantages 15.41 Laspeyres volume 15.40 Laspeyres vs. chain superlative 15.51 Paasche volume 15.40 volume series not additive 15.59 chain of ownership 21.37 chaining 15.37, 15.97 quarterly accounts 18.43 seasonal data 15.44 chambers of commerce 8.132 change in life insurance and annuities entitlements 17.53 change of economic ownership 9.73, 11.78 goods for processing 14.38 imports and exports of goods 26.20 no exceptions in BPM6 26.21 change-effecting services 6.17, 6.18 changes in assets 2.45 changes in classification assets 3.104 institutional units 12.10 natural resources 12.29 changes in classification and structure 2.114 changes in inventories 1.67, 2.32, 10.118, 15.156, 18.42 by product type 14.110 deflation of
 15.62 changes in liabilities and net worth 2.45 changes in life insurance and annuities entitlements 8.36 changes in net worth due to neutral holding gains 2.120, 12.77 due to nominal holding gains 2.117, 2.120, 12.77, 16.38 due to other changes in the volume of assets 2.114, 12.5, 16.38 due to real holding gains 2.120, 12.77 due to saving and capital transfers 2.110, 13.12, 16.19, 16.38 definition 10.21 changes in prices 2.146 changes in tax regimes 14.151 changes in the terms of trade 2.146 changes in the
 values of assets and liabilities 12.1 characteristic products 29.59, 29.62 health care 29.140 characteristics ancillary activities 5.36 of an institutional unit 1.9 of production activities 5.5 charitable contributions 3.82 charities 4.88, 4.169, 8.132 child-care 7.51 children, payments to 24.60 CIF 3.149, 14.70 CIF-to-FOB adjustment 14.77 CIF-type valuation 26.52 civil engineering works 10.77 civil servants 19.21 civil society 4.35, 23.11 claims on the IMF 11.59, 11.73 claims outstanding 11.105, 17.16 definition 6.187, 17.5 claims treated as capital transfers non-life insurance 17.47 claims, insurance 17.1 definition 6.187, 17.5 637 System of National Accounts incurred 17.5 non-life insurance 17.47 reinsurance 17.64 classification hierarchy 3.12 classification of expenditure by purpose 9.14 classification of financial instruments 11.29 classification of products 5.4 clean-up costs 20.56 closed economy 11.21 closing balance sheet 13.13 closing stock 13.1 clubs, social, cultural, recreational and sports 4.167 COFOG 9.85, 9.99, 14.96, 22.86, 29.9, 29.15 COICOP 9.71, 14.94, 24.67, 28.79, 29.9, 29.13 collateral 11.123, 22.132 collateralized debt obligations 11.67 collective consumption 2.104 collective consumption expenditure 14.97 collective consumption service 9.4 collective services 4.117, 8.33, 8.142, 9.85, 9.96, 22.7, 22.17 examples 9.97 NPISHs 9.107 commercial accounting 17.58 commercial paper 11.64, 11.99 commissions 3.122, 3.141, 7.44, 11.114, 17.33, 20.60 payable
 by reinsurers 17.64 commodity balance 14.2 commodity futures 11.114 commodity gold 17.241 trade margin 17.242 communal construction 6.127, 10.212, 19.26, 19.41, 23.43 community-based or grass-roots associations 23.19 commuting time 19.52 company cars 7.51, 8.100 comparability 15.204 comparative price level indices 15.225 comparator cost 29.150 comparisons, inter-spatial 2.66 compensation for damages or injury 10.212 compensation for injury 8.101, 8.140 compensation in kind 6.103 compensation index 19.60
 compensation of employees 7.2, 7.5, 7.17, 7.39, 15.174, 16.7, 17.104, 19.20, 26.58 ESO 17.389 in volume terms 14.155 social contributions 17.155 to or from abroad 8.133 complete set of accounts 4.2 requirement for quasi-corporation 4.44 comprehensiveness of SNA 1.1 computer software and databases 10.109, 10.110 conceptual elements 2.15 concessional lending 3.134, 21.59 conferences 29.89 confiscation 22.142 conglomerates 4.51, 4.74 connected products 29.59 consistency 2.14, 2.160 between different statistical systems 1.58 638 consolidation 2.68, 2.162, 3.197, 11.43, 16.40, 21.21, 22.14, classification 3.16 of SNA 1.1 of the central framework 2.2 quadruple accounting 3.16 timing 3.16 valuation 3.16 22.79, 22.82 exceptions 22.83 insurance 17.57 only within a single account 22.80 practical difficulties 22.84 constant prices vs. volume terms 15.29, 15.98 constant purchasing power 2.66, 2.146 construction 14.27 in BPM6 26.57 construction projects, non-resident 4.48 constructive liability 3.34, 3.40 consumer durables 2.34, 2.167, 3.46, 3.47, 9.42, 9.60, 10.34, 13.93, 14.109, 24.83, 29.12, 29.45, 29.152 definition 9.42 repair and maintenance 9.69 consumer price index 12.87, 14.16, 14.145, 24.67 for different groups of households 24.67 consumer prices 1.29 consumer subsidies 7.99 consumer utility 15.23 consumers’ associations 4.167 consumption 1.6, 3.20, 14.11 definition 9.39 enlarged 9.17 consumption expenditure 1.76 collective 14.97 in kind 24.65 individual 14.97 NPISHs 9.105,
 14.95 time of recording 9.72 valuation 9.74 consumption good or service 9.2 consumption of fixed capital 1.17, 1.60, 2.24, 2.86, 2.110, 3.75, 6.9, 6.71, 6.73, 6.214, 6.241, 6.247, 6.256, 7.4, 8.21, 8.32, 9.10, 9.60, 10.3, 10.25, 12.94, 13.28, 15.168, 16.51, 18.31, 20.5, 20.28, 20.34, 28.75 animals 10.94 basis of valuation 6.248 definition 6.240 detailed discussion 10.155 effect of not estimating 10.26 reduction in asset value 13.23 relation to capital stock 6.257 revised estimates 12.50 consumption of goods
 and services 9.39 consumption of natural capital 20.48, 29.118 consumption possibilities 8.33 consumption subsidies 29.69 consumption vs.investment 1.52 contingencies 8.65, 11.22, 17.15, 17.87, 17.212 contingent commitment 3.184 contingent future benefits 8.34 contingent liability 2.29, 3.40, 11.23, 21.65, 29.49 contingent positions 11.24 contract 17.296 as an asset 17.299 transferable 17.370 contract of employment 19.21 contract of sale 6.140 implications for capital formation 6.112 contract price 3.129 contracts for sports players 17.368 contracts, leases and licences 3.44, 10.16, 10.186, 12.31, 22.90 changes due to the expiration of the advantage given by the as- set 12.32 costs of ownership transfer 10.188 contributing family workers 7.30, 19.26, 19.27 contribution holiday 7.66, 17.153, 17.166 contribution supplements 17.112, 17.123, 17.135, 17.136 contribution to growth 15.63 contributions to international organizations 8.128 contributions, social security 17.124 control by government 4.26, 4.34 by non-residents 26.85 from abroad 4.34 of a corporation by a non-resident unit 4.81 of an NPI by government 22.26 public, national private and foreign 2.18 convenience services 6.157 convention on licences and fees 9.70 convertibility 27.19 cooperatives 4.41, 7.129, 21.11, 23.21 coordinating framework for economic statistics 1.57 copies 6.208 distributed by the owner free of charge 10.101 master 10.99 valuation 6.210 vs.originals 10.99 COPNI 9.108, 14.95, 23.30, 29.9,
 29.17 COPP 14.89, 29.9, 29.19 corporate migration 26.42 corporate restructuring 12.66 corporate sell-off 21.23 corporate spin-off 21.23 corporation associate, definition 4.75 characteristics of 4.38 control by non-residents 4.33, 4.81 coverage 4.38 coverage by type of unit 4.7 creation 21.9 definition 4.7 economic objectives, functions and behaviour 4.18 indicators of control 4.80 ownership 4.68 sub-sectors 29.29 subsidiary, definition 4.73 winding up 21.13 correspondence between products and producing
 units 14.17 cost benefit analyses 20.68 cost of living indices (COLIs) 15.23 costs of operating a social insurance scheme 7.64 costs of ownership transfer 3.122, 10.39, 10.51, 10.158, 13.16, 14.101, 14.104, 15.145, 20.2 land 10.81 non-produced assets 10.97 on acquisition 20.54 on disposal 20.60 time of writing off 10.52 valuables 10.150 writing off 12.55 costs of storage 6.149 counterpart reporting 26.18 counterparts of non-financial transactions 2.29 country’s relative spending power 15.198 coupon payments 11.70 coupons 17.258 coverage of labour data 19.67 CPC 2.37, 5.50, 9.71, 9.85, 9.108, 10.85, 10.86, 29.24 credit card 6.159, 6.161, 17.294 credit card loans 11.67 credit derivatives 11.123 creditor approach 17.261 crews 19.32, 19.33 residence 26.38 cross-border personal transfers 26.67 cross-currency interest rate swaps 11.121 cultivated biological resources 10.88 currency and deposits 27.31 currency authorities 22.150 currency boards 22.150 currency under pressure 7.122 currency union 4.176, 26.25 currency and deposits definition 11.52 current accounts 2.83 current cost accounting 1.65 current external balance 16.18, 16.29, 26.6, 26.70 current international cooperation 8.27, 8.128, 26.66 current taxes on capital 8.63 current taxes on income, wealth, etc.
7.2, 8.15, 8.27, 16.12 current transfer 2.95, 3.60, 8.1, 8.10, 8.39, 15.194, 16.12, 18.65, 26.66 between households 8.133 in respect of central bank activity 6.155 pensions seen as 9.21 to NPISHs 8.132 within general government, definition 8.126 current transfer in cash 8.42 current transfer vs. capital transfer 10.201 customs declarations 7.84 customs tariff schedules 7.93 customs unions 26.109 D dairy cattle 10.92 damage-based measures 29.126 data extrapolation 18.33 data interpolation 18.41 data projections 18.11, 18.41 data sources for employment data 19.76 databases 10.112 639 System of National Accounts valuation 10.113 death benefits 8.39, 8.68 death duties 8.63, 10.207 debentures 11.64 debt 22.7, 22.78 arrears 22.120 assumption 22.117, 22.118, 26.107 cancellation 10.205 cancellation, by mutual agreement 10.210 concessional 22.123 conversion 26.107 debt-for-equity swap 22.116 defeasance 12.42, 22.122 definition 22.104 forgiveness 10.205, 12.39, 22.107, 26.107 instruments 11.112 definition 26.103 payments on behalf of others 22.119 refinancing 22.114, 26.107 reorganization 26.106 repudiation 12.41, 26.108 rescheduling 21.59, 22.111, 26.107 restructuring 26.106 write-downs 26.108 write-offs 22.116, 26.108 debt securities 6.170, 17.258, 27.32 definition 11.64 holding gains and losses vs. interest 12.107 long-term 11.71 debtor approach 17.261 decision tree 4.25, 22.37 decision-taking 1.1 decline in value of a mineral deposit 20.48 decommissioning costs 20.56 deductible tax 7.6 deductible VAT 6.58, 14.45 deep
 discounted bonds 12.109 defensive expenditure 29.119 defined benefit pension scheme 7.59, 7.147, 7.149, 13.78, defined contribution pension scheme 7.59, 7.147, 13.78, 17.176 17.144 definition 17.129 notional fund 17.131 definition 17.128 definition 6.89 deflation of flows 15.194 degradation of land, water resources and other natural assets 12.30 of natural resources 2.167 valuation of 29.120 Delhi Group 25.14, 25.60 deliveries between establishments 18.48 de-merger 21.23 dependants support for 8.68 29.118 forests, fish stocks etc.
12.27 depository corporations link to broad money 27.12 640 three sub-sectors 27.14 depository receipts 11.84 deposits and loans, holding gains and losses 12.106 deposits, lost 17.383 deposit-taking corporations, definition 4.105 depreciation 1.60, 2.142, 6.240, 6.247, 6.249, 20.32 details for publication 18.2 deterioration of assets 12.94 development aid 29.72 diamonds 10.133 differences in quality 9.77, 12.23 different kinds of goods or services.
15.65 diplomatic personnel 19.11 diplomats, military personnel, etc., residence 26.38 direct effect of a change in demand 28.39 direct hours 19.51 direct insurance 6.180, 8.115, 17.2, 26.69 direct insurer 8.122, 17.57 direct investment 21.41, 21.42, 26.87 definition 26.84 direct investment enterprise 21.34, 26.61 direct investment, inward 26.89 direct investment, outward 26.89 direct investor 21.34, 26.81 direct subsidies 7.103 direct taxes 7.75, 8.52 disabled workers 19.21 disaggregation into sectors and sub-sectors 1.10 disaggregation of households 28.82 disassembly 20.60 disasters see natural disasters discontinuities 18.11 discount factor 17.69, 20.27, 24.79 discount rate 20.27 discounted bonds 17.258 discounted present value 3.137 discounting 6.246 discovery of new exploitable deposits 12.18 discrepancies 18.2, 18.15 net lending or borrowing 18.20 discretionary income 2.161 disposable income 2.97, 8.2, 8.10, 8.20, 9.7, 16.14 distinction between goods and services 26.51 distributable income of corporations 7.131 distributed income of corporations 7.25 distributed profits 7.127 distribution and redistribution of income 2.90 distribution margins 14.47 distribution of expenditure 14.16 distribution of income 1.14 tertiary 2.99 distribution of wealth 24.77 distributive transactions 2.28 divestment 21.23 dividends 7.23, 7.128, 7.151, 11.90, 22.136 dividends vs. withdrawal of equity 17.284 division of labour 6.10, 6.22 do-it-yourself activities 1.45, 9.66 do-it-yourself repairs and maintenance 6.36 depletion of
 natural resources 1.47, 2.167, 10.180, 12.26, from central bank 22.152 domestic and personal services 1.39 domestic currency, holding gains and losses 12.105 domestic final expenditures 15.185 domestic services 2.167 domestic staff 4.151, 6.26, 6.35, 6.116, 9.54, 24.14, 25.46, economically significant prices 2.40, 4.18, 22.28, 23.4 split between capital formation and consumption 10.41 25.64, 25.72 domestic tourism 29.92 donations 23.33 double deflation 14.154, 15.2, 15.133 double-entry book-keeping 1.63,
 3.112 down time 19.51 drought 12.46 due-for-payment recording 3.165 durable goods 9.42 durable military goods 6.232 durable vs. non-durable goods 9.42 duties excise 7.83, 7.94, 7.96, 8.57 export 7.95 import 7.93 dwellings 2.3, 9.57, 15.145 definition 10.68 maintenance 24.51 owner-occupied services 6.34 rented by their owners 9.57 E earmarked taxes 4.138 earnings, reinvestment of 11.92 earnings, retained 13.90 earthquakes 12.46 econometric methods 1.30 economic analysis 1.1, 27.37 economic appearance 12.8, 12.15 natural resources 12.18 valuables 12.16 economic benefit 2.34, 3.19 economic flows 2.23, 3.6 definition 3.6 economic functions 2.21 economic growth 1.26 economic objectives functions and behaviour of corporations 4.18 functions and behaviour of government units 4.20 functions and behaviour of households 4.21 functions and behaviour of NPIs 4.22 economic or currency unions 26.44 economic owner 2.47, 3.21, 10.5, 11.76, 13.3, 17.300, 20.38 change of 3.169 definition 3.26 economic policy 1.31 economic principles 1.1 economic production 6.24 economic rent 20.45 economic territory 4.10, 4.11, 4.12, 26.26 economic theoretical concept of income 16.14 economic theory 1.64 economic unions 4.176, 26.25, 26.109 economic value 2.21, 3.1 economically active population 6.31, 19.5, 19.29 definition 6.95 ecosystem inputs 29.106 education 19.52, 29.50 education benefits 8.68 education services 4.119, 22.20 effects of depletion and degradation 29.105 efficiency 6.254, 6.256
 losses 15.169 of an asset 20.2 of economic production 19.4 of fixed assets 6.249 profiles 6.255 EKS method 15.206, 15.218 advantages 15.220 eligibility for loans 1.34 embassies 4.11, 4.49 emergence of markets 6.22 emission permits 17.363 employed persons 7.29 employee definition 19.20 of foreign government agencies 19.33 temporarily not at work 19.23 vs. self-employed person 7.28 employee stock option, see ESO employees, number of 14.121 employer’s contribution 17.133, 17.149 employer’s imputed social
 contribution 8.84, 17.146 employer’s social contribution 7.56, 8.80, 17.152 employer’s social security contribution 17.102 employers’ actual social contribution 8.83 employers’ actual social contributions 17.114 employment 6.31 definition 19.19 employment agencies 19.21 employment by industry 14.160 employment in informal enterprises 25.59 employment relationship 8.76 employment-related social benefits other than pensions 17.114 encumbered lease 17.371 endowment policy 17.6 enlarged consumption 9.17 enterprise change of economy of residence 26.42 definition 5.1 horizontally integrated 5.21 informal vs. SNA usage 25.48 little physical presence 26.41 vertically integrated 5.23 enterprises of informal employers 25.44 entertainment, literary and artistic originals 10.115 entitlement to future goods and services on an exclusive basis, definition 10.195 entrepreneurial income 1.68, 2.94, 7.22 entrepreneurial income account 7.13, 7.22 environment industry 29.115 environmental accounting 2.167, 13.9 environmental accounts 29.102 environmental protection 29.110 641 System of National Accounts environmental protection accounts 29.114 environmental protection activities 29.37 environmental protection expenditure 29.12, 29.85 environmental resources exclusions from the SNA asset boundary 3.49 environmental tax 29.111 equalization provision 6.189, 6.190, 17.23 equipment integral to buildings 10.82 equipment prices 15.147 equity 12.114, 27.33 definition 11.83 equity and investment
 fund shares 11.81 establishment 2.38, 3.13, 7.3, 14.17, 28.44 holding gains 17.238 equity capital 7.128, 22.135 equity carve-out 21.23 equity investment 22.135 return 22.136 errors and omissions 22.77 ESO 7.55, 17.384, 17.396 cost of administering 17.390 definition 11.125 other volume changes 12.43 recording of exercise 17.394 definition 5.2, 5.14 extent of accounting for 5.18 establishment data 14.3 establishment survey 25.85 exceptional events 2.114, 12.9 exceptional financing 26.100 exceptional losses
 animals 10.94 due to climatic extremes 10.96 inventories 12.58 units 17.288 exchange rates 26.110 conversion of GDP 15.198 exchange value 3.121 excise duties 7.83, 7.94, 7.96, 8.57 excursionists definition 29.92 ex-dividend quotation of shares 17.284 exercise date 17.385 exercise period, ESO 11.125 exercise price 17.385 exhaustiveness 19.35, 25.2, 25.28 existing assets 14.107 existing fixed assets 10.36, 10.38 existing good 9.49, 14.102 sales 10.39 exceptional payments from central bank 22.152 excess of loss reinsurance 17.11, 17.22 exchange of equity and investment fund shares between institutional expected claim see adjusted claim expenditure by government on market goods and services 9.89 expenditure by tourists 24.66 expenditure measure of GDP 16.41, 18.60 expenditure on financial services 9.61 expenditure on goods and services 9.32 time of recording 9.33 expenditure taxes 8.64 642 expenditure vs. acquisition 9.31 expenditure, in volume terms 18.25 expense, GFS definition 22.70 experimentation 29.8 explicit fees financial services 17.234, 17.239, 17.256 export duties 7.95 export prices, differences from PPIs 14.146 export subsidies 7.103 export taxes 7.95 exports 1.50, 3.149, 14.114, 16.5, 26.3 exports and imports 15.160 exposure draft (ED) 21.62 external account 1.2 external balance on goods and services 26.6 external balance on primary income 26.70 External Debt Guide 26.104 external satellite 29.85 external transactions of the economy 2.20 externalities
 1.82, 3.92, 3.103, 6.47, 10.102, 29.42 extra-budgetary units 22.20 extraction 7.160 extraction of mineral resources 17.342 extraction of water 17.339 extrapolated GDP series vs.PPP benchmark 15.235 extrapolation chained indices 15.55 PPPs 15.231 extraterritorial enclaves 4.49 F face value 3.157 facilitation services 3.69 factor reversal test 15.31 fair value 3.157, 21.58 family members, as employees 19.40 farm-gate price 3.124, 6.124, 24.48 FDI immediate direct investor 21.46 ultimate investing country 21.45,
 21.46 ultimate investor 21.44 fee supplement, standardized guarantee schemes 17.211 fees 3.122 standardized guarantees 8.124 fees, commissions or royalties 6.211, 6.214 fellow enterprise 21.36, 26.86 films 10.115 final consumption 1.52 final consumption expenditure 2.103, 9.6 corporations 9.11 enterprises 8.18 general government 9.85, 15.142 government, derivation 9.90 NPISHs 9.115, 15.142 classification 9.108 service charges for social insurance schemes 17.159 final demand 14.84 final salary scheme 7.149 financial account 1.20, 2.112, 10.1, 11.1, 16.21, 16.33, 26.8, 26.73, 27.24 no balancing item 11.1 financial account entries counterpart to entries in other accounts 11.10 exchange of financial assets and liabilities 11.10 financial activities secondary 4.95 financial asset 1.46, 2.35, 3.37 creation 11.15 definition 3.36, 11.8 definition 4.111 financial claim 11.4 definition 3.35, 11.7 time of recording 11.37 financial assets and liabilities, transformation of risk 3.29 financial auxiliaries 4.98, 4.101, 6.157, 6.158, 22.150 financial corporations 1.10, 2.17, 4.19, 17.226, 28.27 definition 4.98 sub-sectors according to control 4.103 sub-sectors according to type of activity 4.102 types of units 4.98 vs. financial institutions 17.227 financial derivatives 7.115, 11.23, 11.33, 27.34 and employee stock options 26.93 associated with reserve asset management 26.93 contracts 11.59 definition 11.111 holding gains and losses 12.118 not debt instruments 26.103 other
 volume changes 12.43 service charge component 11.114 financial distress 17.212, 21.52 financial institutions vs. financial corporations 17.227 financial instruments 11.27 classification of 11.29 giving rise to dividends 17.236 giving rise to interest 17.236 giving rise to investment income 17.236 financial intermediaries 1.21, 4.98, 4.101, 11.18, 17.227 financial intermediation 4.29, 6.151, 6.157 definition 17.228 financial lease 2.47, 3.66, 6.168, 6.239, 9.73, 10.56, 10.57, 10.82, 11.73, 17.345, 20.38, 20.67,
 21.51, 22.163 definition 17.304 financial liabilities 3.20 financial production, flows and stocks in the SNA 27.4 financial regulation 6.190 financial risk management 6.158, 17.228 financial services 3.67, 4.29, 14.29 not incorporated into the value of any financial asset 17.234 financial statistics 27.18 coverage 27.6 financing of transfers 29.81 fines and penalties 8.135 finished goods 10.142 conversion from work-in-progress 6.112 definition 10.142 valuation 10.143 firewood 12.22 fiscal activities of SPEs 22.54 fiscal operations 22.3 fish 17.333 FISIM 3.67, 3.141, 6.163, 8.24, 11.56, 15.114, 17.239, 17.304, 17.309, 22.71, 24.58, 26.60 fish farms 10.76 Fisher index 15.27, 15.32, 15.53 fishing quota 17.334 recreational licence 17.336 fixed asset 1.46 distinguishing features 10.11 owned vs. rented 14.43 fixed industry sales structure 28.57 fixed interest loans 6.167 fixed product sales structure 28.57 fixed-rate marketable bonds effect on value of changing interest rates 12.110 fixed-term deposits 11.59 flexibility 2.160, 11.25, 18.66, 27.36, 28.1, 28.68, 29.1 in classification of financial instruments 11.32 recording of taxes 8.61 use of classifications 1.71 flexibility of SNA 18.7 float 3.173, 11.39 flow-of-funds 11.56, 11.95, 27.9, 27.23 analysis 17.252 matrix 2.150 use 27.37 flows 3.2 flows between different groups of households 24.69 FOB 3.149, 14.70, 26.52 foreclosures 12.49 foreign affiliates 21.48 Foreign AffiliaTes Statistics (FATS) 21.48, 26.90 foreign
 controlled corporations 21.29 foreign currency 3.139, 3.141 foreign direct investment 11.129, 13.95, 21.20, 21.32, 27.21 foreign direct investment enterprise 4.82, 11.92, 12.113 foreign exchange bureaux 17.229 foreign exchange margins 9.63 foreign exchange swaps 11.121 foreign reserves 17.244 foreign-controlled enterprises 26.89 forested land 17.329 formal employment 25.55 formal job attachment 19.23 forward contract definition 11.120 foreign exchange 11.121 forward markets 11.112 forward rate agreement
 7.115, 11.121 forward-type financial derivative 17.290 foundations 23.19 framework for direct investment relationships 21.37 free banking 17.230 free housing 8.68 free trade zones 26.26 freight and insurance 3.150, 26.52 fringe benefit 7.53 from-whom-to-whom recording 2.10, 2.52, 2.76, 2.150, 2.153, 11.95, 27.27, 28.80, 29.30 full-time equivalent employment 643 System of National Accounts definition 19.43 full-time equivalent workers 19.42 function 2.42 functional categories 26.73, 27.21 purposes 26.74 functional classification 2.154, 29.2, 29.9 functional classification of financial transactions 26.48 funds in transit 21.41 future obligations 7.150 futures 11.114 G gains from trading 6.10 GDP 1.3, 6.1, 6.70, 6.221, 7.10, 7.21, 16.1 definition 2.134 derived from value added 2.138 expenditure measure 16.41, 18.60 income measure 16.41, 18.61 per capita 1.28, 19.1 production measure 16.41, 18.57 three identities 6.83 vs. GNI 7.21 vs. NDP 2.142 Geary Khamis (GK) method 15.214 Geary method of calculating terms of trade 15.191 general corporate policy 4.77 general equilibrium system 1.15 general government 2.17, 28.28 alternative methods of sub-sectoring 4.148 as administrator of social insurance scheme 8.76 consumption expenditure 14.96 final consumption expenditure 9.114 general government sector 4.30 composition by type of units 4.127 sub-sectors 22.39 general sales taxes 7.94, 7.96 generation of income 1.14 generation of income account 7.3, 14.86, 14.120, 14.160, 16.7
 geometrically declining prices 20.22 GFSM2001 22.96, 29.86 gift taxes 10.207 gifts 8.101 global imbalances 26.99 globalization 14.39, 21.38, 21.39, 24.17, 26.36 GNI 7.20, 16.1 gold 10.133 gold bullion 11.28, 11.45, 17.240, 17.242, 26.75 gold swaps 11.73, 11.77 golden share 4.69, 4.80 goods goods and services account 2.134, 14.1, 15.1, 16.23, 18.22, definition 6.15 value at the customs frontier 26.19 26.46, 28.4 definition 14.10, 16.27 goods and services delivered in different locations 15.66 goods and
 services needed for work 9.52 goods and services, synonym for products 2.36 goods entering or leaving the territory illegally 26.53 goods for resale 10.145, 14.110 definition 10.145 644 goods procured in ports by carriers 26.53 goods produced by households 6.115 goods produced on own account 9.75 goods sent abroad for processing 2.48, 14.37, 14.62, 26.50, goods sent on consignment 26.20, 26.53 goods used partly for business purposes and partly for personal 26.53, 28.21 transport costs 14.75 benefit 9.60 goodwill see purchased goodwill government enclaves in the rest of the world, 22.51 final consumption expenditure 8.104 final consumption expenditure benefitting enterprises 9.101 final consumption expenditure, relation to government output 9.88 role in key sectors 29.28 government control 4.26 corporations 4.80, 21.28 government establishment treated as quasi-corporation 4.121, 4.123 when treated as public corporation 4.121 government finance analysts 22.7 government finance presentation 22.8, 22.62 government goods and services n.i.e.
BPM6 26.57 government guarantees 17.222, 21.55, 22.32, 22.118 government issued permits 22.88 government ownership 3.22 government specialized agencies 5.43 government units definition 4.9, 22.17 economic objectives, functions and behaviour 4.20 government units with market production 4.123 government units, including social security funds 1.10 government with less than or more than three levels of government 4.133 grant date 17.385 ESO 11.125 gratuities 7.44 green accounting 20.48 greened economy modelling 29.124 gross and net recording of VAT 6.59 gross capital formation 10.24, 10.31 gross capital stock 6.253 gross fixed capital formation 10.32, 14.101, 15.144 borderline with inventories 6.112 by establishment 14.121 definition 10.64 negative 10.39 vs. purchases of fixed assets 2.31 gross national disposable income 2.145 gross national income 1.34, 2.143, 16.54 definition 16.54 gross operating surplus 20.28 gross value added 1.17 as a production measure 7.21 at basic prices, definition 6.77 at factor cost 6.80 at market prices 6.78 at producers’ prices, definition 6.78 definition 6.8 gross vs. net 2.141 groups of corporations 4.51 growth rate 18.21, 18.63, 19.12 growth, volume of GDP 1.26 guarantee 17.207, 22.47 financial derivative 17.210 financial derivatives 22.127 multi-year period.
17.217 one-off 17.212 connection with families 4.150, 24.13 consumption 14.94 definition 4.4, 4.149 economic objectives, functions and behaviour 4.21 expenditures abroad 9.79 final consumption expenditure 8.104, 9.56, 9.113 moves from one economy to another 12.65 residence 26.37 sub-sectored by income 4.160 sub-sectoring according to attributes of a reference person 4.163 H hand tools 10.82 harmonization between the SNA and other major systems 1.58 head office see also holding company health care household activity valuation 29.149 household composition 24.35 household maintenance, cost of labour 9.67 household production 1.41 activities 29.130 expenditure 29.129, 29.136 functional classification 29.129 funding 29.129, 29.138 providers 29.129, 29.133 health expenditure 29.50 health satellite accounts 29.128 health services 4.119, 22.20 hedging 11.112 hedonic indices 15.91 regression equations 15.83 hidden economy 19.35, 25.30 high inflation 3.160, 7.120, 12.95, 13.58, 18.22, 29.39 high technology goods 15.84 higher frequency national accounts 18.5 highly mobile individuals, residence 26.38 high-value capital goods 26.22 hire-purchase agreement 9.73 hire-purchase credit 11.73 historic cost accounting 1.60, 1.65, 3.157, 6.107, 6.240, 6.248, 6.249, 7.24 historical monuments 3.43 holding company 4.54, 21.41, 22.49, 22.140 holding gains 2.30, 3.105, 3.153, 11.98, 12.79, 17.18, 17.134, 17.238, 21.65 as part of income 29.43 excluded from measure of output 6.107 neutral 16.34 nominal 16.34 realized 12.80, 16.36
 unrealized 12.80, 16.36 holding losses see holding gains holiday pay 7.44 homogeneity of products in the rows in the use table 14.142 horizontally integrated enterprise 5.21 hospitals 23.28 hours actually worked 19.51 hours worked 19.78 houseboats 10.83 household 1.9, 1.10, 2.17, 4.3, 4.4, 28.29 actual final consumption 9.81 assets 24.73 change of economy of residence 26.39 agricultural products 6.32 collection of firewood 6.32 pragmatic exclusions 6.33 services for own use, exclusion from the production boundary
 6.26 supply of water 6.32 types of excluded activities 6.28 household sector 2.161 household sub-sectoring demographic characteristics 24.43 income levels 24.32 reference person 24.40 type of income 24.36 household surveys 1.61, 14.94, 19.69, 19.77, 19.78, 19.82, 24.21, 25.83, 28.82, 29.14 exclusions 14.145 household unincorporated market enterprises 4.155 households sector 4.32 difficulty of sub-sectoring 24.10 households sub-sectoring link to surveys 24.26 households’ actual social contributions, definition 8.85 households’ social contribution supplements, definition 8.86 households’ social contributions 8.80 housing allowances 7.44 housing services 2.3 owner-occupiers 6.34, 9.54 HS 14.36, 14.114 human capital 1.54, 2.34, 2.167, 3.46, 3.48, 17.368, 29.12, 29.45 human needs 9.39, 28.79 hurricanes 12.46 hybrid approaches to input-output conversion 28.64 hybrid supply and use or input-output tables 29.108 hyperbolic rate of decline 6.254 hypothecated taxes 4.138 I IASB 13.83, 17.386 ICLS 19.50 ICP 15.8, 15.200, 15.202, 19.15 ICP aggregation binary method 15.217 block approach 15.213 Country Product Dummy (CPD) method 15.206 645 System of National Accounts ring approach 15.222 identity linking balance sheets, transactions, other volume changes and nominal holding gains 12.82 identity linking the opening and the closing balance sheet 16.32 illegal activity 3.96, 6.39, 6.42, 19.35, 25.25, 25.31 illegal logging 17.332 ILO 6.31 immovable assets owned by non-residents
 10.56 impaired loans 12.111 impairment test 12.34 implicit charges for financial services see FISIM implicit interest costs 7.13 implicit subsidy 7.122 implicit tax 7.96, 7.122, 7.123, 26.112 import and export duties 14.69 import duties 7.93 import price indices 14.146 import subsidies 7.101 imports 1.50, 3.149, 16.5, 26.3 of goods at basic prices 14.77 separation from domestic production in use tables 14.134 improvements to existing fixed assets 10.43 improvements to land 10.44 imputed expenditure 9.48
 property income flows 8.23 rent of owner-occupied dwellings 24.22 social contribution 17.104 taxes and subsidies 8.55 transactions 1.36 in real terms 2.66, 2.146 inbound tourism 29.92 income 1.6 deciles 24.32 economic concept of 8.25 generation 1.18 not available to spend 24.81 pre-committed as saving 24.71 primary distribution 1.18 redistribution 1.18 use 1.18 income in kind 9.51, 17.149, 24.59 income measure 16.51 income measure of GDP 16.41, 18.61 income taxes 7.5 incorporation of unincorporated enterprise 21.9 incurrence of arrears 26.100 indexation mechanism securities 17.275 index-linked securities 11.70 indicators of government control corporation 4.80 NPI 4.92 indices of industrial production 1.29 indifference curves 15.28 indigenous or territorial groups 23.29 indirect direct investment relationships 26.86 indirect effect of a change in demand 28.39 indirect taxes 7.75 individual consumption expenditure 14.97 646 individual consumption good or service 9.3 individual consumption of general government treated as social transfers in kind 9.95 individual goods and services 8.142, 9.83, 9.85, 9.92, 9.108, 22.7, 22.17 individual households 4.4 individual insurance policies 17.97 individual services 8.103 industry 2.39, 7.3, 14.22 definition 5.2, 5.46 industry by industry matrix 28.49 industry technology assumption 28.54 infinite life 7.109 inflation 1.66, 7.24, 12.95, 13.58, 18.22, 29.39 higher nominal rates of interest 12.90 informal 24.45 information, computer and
 telecommunications equipment 10.82, activity 4.21, 6.39, 14.8 criteria 25.19 economy 2.163 employment 25.54 own-account enterprises 25.44 informal enterprises definition 25.5 informal jobs 25.58 informal sector 25.3 comparable sub-set 25.61 ILO definition 25.36 overlap with NOE 25.4 vs. SNA usage 25.75 10.85 inheritance tax 8.38, 10.202, 10.207 injections, capital 11.90, 11.91 inland waters 7.156 input method 15.119, 15.123 input PPIs 15.129 input-output analysis 1.73, 5.16, 6.67 input-output coefficients
 14.42 input-output matrices 28.2 input-output tables 1.24, 6.1, 14.15, 28.32 inputs 15.120 labour, capital, goods and services 6.24 instalment loans 11.73 institutional household 4.32, 4.152, 19.34, 24.15, 25.64 vs. unincorporated enterprise 24.28 institutional sectors 1.3, 2.17, 3.1, 4.16, 4.24 institutional unit 1.3, 1.9, 2.16, 3.1, 3.52, 4.1 BPM6 26.24 definition 4.2 special treatments of units in cross-border situations.
26.27 instrument classification, monetary statistics 27.16 instrument, financial 11.27 insurance 16.12, 17.1, 27.34 as a form of redistribution 6.176 associated service charge 8.23 by line of business 9.64 cover provided to the rest of the world 17.43 gross recording 17.58 output, sum of costs 17.29 premium 6.184 service charge 9.64 services 22.71 settlements following a disaster 10.212 insurance and pension fund services 4.29 insurance claims see claims, insurance insurance corporations 4.115, 11.103 insurance technical reserves 6.188 insurance, pension and standardized guarantee schemes 11.103 integrated economic accounts 2.75, 2.125, 2.149 integration 2.14 of SNA 1.1 of the central framework 2.2 production and generation of income accounts 1.24 set of price and volume indices 1.25 intellectual property products 15.148 examples 10.98 inter-bank positions 11.56, 11.57, 11.95, 17.252 classified under deposits 11.57 inter-company lending 26.87 interest 3.141, 7.12, 7.113, 26.60 arising from indexation 11.70 bills 17.264 bonds 17.268, 17.273 credit card 17.253 debt securities 17.259 deposits and loans 17.249 due for payment 7.114 implicit costs 7.13 index-linked securities 17.274 interest-free loans 7.54 nominal 7.120 on other accounts receivable or payable 13.84 on overdue taxes 7.86, 8.60 paid by central bank 22.153 real 7.120 reference rate 6.163 repurchase agreements 17.254 SDRs 17.246 unallocated gold accounts 17.245 zero-coupon bonds 17.270 interest rate swaps 11.121 interim administration 26.44
 inter-industry matrix 28.37 intermediate consumption 1.52, 2.86, 6.222, 8.99, 9.39, 14.84 definition 6.213 of own production 6.120 time of recording 6.216 vs. gross fixed capital formation 6.224 vs. remuneration in kind 6.220 intermediate inputs time of recording 6.75 valuation 6.75 intermediation process 2.150 internal satellite 29.85 internal transactions 1.37, 2.22, 2.24, 3.85, 12.97, 20.4 International Accounting Standards Board (IASB) 1.70, 21.60 international assistance 22.101 international comparisons 1.33
 international comparisons of productivity 19.75 International Conference of Labour Statisticians (ICLS) 19.5, 25.13 international cooperation 3.82 International Financial Reporting Standards (IFRS) 21.60 international investment position (IIP) 13.2, 26.11, 26.12, 26.73, 26.75 international liquidity 26.73 international merchandise trade statistics (IMTS) 26.52 international organizations 26.26, 26.44 International Public Sector Accounting Standards Board (IPSASB) characteristics 4.173 21.66, 22.13 International Recommendations for Industrial Statistics 25.88 international relief activities 23.41 international trade in services 15.165 international transfers 8.22 inter-spatial comparisons 2.66 intra-household services 29.44 intra-unit deliveries 3.90, 5.27, 6.87, 6.104, 14.41, 18.48, 29.65 transfer of risk 6.86 intra-unit flows 2.24 intra-unit transactions see internal transactions inventories 10.12, 10.124 borderline with gross fixed capital formation 6.112 held abroad 14.73 inventories held abroad 26.21 inventories of finished goods causes 6.105 entries to, valuation 6.106 withdrawals from, valuation 6.106 investment fund shares supplementary classification 11.101 investment funds 11.97, 12.113 definition 11.94 reinvestment of investment income 17.286 investment grant 8.98, 11.91 paid in installments 10.208 investment in capital formation equal to saving plus net borrowing from the rest of the world 17.226 investment income 6.193, 7.17, 7.23, 7.107, 7.108,
 17.136, 26.59, 26.62, 26.77 annuity 17.73 attributable to guarantee holders 17.220 attributable to policyholders 17.18, 17.52, 17.113, 17.114 life insurance 17.53 non-life insurance 17.47 attributable to the annuitant 17.72 currency and deposits 17.247 equity and investment fund shares 17.284 financial derivative 17.292 on pension entitlements 17.130, 17.134 receivable by reinsurance policy holders 17.64 investment vs. consumption 1.52 invitation to comment (ITC) 21.62 invoiced VAT 6.58, 7.6, 7.75, 14.45 inward
 direct investment 26.89 inward investment 21.39 ISIC 2.39, 5.4, 5.24, 5.50, 6.12, 6.207, 14.32, 23.30, 25.46, 28.43, 29.24 647 System of National Accounts J jewellery 9.57 job 19.61, 19.78, 25.79 definition 19.30 five ILO categories 25.57 job vacancies 19.31 Johns Hopkins Comparative Non-Profit Sector Project 23.17 joint products 5.49, 28.46 joint venture 17.347 definition 22.56 K key aggregates recasting 29.12 key industries 18.58 key sector 2.163, 29.3, 29.22 role of government 29.28 kind-of-activity unit definition 5.12 knowledge 10.103 knowledge-capturing products 6.13, 6.22 characteristics 6.22 L labour 19.1 labour accounts 28.83 labour force 6.31 definition 19.17 labour force statistics 1.42 labour force survey 25.83 labour in unincorporated enterprises 24.8 labour input 2.157, 7.2, 19.71 labour input of employees at constant compensation 19.59 labour market questions 28.63 labour productivity 15.138, 19.1, 19.4, 19.70 land 7.2, 7.109, 17.326, 20.41 costs of ownership transfer 10.160 definition 10.175 disaggregation 10.178 economic appearance 12.21 forested 17.329 improvements 10.44, 10.79, 12.21 rent 20.65 land taxes 7.157 landlord 9.67 large operating deficits 10.212 Laspeyres index 19.56 duration 17.308 encumbered 17.371 for less than the whole life of the asset 17.307 price 15.16 volume 15.17 Laspeyres-type index price 15.207 volume 15.208 lease 17.297 leave 19.52 legacies 10.212 legal entities 1.9, 4.3 legal fees 20.60 legal incorporation 25.21 legal
 monopoly 7.96 648 legal or social entity 4.6 legal owner 2.47, 10.5, 13.3, 17.296, 17.300 definition 3.21 PPP 22.159 legally constituted corporation, definition 4.39 leisure, valuation 29.146 lending of own funds 17.251 Leontief 28.38 letters of credit 11.22 liabilities and net worth 2.44 liabilities, financial 3.20 liability 2.33, 3.5, 11.4, 11.5 cross-classified by creditor 2.151 definition 3.33 distinction from contingent liability 11.23 distinction from provision 11.23 non-pension benefits 17.110
 licence 8.54, 8.64, 8.135, 9.70, 17.297 casino 17.350 issued by government in strictly limited numbers 22.90 mobile phones 17.316 recorded on an accrual basis 17.351 taxi 17.350 to extract natural resources 10.172 to reproduce 10.100 to undertake a specific activity 9.70 to use an original 6.211, 10.100 licence to make copies (reproduce) 6.212 licences and fees, convention on treatment 9.70 life expectancy 17.7, 17.67 life insurance 6.178, 8.36, 8.74 as a form of saving 17.7 definition 17.6 difference from non-life insurance 17.51 financial transactions 17.8 life insurance and annuities entitlements 17.52 definition 11.106 life insurance policy 7.144 qualifying as social insurance 17.51 limited liability 21.15 limited liability and other partnerships 11.88 limited liability partnerships 7.129, 21.11 line of insurance business 17.27 lines of credit, undrawn 11.73 liquidating dividends 11.90 liquidity provision 6.157 liquidity transformation 6.158, 17.228 listed shares 11.86 definition 11.86 livestock 10.94 living standards 9.17 loan capital 7.128 loan commitments 11.22 loans 11.72, 27.32 associated with financial lease 17.304 interest-free 7.54 negotiable 11.65 supplementary sub-division 11.79 loans and deposits denominated in domestic currency holding gains 17.237 loans, non-performing definition 13.66 loans, non-performing see non-performing loans local government 4.30, 4.118 local government sub-sector 4.145 local unit definition 5.13 location 25.26 logging,
 illegal 17.332 long-term debt securities 11.71 long-term lease held by non-resident 26.34 losses of government trading organizations 7.103, 7.105 lost deposits 17.383 lotteries 8.101, 8.136 participation by non-resident households 8.138 supporting charities 8.137 Lowe index 15.35 loyalty programmes 6.148 M machinery and equipment 10.82 macro-economic aggregates 2.135 modification of 29.51 macro-economic models 1.30, 18.9 main budget account 22.19 maintenance 6.228, 24.53 as done by a landlord 9.67 as done by
 a tenant 9.66 vs. gross fixed capital formation 6.226 maintenance cost 29.122 major repairs 6.37, 6.229, 20.61, 24.53 management buy-outs and buy-ins 21.23 managers of corporations 19.24 manuscripts 10.115 mapping individuals to households 28.82 margin financial derivatives 11.124 negative 6.150 non-repayable 11.124 repayable 11.124 see trade margins see transport margins margin services 6.17, 6.21, 14.126 marginal price of labour 19.56 marginal revenue 19.56 market emergence 6.22 market failure 6.129 market imperfections 9.76 market maker 11.65, 17.289 market output components 6.99 definition 6.99 made available at nominal cost, 6.131 market prices 2.59, 3.119, 6.60, 6.68 market producer 2.40, 4.25, 9.85, 14.32, 22.28 definition 6.133 market production, informal vs. SNA usage 25.51, 25.65 market vs. non-market producers 9.108 marketability 27.19 marketable operating lease 17.375 conditions for recognition 17.376 definition 10.190 market-equivalent prices 26.19 marketing assets definition 10.198 master copy 10.99 master legal agreements 11.123 matched-models method 15.80 materials and supplies 10.131, 14.110 maternity benefits 8.39 mathematical techniques, for interpolation and extrapolation 18.41 matrix industry by industry 28.49 product by product 28.48 symmetric 28.32 matrix presentation 2.12, 28.1, 28.81 maturity 12.40, 27.20 meal breaks 19.52 means-tested benefits 8.70 means-testing 8.92, 17.116 measures of economic activity 1.1 Measuring the Non-Observed Economy
 25.2, 25.81 medical service at the workplace 8.102 medical treatment 8.68 members of a household resident in the same economy 26.29 members of a producers’ cooperative 7.30, 19.28 membership dues 8.132, 22.100, 23.4 memorandum items 11.22 consumer durables 13.93 financial account 11.129 foreign direct investment 13.95, 27.21 non-performing loans 13.67 supply and use table 14.121 merchandise trade figures 28.22 merchanted goods 14.62 merchanting 14.73, 26.21, 26.49, 26.53 purchases recording as negative
 exports 26.21 merger 21.16, 21.20, 21.21, 22.148 MFP Multi-factor productivity 19.4 MFSM 27.4, 27.7, 27.12, 29.86 micro-finance schemes 17.251, 23.46 mid-price equities and investment fund shares or units 6.173 foreign currencies 6.174 securities 6.171 military bases 4.49 equipment 6.232 forces 26.44 inventories, definition 10.144 mineral exploration and evaluation 6.231, 10.106 mineral resources 10.179, 17.340 depletion 17.343 extraction of 17.342 owned by resident units 17.341 ministers of religion 19.21 ministry of finance 22.19 miscellaneous current taxes 8.64 miscellaneous current transfers 8.129 mis-reporting 19.76, 25.5 649 System of National Accounts mixed household-enterprise survey 25.87 mixed income 6.126, 7.9, 7.17, 7.30, 16.7, 19.25, 20.49, 28.29 mobile homes 10.83 mobile phone criteria for distinction between lease and ownership of an asset 17.318 mobile phone licences 17.316 model pricing 15.82 modelling 27.37, 28.2 monetary and currency unions 26.109 monetary and financial statistics 16.22, 26.74, 27.3 monetary authorities 17.240, 26.96 monetary gold 17.240 definition 11.45 holding gains and losses 12.103 reclassified as commodity gold 17.242 monetary policy services 6.151 monetary statistics 27.14 monetary transactions 1.36, 2.25 examples 3.56 money lender 6.165, 9.62, 17.251 definition 4.113 money market funds 11.97 definition 4.107, 11.99 money market funds shares or units definition 11.99 money purchase scheme 7.147 monitoring services 6.157
 monopoly 7.96 legal 7.96 monopoly profits 7.96, 10.98, 10.193, 17.350 mortality data 12.59 mortgage 11.67, 24.58 mortgage broker 17.229 multiemployer scheme 6.201, 6.205, 17.92, 17.122, 17.129, 17.131, 17.151, 17.164 multifactor productivity 19.4, 19.64, 21.51 multilateral international comparisons 15.210 multinational enterprises 1.32, 21.47, 21.64 multiple exchange rates 8.55, 26.112 multiregional units 18.47 multiterritory enterprises 4.13, 26.35, 26.40 museum exhibits 10.153 musical performances 10.115
 mutual agreement 2.22 mutual funds 11.96 mutual societies 23.22 N narcotics 6.44 national accounts, integral to PPP estimates 15.224 national expenditure on specific products 29.64 national government 22.19 national income 7.18, 7.20, 16.11, 16.53 national measures of broad money 11.75 national net worth 26.76 national tourism 29.92 national units 18.47 national wealth 13.4 nationalization 12.66, 21.17, 21.54, 22.142 by purchase of shares 22.142 650 natural disaster 1.47, 1.69, 2.23, 2.30, 2.109, 4.169, 6.244, 8.22, 8.25, 8.111, 8.128, 8.140, 12.9, 22.101, 23.40 natural growth recording gross or net 12.20 uncultivated biological resources 12.19 natural process 1.43, 6.24, 6.136 natural resources 1.46, 2.34, 3.44, 7.2, 7.107, 10.15, 20.46, 29.102, 29.106 costs of ownership transfer 10.159 depletion 1.47 licences to use 17.313 ownership 17.313 permits to use 29.113 reassessments of exploitability 12.25 with no established ownership 10.167 NDI 8.26 NDP 16.1 negative capital formation 10.39, 14.104, 14.108 change in assets 10.25 consumption expenditure 10.41 entries in input-output tables 28.61 exports, recorded in connection with merchanting 14.73 negotiability 11.33, 26.91 negotiable certificates of deposit 11.64 net use of term in the SNA 3.195 net borrowing see net lending net domestic product 16.52 net errors and omissions 26.17 net fees, standardized guarantees 17.220 net fixed capital formation 2.110, 10.156 net IIP, balancing item 26.76 net lending 2.108, 2.111,
 2.113, 10.3, 11.1, 16.20, 26.72, 27.23 definition 10.28 GFSM definition 22.76 net national income 16.55 net operating surplus 20.28 net premiums 8.116 definition 17.35 non-life insurance 17.47 reinsurance 8.123, 17.64 16.38 definition 13.4 public sector 22.170 quasi-corporations 13.86 netting 2.71, 11.40 BPM6 26.23 net recordings 3.193 net return to capital 6.93, 6.94 net social contributions 8.82, 17.114 net value added, definition 6.8 net worth 2.114, 2.122, 3.109, 12.1, 13.1, 13.10, 13.11, neutral
 holding gains 2.118, 3.142, 12.75, 12.87, 16.34 new products, appearance 15.4 new products, in the context of chain indices 15.56 NNI 7.20 NOE informal sector overlap 25.4 nominal holding gains 2.115, 2.118, 7.24, 12.74, 12.94, 16.34 currency and deposits 17.247 deposits and loans 17.255 foreign currency 17.248 inventories 12.97 on domestic currency, always zero 12.90 other accounts receivable or payable 17.295 SDRs 17.246 unallocated gold accounts 17.245 nominal value 3.155, 3.157 non-competing imports 28.69 non-consolidated recording 3.193, 3.194 non-contributory pension scheme 7.67 non-cultivated biological resources 10.182 non-deductible VAT 6.58, 14.45, 14.131 non-financial asset 2.35, 3.37, 10.2 non-financial corporations 1.10, 2.17, 4.19, 4.94, 28.29 definition 4.94 non-financial lenders 11.18 non-financial liabilities 11.4 non-governmental organizations 23.19 non-homogeneity of products due to aggregation 14.144 non-life insurance 6.176, 6.177, 8.35, 8.74 claims 8.118 definition 17.6 policies 8.117 premiums and claims 8.27 technical reserves, definition 11.105 non-market establishment, possibility of some market output 6.132 non-market output 6.97 definition 6.128 distinction from output for own use 6.128 rationale 6.98 valuation 6.94 non-market producer 2.40, 4.25, 9.85, 14.32, 28.28 establishments within 5.33 non-market production by government and NPISHs 2.98 non-market services 15.137 provided to market producers 29.41 non-MMF investment funds 11.97
 definition 4.108 non-monetary figures 29.57 non-monetary gold 11.45, 26.53 non-monetary information on tourism 29.90 non-monetary transactions 2.25, 8.22 definition 3.75 non-negotiable certificates of deposit 11.59 Non-Observed Economy 6.39, 14.7, 25.2, 25.29 non-participating preferred stocks or shares 11.66 non-pension benefits 7.68, 8.67, 8.94, 17.99, 17.100 payable in kind 8.94 payable under social security 17.101 non-performing loan 6.169, 11.130, 13.67, 17.257, 21.57 definition 13.66 non-produced asset
 2.35, 3.37, 10.9, 10.14, 26.71 non-produced land 10.80 non-profit service providers 23.19 non-repayable margin 11.124 non-resident construction projects 4.48 non-resident households receiving pension benefits 17.199 non-resident SPEs 22.53 non-response 19.76, 24.25 normal margins 6.150 not economically significant prices 8.103 note issuance facilities 11.22 notional resident unit 4.49, 10.40, 10.170, 11.93, 24.56, 26.33 NPIs 21.27 analysis by kind of revenue 23.37 as corporations 23.1 assigned to different sectors 4.35 categorization of 23.7 characteristics of 4.85 control by government 4.92, 22.26 definition 4.8 economic objectives, functions and behaviour 4.22 engaged in market production 4.28 essential distinguishing feature 23.3 illustrative examples 23.19 information in physical units 23.38 market output with negative operating surplus 23.10 non-market output of market unit 23.32 satellite account 23.12 serving enterprises 4.89 sub-sectors 23.9 valuation of output 23.10 NPIs as part of government 23.1 NPIs engaged in market production 4.29 NPIs engaged in non-market production 4.30, 4.31 NPIs serving households (NPISHs) 1.10 NPIs within the government sector 22.22 NPISH 2.17, 4.93, 23.1 definition 4.93 NPISHs 4.22, 4.166, 4.167, 9.5, 25.67, 28.28 centre of economic interest 26.45 collective services 9.107, 23.48 deflating output to volume terms 23.49 source of finance 16.12 sub-sectors 4.171 nuclear power plant 12.57 number of employees 14.121 O
 obsolescence 6.242 OECD Revenue Statistics 22.96 off-balance-sheet items 11.27 off-exchange 11.113 office canteens 7.51 offsetability 11.112 offshore 26.26 one year or more 2.19, 11.71, 11.79 requirement for residence 4.14 one-off guarantees 11.22, 17.212, 22.128 one-party political systems 4.167 one-quarter overlaps 15.46 on-exchange 11.113 opening balance sheet 13.11 opening stock 13.1 operating lease 6.214, 6.238, 6.239, 7.14, 7.153, 17.345, 20.36, 21.51 characteristics 17.302 definition 17.301 651 System of
 National Accounts operating surplus 7.9, 7.17, 16.7 operation of the financial system 27.37 opportunity cost 1.65, 29.150 of capital 7.13 of money 20.32 option price 11.117 option pricing model 13.83 options 11.112, 11.114, 11.117, 17.291 definition 11.117 time of recording 11.118 options models 13.80 orchards 10.96 ordering of transactions and reclassifications 12.68 ordinary maintenance and repairs 6.228 original 10.99 valuation 6.209 vs.copy 6.208 original maturity 26.105 other accounts receivable or payable 17.294, 17.296, 17.351 holding gains and losses 12.119 interest due on 13.84 other accumulation entries 2.30 other capital transfers 10.210 other changes in assets accounts 3.100, 8.25, 12.3 other changes in financial assets and liabilities accounts 26.12 other changes in the volume of assets account 1.20, 2.114, 6.243, 6.244, 10.1, 12.3, 12.8, 14.106, 16.33, 26.9 licences 17.352 relation to balance sheets 12.72 other current transfers 7.2, 8.19, 8.113 other deposits 11.59 cross-classification 11.63 other employment-related social insurance benefits 8.109 other equity, definition 11.88 other financial corporations 4.98, 4.101 other financial institutions 17.227, 17.229 other financial intermediaries except insurance corporations and pension funds, definition 4.109 other financial services 6.157 other flows 3.7, 3.50, 12.1 definition 3.99 other intellectual property products 10.117 other investment fund shares or units, definition 11.100 other investment, definition
 26.94 other machinery and equipment 10.86 other natural resources 10.185 other social benefits 8.67 other structures 10.76 other subsidies on production 7.106 other subsidies on products 7.105 other taxes on production 6.50, 6.80, 7.7, 7.97 licences 17.350 other transferable deposits, definition 11.58 other work-in-progress 10.141 outbound tourism 29.92 outcome 15.120 outlays, GFS definition 22.74 output 2.86, 6.89, 14.115, 15.120 agriculture 6.137 annuity 17.72 652 central bank 6.151 treated as non-market
 production 6.152 goods or services 6.24 insurance corporations 17.26 life insurance 17.53 market producers, valuation 6.93 non-life insurance 17.46 reinsurance 17.61 social insurance scheme 17.114 standardized guarantee schemes 17.219 time of recording 6.75 valuation 6.75 output for own final use 15.126 components 6.114 definition 6.114 valuation 6.124 output volume method 15.118, 15.122 output vs. outcome, measurement problems 15.121 out-sourcing 6.237, 14.39 outward direct investment 26.89 outward investment 21.39 outworkers 7.30, 7.33, 7.34, 19.22, 19.26, 25.46 overdraft 11.24, 11.54, 11.73 over-the-year technique 15.46 own account production 24.22 own funds 6.189, 7.12, 7.129, 17.75 value of 13.89 own-account gross fixed capital formation 6.118 own-account production 6.29 owner-occupied dwellings 6.26, 6.117, 7.9, 9.65, 10.34, 20.64, 24.50, 25.64, 25.71 rentals 14.99, 15.141 services 6.34 owners of corporations and quasi-corporations 19.21 owners of corporations as employees 7.30 ownership 2.46, 3.27 by government 3.22, 3.28 multiple owners 17.298 of a listed corporation 4.68 on behalf of the community 10.7 ownership principles, BPM6 26.20 ownership rights 2.34 P Paasche index price 15.18 volume 15.18 Paasche-type price index 15.208 Paasche-type volume index 15.208 paid domestic staff 24.59 parallel (unofficial) or black market rates 26.113 parallel markets 15.72 parent corporation 4.51, 4.74 parent institutional unit 4.13 participating preferred shares 11.84
 participations 11.84 partitioning transactions 3.66, 3.141 in financial instruments 11.34 partnerships 4.41 passive holder of assets and liabilities 4.61 pass-through funds 21.41 patented entities 10.105 patients, residence 26.38 patterns of income use across sub-sectors 24.5 pay-as-you-earn taxes 8.61 payments by households to obtain certain licences 8.64 payments in kind 3.77, 3.81 payments to children 24.60 payments to other household members 6.35 payroll tax 7.41 data 19.80 pension benefits 17.158 pension
 contribution supplements 17.156 pension entitlements 12.60, 17.130 current service increase 17.145, 17.152 definition 11.107 other changes in 17.177 past service increase 17.145, 17.156 present value 17.147 protection of 17.121 qualifying period 17.154 recognition in social security 17.121 pension fund sub-sector, definition 4.116 pension fund, administration costs 17.135 pension schemes 8.37, 9.21 administration costs 17.148 autonomous 17.131 pensions 8.67, 8.94, 8.95, 17.116 as income rather than dis-saving 8.37 as part of compensation of employees 17.122 defined benefit schemes 17.127 defined contribution schemes 17.127 effects of promotion 17.180 final salary scheme 17.127 money purchase scheme.
17.127 operated by financial institution 17.131 portability 17.187 portable 17.119 provision 24.43 receipt of lump sum 17.138 reforms 22.134 self-employed persons 17.137 to government employees 22.73 types of 17.98 per capita growth rates 19.12 per capita volumes 19.3 permit 9.70, 17.297 emission 17.363 to undertake a specific activity 17.299, 17.349 definition 10.192 issued by government 17.358 to use natural resources definition 10.191 permit to undertake a specific activity not issued by government 17.361 6.253, 15.169, 20.8 personal remittances 8.134 personal transfers 8.133, 26.67 persons 4.3, 19.1 physical deterioration 12.52 perpetual inventory method 3.137, 6.106, 6.107, 6.216, 6.251, physical environmental data 29.107 physical measures of labour input 19.58 plantations 10.96 policy concerns 2.18 policy interest in informal sector 25.9 policymaking 1.1, 1.10 political parties 23.19 political processes 1.9 poll taxes 8.52, 8.64 pollution 3.94, 29.42 population 2.156, 19.1, 19.3 definition 19.10 population and employment 2.76 population census 19.9, 19.77 portable pensions 17.187 portfolio investment, definition 26.91 portfolio investors 26.81 position, term for stock levels 13.1, 26.11 poverty line 24.68 PPP benchmarks 15.231 PPP exercise on a regional basis 18.52 PPP, legal owner 22.159 precious stones and metals 9.57 predominant economic interest, centre of 19.10 pre-licence costs 10.106 premium 17.1 insurance 6.184 premium earned 17.14 definition 6.187, 17.5 premium net definition 17.35 premium
 supplement 3.65, 6.184, 6.188, 6.197, 17.13, 17.19, 17.35, 17.52, 17.59 present value 6.246, 7.150, 13.80, 20.9 expected calls under existing guarantees 17.216 valuation of leased asset 17.306 price discrimination 9.76, 15.4, 15.71 price index 11.70 price index manuals 15.3 price indices 18.4, 28.63 services 18.26 superlative 15.29 price level indices 15.200 price of a commodity 11.70 price variation 15.68 price, definition 15.11 price, reference 11.111 prices 1.8, 6.49 not economically significant 8.103 prices,
 basic see basic prices prices, market see market prices prices, producer’s see producer’s prices prices, purchasers’ see purchaser’s prices primary distribution of income account 1.17, 2.91 primary income 7.2, 7.3, 15.194 primary income account 26.46, 26.58, 26.70 principal 7.113, 11.70 principal activity, definition 5.8 principal functions of government 22.17 653 System of National Accounts principal outstanding 7.113, 7.117 increase from accumulated interest 12.109 principal product 5.8, 14.23 priorities 2.159 priorities for data collection 1.5 priority industries 7.122 private equity 11.87 private finance initiative 10.59 privatization 12.66, 21.18, 22.4, 22.134, 22.137, 22.139 processing by another unit 6.12 processing fee, goods for processing 14.38 produced asset 2.35, 3.37, 10.9 producer unit 5.8 producers’ prices 1.29, 2.63, 2.87, 3.146, 7.6, 14.45, 16.49 definition 6.51 indices 14.139 product balance 14.1, 14.2, 14.4 product by product matrix 28.48 product flow 14.2 product technology assumption 28.55 product warranties 8.125 product, principal 14.23 production 1.6, 1.14, 1.40, 3.20 definition 6.2 for own final consumption 8.22 for own final use 9.53, 19.26 for own final use, exclusion from informal sector 25.41 for own final use, valuation 9.55 geographic location and resident producers 6.84 multiple period processes 6.110, 6.138 of domestic services 2.167 on own account 14.32 process taking several years 10.128, 12.57 production account 1.17, 2.86, 7.3,
 14.86, 16.6, 28.71 by institutional sector 28.25 for an institutional unit or sector, or establishment or industry, 6.70 production activities characteristics of 5.5 production as an economic activity 6.10 production boundary 1.42, 6.3, 14.11, 19.67, 25.24 definition 6.27 extension of 2.167, 29.38 extension to include services from consumer durables 9.44 production by households 1.41 production costs 3.136, 22.35 production for own final consumption treated as market or non-market production 6.134
 production measure of GDP 16.41, 18.57 production risk 3.23 productivity 14.3, 15.116, 15.198, 16.37, 20.1, 20.6 changes 18.26 growth 19.74 international comparisons of 19.75 non-market services 15.116 on an industry basis 19.68 products 14.22, 29.106 connected 29.59 definition 6.14 included in customs declarations.
14.69 654 not included in customs documentation 14.63 vs. producing units 14.17 professional societies 4.167 profile age-efficiency 20.17 age-price 20.17 choice of 20.25 profit 1.68, 2.94, 7.24 of export monopolies 7.95 of fiscal monopolies 7.96 of import monopolies 7.94 profit-maximization 22.2 profit-sharing 17.11, 17.33 projected benefit obligation (PBO) 17.181 projections 27.37 promotion 17.180 property income 2.92, 7.2, 7.16, 7.107, 11.103, 14.29, 16.9, 18.65, 24.3, 26.58, 28.73 proportionate reinsurance 17.11 proportionate reinsurance policy 17.22 provisions 3.41, 11.23, 21.65 bad debt 10.211 bonuses and rebates 13.77 standardized guarantees 17.223 pseudo output price index 15.117 public administration 9.4 public benefit organizations 23.16 public corporation 4.34, 4.77, 22.27 restructuring 22.147 public finance presentation 22.8, 22.62 public goods 9.4, 9.103 public monuments 10.78, 12.13, 12.15 public sector 2.162, 22.6 sub-sectors 22.41, 22.166 public sector borrowing requirement 22.169 publication details 18.2 public-private partnership 10.59, 22.154 purchase by government and NPISHs of goods and services for transfer to households 2.98 purchase, when recorded as two transactions 6.67 purchased goodwill and marketing assets 3.44, 10.17, 10.196, 12.33 definition 10.199 writing down 12.34 purchasers freedom of choice 15.69 not free to choose price 15.71 well informed 15.69 credit related charges 9.78 three elements 6.217 purchasers’ prices 2.64, 3.145, 3.147, 14.45 purchasing power 7.120, 11.70, 16.34
 purchasing power parities 1.34, 19.15, 19.74 definition 15.199 purely voluntary transfers 16.12 purpose 2.42 put option 11.117 Q quadruple-entry accounting 1.63, 3.111, 3.116, 11.9, 27.2 vs. double-entry 26.17 quarterly chain indices 15.45 quasi-corporation 4.65, 11.88, 11.93, 22.44, 24.6, 24.29, quality adjustment procedures 15.77 quality change 15.122 quality differences 9.77, 12.23 in price indices 15.64 quality-adjusted labour inputs 19.42, 19.55 quantities, additivity 15.11 quantity unit 15.10 quarterly accounts 1.29, 18.33, 18.64 chaining 18.43 25.68, 26.30 definition 4.42 requirement of a balance sheet 4.45 requires full set of accounts 4.44 size not part of definition 4.46 quasi-fiscal activities 22.3 quasi-non-governmental organizations 23.26 quasi-region 18.50 questionnaire design 25.81 quid pro quo 2.24, 3.57 quoted shares 11.86 R radio and television programming 10.115 radio spectrum 17.323 rate of decline, hyperbolic 6.254 rate of inflation 1.26 rate of return 26.59, 26.77 exogenous or endogenous 20.30 rate, reference 9.62 rationing 15.72 ratios of imports and exports to GDP 14.40 real gross domestic income 15.188 real holding gains 1.69, 2.119, 3.142, 8.25, 12.76, 12.89, 16.34 treatment as income 12.92 real income 15.182 real income measures 15.192 real national income 19.14 real purchasing power 15.181 real terms vs. volumes 14.153, 15.181 receipt of any reinvestment of earnings 17.288 reclassification fixed capital to inventories 12.71 life
 insurance entitlements to annuities entitlements.
17.138 of an institutional unit from one sector to another 12.64 of assets 12.3 recording of VAT gross and net 6.59 recruitment agency 19.72 recurrent losses 6.109, 6.147, 6.148 from inventories 10.130, 12.98 recurrent taxes on land, buildings or other structures 7.97 redistribution goods and services 9.37 income 1.14, 8.37 real net worth 12.91 wealth 1.69, 2.110 redistribution of income in kind account 2.95, 8.30, 8.144, 9.7, 9.95, 16.16 re-evaluations of mineral resources 10.106 re-exports 26.54 reference period 19.76 reference price 11.111 reference rate 6.163, 6.164, 9.62 characteristics 6.166 for different currencies 6.166 refugees residence 26.38 refund of taxes on products 7.104 regional accounts 18.2, 18.6, 18.45, 19.69, 25.46 regional units 18.47 regionalized approach to the compilation of PPPs 15.221 registration of production units 25.20 regular thefts 6.46 regulatory, supervisory or accounting requirements 12.41 reimbursement of expenses 6.222, 7.45, 8.104 reinsurance 6.180, 6.200, 8.115, 8.122, 17.2, 17.10, 17.64, 26.69 claims 8.123 commission 17.11 reinsurer 17.57 reinvested earnings 7.23, 13.90, 26.63, 26.88 foreign direct investment 2.24 foreign direct investment enterprises 17.285 negative 26.64 reinvestment of earnings 11.92, 21.40, 26.88 reinvestment of interest, securities 17.282 related hours 19.51 relationship between institutional units and establishments 2.41 relationship between premiums and claims 17.7 relationship between stocks and flows 2.33 relative costs 15.12 relative costs of
 production 15.81 relative utilities 15.12 relief agencies 4.169, 26.45 religious congregations 4.167, 23.19 religious institutions 4.167 remaining maturity 26.105, 27.20 remittances 8.27, 8.133, 16.12, 24.64 from abroad 24.17, 24.70 remuneration in kind 3.77, 3.80, 6.148, 7.48, 8.22, 9.45, 9.51 rent 7.17, 7.107, 7.109, 7.154 after-tax 7.157 lease-hold land 17.327 on land 7.13, 7.155 payable by non-residents 26.59 rent vs. rental 7.153, 7.158 rental 6.214, 6.238, 7.14, 7.110 definition 6.245 of owner-occupied
 dwellings 14.99 repair and maintenance consumer durables 9.69 current vs. capital 10.45 do-it-yourself 6.36 repairs see also maintenance repayable margins 11.124 repayments of debt 3.175 repo 11.74 repo, reverse 11.74 reporting date 3.155 655 reverse repo 11.74 revisions 18.2, 18.3, 18.12 revisions analysis 18.13 ring approach, ICP 15.222 risk 3.23, 3.27, 10.5, 11.112, 17.1, 17.7, 17.300 System of National Accounts repossessions 12.49 representativity 15.204 repurchase agreements 11.59, 11.73 re-referencing series 15.60 re-routing 2.96, 3.62 research agenda 7.140 research and development 6.230, 10.103, 22.22, 28.15 research institutions 4.170 reserve assets 11.45, 26.74, 26.75, 26.82 definition 26.95 reserve deposits 7.122 reserves 7.129, 17.15 reserves for non-pension benefits 17.99 reserves for with-profit insurance 17.17 residence 1.48, 4.1, 19.6, 19.11, 19.67, 19.81 BPM6 4.15, 26.24 confined to one economic territory 4.13 corporations 4.15 definition 4.10, 26.36 households 26.37 immovable structures 4.15 individual persons 4.15 land-owners 4.15 leases 4.15 SPEs 4.15 sub-soil extractors 4.15 unincorporated enterprises 4.15 resident 2.19, 19.10 resident SPEs 22.52 residential schools, colleges or universities 4.153 residual value of an asset 14.106 residuals 29.102, 29.106 resource lease 7.153, 17.345, 20.39 definition 17.310 fishing 17.335 land 17.327 resource rent 13.50, 29.112 resources 1.14, 2.43 response rate 19.76 rest of the world 1.11, 3.117, 4.37, 4.172,
 17.10 de facto sector 2.20, 4.37, 26.2 definition 4.172 perspective 26.10 rest of the world account 2.130, 16.28, 28.71 resting time 19.51 restructuring agencies 22.47, 22.141 retail and wholesale services 14.27 retained earnings 3.64, 7.139, 7.151, 9.11, 13.90, 26.63 retirement 8.71, 15.169 retrocession 17.10 return to capital 6.245, 19.25, 20.5, 20.28, 22.35 return to fixed capital 6.245 return to labour 19.25 revaluation account 1.20, 2.115, 2.117, 3.100, 10.1, 12.3, 16.33, 26.9 licences 17.352
 revaluation, exchange rate changes 26.79 revenue GFS definition 22.65 reverse investment 26.86 656 over time 3.24 risk assumption 6.157 risk exposure 26.104 risk management 11.112, 17.67 risks and rewards 2.47, 28.15 road construction 22.20 roads, service lives of 6.242 royalties 7.110, 7.160 rundown of wealth post retirement 24.78 S salary sacrifice 7.47 sales 6.100, 22.34 sales structure approach 28.49 sample size 19.76 sampling frame 21.8 satellite external 29.85 internal 29.85 29.31 ancillary activities 5.45 domestic services 24.62 household services 9.44, 24.83 NPIs 23.12 tourism 24.66 savings deposits 11.59 savings ratio 1.29, 9.30 SDR 7.113, 26.103 definition 11.47 holding gains and losses 12.104 seasonal adjustment 18.37 quarterly accounts 18.64 seasonal fruits and vegetables 15.66 seasonal workers 19.18, 19.32, 19.33 seasonality 18.37 second homes 24.56, 29.89 secondary activity 29.34 definition 5.9 28.73 secondary financial activities 4.95 secondary income account 26.46, 26.66 secondary jobs 19.31 secondary production 14.23 secondary products 28.45 second-hand assets 14.107 sector, informal vs. SNA usage 25.47 sectors, financial statistics 27.18 securities 11.18, 11.33, 11.73 reinvestment of interest 17.282 securities repurchase agreement 11.74 securities, short-term 11.71 securitization 11.67, 22.131 satellite account 1.55, 1.73, 2.155, 2.164, 2.168, 3.95, 29.4, saving 2.83, 2.106, 9.9, 9.26, 10.18, 11.1 link between the current and accumulation accounts
 9.28 secondary distribution of income account 2.95, 16.12, 26.4, self-employed 7.30 self-employed persons 7.30, 7.33, 19.26, 19.28, 19.79 benefits in cash 8.110 vs. social security 8.92 SEEA 3.95, 10.178, 10.183, 20.48, 29.88, 29.103 of assets 22.4 of future revenue flows 22.133 sale of an asset 22.132 goals 29.103 key indicators 29.104 definition 19.25 employers 7.33 own-account workers 7.33 self-employed persons vs. employee 7.28 self-help groups 23.24 separating repayment of capital from interest 20.67
 sequence of accounts 1.15, 2.75, 2.78, 3.2, 4.23, 6.1, 13.5, small tools 6.225, 10.35 smuggling 6.44 SNA interest 6.164, 7.116, 8.24, 9.62, 13.62, 17.250 social accounting matrix (SAM) 1.74, 2.164, 24.19, 28.4, 28.82 extensions 28.5 social assistance 8.5, 8.66, 9.20, 17.83 social benefits 7.99, 8.4, 8.17, 8.87, 8.94, 8.132, 17.79 circumstances when payable 17.79 payable in kind 8.103 social security, social assistance or social transfers in kind 17.81 treated as payable in cash 8.102 social clubs 23.19 social contributions 2.96, 7.2, 8.4, 8.16, 8.27, 9.22, 17.157 18.1, 28.31, 28.73, 29.21 service charge 11.103 annuity 17.73 credit card 17.253 currency and deposits 17.247 debt securities 17.259 deposits and loans 17.249 equity and investment fund shares 17.283 financial derivative 17.289 financial derivatives 11.114 life insurance 17.53 non-life insurance 8.117, 17.46 reinsurance 17.63 repurchase agreements 17.254 SDRs 17.246 social insurance scheme 17.114 standardized guarantee 17.219 unallocated gold accounts 17.245 service charges 11.34 standardized guarantees 17.211 service contract 25.27 services definition 6.17 third party criterion 6.16, 29.146 services for own consumption within households 9.54 severance payments 7.45 share (stock) appreciation rights 17.398 share-cropping 7.156 shareholder 7.127 shares 11.84 ex-dividend 7.130, 17.284 shares, bonus 11.89 shares, listed definition 11.86 short-term definition 27.20 short-term forecasts 1.31 short-term indicators
 1.29, 18.3, 18.5 short-term securities 11.15, 11.71 shrinkage of inventories, revised estimates 12.50 sick leave 19.46 single indicator method 15.135 SITC 14.36 size as criterion for informal 25.22 small enterprises 25.69 imputed 17.104 social economy 23.15 social entities 4.3 social insurance benefits 9.22 definition 17.89 in kind 8.18 pensions and non-pensions 17.98 social insurance contribution 7.42 actual 7.60 definition 17.89 imputed 7.60 supplement 8.80 16.12, 17.76 administration costs 17.105
 contractual insurance scheme 17.87 definition 17.88 needs third party involvement 17.87 qualifying conditions 8.73 qualifying contributions 17.116 responsibility for administering 8.76 run by employer 6.203 run by insurance corporation 6.204 service fee 8.80 unfunded 17.104 social insurance scheme 2.96, 6.201, 7.2, 8.4, 8.5, 8.65, 9.20, social insurance scheme, other than social security administration 17.91 social safety net 17.90 social security 4.124, 6.202, 7.42, 8.5, 8.37, 8.72, 8.76, 8.77, 9.20, 17.82, 17.90, 17.124 as multi-employer scheme 17.93 benefits in cash 8.108, 17.102 contributions 3.63 contributions by households 17.102 entitlements under 17.191 funded on a pay-as-you-go basis 17.121 no imputed contributions 7.63 recording 17.125 social security funds 4.20, 4.30, 4.118, 22.21 distinction from social security schemes 4.125 social security funds sub-sector 4.147 social transfers in kind 2.95, 3.83, 8.5, 8.103, 8.141, 9.1, 9.16, 9.37, 9.81, 9.103, 9.110, 10.148, 17.84, 23.32, 23.33, 23.36, 24.63, 29.13 657 System of National Accounts paid to non-residents 8.145, 9.120 paid to non-residents, 9.16 social ventures 23.25 social, cultural, recreational or sports clubs 4.167 software and databases 15.149 sole owners of unincorporated enterprises 7.30 sound recordings 10.115 source of funding vs. types of expenditure 29.79 special purpose entities 4.55, 21.41, 22.4, 22.52, 22.131, 26.28 resident 22.52 special purpose units of government 4.67 specialization of
 production 6.10 specialized agencies of government 5.43 specific capital transfers 29.68 specific current transfers 29.68 specific products 29.61 specific taxes 15.175 speculation 6.145, 11.112 spillovers 10.102 sports clubs 23.19 sports players, contracts 17.368 staff of scientific bases 19.32, 19.33 stage of economic development 1.4 stage payments 6.112, 6.140 stamp taxes 7.97 standard of living 19.3 standardized guarantee schemes 3.40, 6.206, 7.143, 8.115, 11.23, 11.110, 12.62, 17.211, 22.126, 27.34
 calls under 17.220 parallel with non-life insurance 17.211 provided by government units.
17.215 recoveries 17.216 state government 4.30, 4.118 sub-sector 4.140 statistical discrepancies 11.128, 22.77 statistical surveys, coverage 25.23 stock 3.2, 3.4, 3.18, 6.253, 11.84, 13.1, 27.41 stock appreciation 12.79 stock options pricing model 17.387 stock ownership plan 17.396 storage 6.105, 6.142, 6.149, 10.120, 12.97, 24.47 distinguished from holding gains 6.142 see also annex 6 store of economic value 2.35, 2.122 stream of future earnings not recognized as a financial asset 11.26 strike price 11.117, 11.120, 17.385 ESO 11.125 stripped securities 11.69 structured product descriptions 15.202 students 19.21, 19.32 employment status 7.32 residence 26.38 study of industrial activity 6.1 sub-annual accounts 18.2 sub-annual estimates 18.33 sub-contracting 28.14 subscriptions 8.132, 23.4 sub-sectors 2.18, 4.1, 4.33 financial corporations 4.102 general government 4.128 658 households 4.158, 24.27, 24.44 non-financial corporations 4.97 subsidiary 4.51, 26.85 definition 4.73 subsidiary products 28.46 subsidies 7.98, 7.135, 22.138 consumer 7.99 consumption 29.69 extending concept of 29.41 implicit 7.122 on payroll or workforce 7.106 on production and imports 7.2 on products 14.5, 14.133, 16.7 on products used domestically 7.105 resulting from multiple exchange rates 7.103 to public corporations and quasi-corporations 7.105 to reduce pollution 7.106 vs. capital injections 11.91 vs. social benefits 8.98 subsistence activity 4.21, 24.1 agriculture 1.41, 24.47 economy 18.59 farmers 9.54 farms 9.59 income 18.62 subsoil
 assets 7.109, 7.159, 12.17 sum of costs 6.125, 6.191 insurance output 17.29 super-dividends 7.131, 7.134, 11.90 superlative indices 15.29 supervisory authorities 22.150 supervisory services 6.151, 6.153 supplementary table 11.24, 11.31 capital services 20.69 capital stocks 20.1 informal production and employment 25.75 pass-through funds 21.43 pensions 9.20, 17.124 personal remittances 26.68 supply and use tables 1.24, 2.76, 2.148, 6.1, 14.3, 18.17, 18.23, 25.49, 28.1, 29.21 as a means of checking data
 consistency 14.116 consistency of prices within 18.23 in volume terms 14.136, 15.110 simultaneous compilation of value and volume estimates 18.30 supply at purchasers’ prices 14.44 supply table at purchasers’ prices definition 14.13 supranational authority 22.60 surface water, regular extraction from 12.22 surveys businesses 19.69 design 19.76 frame 19.79 household wealth 24.76 methodology 25.81 survival functions 6.253 sustainability of government operations 22.79 sustainable use of natural resources timber 17.330 swaps 7.115, 11.114, 11.121 gold 11.73, 11.77 interest rate 11.121 symmetric input-output matrix 28.7 System of Health Accounts (SHA) 29.128 T T account 16.3 takeover 21.22 takeover bid 21.52 tax allowance 8.62, 22.95 tax assessments 7.84, 8.58 tax benefits 29.41 tax burden 22.7 tax collection, on behalf of another government unit 3.70 tax credit 8.62, 22.95 non-payable 22.95 payable 22.95 recording in SNA 22.97 wastable 22.95 tax regimes, changes in 14.151 tax relief 22.95 taxes 7.71, 29.56 ad valorem 15.175 as unrequited payments 8.52 categories 7.82 collection on behalf of a second government unit 8.127 gambling 8.61, 8.136 general sales 7.96 hypothecated 4.138 implicit 7.122 in volume terms 14.148 income 7.5 indirect 7.75 land 7.157 on assets used in production 7.41 on automobiles 8.57 on capital gains 8.61 on financial and capital transactions 7.96 on imports 7.10, 7.77, 7.94 on income 8.61 on individual or household income 8.61 on international
 transactions 7.97, 8.64 on payroll or work force 7.97 on pollution 7.97 on production 7.5, 26.58 on production and imports 7.2 on production and imports, classification 7.72 on production or imports 7.17 on production, deflation of 14.156 on products 3.145, 6.49, 6.50, 7.88, 14.5, 14.158, 15.175, 16.7 on products payable by the rest of the world 7.87 on products, excluding VAT, import and export taxes 7.96 on specific services 7.94, 7.96 on the income of corporations 8.61 on the use of fixed assets or other
 activities 7.97 pay-as-you-earn 8.61 resulting from multiple exchange rates 7.94, 7.95 resulting from the central bank imposing a higher rate of interest than the market rate 7.96 specific 15.175 turnover 7.96 unpaid liabilities 7.85 vs. fees 7.80, 22.89 taxes and duties on imports 7.90 inclusion of taxes levied on goods not changing ownership 7.92 taxi licence 17.350 technical assistance staff 8.128 technical progress 6.242, 12.96 technical reserves 6.188, 6.190, 6.194 technological change 6.244, 18.25 technological coefficients 28.42 technological process of production 14.37 technology 28.63 technology approach 28.48 technology of production 5.2, 5.16, 6.238 tenant 6.117, 9.66 tenant farmer 20.45 term insurance 17.6 terminal costs 10.50, 10.157, 10.161, 20.56, 20.57, 20.60 terms of employment 25.27 terms of trade 2.146, 15.5, 15.185 definition 15.187 terms of trade, Geary method of calculation 15.191 territorial enclaves 4.11, 26.26, 26.43 tertiary distribution of income 2.99 theft 6.147 three economic activities 3.19, 4.17 three measures of GDP 18.14, 18.56 tidal waves 12.46 time of recording 2.54, 3.159, 3.169, 18.34 BPM6 26.20 BPM6 vs. IMTS 26.53 financial claims 11.37 intermediate inputs 6.75 output 6.75 work-in-progress 6.90 time reversal test 15.31 time series 18.3, 18.9 time use surveys 29.147 timeliness 18.3, 18.12 time-share arrangement 17.378 tips 7.44 Törnqvist index 15.29, 19.56 total economy 4.23 total expense 22.7 total factor productivity see multifactor
 productivity total hours actually worked 19.47 total hours worked 2.157 total outlays 22.7 total remittances 8.134 total revenue 22.7, 22.8 total supply at basic prices 14.158 total supply at purchasers’ prices 14.158 tourism 2.166, 29.92 aggregates 29.100 characteristic products 29.97 connected products 29.97 659 System of National Accounts consumption 29.90 consumption, definition and scope 29.95 expenditure 29.94 inbound 29.92 industries 29.90 industries, definition 29.98 key sector 29.37 outbound
 29.92 satellite account 24.66, 29.85, 29.89, 29.99 tourism direct gross domestic product (TDGDP) 29.90 tourism direct gross value added (TDGVA) 29.90 toxic spills 12.46 trade and transport margins 3.145, 14.5, 14.50, 14.54, 14.130, 14.158, 28.9 definition 6.146 in volume terms 14.147 provided by residents and non-residents 14.52 see also transport trade and transport services 14.9 trade associations 8.132 trade credit 11.13, 11.126, 17.294, 27.35 tradeable permits 17.363 trades unions 4.167 trading gains 1.26, 15.188 from changes in the terms of trade.
15.185 trading in securities 12.67 transaction 1.7, 2.22, 3.50 between government and international or supranational organi- zations 22.99 definition 3.7, 3.51 in financial instruments 2.29 in goods and services 2.27 intra-unit or internal 2.22 mutual agreement 3.53 on unofficial markets 6.42 prices 6.54 valuation 2.59 transfer 3.58, 8.10, 22.17 current vs. capital 8.38 impact of classification on saving 10.203 in kind 1.36, 3.77, 3.82 in kind between households 24.64 recording of 8.41 redistributing income 24.2 transfer pricing 3.131, 3.143, 21.50 transferability 27.19 transferable contract 17.370, 17.375 transferable deposits cross-classification 11.55 definition 11.54 transferable pensions 17.119 transitivity 15.211 transport 6.141, 20.60 as key sector 29.35 on imports provided by residents 14.72 transport charges 3.145, 3.146, 3.147, 6.49, 6.148 international 14.61 transport equipment 10.82, 10.84 transport services 14.27, 15.166 transport services see also trade and transport margins 660 travel, BPM6 term 26.57 travellers 29.91 travelling for business 29.93 treasury bills 11.99 tree, crop and plant resources yielding repeat products 10.95 trust account, use in defeasance 12.42 trusts 11.88 U ultimate bearer of the expense 2.103 unallocated and allocated accounts, precious metals other than gold unallocated gold accounts 11.45, 11.60, 17.240, 17.244 uncompensated seizure 12.48, 29.43 11.61 fish 17.333 timber 17.332 underground economy 19.35, 25.30 underlying economic reality 7.57 underwriting 6.157
 undistributed income 9.11 undistributed profits 7.129 undrawn lines of credit 11.73 unearned premium 11.105, 17.16 definition 6.187 unemployed person definition 19.29 unemployment 19.29 unemployment benefits 8.68 unexpired risks 17.25 unforeseen environmental degradation 12.52 unforeseen obsolescence 6.244, 12.53 unilateral cancellation of debt 12.41 unilateral economic actions 2.23 unincorporated enterprise 1.61, 2.17, 4.6, 4.21, 4.32, 8.16, 24.6 definition 5.1 of government, treatment as a quasi-corporation 5.30
 output 9.54 with employees 25.44 with some market production 4.123 without employees 25.44 unincorporated joint ventures (UJVs) 17.347 unincorporated partnership 4.156 unions, business and professional associations 23.19 unit of account 3.14 unit of homogeneous production 5.16, 5.52 unit trusts 11.96 unit value indices 14.146, 15.14 units that ultimately bear the expenses 29.77 universities 23.27 unlisted corporation 21.15 unlisted shares, definition 11.87 unpaid hours 19.67 unpaid household services, valuation 29.145 unpaid labour 6.127, 19.27 unrequited 7.71 use of adjusted disposable income account 2.101, 9.7, 9.95, 16.16 use of disposable income account 2.101, 9.7, 16.15 use of income 1.14, 24.5 use of income account 2.101, 26.4, 28.71 use table 14.84 basic prices 14.44, 14.123, 14.164, 28.67 imports only 14.165 purchasers’ prices, definition 14.13 user cost 20.31, 20.32 users vs. beneficiaries 29.74 uses 1.14, 2.43 uses of the SNA 1.27 utility 9.43 V vacation homes 26.33 valuables 3.43, 6.214, 9.57, 10.13, 10.133, 10.149, 11.45, 12.13, 14.112, 15.159 holding gains and losses 12.100 valuation assets and liabilities 2.60 bonds 13.59 by total production costs 6.93 contracts, leases and licences 13.52 costs of ownership transfer on non-produced assets 13.34 currency 13.57 currency and deposits in foreign currency 13.57 deep-discounted or zero-coupon bonds 13.59 dwellings 13.29 employee stock options 13.83 fair value 13.67 financial assets and liabilities 13.54
 financial claims 13.54 financial derivatives 13.80 fixed assets 13.27 forwards 13.82 index-linked debt security 13.60 intellectual property products 13.36 intermediate inputs 6.75 inventories 13.38 land 13.44 land improvements 13.30 life insurance and annuities entitlement 13.77 listed shares 13.69 livestock 13.32 loans 13.62 long-term securities 13.59 mineral and energy resources 13.49 mineral exploration and evaluation 13.35 monetary gold 13.55 net worth 13.85 non-cultivated biological resources, 13.51
 of assets 12.34 approximated by accumulating and revaluing acquisitions less disposals of asset 13.19 present value of the expected future returns 13.24 the present, or discounted, value of future economic benefits 13.19 when no observable prices 13.18 written-down replacement cost 13.23 of financial assets, alternatives 29.49 of non-monetary flows 3.135 of transactions 2.59 of transfers in kind 3.129 options 13.81 other equity 13.74 output 6.75 own funds 13.88 pension entitlements 13.78 principal outstanding 13.57 principles 26.19 provisions for calls under standardized guarantees 13.79 purchased goodwill and marketing assets 13.53 research and development 13.33 reserves for non-life insurance 13.76 rules 3.118 SDRs 13.56 second best procedure 6.125 shareholders’ equity in a direct investment enterprise 13.71 shares (or units) in money market funds 13.75 short-term securities 13.58 trade credit and advances 13.84 tradeable loan 13.64 unlisted shares 13.70 vehicles and equipment 13.31 value added 2.65, 2.86, 7.2, 7.4, 14.84, 14.115, 14.153, 14.160, 16.6, 28.72 charges against 6.75 contribution of labour and capital to the production process 6.71 definition 6.8 from leasing dwellings 24.55 value added tax, see VAT 6.49 value of capital services 20.28 value of output vs. value of sales 6.91 VAT 6.49, 6.55, 7.6, 7.10, 7.89, 14.131, 16.49 deductible 14.45 invoiced 7.6, 7.75, 14.45 non-deductible 14.45 recording gross and net 6.59 same treatment for any similar
 deductible tax scheme 6.57 to be recorded net 6.61 VAT type tax 2.87, 7.89, 14.79 venture capital 11.87 vertically integrated activities, recommendation for defining estab- lishments 5.26 vertically integrated enterprise 5.23 vesting date 17.385 ESO 11.125 virtual manufacturing 26.41 visitor, definition 29.91 volcanic eruptions 12.46 volume index, definition 15.13 volume measures 18.22 volume of collective services 15.124 volume terms 2.146 volume vs. quantity as terminology 15.13 volumes in the ICP 15.228
 voluntary donations 8.132 voluntary sector 23.11 voluntary workers 7.41, 19.27 volunteer labour 19.37, 23.34, 23.42, 29.85, 29.156 valuation 29.160 vulnerability 26.73 661 workers under the age limit 19.34 workers’ remittances 16.12 working days adjustment 18.38 working time, definition 19.50 work-in-progress 10.90, 10.126, 10.134 agricultural products 10.127 conversion to finished goods 6.112 cultivated biological resources, definition 10.140 entries to and withdrawals from 6.113 in service industries 6.111 long-term projects 20.63 reclassification to finished goods 12.71 reclassified as a finished product 10.136 structures intended for own use 6.119 transformed to finished goods 3.176 valuation at basic prices 6.113 works of art 9.57 write-downs 12.40 write-offs 12.40 writing-off of financial instruments 3.152 written down current acquisition values 3.136 Y Young index 15.34 Z zero-coupon bonds 11.69, 12.109 interest 7.118 System of National Accounts W wage index 19.60 wages and salaries 7.42, 7.43 in cash 7.44 items withheld by employers 7.43 warrants 11.33, 11.119 wastage 6.147 water 17.337 extraction 12.22 extraction of 17.339 inland 7.156 leased for recreational purposes 17.338 resources 10.175 resources, definition 10.184 wealth 1.2 weapons systems 6.232, 10.82 weights 15.229 welfare 1.75, 19.14 welfare indices 29.127 who pays vs. who consumes 29.55 wholesalers and retailers 3.68 willing buyers and willing sellers 3.119, 6.124, 26.97 wind damage 12.46
 withdrawal of equity 7.131, 11.90, 22.136, 22.140, 26.64 withdrawal of income from a quasi-corporation 7.23, 7.133, 22.136, 24.71 with-profits life insurance 17.6 662 S y s t e m o f N a t i o n a l A c c o u n t s 2 0 0 8 European Commission International Monetary Fund Organisation for Economic Co-operation and Development United Nations World Bank System of National Accounts 2008 European Commission International Monetary Fund Organisation for Economic Co-operation and Development United Nations World Bank
 Printed at the United Nations, New York 08-44065 — December 2009 — 6,750 USD 150 ISBN 978-92-1-161522-7