Strengthening the Links Between Macroeconomic Statistical Guidelines and Accounting Standards

Strengthening the Links Between Macroeconomic Statistical Guidelines and Accounting
Standards



Lucie Laliberté,1 llaliberte@imf.org
Statistics Department
International Monetary Fund


Presented as an amended version, at the meeting of the
Inter Secretariat Working Group on National Accounts (ISWGNA)
December, 2004


Presented as an amended version at the meeting of the
Task Force on the Harmonization of Public Sector Accounting, (TFHPSA)
September 22–24, 2004

Presented as an original version at the Twenty-Eight General Conference, 2004 of the
International Association for Research in Income and Wealth (IARIW), August 22–28, 2004.


Abstract

The paper provides an overview of macroeconomic statistical and accounting datasetting
systems, highlights areas of similarities between them, and proposes approaches aimed at
further reconciliation between the two systems. Following a summary of the recent
developments that set the stage for further harmonization, each system is analyzed in
terms of reporting entity, assets/liabilities in the balance sheet statement, and changes in
assets/liabilities in the flows statements. The emphasis that each system puts on various
aspects of data quality is then reviewed, serving to highlight the specific purposes they
each serves. Appendix I and II provide more details, respectively, on the forces that are
driving the two systems closer on the one hand, and on the quality requirements that
explain the respective specificities of each system, on the other hand.

1 The views expressed in this paper are those of the author and do not necessarily represent those of the IMF. The
author thanks the following individuals for their very valuable comments: William Alexander, Robert Dippelsman,
Keith Dublin, Jean-Pierre Dupuis, Claudia Dziobek, Cor Gorter, Robert Heath, Alfredo Leone, Ian Macintosh,
Randall Merris, Jose Carlos Moreno, S. Rajcoomar, Manik Shrestha, Ethan Weisman, and Joan Gibson for
reviewing the paper.
DMSDR1S-2311107-v6-Working Paper on Relationship between Macroeconomic Statistical Guidelines and
Accounting Standards.DOC November 16, 2004 (2:56 PM)

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Contents Page
I. Introduction ............................................................................................................................3
II. Selected Areas for Harmonization ........................................................................................5
A. Entities Covered in Statistical and Accounting Statements ......................................6
Statistical guidelines ..........................................................................................7
Accounting standards.........................................................................................8
Relationship between statistical and accounting entities ...................................9
B. Balance Sheet Statement .........................................................................................10
Financial equity assets .....................................................................................12
Debt assets .......................................................................................................14
Nonfinancial assets ..........................................................................................15
Contingent assets .............................................................................................16
C. Flow Statements ......................................................................................................21
Statistical guidelines ........................................................................................21
Accounting standards.......................................................................................23
Relationship between statistical and accounting flows....................................25
III. Relationship Between the Data Quality of the Two Systems ............................................29
Relevance, timeliness, and reliability ..............................................................29
Methodological soundness/Comparability across reporting units ...................30
Consistency......................................................................................................30
IV. Concluding Comments ......................................................................................................32
Efforts to harmonize ........................................................................................32
The way forward ..............................................................................................34

Appendices

I. Drivers for Harmonization of the Statistical Guidelines and Accounting Standards .........34

II. Data Quality Requirements in the Statistical Guidelines and in Accounting Standards....41
Bibliography ............................................................................................................................45

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I. INTRODUCTION

1. The aim of this paper is to promote harmonization between macroeconomic statistical
guidelines2 and financial accounting standards. The paper views harmonization in the
following broad terms: identifying and describing differences; enhancing convergence to
narrow differences; and, when convergence cannot be achieved, providing the rationale and
developing bridges to reconcile differences between the two data-setting systems.

2. In its own specific area, each statistical and accounting data-setting system provides
the framework to identify, record, classify, and summarize economic activities of entities.
These two data-setting systems differ in their scope, preparation, and use. The statistical
guidelines, as embodied in national accounts for macroeconomic datasets, pertain to the
economic behavior of all the economic units of the economy, while the accounting
statements refer to the behavior of individual units in the corporate and government sectors.
Whereas in the statistical data-setting system the third-party statisticians report the national
accounts, each unit reports on its own operations in the financial statements.3

3. It should come as no surprise that the two systems have common users since each
system provides a distinct perspective on the same underlying economic realities: The
national accounts give a macro reading of the economic activities of entities that accounting
statements purport to measure at the micro level. To a certain extent, the two datasets are
also complementary: Data from accounting statements serve as major data sources in the
production of the national accounts, and aggregates of national accounts provide
background information on the economic events measured by accounting statements. (Of
course, the relationship in the first case is in the nature of accounting identities, whereas the
relationship in the second case is more behavioral in nature.)

4. Efforts to relate the statistical and accounting systems have so far largely focused on
explaining adjustments that statisticians need to make to the accounting data that they use as
a major source to produce macroeconomic datasets.4 The need for such adjustments stems

2 The term statistical guidelines is preferred to statistical standards. Guidelines embody the accounting rules
and procedures that provide guidance for a broad range of macroeconomic datasets (national accounts, balance
of payments, etc.) and of statistical manuals (ranging from those dealing exclusively with concepts, definitions,
and classification, to compilation guides, or a combination of the two). The term guidelines throughout the
text also helps to maintain the distinction from public and business accounting, which is referred to as
accounting standards.
3 Reporting is generally by qualified accountants who are subject to a code of ethics. The financial statements
of public corporations are audited by a third party.
4 United Nations, Handbook of National Accounting: Links between Business Accounting and National
Accounting, Series F, No. 76, Statistics Division, New York, 2000. In certain countries where the accounting
standards are more aligned with statistical guidelines, adjustments can be made at a low level of homogeneous
groupings, referred to as intermediate systems of account. For instance, in France, the corporate accounting is
formally linked to statistical guidelines through a charter of accounts.

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from accounting conventions and valuations differing from those required for statistical
outputs. Adjustments are generally made at an aggregate level.

5. The present paper endeavors to explore ways to harmonize the statistical guidelines,
as embodied in the System of National Accounts 1993 (1993 SNA),5 and the accounting
standards. Greater harmonization should help in reducing the need for adjustments and in
providing the details to meet both statistical and accounting requirements when preparing
accounting data, thus alleviating reporting burden. Furthermore, since national accounts are
rooted in economic foundations, the narrowing of the “micro-macro link” should enhance
the understanding of how economic agents themselves view their activities.

6. The time seems ripe for such harmonization for at least four interrelated reasons:6

7. First, the statistical guidelines and the accounting standards are undergoing major
changes, with those in statistics led by the ongoing fifth revision of the System of National
Accounts (SNA) to be finalized in 2008. From a diversity of accounting standards among
countries, the increasingly global capital market has prompted the development in recent
years of international accounting standards.7

8. Second, research in recent years in finance, accounting, and macroeconomic statistics
has helped, among other things, to enhance the understanding of the valuation of assets.

9. Third, accountants are increasingly adopting practices that are fundamental in
statistics, such as fair value, performance reporting that distinguishes transactions from
other economic events, and inflation accounting.

10. Fourth, with the globalization of economies, the financial crises of the 90s, followed
by the recent years’ corporate scandals, took up an international dimension. This prompted
policymakers to develop analytical, monitoring, and assessment tools that all call for more
extensive and detailed information,8 including statistical information.

5 Commission of the European Communities, IMF, OECD, United Nations, and World Bank, System of
National Accounts 1993 (1993 SNA), Brussels, 1993. The 1993 SNA represents the body of thought on
statistical guidelines with which the macroeconomic datasets developed since 1993 have been harmonized. Also
see Carson S. Carol and Lucie Laliberté, “Manuals on Macroeconomic Statistics: A Stocktaking to Guide
Future Work,” IMF Working Paper 01/183, International Monetary Fund, Washington, D.C., November 2001.
6 An overview of these developments is presented in Appendix I.
7 With the International Financial Reporting Standards (IFRs) set up by the International Accounting Standard
Board, and the International Public Sector Accounting Standards (IPSAS) set up by the Public Sector
Committee of the International Federation of Accountants (PSC-IFAC).
8 The IMF and World Bank have endorsed internationally recognized standards and codes in 12 areas (e.g.,
data, fiscal, transparency, monetary and financial policy transparency) as important for their work. Reports on
the Observance of Standards and Codes (ROSCs) are prepared and published at the request of the member
country by the IMF and/or World Bank in each of the 12 areas. ROSCs covering financial sector standards are
(continued)

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11. In response to the above developments, statisticians and accountants created the Task
Force on Harmonization on Public Sector Accounting (TFHPSA)9—the first formal
initiative at the international level that attempts to harmonize statistical guidelines and
accounting standards. The Task Force operates on the basis of two working groups
(WGs)10—the WGI, focusing on narrowing differences between statistical guidelines and
accounting standards, and the WGII, providing inputs for public sector activities to the
1993 SNA review.

12. In addition to the TFHPSA, other research groups provide inputs into the group in
charge of reviewing the 1993 SNA, the Inter Secretariat Working Group in National
Accounts (ISWGNA)11 that is assisted by the Advisory Expert Group. The research groups
include the Canberra II group on nonfinancial assets, the IMF Balance of Payments
Committee on the rest of the world account, and electronic and other discussion forums.

Plan of the paper

13. Drawing from the TFHPSA activities, Section II of this paper broadly describes
existing practices in each of the statistical and accounting systems, and identifies where
harmonization efforts between these two systems are under way and/or in need of further
promotion. Section III compares data quality features of the two systems. By shedding light
on the context in which each system operates, the section on quality helps to better grasp the
principles that drive each system and, thus, the scope of the harmonization efforts. The last
section, IV, concludes with a summary and a look forward.

II. SELECTED AREAS FOR HARMONIZATION

14. The areas for potential harmonization are explored in this paper under the following
three broad topics:

•
entities covered by statistical guidelines and accounting statements, i.e., the entity for
which statements are prepared (“who” conducts the economic activities);


usually prepared in the context of the Financial Sector Assessment Program. See
http://www.imf.org/external/standards/index.htm

9 See http://www.imf.org/external/np/sta/tfhpsa/index.htm

10 The Task Force is chaired by the IMF, represented by the author of this paper; the WGI is chaired by the
IFAC Public Sector Committee (PCS), initially represented by Ian Mackintosh, previous PSC chairman (current
chairman is Philipee Adhémar), and WGII is chaired by the OECD, represented by Jean-Pierre Dupuis.

11 See http://www.imf.org/external/np/sta/umgmd/index.htm and
http://unstats.un.org/unsd/nationalaccount/snarev1.htm

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•
assets12 in the balance sheet of entities (the “outcome” of economic activities); and

•
flows reported on these assets (“what” economic activities give rise to/affect assets).

15. For each topic (see Table 1), the paper first sketches characteristic aspects in each
system, depicting how statistics and accounting numbers convey information in their
respective contexts. Then, the paper explores how these aspects could be made to converge
or reconcile. Where applicable, it refers to the work of research groups involved in the
review of the 1993 SNA.

Table 1: Selected Aspects of Relationships Between Statistics and Accounting


Topics
Aspects

Entity
Statistics: sectors made up of institutional units
Accounting: controlling unit and its controlled units


Assets*
Statistics: based on ownership rights and economic benefits

Accounting: based on resources controlled and economic benefits/service
potential

Balance sheet

Financial equity
Statistics: subsidiaries at 50 percent and more ownership; associates at 10 to
assets: related
50 percent. Income: dividends declared for subsidiaries, associates, and other
entities
Accounting: subsidiaries at 50 percent and more ownership; associates at 20 to
50 percent. Income: fully consolidated for subsidiaries; equity basis for associates;
and dividends declared other


Debt assets
Statistics: market value except for loan. Income on effective interest rate
Accounting: different values. Income on effective and/or yield to maturity basis


Nonfinancial
Statistics and Accounting: mixture of expensing/capitalizing intangible and
assets
transaction costs; clarification for special purpose vehicles and building/operating
schemes


Contingent assets* Statistics and Accounting: Clarification for externalities, provisions, employers
pension schemes, social security and assurance, and guarantees


Flows

Recording of
Statistics: transactions and other changes
accounts
Accounting: transactions and other events


Reporting
Statistics: current, capital, financial accounts, and other changes
statements
Accounting: income/performance statement, changes in net assets, shareholders’
equity, and cash flows

*encompass liabilities

12 Throughout the paper, financial assets also encompass liabilities. It should be noted that liabilities are
exclusively financial in statistics, that is, they are due to/owned by another unit or other units. “The term
financial asset will be used to cover both financial assets and liabilities, except when the context requires
liabilities to be referred to explicitly” (1993 SNA, par. 12.22).

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A. Entities Covered in Statistical and Accounting Statements

16. The definition of the entity/unit of reporting is crucial because it is the entity’s
economic activities, as recognized/accounted for by each system, that are reported in the
statistical/financial statements.

Statistical guidelines
17. The reporting unit of the statistical guidelines is the sector. Each sector comprises an
institutional unit or a group of institutional units. An institutional unit is a resident
(economic) entity that is capable, in its own right, of owning assets, incurring liabilities, and
engaging in economic activities and in transactions with other entities, and that has or could
compile a complete set of accounts (1993 SNA, par. 4.2). Residency is defined according to
the economy, that is, the territory over which a national government has jurisdiction and
provides for the laws under which the economic activities are carried out.

18. The delineation of resident sectors (i.e., groupings of institutional units) is based on
their principal functions, behaviors, and objectives. The national accounts report on five
mutually exclusive sectors: general government, nonfinancial corporations, financial
corporations, nonprofit institutions serving households (NPISHs), and households. For
instance, government comprises institutional units, which in addition to fulfilling their
political responsibilities and their role of economic regulation, “assume responsibility for
the provision of goods and services to the community as a whole or the individual
households on a nonmarket basis; transfer payments to redistribute income and wealth; and
they finance their activities, directly or indirectly, mainly by means of taxes and other
compulsory transfers from units in other sectors.”13 The economic activities between the
resident sectors and nonresidents are grouped in the national accounts under the rest of the
world account, which plays a role similar to that of an institutional unit (1993 SNA, par.
2.164).

19. In statistics, depending on the needs to be served, sectors are combined and/or
subsectors created. Examples of groupings include the “corporate sector” that combines
nonfinancial corporations and financial corporations. The corporate sector in turn can be
broken down between “private corporations” and “public corporations”, with public
corporations defined as corporations controlled by the government. The “public sector”
consolidates the government and the public corporations, and the “private sector” regroups
the remaining resident units (private corporations, NPISHs and households). Conversely,
subsectoring ranges from several institutional levels (e.g., central, state, and/or local
governments) to the individual unit (e.g., the central bank).


13 International Monetary Fund, Government Finance Statistics Manual 2001 (GFSM 2001), Washington,
D.C., 2001, par. 2.20, p. 9.

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20. For each sector/grouping/subsector, the economic activities of the comprising
institutional units, as a rule, are aggregated, notably the production activities, with the
activities of monetary institutions and general government more generally consolidated,
depending of the reporting statements.

Consolidation involves the elimination of those transactions or debtor/creditor
relationships which occur between transactors belonging to the same institutional
sector or subsector. The rule of nonconsolidation takes a special form regarding
outputs and intermediate consumption that are to be recorded at the level of
establishment (1993 SNA, par 3.122).

Accounting standards14

21. In accounting, the reporting economic unit consists of an individual entity or a group
of entities comprising a controlling unit and its controlled units.15 The notion of control is
key to determining the reporting unit and, hence, whose economic activities are recorded.
For instance, the government unit covers the "whole of government," that is, the fully
consolidated economic activities of the government and its controlled units (at levels such as
central government, state government, territory government, or local government).
Controlled units include government business enterprises (GBEs).16 The economic activities
of the controlling unit are fully consolidated with those of controlled units in accounting
reporting.

The financial statements of the controlling entity and its controlled entities are
combined on a line-by-line basis by adding together like items of assets, liabilities,
net assets/equity, revenue and expenses. Balances and transactions between entities
within the economic entity and resulting unrealized gains are eliminated in full.
Unrealized losses resulting from transactions within the economic entity should also
be eliminated unless cost cannot be recovered (IPSAS, p. 206).




14 As represented by International Federation of Accountants, 2003 Handbook of International Public Sector
Accounting Pronouncements (IPSAS), New York, 2003. Referred to throughout the text as IPSAS (themselves
related to the IFRs, see footnote 7).
15 IPSAS 1.
16 A GBE is defined in IPSAS as an entity that (1) has the power to contract in its own name; (2) has been
assigned the financial and operational authority to carry on a business; (3) sells goods and services, in the
normal course of its business, to other entities at a profit or full cost recovery; (4) is not reliant on continuing
government funding to be a going concern (other than purchases of outputs at arm’s length); and (5) is
controlled by a public sector entity (IPSAS, pg. 688). This definition of GBE (“as at a profit”) is not
necessarily equivalent to that of public corporations (“economically significant prices”) in statistical
guidelines.

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Relationship between statistical and accounting entities
22. Unlike the accounting standards, the statistical guidelines do not use control as a
criterion for defining institutional units. For instance, though controlled by government,
public corporations are institutional units on their own; and so are quasi-corporations that
are unincorporated enterprises that function as if they were corporations.17 Instead, the
statistical guidelines delineate institutional units on the basis of being (resident) centers of
legal responsibility, that is, having legal independent holdings of assets and liabilities. The
statistical guidelines give preference to units (“autonomous decision centers”) legally
holding assets/liabilities over other units, “because it provides a better way to organize the
collection and presentation of statistics even if its usefulness is limited in some cases”
(1993 SNA, par. 2.19).

23. At the same time, the statistical guidelines recognize that units controlled by other
units may not be centers of decision-making for all aspects of economic life. In fact, they
use the same terms as the accounting standards to characterize these relationships, defining
subsidiaries as entities controlled by another corporation (generally evidenced by 50 percent
or more equity ownership) and associates as influenced by another corporation (generally
between 10 percent to 50 percent share ownership).

However, with the exception of ancillary corporations each individual corporation
should be treated as a separate individual unit, whether or not it forms part of a group.
Although the management of a subsidiary corporation may be subject to the control
of another corporation, it remains responsible and accountable for the conduct of it
own production activities (1993 SNA, par. 4.38).

24. With the statistical “public sector” defined as comprising the government and public
corporations, there should be equivalence with the accounting “whole of government.” This
is not always the case, and harmonization could be enhanced in at least two ways:

25. First, the two systems could cover the same units making up the public sector by
relying on a common definition of control to define “public corporations” and “GBEs.” In
this endeavor, the use of the term “benefits” in IPSAS in defining control could be reviewed
against that of the 1993 SNA where benefits are referred to in a narrower sense (e.g., to
define assets):

Whether an entity controls another entity for financial reporting purposes is a matter
of judgment based on the definition of control in this Standard and the particular
circumstances of each case. Definition includes powers (to govern the financial and

17 This is to be distinguished from ancillary corporations that are wholly-owned subsidiaries, whose activities
are strictly to provide services to the parent corporations, or other ancillary corporations. In the statistical
guidelines, ancillary corporations are treated as part of the institutional unit to whom they provide services
(1993 SNA, par. 4.40).

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operating policies of another entity) and benefits (from the activities of another entity)
(IPSAS 6, pp. 200–205).

26. Second, within the public sector (statistics) and whole of government (accounting), a
common delineation of market and nonmarket activities could help the two systems
distinguish “government” entities from the “other public” entities along the same lines. This
could be made possible in accounting, as evidenced by existing IPSAS that recognizes the
need for reporting of a grouping that may differ from the controlled grouping:

In the public sector many controlling entities that are either wholly owned or virtually
wholly owned represent key sectors or activities of a government, and the purpose of
this standard is not to exempt such entities from preparing consolidated financial
statements. In this situation the information needs of certain users may not be served
by the consolidated financial statements at a whole of government level alone. In
many jurisdictions governments have recognized this and have legislated the financial
reporting requirements of such entities (IPSAS, p. 198)
.
27. One of the five teams of Working Group II of the TFHPSA is working on the above
two areas of harmonization. With a view to make data available at the level of the
government unit, and the GBEs (controlled units), the IFAC–PSC undertook to “encourage
or allow note disclosure of financial information about the general government sector as
defined in the Government Financial Statistics Manual 2001 (GFSM 2001).”18
.
B. Balance Sheet Statement

28. The two systems share many features related to assets. They both report on entities
that have property rights on economic assets, recording the economic activities that each
system deems as affecting the entities’ levels of assets and wealth. The measurement is done
in monetary units. These assets have been either purchased/transferred by the entity,
generated through economic operations, or created by other events, and they are all
financed, directly or indirectly, by the creditors or stockholders/net asset owners. Both
systems present the amounts of assets (resources owned), liabilities (external claims on
these assets), and stockholders’ equity19 (owners’ capital contributions and other internally
generated sources of capital) in a balance sheet statement.

29. In both systems also, the major classes of assets are similar: claims on other units in
the form of financial assets and nonfinancial assets, with the latter comprising tangible
(fixed assets, inventory, valuables) and intangible (such as computer software, patents, and
trademarks) assets. Financial assets comprise equity, debt, and other financial assets, all

18 March 2004 meeting.
19 The national accounts classify shareholders’ equity as liabilities; the statistical definition of “net worth” is
the difference between the value of all assets and all liabilities, and hence is different from that in accounting.
Eurostat, European System of Accounts (ESA95), Luxembourg, 1996, 7.05 defines own funds as the sum of net
worth and equity issued.

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