STD/NAES/FA(2003)2  METHODS OF CONSOLIDATION OF FINANCIAL ACCOUNTS IN

std/naes/fa(2003)2  methods of consolidation of financial accounts in the oecd countries =====================================

STD/NAES/FA(2003)2

METHODS OF CONSOLIDATION OF FINANCIAL ACCOUNTS
IN THE OECD COUNTRIES
================================================
This document has been prepared by the OECD Secretariat for submission
to the members of the working group on financial statistics as a basis
for discussion of consolidation methods used in the OECD Member
countries.
The purpose of the discussion is:
*
to highlight the difficulties encountered by certain countries in
preparing tables of consolidated financial accounts;
*
to present the different methods used by countries to consolidate
their financial accounts and resolve difficulties encountered, and
the results of the work undertaken by certain international
organisations;
*
to underline the OECD’s need to have accurate and detailed
information about the consolidation principles developed by each
country so as to have a better grasp of the differences and
similarities from one country to another;
*
to try and develop specific common rules which the majority of
OECD countries could adopt, so as to facilitate comparison between
their financial accounts and provide more useful information for
macro-economic analysis.
Introduction
------------
Although the concept of consolidation is mentioned and its value
recognised in the System of National Accounts, the presentation of
consolidated financial accounts is not a requirement. Generally
speaking, entries in Systems of National Accounts are not
consolidated. However, for some types of analysis, especially in the
area of financial accounts, information on consolidated transactions
between sub-sectors in the same sector is more useful than information
for each of the sub-sectors before consolidation. The value of
consolidation, which consists of eliminating transactions of assets
and liabilities within sectors and sub-sectors, and which can be done
at different levels, is particularly important for financial
corporations (sector S12) including monetary institutions (sector
S121-S122), and for general government (Sector S13).
Several international organisations1 have published reports dealing
with aspects of consolidation of financial transactions, thus allowing
progress in this area for several years and the establishment of a
certain number of standards. There still remain, however, a number of
difficulties in harmonising concepts and calculations of consolidated
values, while in some countries, even, it is at present impossible to
consolidate all instruments and/or sectors.
The OECD countries, particularly those of the European Union
(including the candidate countries) have to answer an OECD/Eurostat
questionnaire on their financial accounts which includes not only
non-consolidated tables but also consolidated tables both for
financial accounts by sector (transactions) or balance sheet accounts
of financial assets and liabilities (stocks). The consolidation rules
were recently established and published by Eurostat in a volume
‘Manual on Sources and Methods for the compilation of ESA95 Financial
Accounts’ (see annex 1).
The aim of this document is to see whether all OECD countries can
use these rules and to determine whether these principles can be
defined more precisely.
Definitions of the aggregation and consolidation of data
--------------------------------------------------------
In this paper, “aggregation” means the simple sum of the values. The
aggregation of data on financial transactions and balance sheet
accounts can be done both for institutional sectors and for financial
assets and liabilities. Aggregation consists first of calculating the
sum of the data provided for the institutional units which make up the
sub-sectors, then calculating the sum of the data obtained for the
sub-sectors which make up the sectors (e.g.: S121 + S122 + S123 + S124
+ S125 = S12). In the aggregation process, data for transactions or
stocks between institutional units in the same group, between
sub-sectors in the same sector and between sectors are not eliminated.
In the case of financial assets and liabilities, aggregation consists
simply of calculating the sum of the data provided for instruments
which belong to a category of assets or liabilities (e.g.: F511 +F512
+ F513 = F51).
The consolidation of data relating to stocks and financial flows
consists, in principle, of eliminating transactions in financial
assets and liabilities within institutional units, between
institutional units in the same sub-sector and between sub-sectors in
the same sector. We do not speak of consolidation of data in sector 1
(total national economy) since by definition we would obtain the
inverse value of the data reported for sector 2 (Rest of the World).
Consequently, consolidation takes place at several levels in the
hierarchy. For example, the consolidation of data in the financial
transactions account in the general government sector, S13, consists
of:
*
first, for each of the sub-sectors (S1311 to S1314) eliminating
transactions between each institutional unit belonging to it and
other units in the same sub-sector;
*
second, eliminating transactions between the sub-sectors (S1311 to
S1314) that make up the general government sector, retaining only
transactions with institutional units outside the sector.
In many countries, financial transactions within institutional
units, which come most often from surveys of undertakings based on the
legal entity, are consolidated, which means that it may be difficult
to obtain data produced on a wholly non-consolidated basis.
Conversely, according to SNA 93, financial flows and stocks of the
units which make up the sub-sectors must not in principle be
consolidated.
Indeed the availability of non-consolidated data is important.
Deciding to eliminate all intra-sectoral transfers can lead to a wrong
interpretation of certain information and skew the results.
Furthermore, another advantage of non-consolidated accounts lies
chiefly in their additionality and thus the possibility of finding all
the figures in lines (instruments) and columns (sectors).
However, there is another approach, useful in some analyses, which
consists of consolidating financial transactions so as to eliminate
those which occur at different levels in the hierarchy, whether within
the same sub-sector, between sub-sectors or between sectors. In this
case, by retaining only transactions between sub-sectors or sectors of
the economy, it is possible to obtain information which takes better
account of the financial position of the various macro-economic
players. Thus, for example, there is interest in the OECD, as in the
European Commission, in the consolidated debt of general government
rather than non-consolidated debt.
The process of consolidating financial accounts, however, is not
always applicable to all financial instruments, either because the
question does not arise, or because the information does not exist,
whether for statistical or practical reasons.
Database of financial accounts
------------------------------
The new OECD database of financial accounts covers financial
transaction accounts and financial balance sheet accounts, both
non-consolidated and consolidated. As indicated in the previous
paragraph, not all countries provide all the information. On the other
hand, if consolidated values are calculated, they are done both for
transactions (Table 601) and stocks (Table 701).
Of the ten non-European Members of the OECD, financial accounts data
has been provided up to now:
*
both consolidated and non-consolidated: by only one country,
Korea,
*
non-consolidated only: by only one country, Japan,
*
consolidated (or partially consolidated) only: by four countries,
Canada, the United States, Mexico, Australia,
while the other four countries (Iceland, Switzerland, Turkey and New
Zealand) are not at present in a position to provide financial
accounts to the OECD.
Of the twenty European countries which provide data to Eurostat:
*
fourteen countries send both consolidated and non-consolidated
tables,
*
two countries, the United Kingdom and the Czech Republic, do not
send consolidated data,
*
one country, the Slovak Republic, only provides consolidated data,
*
three countries, Greece, Ireland and Luxembourg, have a derogation
until 2005 and thus do not send any financial accounts.
The following table shows the availability in the OECD database of
consolidated and non-consolidated tables of financial accounts.
T ables
Country
601
Financial operating accounts by sector (transactions)
consolidated
602
Financial operating accounts by sector (transactions)
non-consolidated
701
Financial assets and liabilities accounts (stocks)
consolidated
702
Financial assets and liabilities accounts (stocks)
non-consolidated
AUS


AUT




BEL




CAN


CHE
CZE


DEU




DNK




ESP




FIN




FRA




GBR


GRC
HUN




IRL
ISL
ITA




JPN


KOR




LUX




MEX

NLD




NOR




NZL
POL




PRT




SVK


SWE




TUR
USA


Recommendation 1 : Tables for financial accounts and balance sheet
accounts should be sent to the OECD by all countries both
non-consolidated and consolidated.
On closer examination of the consolidated data sent by Member
countries, one is confronted by certain limitations. Firstly, not all
the countries consolidate their financial data in the same way.
Consolidation is not applied in all the countries at the same level in
the hierarchy of sectors, it is sometimes only partial (e.g. some
countries do not consolidate transactions between sub-sectors and
calculate other flows and stocks by simple aggregation). Nor is it
applied to all financial instruments.
Chapter 4 of the Eurostat Manual, shown in annex 1 of this document,
sets out the consolidation rules to be applied to sub-sectors and
sectors:
1) Consolidation rules apply at the level of the sector and the
sub-sector:
Sector level: all transactions and stock positions between
institutional units within the boundary of the sector are eliminated.
Sub-sector level: all transactions and stock positions between
institutional units within the boundary of the sub-sector are
eliminated. This means that transactions or positions of institutional
units in the sub-sector with institutional units outside of the
sub-sector concerned are retained.
2) It will clearly follow that the sum of financial assets/liabilities
and financial transactions over the consolidated sub-sectors accounts
does not necessarily equal the financial assets/liabilities and
financial transactions for the consolidated sector accounts. The sum
will be equal only in case of no transactions and positions between
sub-sectors, but will be higher in other cases.
3) It can be noted that the balancing items (net lending/net
borrowing) still add across for the sub-sectors and equal the sector
total. Moreover, they are identical with the balancing items in the
non-consolidated accounts
Recommendation 2: Il is proposed to extend the principles established
by Eurostat to all OECD countries
Precision and limitations of the principles
In the consolidated tables, it is difficult to check the quality of
the data and compare the information received. Indeed, since
transactions between institutional units in the same sector and
transactions within sub-sectors are eliminated in the consolidation
process, the consistency of the data provided for sectors and
aggregations of data provided for the component sub-sectors cannot be
verified.
An analysis of the tables provided by countries also shows that the
consolidation principles are not applied to all sectors or all
instruments. For example, one finds, in making certain calculations,
that some countries do not consolidate the major sectors of the
economy (the non-financial corporations sector, the financial
corporations sector, the general government sector) or others do not
eliminate intra-sectoral transactions involving certain financial
instruments.
To improve the quality and comparability of data, it thus seems
essential for the most accurate information possible concerning :
*
the exact meaning of the concept of consolidation used by
countries,
*
the methods applied at each level of the hierarchy,
*
the limitations relating to sectors of the economy or financial
transactions which it has been decided or it is possible to
consolidate given the availability of information and the needs of
the underlying economic analysis
to be sent to the Secretariat to allow it to highlight the differences
and similarities of treatment by country, sector and instruments, to
inform users of these accounts and to attempt as far as possible to
reduce the disparities and allow greater comparability.
Some countries have submitted a brief document on their national
practice in the consolidation of financial accounts. Examples of such
concise information submitted by France (see annex 2) and Poland (see
annex 3) are appended to this document. Other countries are invited to
present similar information during the meeting.
Recommendation 3: Countries are requested to provide precise
information on the methods currently used in their country along the
lines of the model in the document submitted by France (in annex 2)
For that reason, before the OECD makes more precise recommendations,
and in view of the heterogeneity of replies, it was considered wiser
to set in motion a process of reflection on the subject to reach a
better understanding of the methods used in different countries, the
reasons behind the development of these methods and the difficulties
encountered by some countries in implementing the consolidation rules.
Conclusions
-----------
Delegates are requested:
*
to note the importance of sending detailed data, both
non-consolidated and consolidated, to OECD to provide better
knowledge of financial and balance sheet accounts in OECD
countries,
*
to understand the importance of sending OECD precise information
on the methods used to consolidate financial statistics as well as
the reasons behind the non-availability of consolidated data or
the non-availability of non-consolidated data,
*
to give their opinion on the recommendations proposed by the OECD
in this document to facilitate comparability of financial accounts
in the OECD countries so that these recommendations, once amended
and adopted, can be introduced into the OECD/Eurostat
questionnaire to be sent out to countries in 2004.
To allow the OECD to rapidly improve the financial accounts database
and publish the data at the end of 2004, countries are requested to
send the required information on methods by 31 December 2003 and to
submit their proposed amendments to the recommendations by 31 March
2004.
ANNEX 1
=========
Extract from ‘Sources and Methods for the compilation of ESA95
Financial Accounts’
--------------------------------------------------------------
From Eurostat
Issue N° 4 Consolidation
2002
1.
Consolidation rules apply at the level of the sector and the
sub-sector:
Sector level: all transactions and stock positions between
institutional units within the boundary of the sector are eliminated.
Sub-sector level: all transactions and stock positions between
institutional units within the boundary of the sub-sector are
eliminated. This means that transactions or positions of institutional
units in the sub-sector with institutional units outside of the
sub-sector concerned are retained.
2.
It will clearly follow that the sum of financial
assets/liabilities and financial transactions over the
consolidated sub-sectors accounts does not necessarily equal the
financial assets/liabilities and financial transactions for the
consolidated sector accounts. The sum will be equal only in case
of no transactions and positions between sub-sectors, but will
higher in other cases.
3.
It can be noted that the balancing items (net lending/net
borrowing) still add across for the sub-sectors and equal the
sector total. Moreover, they are identical with the balancing
items in the non-consolidated accounts.
4.
Terminology and simplified example:
The following graphic introduces a series of terms and explains what
is meant by ‘intra’ and ‘inter’:
*
‘Intra’ indicates that it is the relationships within a named
sector or sub-sector that are being referred to.
*
‘Inter’ refers to flows or positions between sectors or between
sub-sectors that are referred to.
In both cases the context or position within the range of sectors or
sub-sectors must be known to correctly specify the set of
relationships subject to the discussions. (This context is shown most
efficiently in the attached figurine.)
The figurine, and later example, takes the General Government sector
as a single main example. It is emphasised that this is for
illustrative purposes and that the principles outlined apply to all
ESA 95 sectors or sub-sectors.
SUB-SECTORS
SECTOR
“Reciprocal Transactions”
INTRA (cg to/from cg)

INTER
(Broken down by sub-sector)

OTHER (cg to/from FE, HH, ROW etc)
Sub-sector view
INTRA
(cg to/from cg)
(la to/from la)
(ssf to/from ssf)

Central Government
Sub-sector view
INTER
(cg to/from la/ssf)
(la to/from cg/ssf)
(ssf to/from cg/la)
Sub-sector view
OTHER
Sector view
INTRA
(GG to/from GG)
Local authorities
Social security Funds
INTRA (la to/from la)

INTER
(Broken down by sub-sector)

OTHER (la to/from FE, HH, ROW etc)
INTRA (ssf to/from ssf)

INTER
(Broken down by sub-sector)

OTHER (ssf to/from FE, HH, ROW etc)
Sector view
OTHER

Example: Cash deposit – assets
CG
LA
SSF
GG
Notes
Deposits held (non-consolidated)
100
70
30
200
Analysis by Sub-sectors and by counterpart location
Central Government
– intra transactions
40
Transactions with other institutional units in CG
– inter transactions
(broken down by sub-sector)
5
Transactions with units in LA, SSFs
– other
55
Transactions with units outside of GG
Local Authorities2
– intra transactions
10
Transactions with other institutional units in LA
– inter transactions
(broken down by sub-sector)
25
Transactions with units in CG, SSFs
– other
35
Transactions with units outside of GG
Social Security Funds
– intra transactions
0
Transactions with other institutional units in SSF
– inter transactions
5
Transactions with units in CG, LAs
– other
25
Transactions with units outside of GG
ESA 95 – Consolidated Results for the sub-sectors
CG
LA
SSF
‘intra’ transactions (from perspective of sub-sector)
40
10
0
For the sub-sectors, we remove the transactions or positions with
units within their own sub-sectoral boundary i.e. intra transactions
= ESA 95 Sub-sectors
60
60
30
ESA 95 – Consolidated Results for the Sector (GG)
Remove the ‘inter’ sub-sectoral transactions – these are ‘intra’ for
GG)
– inter
5
25
5
115
DGEI – DESM
47-1421 – SESOF – F03-59
Dominique DURANT -  2.28.12
1.
ANNEXE 2
==========
2.
Consolidation In THE FRENCH FINANCIAL accounts
1.
Introduction: the regulatory framework
--------------------------------------
Article 1.58 of the European System of Accounts 1995 (ESA95) defines
consolidation: “Consolidation refers to the elimination, from both
uses and resources, of transactions which occur between units when the
latter are grouped, and to the elimination of reciprocal financial
assets and liabilities”.
For sub-sectors or sectors, flows and stocks between constituent units
are not consolidated as a matter of principle. However, in the
official transmission programme of financial accounts, Eurostat
requests both consolidated and non-consolidated data. Specific rules
were agreed by the Financial Accounts Working Party (FAWP) on 19-20
October 2000. The rules are the following 3:
*
Consolidation rules apply at the sector and the sub-sector levels.
At sector level, all transactions and stock positions between
institutional units within the boundaries of the sector are
eliminated. At sub-sector level, all transactions and stock
positions between institutional units within the boundaries of the
sub-sector are eliminated. This means that transactions or
positions of institutional units within a particular sub-sector
with institutional units outside this sub-sector are retained.
*
It follows that the sum of financial
assets/liabilities/transactions consolidated at sub-sector level
does not necessarily equal the financial
asset/liabilities/transactions for the corresponding consolidated
sector. The sum will be equal only if there are no transactions
and positions between sub-sectors. Regarding positions, it will be
higher in other cases.
*
However, net lending/net borrowing items add across for the
sub-sectors and equal the sector total. Moreover, they are
identical with the balancing item in the non-consolidated
accounts.
Eurostat states other recommendations:
*
For reasons of comparability, non-consolidated data should be
based on a complete picture of all financial transactions and
financial assets and liabilities in the balance sheets of units
classified in the same sub-sector/sector. Basic information should
therefore consist preferably of the aggregation of data for
individual units.
*
Financial accounts should rely as much as possible on direct
information, including counterpart information. Where no
significant improvement in sources of information may be expected
in a short delay, the process of consolidation could be based on
assumptions.
For the purpose of the Excessive Deficit Procedure (EDP), in Economic
and Monetary Union, government debt must be consolidated at the sector
level. Following the Council regulation (EC) 3605/93 of 22 November
1993, “Government debt means the total gross debt at nominal value
outstanding at the end of the year of the sector of general government
(S13), with the exception of those liabilities the corresponding
financial assets of which are held by the sector of general
government”.
2.
Implementation in French financial accounts
-------------------------------------------
1.
General remarks
The annual financial accounts are transmitted to Eurostat in
non-consolidated and consolidated versions. In the latter case,
consolidation is carried out at the sub-sector and sector levels.
Consolidated accounts are available for stocks, transactions,
revaluation and other changes in volume.
The consolidated accounts are drawn up only in a semi-definitive and
definitive version of the accounts. The provisional accounts are drawn
up over a fairly short period (3 months and a half), which does not
make it possible to compile the available information on counterpart
sectors. The computerised production of full quarterly financial
accounts in the near future will provide the basis for the compilation
of the counterpart information within the production of provisional
accounts and therefore, for the compilation of consolidated
provisional accounts.
The sector’s consolidated accounts amount to less than the sum of the
sub-sector’s consolidated accounts. This means that some
inter-sub-sector operations, which are also intra-sector operations,
are eliminated in the process of sector consolidation. No
consolidation is carried out at the global economy level (sector S1).
Should such consolidation be carried out, the consolidated assets
(resp. liabilities) of the total economy would simply equal the
liabilities (resp. assets) of the rest of the world. Presently, the S1
sector in the consolidated accounts equals the sum of the consolidated
resident sectors.
Consolidation does not affect net financial worth, thus for each
sector/sub-sector and each operation, the difference between the
consolidated and the non-consolidated amount is exactly the same on
the liability and on asset sides.
Consolidation has no impact on the “Rest of the world” account because
financial operations between non-residents are not included in the
non-consolidated accounts of this sector.
2.
Consolidation by operation
“A full consolidation is highly demanding concerning the needed
information. Compilers must be in the position to get for each
instrument, information on the counterpart sector or sub-sector
according to ESA95 sector classification.”4
This is why long-term securities (bonds, shares and other equities
including mutual funds shares) are not consolidated in the French
financial accounts. Information on the final owner of such long-term
securities is very scarce. Some information is gleaned on the
portfolios of credit institutions, mutual funds, insurance companies,
the State and some other general government entities by looking at the
asset side of their balance sheets. A survey conducted on a sample of
resident custodians gives further information on the portfolios of
households and non-financial corporations. However the survey is
limited to listed securities and information on issuers of securities
is limited to residency. This information was not considered
sufficient to consolidate long-term securities. However, some
improvements are foreseen in the next four years. They will involve
the reshaping of the survey on resident custodians.
For all other operations, the information on the counterpart sector is
either obtained directly from the basic data or estimated later in the
treatments. Ultimately, the information on the counterpart sub-sector
is recorded in the financial account database for every operation,
except long-term securities.
The counterpart information is included in the data collected in
several cases. Loans and deposits involving financial institutions
such as credit institutions, securities and derivatives dealers and
mutual funds are recorded in the individual balance sheets with
precise counterpart information, consistent with ESA95 sector and
sub-sector classification. The same goes for loans and deposits
involving general government after the treatments by the Department of
Public Accounts. The balance of payment provides stocks and flows for
all transactions with counterpart information following sector
breakdowns, which are broadly compatible with ESA95 classification. As
stated above, the “Rest of the world” sector does not need to be
consolidated. However, balance of payment data are used as counterpart
information for resident sectors.
The split by counterpart is estimated in the following cases:
*
loans and deposits of insurance corporations with non financial
counterparts, which total is obtained from the insurance
corporations’ supervisor,
*
derivatives, on the basis of the information provided by credit
institutions and the balance of payments,
*
trade credit and advances as well as loans between non financial
entities, whose total is known, without information on
counterpart, from the fiscal database with a two-year delay.
The consolidation of short-term securities involves a specific
treatment. As a supervisor of short-term securities issues, the Banque
de France records information on issuers and buyers on the primary
market. It is then assumed that short term securities are not sold on
a secondary market, an assumption that is not entirely false given
that these securities, which, legally have an original maturity of
less than one year, are, in practice, frequently of even shorter
maturity. Moreover, the original maturity of each individual security
is known. It is thus possible to calculate the outstanding amount of
short-term securities held by the different sectors by issuer. This
information is crossed with balance of payment data. Consolidation is
carried out on the basis of this counterpart information.
In remaining cases, there is no room for consolidation because, by
nature, the transaction involves different sub-sectors. This is the
case for monetary gold and SDR, which are held by central banks and
issued by international institutions located in the “rest of the
world”, deposits from non financial entities in financial institutions
such as saving books and contractual savings, deposits with
international institutions, loans from financial institutions to non
financial entities, households’ net equities in life insurance
reserves. Currencies issued by central banks and held by other sectors
are not consolidated at the sub-sector level but at the sector level,
as central banks and other financial institutions are in the same
sector.
3.
Consolidation by sector and sub-sector
In the French financial accounts, the sub-sectors financial
auxiliaries, households unincorporated enterprises, other households
and non-profit institutions serving households are not subject to
consolidation because direct information on these entities is
insufficient. These sub-sector’s accounts are compiled mainly on the
basis of counterpart information from financial institutions and the
balance of payments that does not enable the identification of
financial links inside the non financial resident sectors. However,
fiscal data provide information on trade credit for households’
unincorporated enterprises and non-profit institutions serving
households. The amount of trade credit transactions realised between
these two sub-sectors is estimated and gives rise to consolidation in
the sector households + NPISH.
In other sub-sectors, direct information is available to varying
extents. It comes mainly from the balance sheets of the individual
entities and not from groups’ balance sheets. Thus, the
non-consolidated accounts provide a complete picture of the financial
transactions, assets and liabilities of the institutional units
classified under the same sector/sub-sector.
The information may be very detailed for some sub-sectors (central
banks, credit institutions, securities and derivative dealers, mutual
funds, central government, local government, social security funds),
including information on counterparts that permit very accurate
consolidation. Regarding financial institutions, the information comes
from balance sheets transmitted to the Banque de France, partly for
prudential reasons. For general government, it comes from direct
accounting information transmitted by public entities to the
Department of Public Accounts.
The central bank sub-sector includes two entities: the “Banque de
France” and the “Institut d’Emission des Territoires d’Outre Mer”
(IEDOM - the French overseas departments note-issuing bank), which is
in charge of implementing the monetary policy and issuing euro in
overseas regions on behalf of the Banque de France. Reciprocal loans
between IEDOM and the Banque de France financing the supply of euro
banknotes in overseas regions are thus eliminated from the
consolidated accounts.
Information on counterparts is limited for other sub-sectors (insurance
corporations, non-financial corporations) and has to be estimated in
many cases. Estimates are based mainly on elements of balance sheets
transmitted by corporations to the Ministry of Finance for fiscal
purposes.
3.
Results of consolidation in 2001
--------------------------------
The comparison between consolidated and non-consolidated data is
clearly relevant for macro-financial analysis.
Regarding financial institutions, 69% of currencies and deposits held
and 39% of currencies and deposits incurred are held or incurred
inside the sector. This holds equally true for 55% of loans incurred.
However, only 5% of loans granted are granted to financial
institutions, which is quite logical. Among market operations, 45% of
derivatives held, 46% of derivatives incurred, 39% of short-term
securities held and 49% of short-term securities incurred have a
financial institution as counterpart. Thus, it is obvious that
intra-sector transactions are considerable. Moreover, these
intra-sector transactions need to be added to a large part of the
transactions carried out with the “Rest of the world” in order to
measure the financial links between financial institutions. For
example, the share of derivatives contracted between resident or
foreign financial institutions is estimated at 90%.
Regarding general government, 83% of transferable deposits held and
59% of transferable deposits incurred have a general government entity
as counterpart. This is an illustration of the “Treasury circuit” as a
means of financing. On the other hand, short-term securities issued by
central government entities – mainly the State – and held by general
government represent only 3% of general government debt. That amounts
however to 70% of the general government portfolio.
For non-financial corporations, the intra-sector links only concern
the loans between non-financial entities and trade credit. About 80%
of the former and 75% of the latter are contracted inside the sector.
It is obvious that the consolidation of long-term securities would
permit a more thorough analysis of the financial links in the French
economy. This is why the calculation of “who-to-whom” is foreseen for
these operations.
Conclusion
----------
The data used for consolidation, namely the information on the
counterpart sector for most of the operations, may enhance the quality
of the financial accounts because when the counterpart operation is
recorded in the same conditions as the operation itself, the line is
automatically balanced and no further adjustment is required. However,
this arithmetic truth does not preclude some concurrence of different
sources for a single operation and some difficulties in the assessment
of the best quality data. In cases where no information is available
at all, neither directly nor from counterparts, the costs that may be
incurred in the collection of the information may be very high and
should be compared with the potential benefits.
CENTRAL STATISTICAL OFFICE
OF POLAND

ANNEX 3
=========
Consolidation of Financial Accounts
-----------------------------------
General rules and Polish experiences
Financial accounts can be compiled in two versions: non-consolidated
and consolidated. ESA’95 states that “as a matter of principle” flows
and stocks between units belonging to the same sector or sub-sector
are not consolidated. However, according to the official transmission
programme of financial accounts, Eurostat asks for both
non-consolidated and consolidated data.
Manual on Sources and Methods for the compilation of ESA’95 Financial
Accounts gives special rules to be applied for consolidation of
financial accounts data.
Consolidation rules apply to the level of sectors and sub-sectors:
*
Sector level – all transactions which occur between institutional
units included into the same sector are eliminated and all
reciprocal financial assets and liabilities are eliminated;
*
Sub-sector level - all transactions which occur between
institutional units included into the same sub-sector are
eliminated and all reciprocal financial assets and liabilities are
eliminated.
As a consequence of these rules, the sum of financial
assets/liabilities and financial transactions over the consolidated
sub-sector accounts does not necessarily equal the financial
assets/liabilities and financial transactions for the consolidated
sector accounts. These sums will be identity only in case when no
transactions and positions between sub-sectors appear.
On the other hand consolidation has no effect on the balancing item
(net lending/net borrowing is equal by definition for the sum of
sub-sectors and for sector total). Moreover, this item is identical
with the balancing items in the non-consolidated accounts.
Central Statistical Office of Poland is responsible for compiling
annual financial accounts. The experimental version of financial
accounts was published in 1998 for the first time and it covered data
for 1995. Big progress regarding data sources and methodology has been
made since then. The main problem now is two years delay in compiling
process. In December 2002 financial accounts for 2000 were published.
At the moment we are in the final stage of compiling accounts for 2001
and there are plans to compile accounts for 2002 by the end of this
year.
For years 1995-1997 only consolidated accounts were compiled (it was a
beginning of compiling of financial accounts in Poland and therefore
not all ESA’95 rules were known and sufficiently used in practice).
For two next years (1998-1999) only non-consolidated accounts were
compiled.
Both versions of financial account were compiled in 2000 for the first
time and therefore our practical experience in consolidation process
is still not very wide. However, basing on accessible counterpart
information and various estimation methods, it was possible to make
two-level consolidation.
1.
Rest of the world (S.2)
In Polish financial accounts ROW sector has not been divided into
sub-sectors (UE countries and other countries) so far. Therefore
consolidation has no effect on this sector data.
2.
Households (S.14) and Non-profit institutions serving households
(S.15)
Majority of data on households and NPISH come from other sectors
reporting. Financial accounts of Households and NPISHs are compiled as
a residual value of counterpart sectors reporting. The only
possibility to eliminate financial flows within these sectors is to
make assumptions and to estimate. However, the situation is not very
problematic here taking into account rather negligible intra-sector
financial links and therefore having a small impact on
non-consolidated data.
3.
General Government (S.13)
It was possible to consolidate accounts within sub-sectors of GG in
2000 using reporting data directly for some instruments or making
reliable estimations in case of lack of counterpart information.
A new source of information covering detailed data relating to each
sub-sector has been developed within Ministry of Finance starting from
the end of 2001. These are quarterly questionnaires from units
classified to GG sector, covering “from whom to whom” information on
claims and liabilities (e.g. data on securities, loans) that will be
very useful for consolidation process.
4.
Financial corporations (S.12)
There is accurate data from Central Bank reporting for sub-sectors
S.122 (Other monetary financial institutions) and S.125 (Insurance
corporations and pension funds) to make consolidation on the
sub-sector level. The problem is to get information on sub-sectors
S.123 (Other financial intermediaries, except insurance companies and
pension funds) and S.124 (Financial auxiliaries). Many small units
belong to these sub-sectors therefore the reporting is rough and does
not cover detailed information, which makes consolidation very
difficult even to estimate. For last both sub-sectors we assume there
is no significant flows between units belonging to them.
5.
Non-financial corporations (S.11)
Non-financial corporations sector has not been divided into
sub-sectors so far.
Majority of data on corporations comes from statistical survey
(special questionnaires covering balance sheet positions are filled in
by corporations and collected by CSO). This information is rather
aggregated, without any “from whom to whom” information and that is
why consolidation process is very difficult here. The situation is
especially problematical taking into account significant differences
between consolidated and non-consolidated data of this sector. In such
case we have to make assumptions to estimate transactions values
between units belonging to the sector.
Example
Let’s take Trade credits and advances (F.71) of non-financial
corporations. This position has strong influence on difference between
non-consolidated and consolidated accounts in Poland (a trade credit
is very popular way of financing between non-financial corporations
because of expensive bank credit in Poland).
The first step for consolidation is to settle the value of
corporations’ deliveries and services claims (such data is available
from corporations questionnaire, but there is no information about
counterparts). From other sectors reporting (except from households)
we have the values of trade credits liabilities (this position refers
to deliveries and services claims from the asset side). The amount of
each sector liabilities has to be assigned to all sectors. A key for
dividing is the share of a particular sector in each sector’s total
value of deliveries and services sold. Thanks to comparing the
non-financial corporations’ claims with the sum of other sectors’
liabilities we know the value of transactions between non-financial
corporations and other sectors except from households. The rest value
of claims (the value not covered by liabilities) has to be split into
households and non-financial corporations. Obviously majority of
transactions is made between units belonging to non-financial
corporations. We assume that 90% of transactions are made within
non-financial corporations (this amount is eliminated from
consolidated accounts) and the rest is made between corporations and
households.
Financial assets – stocks in 2000 (106 PLN)
S.11
S.12
S.13
S.14+S.15
Non-consolidated
525 871,2
663 006,8
253 635,1
383 238,3
Consolidated
140 848,4
525 644,4
228 969,1
383 094,1
Financial liabilities – stocks in 2000 (106 PLN)
S.11
S.12
S.13
S.14+S.15
Non-consolidated
1 100 593,5
617 870,8
345 881,4
61 639,2
Consolidated
715 570,7
486 601,9
313 899,5
61 495,0
As it is shown in tables above, consolidation has strong impact
especially on non-financial corporations sector (S.11), regarding both
assets and liabilities sides. Such significant discrepancy is caused
mainly by Other accounts receivable/payable (F.7) - as it was
mentioned before, corporations are financed by themselves quite often
in Poland. The smallest difference between consolidated and
non-consolidated accounts appears in Households and NPISH sectors
(S.14+S.15). Because these sectors’ data is based on other sectors
reporting, it is difficult to say whether the real difference is
higher or not. In case of Financial Corporations (S.12) consolidation
is based on good quality information for units having crucial
influence on total value. Flows between small units are not taken into
account, but these flows are negligible and they do not affect much
total value. Consolidation in GG sector (S.13) has rather little
impact on non-consolidated data. However, some estimation had to be
made in 2000 to consolidate this sector data. The real difference will
be shown in 2001.
1Among these publications, the following are worthy of mention:
*
Consolidation rules extracted from the ‘Manual on Sources and
Methods for the compilation of ESA95 Financial Accounts’
(available in English only) published by Eurostat in 2002, with
the example of the general government sector (see annex 1)
*
A chapter of the draft report on Financial Soundness Indicators
which sets out the IMF approach to consolidated data for
deposit-takers (available in English at
http://www.imf.org/external/np/sta/fsi/eng/guide/index.htm).
*
An extract of the International Monetary Fund’s Manual of Monetary
and Financial Statistics published in 2000 (available at
http://www.imf.org/external/pubs/ft/mfs/manual/fra/index.htm).
2For simplicity, we assume no State sub-sector in the example.
3Manual on Sources and Methods for the compilation of ESA 95 Financial
Accounts, first edition, 2002
4Manual on Sources and Methods for the compilation of ESA 95 Financial
Accounts, first edition, 2002
0