RELATIONSHIPS TO OTHER STATISTICAL AND ACCOUNTING SYSTEMS
7.1 This chapter describes the relationships between the GFS system in Australia and the following three information systems with which it is closely linked:
7.2 The main aim of the chapter is to provide a broad understanding of the relationships between the GFS system and the other statistical and accounting systems with which it can be linked.
- The international standard for GFS established by the International Monetary Fund (IMF), which provides the conceptual basis for Australia’s GFS system;
- The Australian System of National Accounts (ASNA), which is based on international standards for national accounts set out in System of National Accounts, 1993 (SNA93). The IMF’s GFS system is closely harmonised with SNA93. ‘Harmonised’ means that common statistical concepts are used and, to a degree, common classifications and items are also used, enabling links between the systems to be established. Consequently, there are close links between the ASNA and Australia’s GFS system, which is the main source of ASNA statistics about the general government sector and public non-financial corporations;
- AAS31 ‘Financial Reporting by Governments’, which is the principal Australian Accounting Standard underlying the financial statements issued by Australian governments and most of the source data used by the ABS in compiling GFS.
RELATIONSHIP TO THE IMF GFS STANDARD
7.3 The IMF GFS standard is described in Appendix 2 and the System of National Accounts (SNA93), with which the IMF system is harmonised, in Appendix 1. As noted in Chapter 1, the current IMF system is a revised version of the initial (1986) cash-based system and was published in December 2001. Australia’s GFS system follows the conceptual basis of the revised IMF standard but includes minor variations in the way the statistics are presented. Nevertheless the system can be used by the ABS to provide the IMF with statistics that are in full accordance with the revised IMF standard.
7.4 The IMF manual provides detailed guidance for compiling data for the general government sector, whereas Australia’s GFS system covers the entire public sector. The IMF manual describes the components of the public sector and notes that analysts may wish to compile statistics for the public sector and/or its components, but does not provide very detailed sector-specific guidance on such compilations. Australia has opted to compile statistics for the widest possible coverage of government operations recommended by the IMF.
7.5 The 1986 IMF standard related mainly to general government, but additional guidance was provided on compiling statistics for the non-financial public sector (i.e. the combination of general government and public non-financial corporations). The previous ABS system, which was based on the 1986 standard, initially covered the non-financial public sector and was later extended to cover the public sector by the introduction of public financial corporations to the analysis. The principles that applied to public non-financial corporations were readily extended to public financial corporations.
7.6 In the absence of a detailed IMF standard for the public sector at the time the ABS implemented accrual GFS, the ABS used (with essential adaptations) the IMF’s revised general government standard, taking into account the principles underlying SNA93 and those previously applied in compiling data for the non-financial public sector. The specific requirements of users, including the ASNA, influenced the design. The discussion in this chapter takes into account the IMF GFS manual release of 2001.
7.7 The IMF standard provides for compiling statistics about ‘quasi-fiscal activities’ (QFAs) and ‘non-government activities’ (NGAs) to supplement statistics for the general government sector. QFAs are government-type functions carried out by units outside the general government. NGAs are non-government activities carried out by units of the general government sector. Compiling statistics on QFAs and NGAs is intended to enable the derivation of data relating to all government activities and excluding all non-government activities (i.e. ‘government’ defined on a functional rather than a unit basis). Data for QFAs and NGAs are not compiled in Australia because they are not considered of sufficient importance here to warrant it. In any case, because Australia’s GFS system covers the whole of the public sector, it effectively covers most QFAs (i.e. those performed by public corporations) that might occur. Furthermore, most potential NGAs have been included in quasi corporations (see paragraph 7.9), which are treated as public corporations outside the general government sector.
UNITS AND UNITS CLASSIFICATIONS
7.8 The basic unit in the IMF GFS standard is the institutional unit, which is defined in the same way as the unit of the same name in SNA93 (i.e. as an entity capable, in its own right, of owning assets, incurring liabilities and engaging in economic activities and in transactions with other units). As noted in Chapter 2, the enterprise unit used in Australia’s GFS system is effectively equivalent to the institutional unit. Although an enterprise can consist of a group of related legal entities, grouping legal entities generally does not occur in the general government sector.
7.9 The concept of quasi corporations applied in SNA93 is also applied in the IMF GFS standard. The concept effectively reduces the scope of the general government sector by excluding government market entities that operate like corporations. In Australia’s GFS system, the same concept is applied, resulting in the classification of the quasi-corporations as non-financial or financial corporations rather than as government units.
7.10 The IMF manual recommends that GFS be presented for subsectors of the general government sector. A maximum of four subsectors is recommended: central government, state government, local government, social security funds. With the exception of social security funds, which do not exist in Australia, the subsectors coincide with Australia’s level of government classification. Social security funds are institutional units which provide social benefits to the entire community, or large sections of it, through a social insurance scheme which generally involves compulsory contributions by participants. The IMF standard does not include the concepts of jurisdictions and of multi-jurisdictional units that are applied in Australia and therefore does not have a concept of national government, which is the combination of the central government and multi-jurisdictional units.
7.11 The definition of the general government sector applied in the IMF standard is the same as in SNA93. The same definition is also applied in Australia's GFS system.
FLOWS, STOCKS AND ACCOUNTING RULES
7.12 The IMF standard includes the same definitions of economic stocks and flows, and of transactions and other economic flows, as are applied in SNA93. Australia’s GFS system applies identical concepts. The double-entry accounting model followed in the IMF standard is also applied in the Australian system. The IMF recommends full consolidation of flows and stock holdings between units contributing to the same aggregates, which is the practice followed in Australia's GFS system.
7.13 The Australian system employs an accrual basis of recording that is defined in much the same way as the accrual system employed in the IMF standard. The IMF standard provides guidelines on accrual recording of specific types of transactions, including taxes, grants, dividends, transactions in non-financial assets, inventories and financial assets. In Australia’s GFS system, the accrual practices adopted in government accounting systems are the starting point of recording GFS on an accrual basis. These practices may depart from the IMF guidelines in matters of detail but generally follow the principles underlying the IMF guidelines. The ABS adjusts the accounting data where material departures from the IMF principles come to notice.
7.14 In accordance with SNA93, the IMF standard states that, in general, all flows and stocks should be valued at market prices. The standard provides guidelines on how market values of flows and stocks might be estimated if not directly available from accounting records. In Australia’s GFS system, for practical reasons, valuations recorded in government accounts are generally accepted without any attempt to convert non-market values to market values. Market values are recorded for most transactions, but for many types of stocks the recorded values are not market values. As a result, recording revaluations is effectively delayed until reviews of asset and liability values are undertaken.
7.15 Contingencies are defined by the IMF as conditions that may affect the financial performance or position of the government depending on the occurrence or non-occurrence of future events specified in the contingency contract. A government guarantee of a loan is quoted as an example. The IMF standard requires that contingencies be excluded from recorded stocks and flows but states that important contingencies should be reported in memorandum items. Contingencies, as defined by the IMF, are excluded from recorded stocks and flows but, to date, the ABS has not adopted the IMF recommendation that important contingencies should be reported in memorandum items.
7.16 Given the pace at which accrual accounting was being adopted by Australian governments in the second half of the 1990s, the ABS had to develop its accrual GFS framework ahead of the IMF, using SNA93 and the 1986 version of the IMF manual as references. The ABS GFS framework is the same as the IMF framework in all conceptual respects, but differs slightly in terms of structure, presentation and level of classificatory detail. It incorporates the recommended integration of economic stocks and flows that is achieved by applying the following identity:
7.17 The financial statements recommended in the IMF standard and the corresponding statements in Australia’s GFS system are set out in Table 7.1 below.
(1) Value of opening stocks
(2) Value of transactions
(3) Value of other economic flows
(4) Value of closing stocks.
7.18 The statements in the IMF and Australian GFS systems cover the same economic flows and stocks and there are only the minor differences in terminology and arrangement of the statements evident in Table 7.1. The Australian system includes a statement of stocks and flows that is not included in the IMF system and includes, among other things, the information that is recorded in the IMF statement of other economic flows which therefore is not required in the Australian system. There are also differences between the degrees of detail presented in the statements in the two systems. In the following tables, items in the various IMF GFS statements are listed in the left-hand column and items in Australia’s GFS system that correspond to the listed IMF items are listed in the right-hand column, irrespective of the Australian GFS statement from whence they come.
IMF STATEMENT OF GOVERNMENT OPERATIONS
7.19 Of the basic elements included in the IMF Statement of Government Operations (i.e. revenue, expense, transactions in non-financial assets, transactions in financial assets and liabilities) the Australian operating statement covers all except transactions in financial assets and liabilities. In the Australian system, details of transactions in financial assets and liabilities are included in the statement of stocks and flows. The broad items covered in the IMF government operations table and the corresponding items in the Australian system are shown in Table 7.2.
Table 7.2. COMPARISON OF ITEMS IN IMF STATEMENT OF GOVERNMENT OPERATIONS AND AUSTRALIA'S GFS SYSTEM
7.20 The table does not show an expense item that is included in the Australia’s GFS system but has no equivalent in the IMF system. The item, ‘nominal superannuation interest expenses’ arises because actuarially determined changes to unfunded superannuation liabilities are split into an interest component as well as compensation of employees. The IMF standard does not call for estimation of nominal interest on unfunded superannuation liabilities.
|Items in IMF Statement of Government Operations ||Corresponding item in Australia's GFS System |
|TRANSACTIONS AFFECTING NET WORTH |
|Revenue ||GFS Revenues|
|Taxes ||Taxation revenue|
|Social contributions ||Current grants and subsidies, sales of goods and services,|
|Grants ||interest income, other revenue|
|Other revenue |
|Compensation of employees||Employee expenses|
|Use of goods and services||Other operating expenses (part)|
|Consumption of fixed capital||Depreciation|
|Interest||Other interest expenses|
|Grants||Current grant expenses, other current, transfers, capital grants|
|Social benefits||Other property expenses, other operating expenses (part)|
|Net operating balance||GFS net operating balance|
|TRANSACTIONS IN NON-FINANCIAL ASSETS|
|Net acquisition of non-financial assets||Net acquisition of non-financial assets|
|Fixed assets||Gross fixed capital formation less depreciation|
|Changes in inventories||Changes in inventories|
|Valuables||Other movements in non-financial assets|
|Net lending/borrowing||GFS net lending(+)/borrowing(-)|
|TRANSACTIONS IN FINANCIAL ASSETS AND LIABILITIES (FINANCING)|
|Net acquisition of financial assets||Total net results of transactions in financial assets less advances paid|
|Domestic||Not recorded separately|
|Foreign||Total net results of transactions in liabilities|
|Net acquisitions of liabilities||Not recorded separately|
7.21 In the Australian system the accounting measure of depreciation is used, whereas the IMF system uses the national accounting measure of consumption of fixed capital. Depreciation as recorded in government financial records may deviate considerably from consumption of fixed capital as depreciation is normally calculated using the original costs of fixed assets, whereas consumption of fixed capital is calculated at current replacement cost.
7.22 The gross operating balance in the IMF system is equal to total revenue less all expenses other than consumption of fixed capital. It is not recorded in the Australian system, but can be derived as the GFS net operating balance plus depreciation.
IMF STATEMENT OF SOURCES AND USES OF CASH
7.23 Table 7.3 lists the items in the IMF statement of sources and uses of cash and shows the items in the Australian system that correspond to the IMF items. All of the Australian GFS items which correspond to items in the IMF statement of sources and uses of cash are recorded in the Australian GFS cash flow statement.
7.24 Table 7.3 indicates that Australia’s GFS system covers essentially the same categories that are included in the IMF statement of sources and use of cash, but many of the items are arranged, named and classified differently.
7.25 Not reflected in this table is the fact that the Australian system disaggregates cash receipts and payments relating to operating activities as follows:
7.26 In the Australian system, the term ‘financing’ is used to denote cash receipts from liabilities incurred, whereas in the IMF system ‘financing’ refers to all transactions in financial assets and liabilities.
- Cash receipts from operating activities:
Receipts from the sale of goods and services;
Grants and subsidies received;
- Cash payments for operating activities:
Payments for goods and services;
Grants and subsidies paid;
7.27 In the Australian GFS system, cash and accrual items are reconciled at the input level, but the reconciliation items are not included in the cash flow statement as in the IMF system.
IMF STATEMENT OF OTHER ECONOMIC FLOWS
7.28 As previously noted, the IMF system includes a statement of other economic flows which is not required in the Australian system because the items are recorded in the columns for revaluations and other changes in the volume of assets in the Australian statement of stocks and flows. The Australian GFS items corresponding to items in the IMF statement of other economic flows are shown in Table 7.4.
Table 7.4. COMPARISON OF ITEMS IN IMF STATEMENT OF OTHER ECONOMIC FLOWS AND AUSTRALIA’S GFS SYSTEM
7.29 As can be seen from Table 7.4, all of the items in the IMF statement of other economic flows have a corresponding item in Australia's GFS system, although some of the items are named a little differently. In both systems, information in each of the asset categories and the liabilities categories can be further disaggregated according to types of assets and liabilities.
|ITEMS in IMF Statement of Other Economic Flows||Corresponding items in Australia's GFS System|
|Change in net worth from other economic flows||Changes in net worth from revaluations and other changes in volumes of assets|
|Changes in capital assets||Changes in non-financial assets|
|Other changes in volume||Other changes in volume of assets|
|Changes in financial assets||Changes in financial assets|
|Other changes in volume||Other changes in volume of assets|
|Changes in liabilities||Changes in liabilities|
|Other changes in volume||Other changes in volume of assets|
IMF BALANCE SHEET
7.30 Items in the balance sheet of the IMF GFS system are listed in Table 7.5 together with corresponding items from Australia's GFS system, all of which come from the balance sheet and the statement of stocks and flows.
7.31 The IMF also provides for an alternative classification of financial assets and liabilities by the ratio of debts (in the case of financial assets) and credits (in the case of liabilities).
7.32 Among the financial instruments in the Australian system are two which have no equivalent in the IMF system. Theses are the liabilities entitled 'unfunded superannuation liability' and 'other employee entitlements and provisions'. The IMF Manual and SNA93 (see SNA93, paragraph 13.88) do not treat these obligations to pay future benefits as liabilities because there is not a pool of assets accumulated from which to pay the benefits. Both manuals recommend that estimates of the liabilities should be reported in memorandum items, rather than recorded in the balance sheet. However, in Australia, such obligations are deemed to be liabilities and information on the value of the liabilities is readily available in public sector accounts. Accordingly, the liabilities are included in the balance sheet in Australia's GFS system and the ASNA.
RELATIONSHIP TO THE AUSTRALIAN SYSTEM OF NATIONAL ACCOUNTS
7.33 As noted in the introduction, the conceptual framework of the Australian System of National Accounts (ASNA) is based on SNA93. In the previous section, it was noted that the IMF standard for GFS is closely ‘harmonised’ with SNA93. It follows that Australia’s GFS system is harmonised with the ASNA. Indeed, the use of common concepts, items and classifications in ASNA and Australia’s GFS system is essential because the GFS system is the main provider of data for compiling ASNA information about the general government sector and public non-financial corporations.
BROAD LINKS BETWEEN THE SYSTEMS
7.34 The following section provides a broad analysis of the links between the ASNA and the GFS system.
SCOPE AND INSTITUTIONAL SECTORS
7.35 The ASNA is designed to provide information about the Australian economy in total and similar supporting information about individual institutional sectors within the economy. The scope of the ASNA is the whole of the Australian economy. The scope of Australia’s GFS system is the public sector, which comprises the general government sector and the public non-financial and financial corporations. Although the ASNA does not provide consolidated information about the public sector as such, it provides information about the following institutional sectors:
7.36 The scope of the general government sector in the ASNA is exactly the same as in the GFS system. In the ASNA, public non-financial corporations form part of the non-financial corporations sector and public financial corporations form part of the financial corporations sector. These relationships between the GFS institutional components and the ASNA institutional sectors are illustrated in the diagram below.
- non-financial corporations sector;
- financial corporations sector;
- general government sector;
- households (incorporating non-profit institutions serving households).
RELATIONSHIPS BETWEEN GFS COMPONENTS AND ASNA SECTORS
7.37 The diagram represents the whole economy, which is the scope of the ASNA. The heavy lines in the diagram subdivide the circle representing the economy into the four ASNA institutional sectors: households (including non-profit institutions serving households), non-financial corporations, general government and financial corporations. The lighter line subdivides each of the two corporate sectors between public and private corporations and subdivides the economy into the public sector (the upper right component) with the shadowed text, and the private sector (the lower left component) with the unshadowed text. As previously discussed, the public sector defines the scope of the GFS system, which consists of the general government sector, the public non-financial corporations and the public financial corporations.
7.38 The ASNA distinguishes between the public and private corporations within the non-financial and financial corporations sectors only for selected types of information. When the distinction is made, the scope of the public corporations in ASNA coincides with the scope of the public corporations in the GFS system. Therefore it is possible to directly compare common ASNA and GFS information about general government, public non-financial corporations and public financial corporations.
7.39 The ASNA presents information on economic flows and stocks using a framework of linked accounts that differs from the GFS framework of financial statements but includes many common links. The differences arise because of the different objectives of the two systems. In the national accounts, emphasis is placed on economic concepts of production, income, consumption, saving, capital accumulation and wealth, with the aim of measuring the economic performance of the whole economy. In the GFS system, emphasis is placed on fiscal concepts such as revenues, expenses, and financing, with the aim of measuring the financial performance of the public sector.
7.40 The ASNA framework includes the following set of accounts:
7.41 In broad terms, the gross domestic product account records production, the income generated from production and the expenditure of income on final consumption and capital formation. The income account records the disposable income of residents (i.e. after taxes and other current transfers), the current use of that income and the resultant saving, which can be positive or negative. The capital account records the sources (net saving and net capital transfers) of funds available for the acquisition of non-financial assets on one side and the actual net acquisition of non-financial assets on the other. The balance of the account can be positive (net lending) or negative (net borrowing). The financial account records the net transactions in financial assets, liabilities and equity that occur as a result of net lending or borrowing. The balance sheet records the opening and closing values of assets and liabilities. The revaluation and other changes in the volume of assets accounts record changes to net worth arising from revaluations and events other than transactions and revaluations. As in the GFS system, the closing values of assets and liabilities are equal to net transactions, plus net revaluations, plus net other changes in the volume of assets.
- gross domestic product account;
- income account;
- capital account;
- financial account;
- balance sheet;
- revaluation account;
- other changes in the volume of assets account.
7.42 Each of the ASNA accounts includes information that can be directly related to GFS data. Information in the gross domestic product, income and capital accounts can be linked to information included in the GFS operating statement; the balance sheet information can be linked to information included in the GFS balance sheet; and information in the revaluation and other changes in volume of assets accounts can be linked to information included in the GFS statement of stocks and flows. The items in the accounts and the links to GFS items are discussed in the next section. There is no equivalent of the GFS cash flow statement in the ASNA, although the change in cash balances is recorded in the system.
7.43 The major aggregates and balancing items included in the main ASNA accounts and the corresponding GFS items and the statements in which they are recorded are shown in Table 7.6 below. In the table, items that are recorded as such in the respective GFS financial statements are listed under their name in the GFS system. Items that do not appear in the GFS financial statement but are derived for national accounting purposes are labelled ‘derived’. A ‘b’ against an entry in the right-hand column indicates that the item is identical in concept to the ASNA item but is measured from different sources with the result that values recorded for the item in the two systems are not identical. The content of the table is explained in the following paragraphs.
Table 7.6 MAIN ITEMS IN ASNA ACCOUNTS AND CORRESPONDING ABS GFS STATEMENTS AND ITEMS
|Account Name ||Major Aggregates and Balancing Items(a) ||Corresponding ABS GFS Items(a)|
|Gross domestic product account ||Operating statement |
|Final consumption expenditure ||Derived(b) |
|Gross fixed capital formation ||Gross fixed capital formation |
|Domestic final demand ||Derived(b) |
|Changes in inventories ||Changes in inventories |
|Gross national expenditure ||Not recorded, but can be derived(b) |
|Exports of goods and services ||n.a. |
|Imports of goods and services ||n.a. |
|Gross domestic product (as sum of expenditures) ||n.a. |
|Compensation of employees ||n.a. |
|Gross operating surplus ||Derived(b) |
|Gross mixed income ||n.a. |
|Net exports ||n.a. |
|Taxes less subsidies on production and imports ||Tax expenses (part), subsidies |
|Gross domestic product (as sum of incomes)||n.a. |
|Income account ||Income |
|Primary income receivable ||Operating statement |
|Gross operating surplus ||Derived(b) |
|Property income ||Property income (revenue)(b) |
|Taxes on production and imports ||Selected taxes (revenue)(b) |
|Secondary income |
|Non-life insurance claims ||n.a. |
|Taxes on income and wealth ||Selected taxes (revenue)(b) |
|Other current transfers ||Current grants, subsidies,regulatory fees and|
| || fines (revenue) |
|Use of income|
|Primary income payable |
|Property income ||Property income (expenses)(b) |
|Subsidies ||Subsidies (expenses) |
|Secondary income |
|Social assistance benefits in cash to residents ||Current monetary transfers to households |
|Current taxes on income, wealth etc. ||Tax expense (part) |
|Net non-life insurance premiums ||n.a. |
|Other current transfers ||Grants |
|Net saving||Derived(b) |
|Capital account ||Operating statement |
|Net saving ||Derived(b) |
|Consumption of fixed capital ||Depreciation(b) |
|Capital transfers (receivable and payable) ||Capital transfers (revenues and expenses) |
|Gross fixed capital formation ||Gross fixed capital formation |
|Changes in inventories ||Changes in inventories |
|Acquisitions less disposals of non-produced non-financial ||Other movements in non-financial assets |
|Gross saving and capital transfers ||Net operating balance|
|Net lending/borrowing||Net lending/borrowing|
|Financial account ||Statement of stocks and flows |
|Net acquisition of financial assets ||Net result of transactions (financial assets)(b) |
|Net incurrence of liabilities ||Net result of transactions (liabilities)(b) |
|Net change in financial position||Net lending/borrowing(b) |
|Balance sheet ||Balance sheet |
|Non-financial assets ||Non-financial assets(b) |
|Financial assets ||Financial assets(b) |
|Liabilities ||Liabilities and shareholders equity and |
|other contributed capital(b) |
|Net worth||Net worth(b)|
|Opening balance sheet ||Total assets (opening value)(b) |
| Net capital formation||Net result of transactions (non-financial |
|Financial transactions ||Net result of transactions (financial assets)(b) |
|Revaluations ||Revaluations(b) |
|Other changes in the volume of assets ||Other changes(b) |
|Closing balance sheet ||Total assets (closing value)(b) |
|Opening balance sheet ||Total liabilities, shareholders' funds and other |
|contributed capital (opening value)(b) |
|Financial transactions ||Net result of transactions (liabilities, shareholders'|
|funds and other contributed capital)(b) |
|Revaluations ||Revaluations(b) |
|Other changes in volume of assets ||Other changes(b) |
|Closing balance sheet ||Total liabilities, shareholders' funds and other |
|contributed capital (closing value)(b)|
|Change in net worth ||Change in net worth(b)|
|Balance sheet, accumulation and |
|revaluation accounts |
|Assets ||Statement of stocks and flows |
|Opening balance sheet ||Total assets (opening value)(b) |
|Net capital formation ||Net result of transactions (non-financial assets) |
|Financial transactions ||Net result of transactions (financial assets)(b) |
|Revaluations ||Revaluations(b) |
|Other changes in volume of assets ||Other changes(b)|
|Closing balance sheet||Total assets (closing value)(b) |
|Opening balance sheet ||Total liabilities, shareholders' funds and |
|other contributed capital (opening value)(b) |
|Financial transactions ||Net result of transactions (liabilities, |
|shareholders' funds and other contributed capital)(b) |
|Revaluations ||Revaluations(b) |
|Other changes in volume of assets ||Other changes(b) |
|Closing balance sheet ||Total liabilities, shareholders' funds and other|
|contributed capital (closing value)(b) |
|Change in net worth||Change in net worth(b)|
|(a) Balancing items shown in bold|
|(b) Identical in concept to the ASNA item, but the value recorded for the item is not identical because it is measured from a different source than ASNA. |
|n.a. Not applicable. |
Note: Throughout the table, 'liabilities' includes shares and other contributed capital of corporations and quasi-corporations.
7.44 The ASNA records gross domestic product (GDP, the economy’s production), the income generated by GDP (comprising mainly compensation of employees and the gross operating surplus and gross mixed income of producers) and the expenditure of GDP on final consumption, gross fixed capital formation and net exports.
7.45 Most income components for general government and public corporations can be linked to expense items in the GFS operating statement or can be derived from items in the operating statement. Compensation of employees is shown as not applicable in GFS because in ASNA it includes capitalised wages and salaries and it is not the same as ‘compensation of employees (uncapitalised)’ in the GFS system. Gross operating surplus of public corporations is not recorded in the GFS operating statement but, in the case of public non-financial corporations, the ASNA information is derived from data recorded in the GFS system. It is defined as the excess of gross output over the sum of intermediate consumption, compensation of employees, and taxes less subsidies on production and imports. In the general government sector, most output is not marketed and is valued in the national accounts at its costs of production. The gross operating surplus of general government is equal to general government consumption of fixed capital, which is the only cost of production not deducted in the derivation of gross operating surplus, less sales. However, because depreciation (historical cost) rather than consumption of fixed capital (at current replacement cost) is recorded in the GFS system, the ASNA values for general government gross operating surplus are not the same as those that can be derived from GFS data. Gross mixed income does not apply to public sector entities.
7.46 The expenditure components included in the gross domestic product account that can be linked to GFS operating statement items are government final consumption expenditure, gross fixed capital formation of general government and public corporations, and changes in inventories. Government final consumption expenditure is current expenditure by general government bodies on services to the community. Because these are provided free of charge or at charges which cover only a small proportion of costs, the government is considered to be the consumer of its own output. This output has no directly observable market value and so is valued in the national accounts at its cost of production. Transfer payments (e.g. interest payments on government debt and social assistance benefits) are not included. The major part of government final consumption expenditure is derived from GFS data but the item is not included in the GFS system because it includes imputed expenses that are not derived in the GFS system. For example, it includes ‘financial intermediation services indirectly measured’ (FISIM), which is an imputed part of the output of financial institutions and part of the final consumption expenditure of general government units that use the financial institutions’ services.
7.47 Gross fixed capital formation is defined and measured in the same way in the GFS system and the ASNA, and the ASNA data for general government and public non-financial corporations are derived directly from GFS data. In the ASNA, capitalised wages and salaries (see paragraph 7.45) are included in gross fixed capital formation as well as in compensation of employees (no duplication is involved because of the linked structure of the national accounts).
7.48 In general, the income receivable items included in the ASNA income and use of income account can be related to GFS revenue items. Each of the items is discussed in the following paragraphs.
7.49 Gross operating surplus is discussed in paragraph 7.45 and that discussion will not be repeated here.
7.50 Property income receivable comprises interest, dividends, re-invested earnings on direct foreign investment, and rent on natural assets. The data for interest receivable that are recorded in the ASNA are not comparable with the data recorded in the GFS system because the ASNA data are adjusted to exclude FISIM (see paragraph 7.46). As well, in the ASNA, recorded interest is adjusted to treat some results of interest rate changes of marketed securities as revaluations rather than transactions. In the GFS system, FISIM and revaluations arising from interest rate changes are not deducted from interest because the required adjustments have to be made across all sectors and cannot be made unilaterally in the GFS system. Reinvested earnings on direct foreign investment is an imputed item that has no equivalent in the GFS system. It relates to the retained earnings of non-resident enterprises that are treated as earned and reinvested by Australian residents who hold equity in the enterprises. All other items of property income are defined and measured in the ASNA in the same way as in the GFS system, which provides the ASNA data for general government and public non-financial corporations.
7.51 Taxes on production and imports represents taxation revenue of general government, and the ASNA values are derived directly from GFS data. The GFS categories of revenue included in the item are taxes on products (which comprise all taxes included in the GFS tax item ‘taxes on provision of goods and services’) and other taxes on production (which comprise all taxes included in the tax items ‘taxes on employers’ payroll and labour force’, ‘taxes on immovable property’, ‘taxes on financial and capital transactions’, ‘motor vehicle taxes’, ‘franchise taxes’, and ‘other taxes on use of goods and performance of activities’). Because some of these taxes are payable by non-producers as well as producers, adjustments (based on non-GFS data) are made to eliminate tax payments made by non-producers.
7.52 Net non-life insurance premiums are receivable by some public financial corporations. The ASNA data are not derived from the GFS system, which does not obtain separate information on the premiums.
7.53 Taxes on income and wealth receivable is an item that is unique to general government, and the ASNA data are derived directly from GFS data. The GFS revenue categories included in the item are taxes on income (which comprise all taxes included in the tax item ‘taxes on income, profits and capital gains’) and other current taxes (which comprise all taxes included in the tax items ‘motor vehicle taxes’ (except road transport and maintenance taxes) and ‘departure tax’). Because some of these taxes when paid by producers are classifiable as taxes on production and imports, other non-GFS information is used to identify and eliminate such tax payments made by producers. Therefore, the ASNA data for this item cannot be related directly to the GFS data.
7.54 Other current transfers receivable that are relevant to the public sector include: (i) current grants and subsidies receivable by public corporations, which are defined and measured in the ASNA as in the GFS system; and (ii) regulatory fees and fines collected by general government, which are also defined and measured as in the GFS system. ASNA data for these components are derived from GFS data.
7.55 The use of income items included in the ASNA income account can, be related to GFS expense items, in general. They are discussed in the following paragraphs.
7.56 Property income payable includes the same components as property income receivable and the discussion relating to property income receivable applies equally here. That is, all property income payable except interest is recorded in the same way in ASNA and the GFS system and interest payable in ASNA is not comparable with GFS interest payable for the same reasons as in relation to interest receivable. The item also includes nominal interest payable by general government on unfunded superannuation (see Chapter 5 for a discussion of this nominal interest). The ASNA data for this item are taken directly from the GFS system and so are directly comparable across the two systems.
7.57 Subsidies and social assistance benefits in cash to residents are items unique to general government that are defined and measured in the ASNA in the same way as in the GFS system, which provides the data that are included in the ASNA. In the GFS system, social benefits in cash to residents is called ‘current monetary transfers to households’ and is included in expenses under other current transfers.
7.58 In the GFS system, current taxes on income and wealth payable are payable only by public non-financial and financial corporations (any taxes payable by general government units are eliminated in the consolidation of GFS output). The ASNA data for current taxes payable by all sectors are derived from GFS data for taxation revenue receivable and distinguish taxes payable by public non-financial corporations.
7.59 Non-life insurance claims payable, which would apply to some public financial corporations, are not recorded separately in the GFS system.
7.60 Other current transfers payable consists mainly of inter-governmental grants and transfers to other sectors made by the general government sector. The data for such grants and transfers are defined and measured in the ASNA in the same way as in the GFS system, which is the sole source of the ASNA data.
7.61 Items in the ASNA capital account correspond to items recorded in the GFS operating statement, mainly in the section relating to net acquisition of non-financial assets.
7.62 The balancing item net saving is the balance of the income account and is carried forward to the capital account. Net saving is not recorded in the GFS financial statements but can be derived, albeit with measurement differences compared with the ASNA.
7.63 Consumption of fixed capital is also not recorded in the GFS system, which uses instead the accounting measure of depreciation (see paragraph 7.21).
7.64 Capital transfers (receivable and payable) in the ASNA capital account are defined and measured in the same way as in the GFS system. They include capital grants between levels of government, ASNA data for which come directly from the GFS system. Also included are so-called ‘capital taxes’, which in Australia are confined to the GFS tax classification category ‘estate, inheritance and gift taxes’, which is the sole source of information for the ASNA capital taxes item.
7.65 Gross fixed capital formation, changes in inventories and acquisitions less disposals of non-produced non-financial assets are defined and measured in the ASNA in the same way as in the GFS system. ASNA data for general government and public non-financial corporations are derived directly from the GFS system. Gross fixed capital formation comprises acquisitions less disposals of new and second-hand produced assets whereas acquisitions less disposals of non-financial non-produced assets relates to assets, such as mineral deposits and virgin forests, that have not been produced.
7.66 The balancing item net lending(+)/borrowing(-) in the ASNA is equivalent to the balancing item of the same name in the GFS system. The item is not subject to most of the measurement differences cited above because the items affected by the differences cancel out in the derivation.
7.67 Similarly, the ASNA item gross saving and capital transfers is equivalent, apart from minor measurement differences, to the GFS net operating balance plus depreciation (sometimes referred to as the ‘gross operating balance’). The measurement differences affecting the equivalence are those, discussed in previous paragraphs, which affect comparability of common components of gross saving and the gross operating balance.
7.68 The ASNA financial account records all changes to financial assets and liabilities arising from transactions. It corresponds to the financial assets and liabilities section of the transactions column in the GFS statement of stocks and flows. Net acquisition of financial assets refers to acquisition less disposal of financial assets and net acquisition of liabilities refers to acquisition less disposal of liabilities and equity. These items are equivalent in concept to the GFS items relating to net transactions in financial assets and net transactions in liabilities and equity, respectively. However, the GFS system is not the source of data for the ASNA financial account, with the result that these items are unlikely to carry exactly the same values in ASNA and the GFS system. There are also differences between ASNA and the GFS system in the way that these broad items are broken down into financial instrument categories. The ASNA financial instrument classification is more detailed, but does not include the GFS distinction between acquisition of financial assets for policy and liquidity management purposes.
7.69 The balancing item net change in financial position in the ASNA financial account is identical conceptually to net lending/borrowing, but is derived differently. As a result of the different methods of derivation, recorded values for the two items are usually quite different. In the ASNA, the difference between the two items is recorded in an item called ‘errors and omissions’. Thus, although GFS values for net lending/borrowing should be equal to the ASNA values for change in financial position, in practice they are not.
7.70 The ASNA balance sheet records the value of assets and liabilities (including equity) and is identical in concept to the GFS balance sheet. However, GFS data are not used in the compilation of the ASNA balance sheet and the values recorded are not likely to be identical. Most of the ASNA data are compiled using the perpetual inventory method previously mentioned in relation to the estimation of consumption of fixed capital (see paragraph 7.64) whereas the GFS data are obtained directly from public sector accounting records. The classification of assets and liabilities in the two systems has points of concordance at a broad level, but the ASNA classification is generally more detailed than the GFS classification.
7.71 The ASNA accumulation and revaluation accounts record net capital formation, financial transactions, and changes to the balance sheet values of assets, liabilities and equity arising from revaluations (i.e. price changes) and events other than transactions and revaluations. The accounts record the same information (albeit in a different format) to that recorded respectively in the columns relating to transactions, revaluations and other changes in the volume of assets in the GFS statement of stocks and flows. The item net capital formation is equal to net acquisition of non-financial assets less consumption of fixed capital and cannot be derived exactly in the GFS system because it uses depreciation in lieu of consumption of fixed capital. The item financial transactions refers to net acquisition of financial assets and liabilities and can be derived in the GFS system but will carry different values due to the use of different data sources, as discussed in paragraph 7.69. The ASNA data relating to revaluations and other changes in the volume of assets are identical in concept to the GFS items of the same name, but the data for the items are derived from different sources and the recorded values are unlikely to be the same. As well, revaluations arising from interest rate changes to marketed securities are not captured in the GFS system (see paragraph 7.51).
RELATIONSHIP TO ACCOUNTING STANDARDS
7.72 As discussed in previous chapters, the main sources of GFS data are the accounting and budget management systems that underlie public sector accounts that are compiled in compliance with Australian Accounting Standards. The three most relevant accounting standards are:
Of these three standards, AAS 31 is the standard most relevant to this discussion of relationships between the GFS system and accounting standards. However, the discussion also involves other accounting standards and statements of accounting concepts that are reflected in AAS 31.
- AAS 27 ‘Financial Reporting by Local Governments’;
- AAS 29 ‘Financial Reporting by Government Departments’, and
- AAS 31 ‘Financial Reporting by Governments’.
7.73 Accounting and statistical reports serve different purposes and differences between the underlying concepts are to be expected. On the other hand, there are many similarities between the purposes and concepts. In developing the GFS system, the ABS has worked closely with accounting bodies in order to develop a mutual understanding of the relationships between accounting and statistical standards. Understanding and documenting the relationships assists users’ understanding of reports produced from each system and reduces the effort required to compile statistics from accounting systems.
BROAD LINKS BETWEEN THE SYSTEMS
SCOPE AND COVERAGE
7.74 As discussed in Chapter 2, in statistical terminology, ‘scope’ denotes the group of units that define the intended boundary of a statistical system. ‘Coverage’ denotes the group of units actually included in a statistical collection. As indicated in the introduction, the scope of both systems (AAS 31 and the GFS system) is described as ‘the public sector’. Before deciding that the scope of the two systems is identical, it is necessary to examine whether AAS 31 defines the public sector in the same way as the GFS system.
7.75 There is a high degree of agreement between the AAS 31 and GFS definitions of the public sector. Both base the definition on the characteristics of units that are defined as comprising the public sector. AAS 31 uses the term ‘entities’ rather than ‘units’ and defines an entity as ‘any legal, administrative, or fiduciary arrangement, organisational structure or other party (including a person) having the capacity to deploy scarce resources in order to achieve objectives’. In the GFS system, the corresponding statistical unit is the legal entity, which is defined as ‘a unit covering all the operations in Australia of an entity that possesses some or all of the rights and obligations of individual persons or corporations or that behaves as such in respect of those matters of concern for economic statistics’. Although the statistical unit and accounting entity concepts are defined differently, the differences are considered unlikely to have any material effect on the comparability of the scope of the public sector defined in each system.
7.76 The characteristics of legal entity units used in the GFS system to define the public sector are based on SNA93, which defines the public sector as comprising government units and units controlled by government units. Government units are defined as ‘unique kinds of legal entities established by political processes which have legislative, judicial or executive authority over other institutional units within a given area’ (SNA93, paragraph 4.104). The SNA describes the main functions of government units as providing goods and services to individuals and the community at large; redistributing income and wealth; and engaging in non-market production, which is production made available free or at prices that do not have a significant influence on the amounts that the producers are willing to supply or purchasers wish to buy.
7.77 Other units are brought into the public sector if they are under the control of government units. SNA93 defines control as the ability to appoint a majority of the board of directors or an equivalent body, so as to be able to determine the policy followed by the unit. However, SNA93 also recognises that there are other arrangements where government control can exist, for example, where the government exerts control by legislative means or by way of contractual arrangements that give it effective power to determine the policy of a unit to which it does not appoint a majority of the board.
7.78 AAS 31 employs the same underlying principle in determining whether a unit is to be included in the public sector. Section 9.1.3 states that ‘where a government has the capacity to dominate the financial and operational policies of another entity so as to enable that other entity to operate with it in pursuing its own objectives, then that government has control over that entity’. Section 9.3.1 expands on this statement (in the context of financial reporting by governments), saying that two factors are indicative of the control of another entity by government:
7.79 Although AAS 31 focuses on control that is exercised by ‘a government’ where SNA93 uses control that is exercised by a ‘government unit’, the definitions of control used in the two systems are very similar. Major inconsistencies between the two systems’ delineation of the public sector are considered unlikely to arise from these slightly different approaches. Given the method of compiling GFS, any differences that do arise will be identified easily and will be brought to the attention of GFS users.
- the accountability of the other entity to Parliament, the Executive, or to a particular minister;
- the government has a residual financial interest in the net assets of the other entity.
7.80 One area in which the possibility of differences may exist is in relation to so-called ‘build, own, operate, and transfer’ (BOOT) schemes. The schemes involve a mix of public and private sector involvement in various types of (mainly infrastructure) projects. Currently, no such schemes are included in the GFS system because they are not considered to meet the SNA93 criteria for government control. Although government involvement in the projects may only concern planning and regulation, it can extend to eventual ownership of the infrastructure. A changing mix of private and government ownership or control may occur over the life of a project. The central issue from a GFS perspective is whether there are units involved that are effectively under government ownership and/or control.
7.81 Accounting standards currently do not specifically address accounting for BOOT schemes. Some jurisdictions are incorporating emerging BOOT scheme assets and liabilities in their balance sheets. BOOT schemes are currently treated as being outside the scope of government in GFS, in line with ASNA criteria on control.
7.82 As discussed in Chapters 2 and 3, the GFS system does not cover all of the units or all of the flows and stocks of units falling within the defined scope of the public sector. In most cases, estimates are made for the missing units and flows and stocks. AAS 31 applies the accounting concept of 'materiality' of information. Information is material if its omission, misstatement or non-disclosure has the potential to adversely affect decisions made by users of the information. Application of this concept implies that information that is deemed not material may be omitted from AAS 31 reports.
7.83 Differences between AAS 31 and GFS data will arise because of GFS undercoverage and application of the accounting concept of materiality. However, by definition, the errors or omissions arising from these procedures cannot be significant and are unlikely, in combination, to create major differences between data produced from the two systems.
7.84 In AAS 31 the reporting entity is the whole of government, which in GFS terms corresponds to the whole of the public sector for the reporting jurisdiction. However, AAS 31 also provides for what it calls ‘disaggregated information’, which refers to disaggregation of the whole of government reports into reports on ‘each broad sector of activity of the government … The information about assets, liabilities, revenues and expenses must be disclosed without eliminating the effects of transactions between sectors, but by eliminating the effects of transactions between entities within each sector’.
7.85 In relation to the delineation of the sectors, the standard says ‘Judgement will need to be applied in identifying the broad sectors of a government’s activities … One basis for identifying the broad sectors about which disaggregated information should be disclosed is the GFS Standard adopted by the Australian Bureau of Statistics’. In practice, the jurisdictions classify their units as general government, public non-financial corporations or public financial corporations in accordance with GFS standards in order to be able to supply the ABS with sector information required for compiling GFS. Therefore they are able to segment their own financial reports on the GFS institutional sector basis.
7.86 AAS 31 requires that governments prepare a specified set of financial reports comprising an operating statement, a statement of financial position and a statement of cash flows. The operating statement provides information on revenues and expenses, which are defined according to Statement of Accounting Concepts 4 ‘Definition and Recognition of the Elements of Financial Statements’ (SAC 4) as follows:
7.87 These definitions of revenues and expenses are much broader than the GFS definitions (see Chapter 2) and include flows such as revaluations that are not categorised as transactions and so are not classified as revenues and expenses in the GFS system. Accounting standards do not make the distinction that is made in the GFS system between transactions and other economic flows. The AAS 31 operating statement includes some revaluations and other changes in the volume of assets that are excluded from the GFS operating statement. The GFS operating statement and the AAS 31 operating statement both include a balance defined as revenues less expenses, but the GFS operating statement is extended to include the information on net transactions in non-financial assets and the net lending/borrowing balance which are not included in the AAS 31 system.
- ‘Revenues’ are inflows or other enhancements, or savings in outflows, of future economic benefits in the form of increases in assets or reductions in liabilities of the entity, other than those relating to contributions by owners, that result in an increase in equity during the reporting period;
- ‘Expenses’ are consumption or losses of future economic benefits in the form of reductions in assets or increases in liabilities of the entity, other than those relating to distributions to owners, that result in a decrease in equity during the reporting period.
7.88 The statement of financial position reports the assets and liabilities of a government and corresponds to the GFS balance sheet. The Statement of Accounting Concepts 4 (SAC 4) definitions of the main balance sheet components are as follows:
7.89 Although the wording of the definitions of assets and liabilities is different from the wording of the corresponding GFS definitions (see Chapter 2), there is no clear difference between the meanings of the accounting and GFS definitions. The GFS system does not include the same sort of recognition criteria as the accounting standards. However, to date the ABS has not had cause to question non-recognition of assets or liabilities in any public sector accounts. In the GFS system, equity is treated as a financial claim against the reporting entity and is included with liabilities in the balance sheet. Where possible, it is valued at market value and is generally not measured as a residual.
- ‘Assets’ are future economic benefits controlled by the entity as a result of past transactions or other past events and are recognised only when:
- it is probable that the future economic benefits embodied in the asset will eventuate;
- the asset possesses a cost or other value that can be measured reliably.
- ‘Liabilities’ are the future sacrifices of economic benefits that the entity is presently obliged to make to other entities as a result of past transactions or other past events and are recognised when:
- it is probable that the future sacrifice of economic benefits will be required;
- the amount of the liability can be measured reliably.
- ‘Equity’ is the residual interest in the assets of the entity after deduction of its liabilities.
7.90 The AAS 31 and GFS cash flow statements are identical with the exception that the AAS 31 statement does not include the supplementary information about the surplus/deficit that the GFS statement includes.
7.91 AAS 31 does not require preparation of a statement that corresponds to the GFS statement of stocks and flows. However, it does require elaboration of information in the various statements by means of notes to the accounts. Information required for GFS purposes is often available in the form of notes to the accounts.
7.92 AAS 31 provides illustrative examples of each of the financial statements, which are reproduced (without the notes to the accounts) in Tables 7.7.1 - 7.7.3 below.
7.93 AAS 31 does not specify requirements for standard classification of flows and stocks in the same way as the GFS system. Certain classification requirements are specified but a high degree of flexibility is implied in much of the document. For example, only ‘appropriate classification’ of revenues and expenses is specified. As well, the ‘classification of assets in accordance with their nature or type may be based on their liquidity, marketability, financial risk and/or physical characteristics. Classification of liabilities in accordance with their nature or type may be based on their sources and/or the extent to which they are secured’. The classifications included in the illustrative statements in Tables 7.7.1 - 7.7.3 are described as examples of appropriate classification.
7.94 Use of GFS classifications is supported in AAS 31 to the following extent: ‘In addition, this Standard does not prohibit further disaggregated financial information being presented in the general purpose financial report of a government. For example, information about the assets, liabilities, revenues and expenses of a government’s programs, determined on the basis of the government purpose classification (GPC) of the Australian Bureau of Statistics, may also be useful to users of the government's general purpose financial reports. Although this Standard encourages the disclosure of disaggregated information using the GFS and/or GPC bases, it does not require the adoption of those bases. This is because the GFS and GPC classifications have been developed for specific purposes which may not always be compatible with the objective of general purpose financial reporting’.
7.95 In practice, each Australian government jurisdiction has adopted the GFS classification as a standard and is obliged by intergovernmental agreement to provide financial reports on a GFS basis. Thus, the flexibility implicit in AAS 31 with regard to classification does not prevent ABS access to GFS-classified data for the purpose of compiling GFS.
TIME OF RECORDING
7.96 Both AAS 31 and the GFS system require an accrual basis of recording, which is defined in AAS 31 as ‘where assets, liabilities, equity, revenues and expenses are recognised in the reporting periods to which they relate, regardless of when cash is received or paid’. This definition is consistent with the GFS definition, but AAS 31 does not elaborate on application of the accrual concept to the extent found in the GFS system and SNA93. Nevertheless, because the ABS is generally not in a position to obtain data initially on any timing basis other than that recorded in the accounts of each jurisdiction, differences between jurisdictions’ AAS 31 reports and GFS will only arise if significant divergences come to the ABS’ notice. One such divergence concerns the recording of interest, which is discussed in the section below relating to differences in the treatment of transactions and other economic flows.
7.97 As discussed in Chapter 2 and in previous sections of this chapter, SNA93 and the IMF GFS standard recommend valuation of all economic stocks and flows at market value. In general, accounting standards assume historical cost as a starting point and make various recommendations for the substitution of other valuation bases where considered appropriate. For example, replacement cost or fair value may be used for the valuation of non-current assets as deemed appropriate in the circumstances. Market value is recommended for certain marketed securities and preparation of supplementary reports on ‘current cost accounting’ (CCA) basis is recommended but not mandated.
7.98 In compiling GFS estimates the ABS is dependent on the valuation methods used in the source data. In the case of Commonwealth government debt, valuations have historically been on an historical cost basis. In the 2003-04 Commonwealth budget released on 13 May 2003, the Commonwealth announced a change in the valuation basis of debt to the conceptually preferred market value basis, made possible by the introduction of the new debt valuation systems by the Australian Office of Financial Management. This change was taken back to 1999-2000 and was introduced in the 2001-02 GFS publication released on 27 June 2003. As such, there is a break between 1998-99 and 1999-2000 for the affected balance sheet series, including net debt.
DIFFERENCES IN TREATMENT OF FLOWS AND STOCKS
7.99 A number of differences exist between the accounting and GFS treatments of some economic flows and stocks. These are listed below with brief comments on the cause and effect of each difference.
Absence of transactions/other economic flows distinction in accounting standards
7.100 As noted previously, accounting standards do not make the GFS distinction between transactions and other economic flows. The distinction between transactions and other flows is important for economic analysis because transactions represent changes to stocks which result directly from the economic activities (e.g. production, income generation, consumption, accumulation of wealth) arising from the interaction of institutional units, whereas other economic flows (revaluations and other changes in the volume of assets) represent changes to stocks which result from events that do not involve the interaction of institutional units and are often not directly related to economic activities.
7.101 Two important examples of the effects of the absence of the transactions/other flows distinction in accounting standards concern profits/losses from exchange rate changes and profits/losses on the sale of assets (other than inventories). Both of these flows are treated as revaluations in the GFS system and, as a consequence, do not affect the GFS net operating balance. In the GFS system, profit or loss on the sale of assets is considered to be a revaluation which takes place immediately before the sale of the asset. In accounting reports both would be treated as revenue or expenses and would affect the operating surplus/deficit. However, in both systems, such events have the same effect on net worth.
Non-recognition of internal book transfers in the GFS system
7.102 Certain internal transfers that are recognised as revenues or expenses in accounting standards are not regarded in the GFS system (or SNA93) as economic flows and so are not recorded in the system. Allowances for bad or doubtful debts are an important example. These are expensed in AAS 31 but are not recognised in the GFS system. In the GFS system, bad debts are only recognised when written off. Bad debts written off are treated as other changes in the volume of assets if they are written off unilaterally by the creditor or as capital transfers if they are written off by mutual agreement between creditor and debtor.
Revision to accounting estimates
7.103 In accounting standards the revision of an accounting estimate is recognised as a revenue or an expense in the accounting period in which the estimate is revised, if the revision affects that reporting period only, or in the reporting period and future reporting periods, if the revision affects both the current and future reporting periods. Importantly from a GFS perspective, Australian accounting standards require that accounting estimates recognised in prior accounting periods must not be revised with retrospective effect on prior financial statements.
7.104 In the GFS system, material revisions affecting prior-period statistics are usually applied to the past data and are not applied as a cumulative amendment to current-period data. In ABS GFS statistics such adjustments are made to past periods if: (i) the information could reasonably have been expected to be known in the past; (ii) is material in at least one of the affected periods; and (iii) can be reliably assigned to the relevant period(s). In all other cases, the adjustment would be recognised as a current period 'other economic flow'. In other words, there is no embargo on amendment of statistics for prior periods as in Australian accounting standards. Where revisions of past data are identified in accounting reports, this different treatment will result in differences between GFS and AAS 31 financial statements for the current period and prior periods affected by the revision.
Unfunded superannuation expenses
7.105 In accounting statements, unfunded superannuation expenses are accrued as the total change in the actuarially determined value of the unfunded liability. In the GFS system and the ASNA, the movement in the unfunded liability includes up to four components that must be recorded separately:
7.106 Actuarial revaluations are not economic transactions of the current period, because they do not relate to any actually agreed interactions between two economic agents in the period. The component of actuarial revaluations arising from emerging changes in member circumstances (e.g. increases in life expectancy) is treated as an 'other economic flow'. In theory, the component of actuarial revaluations relating to improvements to the calculation of the liability should, be assigned to services provided by employees in past periods (i.e. historical expenses adjusted). However, in practice, because of the long period involved, the difficulty in reliably assigning the component to particular periods, and the resultant immateriality from the perspective of economic analysis, this component is also generally treated as an 'other economic flow' in the period in which the actuarial revaluation is conducted.
- the superannuation expense that is included with compensation of employees and represents a payment for services rendered by the employee in the accounting period - it is equivalent to the amount that would have been paid by the employer to a separate superannuation fund if the superannuation scheme was fully funded;
- an interest component representing the cost of the accumulation of the superannuation liability arising from past periods of service - the employer is seen as compulsorily borrowing the value of the increase in superannuation liability in every accounting period and as sustaining an associated interest expense (in long-running schemes, the interest expense often exceeds the compensation of employees expense);
- cash benefits paid in the accounting period, which are treated as if they are repayments of the ‘borrowed funds’ of the liability; and
- actuarial revaluations.
7.107 The components of the change in the superannuation liability in the current period other than actuarial revaluations are treated as economic transactions in the current period. Superannuation expenses for employees in the current year and nominal interest expenses on the unfunded liability in the current year are treated as both 'expenses' and financial transactions (increase in liabilities), and superannuation benefits paid in the current year are recorded as financial transactions (decrease in liabilities).
7.108 The different ABS treatment of accruing unfunded superannuation liabilities affects comparisons of GFS and AAS 31 data for various expenses and the operating balance.
Expenditures on weapons and weapon delivery systems
7.109 As described in Chapter 2 the GFS system records (in keeping with SNA93) expenditures on weapons and weapon delivery systems as current expenses, whereas in public sector accounts these expenditures are usually treated as capital expenditures. In SNA93 (and the GFS system), destructive weapons are not treated as non-financial assets because they are not used repeatedly or continuously in production (although durable, they are single-use goods). By extension, weapons platforms (warships, submarines, military aircraft, tanks, missile carriers and launchers, etc.) with the function of launching such weapons are treated as consumed in the period when they are acquired.
7.110 However, military structures such as airfields, docks, roads, and hospitals (and the equipment associated with them) are treated as non-financial assets in SNA93 and the GFS system because they are continuously used in production in the same way as similar civilian structures (they are often switched from military use to civilian use and back again). Light weapons and armoured vehicles are also treated as non-financial assets because they may be used by non-military establishments which undertake internal security or policing activities.
7.111 These different treatments of expenditures on weapons and weapon delivery systems in the GFS system and AAS 31 contribute to differences between the two systems in the balance sheet as well as the operating statement. The AAS 31 value of fixed assets will exceed the GFS value by the capitalised value of weapons and weapon delivery systems. In the operating statement, the AAS 31 value of depreciation will exceed the GFS value by the cost of depreciation on weapons and weapon delivery systems. GFS expenses will exceed AAS 31 expenses by the capitalised cost of weapons and weapon delivery systems acquired in the period.
7.112 In accounting statements, dividend payments are recorded as distributions and do not affect the derivation of the operating surplus/deficit. In the GFS system, dividends paid by public corporations are treated as expenses and as determinants of the GFS net operating balance of the public corporations. This treatment is adopted in order to maintain a correspondence between the GFS net operating balance and ASNA saving concepts. Subject to measurement differences, the GFS net operating balance is equal to the ASNA concept of net saving plus capital transfers.
7.113 The different treatment in the GFS system of dividend payments affects comparisons of public corporations’ data relating to the GFS net operating balance and the operating surplus/deficit in AAS 31 financial statements.
7.114 In certain circumstances, the GFS system may treat transactions as repayments of equity that would be recorded as dividend payments in accounting statements. In the GFS system, dividends are viewed as payable from saving. Conversely, dividends not arising from saving, such as dividends arising from sales of assets, may be viewed as return of equity to owners. Such instances, which affect dividend receipts by public sector entities as well as dividend payments by public corporations, are rare and are treated on a case by case basis.
7.115 Acquisition of non-financial assets under finance leases is treated in the GFS system and accounting standards in the same way where the finance lease is recognised as such under AAS 17 ‘Leases’. A capital expenditure is recorded, and the asset acquired is added to the balance sheet, as is the lease liability. In subsequent periods, the lease payments are subdivided between an interest component and a component representing repayment of the borrowed principal.
7.116 The ABS is largely guided by accounting standards in identifying leases as either operating or finance. Although these standards are regarded as being prescriptive and precise, on rare occasions their interpretation by some public sector entities has led the ABS to disagree. So-called operating leases that ABS considers as the same in substance as finance leases and as having the same economic effect are treated as finance leases in the GFS system. In such cases, AAS 31 statements will not record the acquired assets and the lease on the balance sheet and will record only the lease payments as expenses. Differences will also result between the amounts of depreciation recorded in the two systems.
7.117 Under certain accounting treatments, interest payments can be capitalised. In the GFS system, all interest payments are recorded as expenses. This difference between accounting standards and the GFS system affects comparisons of data in accounting and GFS operating statements and balance sheets (GFS interest payments will be higher and GFS asset values will be lower by the amounts of capitalised interest).
Equity in quasi-corporations
7.118 The GFS system recognises certain unincorporated entities in the public sector as quasi-corporations if they operate in the same way as corporations (see Chapter 2). By definition, quasi-corporations that are classified as public non-financial corporations or financial corporations are owned by general government units. In accordance with SNA93, the equity of general government units in such quasi-corporations is defined as equal to the to the total value of the quasi-corporations’ assets less the total value of their liabilities. No such recognition of quasi-corporate equity is made in accounting statements, which record only documented equity (e.g. shares on issue).
7.119 This difference between the GFS system and accounting statements affects only comparisons of data for the GFS institutional components (i.e. general government, public non-financial corporations, public financial corporations) with similarly segmented accounting data. Comparisons of data for the public sector as a whole are not affected because the equity holdings are eliminated in consolidation.
Total net assets/net assets/net worth
7.120 Total net assets is the name applied in AAS 31 to the difference between the value of total assets and the value of total liabilities. Net assets is defined as total net assets less outside shareholders’ interest. Net worth is a balancing item in SNA93 and the GFS system. In SNA93 and the GFS system, net worth is defined as the total value of assets less the total value of liabilities and equity. Although these three concepts are different, they are often confused. For example, the term ‘net worth’ is sometimes erroneously applied to the concept of total net assets or the concept of net assets. Although the concept of net worth is not used in accounting statements, it can usually be derived. Conversely, although the GFS system does not include the concepts of total net assets and net assets, they can be derived.
7.121 For the general government sector (which cannot have equity), net worth, total net assets and net assets are identical. For corporations, the SNA93/GFS concept of net worth is based on the view that all financial claims on the assets of the corporations (including the claims of the owners) should be deducted in determining its contribution to the net worth of the economy as a whole. Thus, even though a corporation is wholly owned by its shareholders collectively, it is seen to have a net worth (which could be positive or negative) in addition to the value of the shareholders’ equity. In the case of quasi-corporations ‘net worth is zero, because the value of the owners’ equity is assumed to be equal to its assets less its liabilities’ (SNA93, paragraph 13.83).
RECONCILIATION OF AAS 31 AND GFS BALANCING ITEMS
7.122 In order to quantify the differences between public sector accounting reports and the GFS system, the ABS calculates reconciliations between balancing items that occur in the two systems. These reconciliations are made available to users. Data for various known differences are compiled and used to adjust the GFS net operating balance for the public sector in each jurisdiction to derive the AAS 31 operating surplus/(deficit) for that jurisdiction. However, a precise reconciliation has yet to be made and unresolved differences are recorded in a residual entitled ‘other adjustments’. A similar exercise is performed to reconcile the GFS net worth for each jurisdiction with the AAS 31 measure of net assets for the jurisdiction. The GFS items used in the reconciliations are set out in Tables 7.8 and 7.9 below.
7.123 In deriving the AAS 31 operating surplus/(deficit) in Table 7.8, provisions for bad and doubtful debts are added to the GFS net operating balance because (as discussed previously) such provisions are not considered to be transactions and are excluded from the GFS system. Bad debts that are written off from provisions and are treated as capital transfers in the GFS system are deducted in the calculation of the net operating balance and have to be added back to conform with the AAS 31 treatment. The GFS system treats gains and losses on assets as other economic flows and they do not enter the derivation of the GFS net operating balance but are included in the AAS 31 operating surplus/(deficit). The GFS system excludes revisions to past accounting estimates in the derivation of the net operating result for the current period, whereas such revisions are included in the derivation of the AAS 31 operating surplus/(deficit). Distributions to owners of public corporations are deducted in the derivation of the GFS net operating result, but are excluded from the derivation of the AAS 31 surplus/(deficit). Capitalised interest is treated as an expense in the GFS system and is deducted in the derivation of the net operating balance and therefore has to be added back in the derivation of the AAS 31 surplus/(deficit). Differences that could contribute to the residual ‘other adjustments’ are listed in the footnote to the table.
7.124 To date it has not been possible to quantify specific differences between GFS net worth and AAS 31 net assets. Accordingly in Table 7.9, the differences are all recorded in the residual ‘adjustments’. Differences that could contribute to the item are listed in the footnote to the table.