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THE DISTINCTION AND LINKS BETWEEN BALANCE SHEETS OF NON-FINANCIAL CORPORATIONS IN THE SNA AND BUSINESS ACCOUNTING
Peter van de VenHead of National Accounts, OECD
NBS-OECD Workshop on National AccountsGuangzhou, December 2 – 5, 2014
Introduction
• Main data sources for compiling institutional sector accounts for corporations
• Business Accounting Standards
• Similarities and differences between SNA and business/tax accounting
• Multinational enterprises
Data sources for corporations
• Data sources may of course differ across countries
• Supply and Use Tables: specific production statistics
• For institutional sector accounts, data are needed from profit and loss accounts and balance sheets:– Specific surveys
• General Statistics on Income and Finance
• Specific statistics or information for certain groups of companies (e.g. hospitals, public corporations, etc.)
• FDI and FATS
– Annual reports of companies
– More and more data used from administrative sources, e.g. tax data or registers with data from annual reports
– Often combination of various sources
Business Accounting Standards
• Sources usually based on business accounting standards and/or tax rules
• Business Accounting Standards published by International Accounting Standards Board (IASB) gaining growing importance => International Financial Reporting Standards (IFRS): http://www.ifrs.org/IFRSs/Pages/IFRS.aspx (also available in Chinese)
• Many countries (intend to) apply the relevant standards in law or otherwise, especially for larger corporations
• Note: Development of International Public Sector Accounting Standards (IPSAS), but not yet that much applied
Similarities with SNA 2008
• Main principles the same as the SNA:
– Economic substance takes precedence over legal form
– Conceptually preferred approach versus practical possibilities
• Both based on double entry bookkeeping: consistency between balance of non-financial transactions and balance of financial transactions (budget identity) => Jane Gleeson – White: “Double Entry”
• Both based on accrual accounting, not cash accounting
• Breakdowns of transactions and balance sheet positions rather similar
Main differences with SNA 2008 (1)
• Definition of income: SNA 2008 excludes holding gains/losses from income, it also excludes capital transfers and other changes in the volume of assets from income
• Provisions and contingent liabilities not recognised in the SNA 2008
• Asset boundary of the SNA 2008 is larger than usual practice in business accounting: SNA 2008 treats much more expenditures as investments, adding to the capital stock of non-financial assets, e.g. various intangible assets
• Service lives of assets in business accounting usually based on tax rules
Main differences with SNA 2008 (2)
• Valuation principles:
– Business accounting: “historic valuation” of non-financial assets (assets valued at the original purchase price)
– SNA 2008: “current replacement costs” or “opportunity costs”
– Under inflationary conditions:• Operating surplus/ profits cf. SNA < Operating surplus cf.
business accounting: withdrawals from inventories and depreciation in business accounting based on lower prices (note: service lives!)
• Value of non-financial assets will also be smaller, also because service lives according to tax rules then to be shorter
Multinational Enterprises
• For multinational enterprises (MNEs), data according to IFRS primarily available in a consolidated form
• For purposes of taxes and also statistics, data are needed for the national part of the MNE => however, recording also influenced by IFRS and other business accounting standards
• Additional difference between SNA and business accounting: reinvested earnings on foreign direct investment:– Undistributed profits of subsidiaries recorded as distributed income
– In financial accounts: the relevant income is recorded as reinvestment in equity
– Savings and net worth of subsidiaries basically equal to zero
Multinational Enterprises: allocation of Value Added to countries
• Allocation of Value Added and profits by MNEs mainly driven by minimisation of global tax burden through:
– Transfer pricing
– Channelling funds through SPEs
– Optimisation of recording economic ownership and use of IPPs
– Optimisation of the organisation of global production arrangements
• Economic rationale, but it hampers analysis and policy from an economic substance point of view
• Lots of discussion, also in the area of national accounts => main conclusion: impossible to change the recording and impute alternative transactions
• Note: may affect GDP, but does not have an impact on GNI (as a consequence of treatment reinvested earnings)
Multinational Enterprises: allocation of Value Added to countries
Example of profit shifting affecting value added (and GDP), not affecting primary income (and GNI)
Country A
Country B Country A Country B
Output 100 250 125 250Intermediate consumption -25 -100 -25 -125Value Added 75 150 100 125Compensation of employees -50 -100 -50 -100Operating surplus 25 50 50 25Dividends -10 +10 -10 +10Reinvested earnings -15 +15 -40 +40Balance (non-financial transactions)
0 75 0 75
Cash and deposits (assets) +15 +60 +40 +35Equity (assets) +15 +40Equity (liabilities) +15 +40Balance (financial transactions) 0 75 0 75
Multinational Enterprises: need for subsectoring
• Breakdown of corporations by ownership/control:– Public corporations
– National private corporations
– Foreign controlled corporations
• Can substantially add to the understanding of the behaviour of corporations and its impact on the domestic economy
Multinational Enterprises: more information
More information, also on recording of global value chains, goods for processing, merchanting, etc., can be found at the following links:
•“The Impact of Globalization on National Accounts”: http://www.unece.org/fileadmin/DAM/stats/publications/Guide_on_Impact_of_globalization_on_national_accounts__web_.pdf
•“Task Force on Global Production”:
http://www.unece.org/statistics/about-us/statstos/task-force-on-global-production.html
Thank you for your attention!
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