March 2007 AEG meeting
Chapter 13
Main substantive comments
Comments
Comments from: Mexico, Ireland, Norway, Switzerland, Finland,
Korea, South Africa, UNSD, OECD, Russia, Australia, ECB,
Eurostat, IMF, Germany, Hong Kong, Netherlands, Czech Republic,
Israel, Sweden, Denmark, USA
3 major substantive issues to the AEG
34 comments will be considered by the ISWGNA
114 comments will be considered by the editor
Question 1.b: Own funds
• Not linked directly to 44 issues, but introduced by editor
• Own funds = business accounting
• The term own funds appears in 15 paragraphs of the
SNA 93, while it was not defined.
• There is indeed reasons that there is a corresponding
definition of own funds in the SNA.
• New paragraph 13.95 defines own funds as : « the
difference between the net worth (defined as the sum of
its assets less the sum of its liabilities) and the value of
the share-holders equities may be referred to as own
funds. »
Question 1.b: Own funds
• A = Assets, L = Liabilities, S = Shares, OL
= Other liabilities than shares. L = S + OL
• Net worth = A – L = A – S – OL
• ??? Own funds = Net worth – Shares = A –
S – OL – S ????
What are own funds?
Personal presentation
• They correspond essentially to the shares issued (equity
capital) + the reserves (non distributed profits) that the
corporation has raised and retained as part of its own
capital (and thus not due to anybody).
• As shares issued and reserves are invested in
corporations’ assets, the value of own funds can be
obtained from the value of the assets of the corporation.
• However, part of the assets of the corporation have been
financed using non own funds, i.e. loans, or other
liabilities (loan capital).
• Thus in business accounting: own funds = total
assets minus liabilities (loan capital).
Question 1.b: Own funds
• In the SNA, shares = liability (this is wrong
in business accounting)
• In the SNA the corresponding
definition of own funds : Total Assets
minus Total Liabilities excluding
shares
Question 1.b: Own funds
• Own funds = Total Assets – Total liabilities
excluding shares = A – (L –S)
• Own funds = A – (L – S) = A – OL =
A–L+S
= Net worth + Shares
Question 1.b: Own funds
• Does the AEG agree that a definition of own funds
should be included in SNA 93 rev 1?
• Does the AEG agree that this definition should refer to
the content of own funds: this is capital which is owned
by the unit, through issuance of shares and retained
earnings?
• Does the AEG agree that SNA rev 1 explains that Own
funds can be obtained as :
• Total assets – Total liabilities excluding shares
• Or, equivalently, as : Net worth + shares.
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Question 1.c: own funds
• The concept of net worth applied to corporations
is questionable.
• Net worth = A – L = A – S – OL
• Net worth excludes Shares, while shares are
own funds.
• Does the AEG agree that, for the analysis of
corporations, the SNA recommends using the
concept of own funds, which is more adapted?
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Question 1.c: retained earnings
• Paragraph 13.95 proposes the
incorporation in the SNA of the concept of
retained earnings.
• Retained earnings = amount of
corporation’s income available for
distribution as dividend but not distributed.
• Retained earnings >< from reinvested
earnings
Question 1.c: retained earnings
• Advantage of retained earnings: concept close to
business accounting (undistributed profit) => own funds.
• Logic of extension of SNA: extend the treatment of
reinvested earnings (research agenda)?
• Does the AEG confirm that it is useful to include the
concept of retained earnings in the SNA, even having
refused to extend the treatment of reinvested earnings?
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Question 1.a:
valuation of unlisted shares
• The task force on valuation of equity
proposed four methods to value unlisted
shares:
– Market capitalisation method
– Other methods:
• Net asset value
• Present value
• Own funds at market value
Question 1.a: valuation of unlisted
shares
• Paragraph 13.74 presents the following decision
tree:
– Market capitalisation method
– Net asset value
– Present value
• If none applicable, own fund at book value
• Does the AEG agree to this change of
the task force proposal?
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Question 2: other equity
• Paragraph 13.80 describes the content of this
entry.
• « special shares »: public corporations, central
bank, partnerships.
• Does not mention the counterpart of reinvested
earnings,
• Does not mention « financial assets that non
resident units in their capacity as owner of land
buildings on the economic territory have against
notional resident units »
• ESA 95 (5.95) : long list of possibilities.
Question 2: other equity
• Does the AEG agree to propose to better
describe the content of « Other equity », at
least by mentionning the counterpart of
reinvested earnings, and the counterpart
of foreign owned dwellings?
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Question 3:
balance sheet in volume terms
• The SNA does not discuss of balance
sheets in volume terms or in real terms.
• Does the AEG recommends to add a
section promoting balance sheets in
volume and/or real terms?
• If yes, should it be in volume term or in
real term?