Chapter 4. Use of annual financial statements of non-financial companies for national accounts

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Chapter 4. Use of annual financial statements of
non-financial companies for national accounts
EN/ADM/2014/Pres/10

• Clementina Ivan-Ungureanu
• Expert Group Meeting on the Use of Administrative
  Data in National Accounts
• 23-27 June 2014
• Kigali, Rwanda

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Content of the presentation

• Accounting system
• National accounts and company accounts
• Compilation of national accounts from company
  accounts

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Accounting system

• National accounts are virtually standardized
  worldwide, while business accounting (financial
  statements) is still in the process of
  international harmonization.
• The International Accounting Standards Committee
  (IASC) was created in 1973 to establish basic
  accounting standards referred to as IAS
  (International Accounting Standards) and then
  International Financial Reporting Standards
  (IFRS) .
• In general, the main rules and methods for
  business accounting (IAS/IFRS) are consistent
  with those of the SNA. Examples are recording
  transactions in accounts using the accrual
  principle, double-entry principle and use of
  balances, monetary valuation, and internal
  consistency of the accounts system

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Accounting system ( cont.)

• Elements
• Income statement group the transactions accounts
  corresponding to income and costs
• Balance sheet- presents the stock accounts,
  corresponding to assets and liabilities.
• Income statements- flow accounts
• Balance sheets stock accounts

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Accounting system ( cont.)- Use of financial
statements

• Use of financial statements
• - access to companies' accounts
• - minimum degree of standardisation of the
  accounting documents

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Accounting system ( cont.)

• Direct relations business accounts (IAS/IFRS) and
  SNA

National accounts Business accounts
Production account, Income accounts Income statement (Profit and loss account)
Financial account Change in financial position and statement of cash-flows
Capital account, Balance sheet Balance sheet
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National accounts and company accounts

• Practical issues
• - Accounting year start and end dates
• Currencies
• Estimation of profit and loses
• Fixed assets
• Consumption of fixed capital
• Provisions
• Holding gains/loses

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National accounts and company accounts (cont.)

• Mergers and acquisitions
• Fines and penalties
• Contracts
• Globalization

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Compilation of national accounts from
company accounts

• The procedure for compiling SNA accounts from
  company accounts is as follows
• classifying the items in the income statement
  into SNA transactions
• assembling the reclassified items into
  intermediate accounts ( elaboration of bridge
  tables) that are conceptually quite close to the
  SNA
• adjusting the items in the intermediate accounts
  to make them fully compatible with the SNA.

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1.. Classifying the items of the income
statement into SNA transactions

• Output (SNA) Output sold Output held as
  inventory Capitalized output Sales of goods
  bought for resale - Purchases of goods bought for
  resale Changes in stocks of goods bought for
  resale Other operating income
• Intermediate consumption (SNA) Purchases of raw
  materials and supplies - Changes in stocks of raw
  materials and supplies Other purchases and
  external charges Other operating costs
• Compensation of employees (SNA) corresponds to
  the expenses incurred by an enterprise in
  relation to its employees

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1. Classifying the items of the
income statement into SNA transactions ( cont.)

• Other indicators
• Taxes and subsidies (SNA) on product and
  production
• Property income (SNA) includes interests,
  dividends, rents on non-produced assets and
  equity earning
• Current transfers include charitable
  contributions, insurance premiums, insurance
  claims, fines and penalties. Current transfers
  may be classified in business accounts as
  operating expenses, other income and
  extraordinary gains and loss.

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2. Elaborating the bridge tables

• The intermediate accounts derived from income
  statements are based on the bridge tables
  realised and include mainly, production account
  and generation of income account and provide
  information for the compilation of other accounts
  up to the use of disposable income account.

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3. Adjustments

• Conceptual Adjustments
• Conceptual adjustments required for the
  calculation of output
• transition to basic price valuation in SNA
• deliveries between establishments of the same
  enterprise
• margin earned on distribution type activity
• own account output of software and other
  intellectual products
• own account output of research and development,
  software and data bases
• sales of land
• inventory (stock) valuation
• capitalised output
• ownership transfer costs

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3. Adjustments ( cont.)

• Conceptual adjustments required for the
  calculation of intermediate consumption
• - Insurance premiums
• Leasing
• FISIM
• Land purchase
• Stock valuation adjustment
• Costs associated with the acquisition of assets
• Bad debts

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3. Adjustments ( cont.)

• Adjustments to achieve coherence with the
  accounts of other sectors
• Taxes and subsidies
• Property income
• Adjustments for exhaustiveness
• Evasion regarding output sold and sale of goods
  for resale
• Income earned-in-kind
• Tips
• Evasion on purchases intended for intermediate
  consumption
• Undeclared employment

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Calculations

• From the numerical example, the main indicators
  can be estimated
• Output 32 200 (1) 500 (2) 80 (3) 300 (4)
  - 100 (5) 32 980
• Intermediate consumption 15 000 (6) 10 000
  (7) 300 (8) 24 700
• Gross value added Output (32 980)
  Intermediate consumption (24 700) 8 280

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Summary

• The use of company accounts to compile national
  accounts is not new, actually they are considered
  one of the main sources used for compiling
  national accounts.
• In spite of the many differences between company
  accounts and national accounts the capacity of
  using directly company accounts to compile
  national accounts is obviously large. It is
  possible to compose of national accounts for
  non-financial companies as being the result of
  aggregation of the individual company records,
  naturally with a number of adjustments.

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Points for discussions

• Use of financial statements for NA compilation
• Elaboration of bridge tables
• Adjustments made to the indicators from financial
  statements for NA compilation