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SNA News and Notes
SNA News and Notes
Issue 14, April 2002
UN Statistical Commission Officially Adopts Update of the 1993 SNA
Regarding the Treatment of Mobile Phone Licenses
By Cristina Hannig, UNSD
(ISWGNA Official Position)
After a long process of
consultation by the ISWGNA in 2000 and the mandate of the UN Statistical
Commission in March 2001 to make a decision as quickly as possible on
the treatment of mobile phone licenses, the ISWGNA set out in its report
of 18 April 2001 the recommended interpretation. In accordance with the
1993 SNA update procedures adopted by the UN Statistical Commission (see
SNA News & Notes No. 9), in the summer of 2001 the ISWGNA report of
18 April 2001 was circulated to all members of the Commission for its
views and comments. Three member countries raised objections to the proposed
treatment. Consequently, the ISWGNA carefully analyzed and discussed these
comments at a teleconference held on 14 December 2001. As a result of
these deliberations, the ISWGNA agreed to some minor changes to the main
text of its April 2001 report recognizing more explicitly the cases in
which its strong recommendation to treat mobile phone agreements as sale
of an asset may not hold. It was also decided to add an annex illustrating
the circumstances under which mobile phone licenses could be treated as
rent. These changes were reflected in a slightly modified ISWGNA report
of 21 December. In view of this, the three member countries agreed to
adopt a consensual approach on this interpretation of the 1993 SNA, as
an interim recommendation, so that the world community could move forward
on this issue in anticipation of a comprehensive review of the treatment
of all intangible assets as planned.
In a letter dated 29 January 2002 to all 24 members of the Commission,
the Director of UNSD, Mr. Hermann Habermann announced the official adoption
of the ISWGNA interpretation of the treatment of mobile phone licenses
as set out in the ISWGNA report of 21 December 2001. (See http://unstats.un.org/unsd/nationalaccount/iswgna.htm)
ISWGNA Final Recommendations
on Mobile Phone Payments
By Francois Lequiller,
OECD (For Information)
The main conclusion of the
ISWGNA on the treatment of mobile phone licenses is that transactions
on mobile phone licenses should be examined through a set of six criteria
regarding the characteristics of the transaction and classified accordingly,
either as the sale of an asset or as rent. This decision is consistent
with Eurostat's decision of July 2000.
The six criteria (extracts)
- Costs and benefits assumed by licensee: the more of
the risks and benefits associated with the right to use an asset are
incurred by the licensee, the more likely the qualification of a transaction
as the sale of an asset as opposed to rent.
- Up-front payment or installment: as with other indicators,
the mode of payment is in itself not conclusive for a characterization
as asset or rent payment. Generally, the means of paying for a license
is a financial issue and as such not a relevant factor in determining
whether or not it is an asset. However, business practice shows that
upfront payments of rent for long periods (15-25 years in the case of
mobile phone licenses) are highly unusual and this favours an interpretation
as sale of an asset.
- Length of the license: licenses granted for long periods
suggest a treatment as the sale of an asset, for shorter periods a treatment
as payments for rent.
- Actual or de-facto transferability: the possibility
to sell the license is a strong indication of ownership and if transferability
exists, this is considered a strong condition to characterize the licensing
act as the sale of an intangible asset.
- Cancellation possibility: the stronger the restrictions
on the issuer's capacity to cancel the license at his/her discretion,
the stronger the case for treatment as a sale of an asset.
- Conception in the business world and international accounting
standards: businesses, in accordance with international accounting
standards, often treat a license to use the spectrum as an asset. Again,
in itself this does not lead to treatment as an asset in the national
accounts, and there are other areas where companies choose to present
figures in their accounts in ways that are not consistent with the national
accounts. But the treatment of the acquisition of mobile phone licenses
as capital investment in company accounts provides an added incentive
to treat them in a similar way in the national accounts.
More work on intangibles/produced/non produced assets
Further to this recommendation, the ISWGNA found that there was the
need for more broad-based work on the treatment of all intangible
assets. One of the points that should be discussed is the recommended
method of implementation of the decision (creation of a non-produced
license asset). Full investigation should be made on the consequence
of the introduction of the above set of criteria on the SNA. In addition,
work should be conducted to elaborate a broader set of criteria to
aid making decisions between the treatment of payments for leases
or licenses as rent or as sale of an intangible asset. These criteria
should be applicable to a broad range of transactions, and not limited
to the question of mobile phone licenses.
Publication of the
Handbook on Nonprofit Institutions in the System of National Accounts
By Cristina Hannig
and Viet Vu, UNSD (For Information)
(This announcement reproduces the text that
was submitted to the United Nations Statistical Commission in March
2002, in document E/CN.3/2002/8/Add.1. The Commission welcomed the
publication of the Handbook and endorsed the proposed plan for its
implementation.)
The handbook on non-profit institutions in the System of National
Accounts (SNA) has been prepared in close collaboration between the
Johns Hopkins University Center for Civil Society Studies and the
United Nations Statistics Division. The draft handbook was reviewed
by a United Nations expert group meeting of SNA experts, which was
held in New York from 10 to 12 July 2001. The revised draft was later
cleared by the Inter-secretariat Working Group on National Accounts.
It is now being prepared for publication by the United Nations Statistics
Division as part of its series of handbooks on national accounts to
assist countries in their compilation of national accounts. The handbook
is already available in draft format at the Division's web site on
national accounts.
In its central framework of accounts, the SNA classifies the nonprofit
institutions (NPIs) in four institutional sectors:
The non-financial sector;
The financial sector;
The general government sector;
The nonprofit institutions serving households sector (NPISHs).
In national accounts practices that are common in many countries,
the NPISHs sector is often aggregated to the household sector and
as a result data on nonprofit institutions are rarely singled out
for collection or analysis. In response to the growing importance
of NPIs in every country, particularly with respect to health, education
and social services, the handbook has been prepared to serve the
following two purposes:
To transfer other nonprofit activities that are now included as part
of the financial corporations sector, the non-financial corporations
sector and the general government sector by the SNA in order to group
them into an NPI satellite account. The new NPI account includes the
NPIs serving households (NPISHs) and the NPIs serving the interests
of those sectors. This reclassification of the SNA to form a single
NPI for study is an attempt to respond to the analytical needs of policy
makers who are searching for ways to
improve public services and reduce the size of government. In addition,
this elaboration will help improve the effort to provide and collect
more comprehensive data on NPIs. The NPI satellite account only reclassifies
the institutional units of the economy; the scope of the economy's constituent
units remains the same.
To extend the NPI satellite accounts to incorporate the following
important changes:
- Imputation of values to volunteer labour, which is a common and important
feature of NPI activities but for which the SNA makes no allowance;
- Imputation of non-market output provided by market NPIs by operating
expenses. This imputation is designed to take account of non-market
activities provided free to users by market NPIs, such as educational
and health institutions.
Establishing an Electronic Discussion Group to Determine the Treatment
of Non-Performing Loans in Macroeconomic Statistics
By Russel Freeman, IMF (For Information)
At the October 2001 meeting of the Inter-secretariat Working Group
on National Accounts (ISWGNA), it was proposed that an Electronic Discussion
Group (EDG) be set up to work forward an acceptable treatment for non-performing
loans in macroeconomic statistics. The IMF is now establishing this
EDG, and experts who are willing to take an active part in the discussions
are invited to indicate their interest by e-mail to RFreeman@IMF.org.
The serious financial crises that affected several countries since
the mid 1990s have led to renewed interest in the question of how macroeconomic
statistics should account for non-performing loans1. The
original criteria used in the System of National Accounts 1993 (1993
SNA) for the treatment of loans were based on important considerations
such as the desirability of avoiding entries in the accounts for which
there are no sound basis in observable transactions, the need for accounting
practices to facilitate comparisons between different economic agents
and countries, the need for valuation of loans to be consistent with
the debtor's legal obligations, and the need for recommendations to
be useful in measures of solvency. However, such criteria have resulted
in many cases where the national accounts do not reflect the existence
of non-performing loans in either the flow accounts or balance sheets.
The purpose of the EDG is to determine if additional criteria should
be applied to the treatment of non-performing loans and to make sure
that they are consistent with the other major macroeconomic statistical
systems (balance of payments, government finance, and money and banking
statistics). Such a treatment needs to consider all aspects, such as
the definition and valuation of loans in general and non-performing
loans in particular, loans as assets and liabilities, when such loans
should be written off, and how interest accruing and arrears should
be measured. The conclusion of the group will be documented in a report
that will be circulated for consideration by bodies such as the ISWGNA
and the IMF Balance of Payments Statistics Committee.
The EDG will begin in April 2002 by contacting potential members in
countries with a particular interest in the topic of non-performing
loans and seeking opinions from the general public via the IMF website.
The IMF, as coordinator of the EDG, plans to complete an initial draft
report by the end of September 2002-circulated to members and posted
on the website for further discussion- with the aim completing a final
document by February 2003. As a starting point for the discussion, two
papers have been prepared, one by the IMF2 and the other
by Statistics Canada,3 which will shortly be posted on the
IMF website.
-------------------------------
1 Also dubbed impaired, nonaccrual, or bad loans.
2 The Treatment of Non-performing Loans in Macroeconomic
Statistics. IMF Working Paper number 209, by Adriaan M. Bloem and Cornelis
N. Gorter.
3 Treatment of Allowances for Loan Losses and Non-performing
Loans. A note for the Fourteenth Meeting of the IMF Committee on Balance
of Payments Statistics, Tokyo, Japan, October 24-26, 2001. Art Ridgeway,
Balance of Payments Division, Statistics Canada.
Treatment of Employee Stock Options
By John Verrinder, Eurostat (For Information)
Employee stock options are an increasingly common tool used by companies
to motivate their employees. Stock options offer the opportunity for
employees to purchase company shares at a set price (the "strike
price") at some point in the future. Should the company share price
rise above the strike price, the employees can buy shares and then re-sell
them at a profit. There is also an active market in some employee stock
options.
There is no specific guidance on employee stock options in either the
1993 SNA or ESA95. Following a discussion at the OECD National Accounts
experts meeting in September 2000, the European National Accounts Working
Group (NAWG) has been considering the matter. It quickly became apparent
that stock options are more important in some countries (for example
Finland) than in others, that the business accounting and taxation treatment
of stock options varies considerably between countries, and that most
countries appeared to be including at least part of stock options in
the national accounts simply as a consequence of their use of basic
data sources (for example when using taxation data).
The NAWG reached a broad consensus that employee stock options should
be considered as compensation of employees, and therefore as a cost
to companies. On the question of timing of recording, most European
countries felt that stock options should be recorded at "vesting
date" (that is the date at which the employee has met all of the
conditions for exercising the options) or when they become tradable
if this is earlier. European financial accounts experts agreed that
employee stock options should be recorded as financial derivatives in
the financial accounts at the time of vesting. After the vesting date,
any changes in the value of the stock options should then be recorded
as holding gains or losses for households.
On the question of valuation, the difficulty of the proliferation of
different types of options becomes apparent. Some options can be freely
traded, and it would seem sensible to use the prevailing market price
in this case. Other options cannot be freely traded and therefore there
is a choice between valuing the options at the difference between the
prevailing market price of the shares and the strike price, and using
an option pricing model.
Despite the strong convergence of opinion, NAWG members felt that more
time should be devoted to examining the practical problems of measuring
stock options. In particular, countries are dependent upon taxation
and business accounting data, which generally do not treat stock options
in the way national accounts would record them. New sources of data
might therefore have to be found. There are also concerns about the
potential volatility of issuing and valuation of stock options, and
the need to inform users of the existing treatment in the accounts.
Eurostat has therefore asked countries to undertake a research programme,
with a view to collecting experiences in September 2002.
The business accounting community is grappling with the same questions
as national accountants. The International Accounting Standards Board
(IASB) is expected to come forward with further proposals for the treatment
of stock options in the autumn of 2002. Reactions to a recent consultation
paper issued by the IASB have been mixed, with businesses in particular
hostile to the idea that stock options should represent a cost to them
in their accounts.
Following further discussion of stock options at the OECD experts meeting
in October 2001, the OECD researched the treatment of stock options
in the United States, Canada, Australia, Korea and Japan. The first
four of these countries agree with the recording of stock options as
compensation of employees, though there are differing views on the timing
of recording. All countries have practical difficulties with data sources.
There will be a further discussion of employee stock options at the
2002 OECD experts meeting. Eurostat will prepare a paper for that meeting
which sets out the practical experiences of European countries. Following
that discussion and the IASB proposals, the Inter-secretariat Working
Group on National Accounts (ISWGNA) will consider whether and what recommendations
are needed for national accountants.
Needless to say that the question of stock options goes beyond national
accounts and touches upon other statistical areas, such as labour costs
and household income distribution. Eurostat has been working to ensure
that a consistent treatment is eventually adopted in each of these areas.
If you have any views, comments or experiences on the recording of employee
stock options in the national accounts, please feel free to forward
them to John Verrinder (john.verrinder@cec.eu.int)
who will collate the responses.
Announcement of Electronic Discussion Groups
By Francois Lequiller, OECD (For Information)
The OECD electronic discussion groups (EDGs) are tools of communication
on newly emerging issues in national accounts. These are open to interested
statisticians and can be accessed through prior registration. To register
and obtain a password, the moderators listed below need to be contacted
by email.
Financial services:
This EDG is devoted to discussions on Financial Services in the National
Accounts. The business of financial corporations has undergone a structural
transformation towards a rising importance of the portfolio management
of financial assets. This generates holding gains and losses, that,
typically, national accounts exclude from the production boundary and
therefore income. The related OECD task force will consider whether
and how the production boundary can be adapted to this rising activity,
and how this could influence income. The first meeting of the task force
is in June 2002. A first draft of the study should be discussed during
the OECD National Accounts Expert Meeting in October 2002 in Paris.
The final report is expected in late 2003.
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Chair: Switzerland
Moderator: paul.schreyer@oecd.org
Software capitalization:
This EDG is devoted to discussions on the implementation of the 1993
SNA recommendation to capitalize software. Studies have shown that statistical
offices have varied considerably in the practical measurement of GFCF
in software, with a significant impact on GDP. The objective of
the joint OECD/Eurostat task force on this topic is to produce a set
of recommendations that will lead to better international comparability.
The Eurostat task force will report to the GNP Committee in July 2002.
The OECD task force will report to the OECD National Accounts National
Accounts Expert meeting in October 2002.
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Chair: USA,
Moderator: francois.lequiller@oecd.org
Non-life insurance services:
This EDG is devoted to discussions on the measurement of non-life insurance
services, with a special focus on the treatment of catastrophic losses.
The output of insurance services as calculated using the 1993 SNA algorithm
depends on the balance of premiums to claims (on an accrual basis) and
can therefore appear extremely volatile (even negative) following major
catastrophes. The massive claims generated by the 11 September terrorist
attack, is a recent example. It had impacts on GDP and balance of payments
(reinsurance). The objective is to propose measures that would be more
consistent with the perception of production in this activity. In particular,
medium to long-term aspects of non-life insurance are to be taken into
consideration. The first meeting of the OECD task force on this topic
is in June 2002. A first draft of the study should be discussed during
the OECD National Accounts Expert Meeting
in October 2002. The final report is expected in late 2003.
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Chair: France
Moderator: fenella.maitland-smith@oecd.org
Manuals and Handbooks
Government Finance Statistics Manual - Second edition, International
Monetary Fund, Washington D.C., December 2001
Meetings, seminars
10-14 June 2002: Workshop on classifications (ISIC, CPC), UNSD, Hanoi,
Vietnam
11-12 June 2002: OECD task force meeting on financial services, Paris,
France
12-13 June 2002: OECD task force meeting on insurance, Paris, France
17-21 June 2002: Workshop on quarterly national accounts, jointly organized
by UNESCAP, OECD and Asian Development Bank, Bangkok, Thailand
25 to 28 June, 2002: Fourth Iberoamerican Meeting on the Tourism Satellite
Account, organized by ECLAC, World Tourism Organization, Ministry of
Tourism of Spain/Institute of Tourism Studies, National Statistical
Office of Spain and Spain Cooperation Agency, Cartagena de Indias
17-19 July 2002 (provisional date): Expert Group Meeting on producer
price indexes, IMF, Washington DC, USA
18-24 August 2002: IARIW General Conference, Djurhamn (Stockholm),
Sweden
2-13 September 2002: Seminar on Quarterly National Accounts, Singapore
Training Institute, Singapore
30 September- 3 October 2002: First Meeting of the Working Group on
Tourism Statistics, organized by Wold Tourism Organization and ECLAC,
San Salvador
8-11 October 2002: Meeting of OECD National Accounts Experts, Paris,
France
21 October - 5 November 2002: National Accounts Course on concepts
and practical implementation of the 1993 SNA, IMF Institute, Washington
D.C., USA
October 2002: Seminar on experience with volume chain indexes, Eurostat,
Luxembourg
December 2002: Meeting on results of PPP comparisons for Europe and
North America, UNECE, Geneva, Switzerland
Editorial Note
SNA News and Notes is a bi-annual information service of the ISWGNA
prepared by United Nations Statistics Division (UNSD). It does not necessarily
express the official position of any of the members of the ISWGNA (European
Union, IMF, OECD, United Nations and World Bank)
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SNA News and Notes is published in four languages (English, French,
Russian and Spanish) and can be accessed on the internet: http://unstats.un.org/unsd/nationalaccount/snanews.htm
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The updated version of the 1993 SNA with search capability, national
accounts glossary, handbooks on national accounts and activities and
reports of the ISWGNA can be accessed on the internet: http://unstats.un.org/unsd/sna1993/
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Correspondence including requests for free subscriptions should be
addressed to: UNSD, Room DC2-1720, New York, NY 10017; tel.:+1-212-963-4854,
fax:1-212-963-1374, e-mail: sna@un.org
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