Task Force on
Harmonization of Public
Sector Accounting
Private/Public/Government
Sector Delineation
SNA Advisory Expert Group
Bangkok, July 2005
1
Government / public / private
sectors
Delineation of public and private sector units:
based on control criterion
Delineation of non market (government)
versus market units (corporations) within the
public sector: based on economically
significant prices (ESP) criterion
Issue: Clarify what control and ESP entail
2
Public sector boundary
Rec. 1: Use a decision tree
1. Is the entity an institutional unit?
2. Is the institutional unit part of the public
sector?
3. Is the public institutional unit market or
nonmarket?
3
Rec. 1: Use a decision tree
Unit A
Unit B
Step 1:
Institutional
unit?
Step 2:
controlled by
government
Unit C
YES
YES
Step 3: ESP? NO:
Government
sector
YES: public
corporation
Unit D
NO
NO
YES: private
sector
classified
as the parent
unit
4
Government control of corporations:
Rec. 2: eight major indicators
Ownership of the majority
of voting interest
5. Golden shares and
2.
Control of the board or
other governing body
6. Regulation and control
3.
Control of the
appointment and removal
of key personnel
7. Control by a dominant
1.
4.
options
customer
Control of key committees 8. Control attached to
of the entity
borrowing from the
government
5
Government control of NPI
Rec. 3: five major indicators
1. Appointment of
officers
2. Other provisions of
enabling instrument
4. Degree of financing
by government
5. Level of risk
exposure
3. Existence of
contractual
agreements
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Market and nonmarket producers
Rec. 4: Economically significant prices
(ESP)
EPS: Criterion to classify output, and thus
producers as market or nonmarket
Market producers: output sold at ESP
Nonmarket producers: output free or at
non ESP
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Public sector
Composition:
– Government units
– Corporations controlled by government units, and
– Nonprofit institutions (NPI) controlled by government
units.
Government control entails for:
– Corporations: a source of financial gain
– Nonprofit institutions (NPI): not a source of financial gain
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Control of Corporations
Definition of control:
Current: ability to determine the general
corporate policy
Proposed: power to govern financial and
operating policies so as to benefit from
activities of corporations
9
Control of NPI
Definition of control:
Current: ability to determine the general
corporate policy and largely financed
Proposed: ability to determine the general
corporate policy
10
Economically significant prices
Definitions:
ESP are prices that have a significant
influence on the amounts the producers
are willing to supply and on the amounts
purchasers wish to buy.
Market producers: production offered for
sale (on the market) at economically
significant prices
Non-market producers are only in the
government or NPISH sectors.
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Economically significant prices
ESA95 « 50% rule » not taken into account
as a rule
Recommendation 4: « although there is no
prescriptive numerical relationship between
the value of output and the production
costs, one would normally expect the value
of output to average at least half of the
production costs over a sustained multiuear period. »
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Economically significant prices
Recommendation 4 (coverage of special
cases):
Case of production sold only to government:
The public producer is the only supplier: it
is non-market unless it competes with a
private producer in tendering for contract
It is one of several producers: it is a
market producer if it competes with other
producers on the market.
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Rec. 5: Definition of sales
Output is measured as equal to
the business notion of sales (plus change
in inventories as required)
Excluding taxes on products and subsidies
on products (except for subsidies granted
to all private producers for this type of
activities
Excluding own account production
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Rec. 5: Definition of production costs
Cost is measured as the sum of:
Intermediate consumption
Cost of capital services
Other taxes on production (other subsidies
on production are not deduced).
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Indicators for classifying government and
other public producers
Purchasing units
Supplying public sector units
Corporations and
households primarily
only supplier
Govern
ment
Public
corp.
COST normally
covered by
SALES (CCS)
no
yes
Other private
tender
no
yes
no
yes
no
yes
no
yes
Government only
one of several Competes
suppliers
Government and
others
only supplier
one of several
suppliers
Other private
tender or CCS
Competes
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Sectorization of producers
Control
Public
Private
ESP
Producer
units
Government
(incl. NPI)
Public
Corporations
(incl. quasi)
Private
corporations
(incl. quasi
and NPI)
NPISH
Hous.
Enterpri
ses
Market
Non
Market
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Does the AEG agree on:
Rec. 1: Use a decision tree?
Rec. 2: Eight major indicators of government control on
corporations?
Rec. 3: Five major indicators of government control on
NPI?
Rec. 4: Economically significant prices?
– Definition of ESP (no major changes)
– Supplementary criteria for producers
– Cost versus sales (no prescriptive rule)
Rec. 5: Definition of sales?
Rec. 6: Definition of production costs?
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