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1993 SNA Update Information - Valuation of equity

Clarification description
Paragraph 13.73 of SNA 93 just says that ''the value of shares that are not quoted on stock exchanges or otherwise regularly traded 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'', but without making reference to specific issues or methods. The issue is, however, very relevant, as unquoted shares in many countries are far more important than quoted shares. Nonetheless, little progress was formerly made in producing harmonized data on unquoted shares. There are two issues for clarifications to help harmonizing the valuation of equity:
(a) The breakdown of AF5 into quoted shares, unquoted shares and other equity as done in the ESA95;
(b) Recommendation of methods of valuation of different types of equity. This is not a substantive change issue but one that will discuss equity from both the asset and liability side, consider both intercompany and portfolio investment in relation to listed and unlisted equity. Expansion and clarification of equity in the SNA will pave the way for better harmonization with other standards, in particular BPM#5 (which does deal very closely with portfolio and direct investment).
AEG recommendations
Number of AEG recommendations for selected clarification:1
 Date postedRecommendation
4/7/2006(a) The AEG agreed to the principle of flexibility.
(b) The AEG agreed that transaction prices are the preferred means of valuing unquoted equity. The AEG did not rank the other alternative methods proposed for valuing unquoted equity when transaction prices are not available.
(c) To be discussed in the context of the classification of financial assets and liabilities.
(d) The AEG agreed.
(e) The AEG agreed that a description of the concept of Residual Corporate Net Worth would be useful but that a breakdown of total net worth to show this component explicitly in the accounts would not be useful.
(f) The AEG agreed a further articulation of the flows is required in the SNA.
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