SNA93
Clarification in the
Treatment of
Corporate Equity
Progress of the Task Force on the Valuation
and Measurement of Equity (TFVME)
Patrick O’Hagan
Statistics Canada
July 9, 2005
Nature of Corporate Equity
 Equity is a complex instrument:
that specifies some degree of ownership in a firm; is an
investment -- in some cases, a marketable security for
portfolio and direct investors; is a liability of firms to
shareholders in the SNA model; is a measure of the
underlying value (net worth) of corporations
 Equity can take on different valuations
Underlying book value; acquisition cost;
current/market value
Corporate Equity in the Balance
Sheet Account
 Equity is a major asset (and liability) category
and figures prominently in measures of sector
net worth (including IIP)
● Implication on relevance of the statistics
 SNA93 is the principal international reference
document, but with a minimal discussion of
equity
● Principle of equity at current/market value
■
Perceived need to expand, integrate and clarify
equity
Limited SNA93 Guidance
 Shares and other equities should be valued in the balance
sheets at their current prices when they are regularly
traded on stock exchanges or other organized financial
markets. The value of shares in corporations that are not
quoted on stock exchanges or otherwise traded regularly
should be estimated using the prices of quoted shares that
are comparable in earnings and dividend history and
prospects, adjusting downward, if necessary, to allow for
the inferior marketability or liquidity of unquoted shares.
Equity in quasi-corporations should be valued as equal to
the value of the quasi-corporations’ assets less the value of
their liabilities. (13.74)
 In addition, paragraph 13.83 refers to net asset value and
residual corporate net worth
Equity Classification
 Components of equity include:
- Listed portfolio investment;
- Listed inter-company (direct) investment;
- Unlisted inter-company (direct) investment;
- Other unlisted equity
 Practical and analytical considerations would dictate
similar detail, valuation and measurement of equity
asset and liability components
 Estimation of unquoted equity currently under study;
direct investment currently under discussion
 Integrated nature of SNA implies need to harmonize
TFVME Activities
 TFVME is in the process of reviewing the conceptual
and methodological issues, in the context of assets and
liabilities, including portfolio and inter-company
investment, and in the context of the sequence of
accounts.
 The first meeting of the TFVME was at Statistics
Canada in April of 2005, and it focussed on
measurement-valuation issues, in particular
• Measurement issues/options for unquoted equity
• Measurement issues/options for inter-company
(direct) investment equity
TFVME Activities (cont’d)
 A second and final meeting is scheduled for October of
2005 at the OECD. This meeting will review the initial
re-draft of the equity sections of SNA93 as well as
consider other issues, such as links to other chapters,
links to work on intangible assets and equity stock-flow
considerations
 It remains to be determined whether the draft should
follow a less prescriptive approach than in the current
standard (refer to 13.74)
 A final report (including a re-draft of the sections on
equity in SNA93 will be prepared for the January 2006
AEG meeting
Implications for SNA93
The expanded re-draft of relevant sections on equity will
focus on:
• a detailed discussion of equity types to reflect its complex nature;
• an expanded discussion of practical issues and alternatives in the
current/market valuation of corporate equity – in particular, for
the difficult area of unlisted equity;
• an improved link of assets and liabilities to the discussion of
equity;
• an interpretation of residual corporate net worth, as well as its
link to firm’s equity liabilities;
• an improvement in the integration among the chapters that deal
with equity (chapters 11, 12, 13, 14)