III. FLOWS, STOCKS AND ACCOUNTING RULES
F. Valuation
1. General rules
| 3.70. | The power of the SNA as an analytical tool stems largely from its ability to link numerous, very varied economic phenomena by expressing them in a single accounting unit. The System does not attempt to determine the utility of the flows and stocks which come within its scope. Rather, it measures the current exchange value of the entries in the accounts in money terms, i.e., the values at which goods and other assets, services, labour or the provision of capital are in fact exchanged or else could be exchanged for cash (currency or transferable deposits). |
| 3.71. | When institutional units exchange these items with other institutional units for cash, the values required by the System are directly available. These transactions are recorded at the actual exchange value agreed upon by the two parties. Furthermore, of course, the values for all flows and stocks that concern cash holdings and liabilities are directly known. |
| 3.72. | In respect of all remaining flows and stocks, no actual exchange values are at hand, so their values must be assessed indirectly. These values should be taken from markets in which the same or similar items are traded currently in sufficient numbers and in similar circumstances against cash. The selection of the appropriate reference markets requires that attention be paid to differences between wholesale and retail markets, regional divergences, etc. Non-monetary transactions in existing goods often can be valued at the market price for similar new goods, if properly adjusted for consumption of fixed capital and other elements, such as unanticipated damage, which may have accrued to the asset since the time it was produced. |
| 3.73. | If there is no appropriate market from which the value of a particular non-monetary flow or stock item can be taken by analogy, as a second best, its valuation could be derived from prices that are established in less closely related markets. Ultimately, some goods and services can only be valued by the amount that it would cost to produce them currently. Market and own-account goods and services valued in this way should include a mark-up that reflects the net operating surplus or mixed income attributable to the producer. For non-market goods and services produced by government units or NPISHs, however, no allowance should be made for any net operating surplus. |
| 3.74. | Sometimes it is necessary to value stocks at their estimated written down current acquisition values or production costs. The write-down should then include all changes which have occurred to the item since it was purchased or produced (such as consumption of fixed capital, partial depletion, exhaustion, degradation, unforeseen obsolescence, exceptional losses and other unanticipated events). The same method could be applied to non-monetary flows of existing assets. |
| 3.75. | If none of the methods mentioned above can be applied, flows and stocks are to be recorded at the discounted present value of expected future returns. Although this method is theoretically entirely justified, it is not generally recommended since it involves many assumptions and as a consequence the outcomes are highly speculative. |
| 3.76. | Flows and stocks concerning foreign currency are converted to their value in national currency at the rate prevailing at the moment they are entered in the accounts, i.e., the moment the transaction or other flow takes place or the moment to which the balance sheet applies. The midpoint between the buying and selling rate should be used so that any service charge is excluded. In conformity with the general rule, provision of assets, services, labour or capital in exchange for foreign cash is recorded at the actual exchange value agreed upon by the two parties to the transaction. The exchange value should then be converted to national currency at the midpoint rate prevailing at the time the transaction takes place. That moment may be different from the times the payments are made; as a result, the value in national currency of the transactions in question may differ from the value in national currency of the related payments when they take place. |
| 3.77. | Business accounts, tax returns and other administrative records are main sources of data for drawing up the national accounts. One should be aware, however, that none of these necessarily satisfies the valuation requirements of the System and that accordingly adjustments may have to be made. In particular, in the interest of prudence, business accounting often adopts valuations that are not appropriate for the national accounts. Similarly, valuations for tax purposes often serve objectives that differ from those of macroeconomic analysis. For example, the depreciation methods favoured in business accounting and those prescribed by tax authorities almost invariably deviate from the concept of consumption of fixed capital employed in the System. |
2. Valuation of partitioned flows
| 3.78. | Extending the general rule in paragraph 3.71 above, where a single payment refers to more than one transaction category (such as they are defined in the System), the individual flows need to be recorded separately. For example, the System recommends dividing interest transactions with financial enterprises between two transaction categories whenever possible: one standing for pure interest and the other representing the implicit payment for financial intermediation services. Earlier in this chapter, the partitioning of financial leasing and transactions of wholesalers and retailers were discussed. Partitioning is not limited to transactions; an example is real holding gains, which are separated for analytical reasons from neutral holding gains that are simply proportionate to changes in the general price level. |
| 3.79. | In some cases partitioning is connected with deceptive behaviour. Values put on an invoice may deviate systematically or to such a large extent from the prices paid in the market for similar items that it must be presumed that the sums paid cover more than the specified transactions. An example is so-called transfer pricing: affiliated enterprises may set the prices of the transactions among themselves artificially high or low in order to effect an unspecified income payment or capital transfer. Such transactions should be made explicit if their value is considerable and would hinder a proper interpretation of the accounts. |
| 3.80. | A less obvious mingling of transactions occurs when the provision of an asset and the related money payment or payments do not take place simultaneously. When the time gap becomes unusually long and the amount of trade credit extended is very large, the conclusion may be that implicitly an interest fee has been charged. In such extreme cases, the actual payment or payments should be adjusted for accrued interest in order to arrive at the correct value of the asset transferred. Such adjustments are not recommended for normal trade credit. |
3. Special valuations concerning products
| 3.81. | Usually, the producer and the user of a given product perceive its value differently owing to the existence of taxes and subsidies on products, transport costs to be paid and the occurrence of trade margins. In order to keep as close as possible to the views of the economic transactors themselves, the System records all uses at purchasers' prices including these elements, but excludes them from the value of output of the product. |
| 3.82. | Output of products is recorded at basic prices. The basic price is defined as the amount receivable by the producer from the purchaser for a unit of good or service produced as output minus any tax payable and plus any subsidy receivable on the product as a consequence of its production or sale. It excludes any transport charges invoiced separately by the producer. If it proves impossible to obtain the required information at basic prices, output may be valued at producers' prices. The producer's price is defined as the amount receivable by the producer from the purchaser for a unit of a good or service produced as output minus any value added tax (VAT), or similar deductible tax, invoiced to the purchaser. It also excludes any transport charges invoiced separately by the producer. |
| 3.83. | Use of products is recorded at purchasers' prices. The purchaser's price is defined as the amount payable by the purchaser, excluding any deductible VAT or similar deductible tax, in order to take delivery of a unit of a good or service at the time and place required by the purchaser. The purchaser's price of a good includes any transport charges paid separately by the purchaser to take delivery at the required time and place. |
| 3.84. | The difference in value recorded for a product between when it is produced and the moment it is used for, say, final consumption expenditure can be considerable. Components of this difference may be:
(a) Taxes less subsidies on products payable by the producer;
(b) Trade and transport margins, including taxes less subsidies on products payable by wholesale and retail traders;
(c) Transport, including taxes less subsidies on products, paid separately by the consumer;
(d) Predictable quality increases producing additional output volume less current losses during storage;
(e) Holding gains while the product is with the producer and with wholesale and retail traders.
As one can see from the above, the difference between the original basic price and ultimate purchasers' price of a particular good encompasses both pure price and volume elements. In practice, of course, the estimates do not keep track of individual products but are made at a more global level for groups of products. |
| 3.85. | Imports and exports of goods are recorded in the System at border values. Total imports and exports of goods are valued free-on-board (f.o.b., that is, at the exporter's customs frontier). As it may not be possible to obtain f.o.b. values for detailed product breakdowns, the tables containing details on foreign trade show imports of goods valued at the importer's customs frontier (c.i.f. value), supplemented with global adjustments to f.o.b. C.i.f. values include the insurance and freight charges incurred between the exporter's frontier and that of the importer. The value on the commercial invoice may of course differ from both of these. |
| 3.86. | As the overall balance of imports and exports must conform to actual circumstances, border valuation of goods has consequences for the recording of freight and insurance in the System. Usually, the values of both imports and exports for these service items have to be adapted to compensate for the special conventions on goods trade with the rest of the world. Further details on this treatment are in chapters XIV and XV. |
|
