## Valuation principles and methodologies ## Source details **Canonical URL:** [Valuation principles and methodologies](https://www.imf.org/-/media/files/data/statistics/bpm6/approved-guidance-notes/6-issues-note-ai1-valuation-principles-and-methodologies.pdf) ## Other formats - [Markdown version](/-/media/files/data/statistics/bpm6/approved-guidance-notes/6-issues-note-ai1-valuation-principles-and-methodologies.pdf.md) - [Structured JSON version](/-/media/files/data/statistics/bpm6/approved-guidance-notes/6-issues-note-ai1-valuation-principles-and-methodologies.pdf.json) --- ### Introduction and scope - Guidance Note objective (IMF Guidance Note): provide a more holistic view on the valuation of transactions and positions to inform the 2025 SNA, without overturning current conceptual starting points or introducing revolutionary methodologies. - Background and controversies: - SEEA Ecosystem Accounting raised controversies over valuation principles and methodologies for ecosystem services and assets. - Debate concerned consistency of new techniques with valuation principles in the 2008 SNA. - Authorship and review: - Drafted by Peter van de Ven (lead editor of the update of the 2008 SNA). - Contributors/reviewers include Alessandra Alfieri, Brenda Bugge, Bram Edens, Dennis Fixler, Aldo Femia, João Carlos Fonseca, Kevin Fox, Pete Harper, Anil Markandya, Carl Obst, Marshall Reinsdorf, Catherine van Rompaey, Michael Smedes, Phil Stokoe, and Jorrit Zwijnenburg, with special thanks to Michael Connolly, Bram Edens, João Carlos Fonseca, Pete Harper, David Wasshausen, and IMF staff responsible for BPM6, GFSM 2014, and MFSMCG 2016. - Organization: - Section 2: main principles for valuing transactions and positions. - Section 3: criteria to evaluate valuation methodologies. - Section 4: methods for valuing transactions. - Section 5: methods for valuing positions. - Section 6: summary of main recommendations. ### Interpretations, gaps, and links - Differences exist between producers and users in interpreting 2008 SNA valuation guidance. - Links to business and public sector accounting standards (IFRS, IPSAS) are incorporated but prior guidance lacked full integration. - The Guidance Note takes into account BPM6, GFSM 2014, MFSMCG 2016, and multiple AEG/BOPCOM Guidance Notes. *Source: IMF Guidance Note — “6-issues-note-ai1-valuation-principles-and-methodologies”, Section 1: Introduction.* ### H3: General principles for valuing transactions and positions - Valuation of transactions — core principles (derived from 2008 SNA paragraphs 3.118 and 3.119): - “the SNA does not attempt to determine the utility of the flows and stocks that come within its scope. Rather, it measures the current exchange value of the entries in the accounts in money terms, that is, the values at which goods, services, labour or assets are in fact exchanged or else could be exchanged for cash”. - Transactions should be valued consistent with “amounts of money that willing buyers pay to acquire something from willing sellers; the exchanges are made between independent parties and on the basis of commercial considerations only, sometimes called ‘at arm’s length’.” - Prices paid or exchange values “... should not necessarily be construed as equivalent to a free market price; that is, a market transaction should not be interpreted as occurring exclusively in a purely competitive market situation. In fact, a market transaction could take place in a monopolistic, monopsonistic, or any other market structure”. - BPM6 alignment: - BPM6 paragraph 3.67: “Market prices refer to current exchange value, that is, the values at which goods and other assets, services, and labors are exchanged or else could be exchanged for cash. Market prices are the basis for valuation in the international accounts”. - Conceptual cautions: - Observed exchange values can create implicit circularity when used to describe valuation principles; prefer broader term “exchange values” including “or else could be exchanged for cash”. - SNA and BPM exclude consumer surplus: standards measure exchange values, not utility. - Arm’s-length principle (ALP): transactions between independent parties acting in own self-interest with equal bargaining power align with exchange-value principles. - Exceptions where observed market prices may be inappropriate (2008 SNA and BPM6): 1. Distorted transfer pricing (2008 SNA paragraphs 3.131–3.133; BPM6 paragraphs 3.76–3.77): - Transfer pricing covers “transactions between affiliated enterprises, manipulative agreements with third parties, and certain non-commercial transaction, including concessional interest”. - Recommendation: rely on adequate pricing in business and public sector records and engage with corporate accountants; conceptually require adjustments for transfer prices but acknowledge practical impossibility of consistent implementation. 2. Concessional pricing (2008 SNA paragraph 3.134; BPM6 paragraph 3.79): - Defined as “non-commercial transaction ... at implied prices that include some element of grant or concession so that those prices ... are not market prices”. - Joint meeting conclusions (21st AEG on National Accounts and 39th BOPCOM, 19–20 October 2022) agreed: - “... to never record a transfer element for concessional lending in the ‘central framework’ of national accounts and external sector statistics, except for concessional loans provided by employers to employees.” - Remove exception for loans/deposits by central banks (as in 2008 SNA and GFSM 2014). - Classify the transfer element for concessional loans by employers to employees as a sequence of current transfers in the “central framework.” - Compile supplementary items for the transfer element for concessional loans provided in a non-market context (governments, central banks, international organizations), recording the transfer element “... as capital transfers at inception”. - Rationale: concessional element reflects an explicit policy decision and aligns with IPSAS recommendations. - Cross-subsidising / bundled pricing: generally treat subsidised and marked-up products as product bundles; no imputations typically recorded (Guidance Note DZ.8 example). - Short summary (paragraphs 18–19): - Agreed elements: - Transactions should not represent utility; consumer surplus excluded. - Transactions should represent arm’s-length prices between willing buyers and sellers. - Market structure is typically irrelevant to valuation. - Market prices or exchange values best represent principles; observed transaction values used as practical approximations. - Exceptions: transfer pricing and concessional pricing. - When observable exchange values are unavailable: - First preference: market-equivalent prices. - Otherwise: valuation by costs incurred or by reference to market prices for analogous goods/services (2008 SNA paragraph 2.59). - Valuation of positions (balance-sheet valuation): - General rule (2008 SNA paragraph 13.16; BPM6 paragraph 3.84): “For the balance sheets to be consistent with the accumulation accounts of the SNA, every item in the balance sheet should be valued as if it were being acquired on the date to which the balance sheet relates.” - Aligns with IFRS 13 “fair value”: “... the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”. - Distinction: initial recognition (transaction valuation principles apply) vs subsequent valuation (complications when active markets absent). - Non-financial assets used in production: - Two approaches: market prices for similar second-hand assets; or valuation by contribution of capital services (often via written-down replacement cost using Perpetual Inventory Method (PIM)). - Consistency requirement for financial positions: debtor and creditor positions must be consistent; nominal values justified where instruments not actively traded. *Source: IMF Guidance Note — Section 2: The general principles for valuing transactions and positions.* ### H3: Criteria and trade-offs in evaluating valuation methodologies - Proposed evaluation criteria (derived from Guidance Note D.2 and adapted): - Methodological soundness: produces reliable market(-equivalent) prices; limits discrepancies in macro statistics. - Replicability: yields similar results across compilers and circumstances. - Accuracy: sufficiently accurate for intended purpose. - Comparability: comparable results across institutional sectors and countries. - Availability of relevant source data: information should be accessible and timely; preferable to rely on economic-actor-provided data rather than subjective assumptions. - Simplicity: methods should avoid excessive modelling requiring specialist capacities. - Trade-offs and warnings: - Complex modelling can better approximate market price but may harm comparability where data or expertise are lacking. - Subjective assumptions reduce international comparability. - Simple, source-data-based methods can be accurate for subsets of actors but may undermine broader comparability. - Differences in accounting standards (e.g., historical cost vs current replacement cost) affect cross-country comparability. - Awareness needed for valuation and recognition differences (e.g., intellectual property produced on own account — 2008 SNA paragraph 3.140). *Source: IMF Guidance Note — Section 5: Valuation principles and methodologies (criteria and trade-offs).* ### H3: Valuation methodologies for transactions (Section 4 highlights) - Overview: - Methods assessed against 2008 SNA/BPM6 principles and criteria from Section 3; includes recent recommendations (e.g., Guidance Note WS.3 on Unpaid household service work, SEEA Central Framework). - Preferred ordering and application by transaction type: - Observed exchange values (observed market prices): - Generally most appropriate; conceptually preferable; practical exceptions for transfer pricing and concessional pricing where adjustments rarely feasible; rely on source data and engagement with accounting practice and OECD BEPS guidance. - Technical points: - SNA valuation layers: purchasers’ prices vs basic prices vs producers’ prices (2008 SNA paragraph 2.63). - Imports/exports currently valued free-on-board; Guidance Note G.1 recommends introducing invoice values in 2025 SNA. - Observed exchange values are starting point for decomposition of valuation layers; margin pricing and partitioning for insurance and FISIM require indirect valuation. - Market-equivalent prices: - Use observable market prices of similar goods/services/assets (applicable to barter, own-account consumption, owner-occupied housing). - Preconditions: homogeneity/comparability, same market conditions, well-established markets; hedonic adjustments acceptable but data-intensive. - Indirect valuation: - Applied in exceptional cases (e.g., imputed reinvested earnings derived from net saving of direct investment enterprises, BPM6 paragraph 3.74; 2008 SNA paragraph 7.139). - Sum-of-costs method: - Description: sum of intermediate consumption; compensation of employees; other taxes less subsidies on production; consumption of fixed capital; return on invested capital. - Typical uses: non-market output of government and NPISHs (currently without return on invested capital); own-account capital formation when market estimates infeasible. - Key issues: - Estimating owner/family labour input for unincorporated enterprises (2008 SNA paragraph 6.126 suggests mixed income estimation if necessary). - Extent of capital services to include (debate on including non-produced assets; Guidance Notes WS.6, WS.8 and DZ.6 referenced). - Return to capital estimation: recommend opportunity-cost perspective; discount rate guidance referenced in GN WS.10. - Inclusion of return to invested capital in non-market services: reopened for discussion (21st AEG meeting, 17–21 October 2022). - Pros/cons: conceptually consistent; simple and data-available but may face benchmarking and labour attribution difficulties. - Valuation of unpaid household services: - Preferred conceptual valuation: market prices of similar goods/services but practical constraints (quantities, quality/productivity adjustments). - Practical default: sum-of-costs with imputed labour input adjusted for quality/productivity. - Debate: replacement cost vs opportunity cost for labour valuation — replacement costs preferred for national accounts consistency. - Short summary by transaction type: - Market monetary transactions: values actually exchanged. - Barter / own final use: market-equivalent prices. - Unpaid household services: owner-occupied housing via market-equivalent prices; other services via sum-of-costs if market data lacking. - Own-account capital formation: default sum-of-costs unless assets homogeneous and traded. - Non-market government/NPISH output: sum-of-costs; inclusion of return to invested capital under discussion. *Source: IMF Guidance Note — Section 4: Valuation methodologies for transactions.* ### H3: Valuation methodologies for positions (Section 5 highlights) - Overview and scope: - Discussion excludes initial recognition (addressed in flows). - Emphasizes consistency: total financial assets should equal liabilities except monetary gold (and potentially crypto assets, pending Guidance Note F.18). - Hierarchy and methods: - Observed market prices (market valuation): - Preferred where assets are homogeneous and actively traded (2008 SNA paragraph 13.20). - Users may also request nominal value for debt instruments; government debt example: principal method reflecting future principal payments including accrued interest. - Aligns with fair value in IFRS 13. - Market-equivalent prices: - For less homogeneous non-financial assets regularly traded (dwellings, second-hand transport equipment). - For infrequently traded securities, approximate with comparable frequently traded instruments with liquidity/risk adjustments. - Expert estimates (insurance, tax) may be necessary for valuables and some real estate. - For fixed assets used in production, market-equivalent less suitable because national accounts emphasize capital services; written-down replacement costs often preferred. - Valuation based on past expenses (historical and written-down replacement costs; PIM): - Next-best when market data unavailable. - Written-down replacement cost via PIM commonly applied to produced non-financial assets. - Requirements: long time series of past expenditures, service life information, age-price/age-efficiency profiles, discard patterns. - PIM technically complex but supported by software; gross fixed capital formation generally available though starting stock estimation is problematic. - Nominal value (for non-traded financial instruments): - Typical for deposits, loans, currency; defined in 2008 SNA paragraph 3.157; BPM6 paragraph 3.88 provides more elaborate definition. - Guidance Note F.8 recommends aligning SNA definition with BPM6 paragraph 3.88(b), and GFSM 2014 guidance for zero-coupon/deep-discount bonds (nominal value equals Net Present Value of future payments using market interest rate). - BPM6 paragraph 3.86 pragmatic reasons: data availability, symmetry between debtors and creditors, legal liability representation. - Guidance Note F.9 recommends retaining nominal valuation while allowing reassessment when public evidence of loan deterioration exists. - Amortized cost in accounting is similar to nominal valuation but includes loss allowances; WS.8 recommends improved recording of provisions/impairments in supplementary tables. - Indirect valuation (unlisted equity): - 2008 SNA and BPM6 provide indirect methods inferring equity value from intrinsic corporation value; Guidance Note D.2 details options and decision tree. - Cross-cutting observations: - Observed market prices: high conceptual soundness where available (paragraphs 66–68). - Market-equivalent: conceptually sound if heterogeneity adjustments observable; subjectivity harms comparability (paragraphs 69–74). - Past-expenses/PIM: applicable for produced non-financial assets; requires assumptions and long series (paragraphs 75–79). - Nominal value: pragmatic for non-traded financial instruments; conceptually differs from market value (paragraphs 80–85). - Interaction with accounting standards: fair value (IFRS 13) aligns with market-based approaches; amortized cost aligns with nominal valuation for debt instruments (paragraph 84). - Guidance referenced: F.8, F.9, WS.8, CM.4 (capital measurement hub recommendation). *Source: IMF Guidance Note — Section 5: Valuation methodologies for positions.* ### H3: Valuation methods for specific asset categories and issues - Unlisted equity (paragraph 13.71 of 2008 SNA; Guidance Note D.2): - Recommended methods: - (i) own funds at book value (OFBV); - (ii) recent transaction prices; - (iii) market capitalization (and related approaches). - Additional methods: present value/price-to-earnings ratio; apportioning global value for FDI. - Practical guidance: Annex VII of D.2 contains a decision tree prioritising methods; requires detailed balance-sheet data. - Conceptual caution: indirect methods may misrepresent start-up firms whose value is expectation-driven. - Net present value of future returns (NPV): - Typical use cases: defined benefit pension entitlements; unlisted equity (when other methods less appropriate); natural resources. - Preconditions: direct link between resource rent and asset; requires forecasting future income streams and choice of discount rate. - For natural resources: SEEA and Guidance Note WS.10 provide detailed NPV guidance; written-down replacement costs generally preferred for prudency but NPV is practical for many natural resources. - Valuation of data (Guidance Note DZ.6): - Definition: data = “information content ... in a digital format, which provide an economic benefit when used in productive activities”. - Two options: PIM/written-down replacement costs (preferred for prudency) or NPV of future earnings. - Practical viability: Digitalisation Task Team is considering PIM/sum-of-costs as most viable due to measurement and attribution challenges. - Valuation of human capital (Guidance Note WS.4; UNECE Guide reference): - Two approaches: written-down acquisition costs vs lifetime income (NPV of future earnings). - NPV conceptually preferred but heavily dependent on assumptions (discount rate, future incomes); cost-based approach available as pragmatic alternative. - No firm recommendation; suggest practical testing of both methods. - Valuation of unpaid household services (Guidance Note WS.3): - Two methods: input (sum-of-costs) and output (market-equivalent). - Output method preferred conceptually; sum-of-costs preferred in practice due to data availability (time-use surveys). - Wage-rate choices: replacement cost (preferred for national accounts) vs opportunity cost (relevant for individual welfare but inconsistent with exclusion of consumer surplus). - Natural resources (SEEA Central Framework and Guidance Note WS.10): - SEEA methods: (i) NPV of future resource rents (residual value method); (ii) appropriation method; (iii) access price method. - SEEA recommends residual method with reconciliation to other methods where possible. - Compilation issues: discount rate sensitivity; extraction-cost heterogeneity; micro-level production constraints; commodity price volatility. *Source: Guidance material for the update of the 2008 SNA and related Guidance Notes (D.2, WS.10, WS.4, DZ.6, AI.2 and SEEA Central Framework).* ### H3: Conclusions and recommendations (Section 6) - General finding: - 2008 SNA and BPM6 guidance broadly fit for purpose, but updates/clarifications needed (paragraph 111). - Recommendations (paragraphs 112–119): 1. Clarify overarching principles for valuing transactions by using either: - “market prices” defined as prices paid between two independent parties (arm’s length), or - “exchange values” defined as values at which goods, services, labour or assets are in fact exchanged or else could be exchanged for cash. - Distinguish these principles from observed market/exchange values (preferred methods). Further clarify principles for valuing positions, especially non‑financial assets, introducing capital services/current operational value (paragraph 112). 2. Clarify appropriateness of market conditions when using observed market prices to derive market-equivalent prices, focusing on market maturity and distortions (paragraph 113). 3. Clarify application of the sum-of-costs method, including: - estimation of labour input by owners/family of unincorporated enterprises; - extent of capital services to include; - rate to estimate return on invested capital; - note that extending capital services beyond fixed assets requires a 2008 SNA change (paragraph 114). 4. Clarify application of NPV of resource rents for natural resources, referencing SEEA and WS.10 (paragraph 115). 5. Clarify the concept of nominal value, aligning with GFSM 2014 and PSDG for zero-coupon/deep-discount securities and non-accruing instruments (paragraph 116). 6. Include recommendations on alternative valuation methodologies beyond the central framework (unpaid household services, human capital) for well-being and sustainability chapters (paragraph 117). 7. Provide more detail on relationship between SNA/BPM and business/public sector accounting standards, especially in chapters on non-financial corporations and government (paragraph 118). 8. Reconsider ordering/consolidation of valuation guidance in 2008 SNA; introduce more in-depth discussion in 2025 SNA Chapter 4/BPM7 Chapter 3 and consider an annex with method details (paragraph 119). - Endorsement and consultation: - AEG on National Accounts and BOPCOM joint meeting (27 – 28 March 2023) basically endorsed all recommendations and expressed a clear preference for using the term “exchange values” for the overarching principle for valuing transactions (paragraph 120). - Written consultation followed; feedback incorporated into final Guidance Note (paragraph 120). - Annex 1 excerpt (SEEA concept of market prices): supply-demand framework; exchange value = price * quantity; consumer surplus excluded from accounting values; small changes in availability map approximately to changes in accounting value (Annex 1). *Source: IMF Guidance Note — “Valuation principles and methodologies”, Section 6: Conclusions and way forward.* Italic: IMF Guidance Note — “6-issues-note-ai1-valuation-principles-and-methodologies”. ### 1. Introduction ### 1. Introduction ### Background and controversy - The System of Environmental-Economic Accounting (SEEA) Ecosystem Accounting raised strong controversies over principles and methodologies for valuing ecosystem services and ecosystem assets. - Debate focused on the introduction of some new techniques for valuing ecosystem services and assets and whether these techniques were consistent with the valuation principles applied in the System of National Accounts (SNA). - It was decided to include the guidance in SEEA Ecosystem Accounting, albeit without giving this guidance the status of international standards. ### Objective and scope of the Guidance Note - The main objective of the Guidance Note is to provide a more holistic view on the valuation of transactions and positions, including the main conceptual foundations, in order to arrive at more precise guidance in the 2025 SNA. - The Guidance Note is neither to overturn the conceptual starting points of the current guidance nor to introduce revolutionary new methodologies for valuing transactions and positions. - The objective is to bring all the pieces together in an overall view, and using a predefined set of criteria, to arrive at a hierarchy of valuation methodologies from a conceptual and feasibility perspective. - At some stage pragmatic considerations around the feasibility of collecting relevant data will feed into the evaluation process. ### Interpretations, gaps, and links to other standards - Producers and users have differences of opinion when it comes to the interpretation of the guidance on valuation principles and methodologies provided in the 2008 SNA. - Current guidance is described as relatively pragmatic in nature, without giving due consideration to a set of criteria for evaluating the appropriateness of valuation methodologies. - Links to business and public sector accounting standards, often the primary source for compiling national accounts statistics, are missing. - International Financial Reporting Standards (IFRS) and International Public Sector Accounting Standards (IPSAS) feed into the analysis, including the latest considerations around valuation within the IPSAS community. ### Sources and complementary manuals incorporated - In addition to the 2008 SNA, the Guidance Note takes into account: - the Sixth Edition of the Balance of Payments Manual (BPM6), - the Government Finance Statistics Manual (GFSM) 2014, - the Monetary and Financial Statistics Manual and Compilation Guide (MFSMCG) 2016, - recommendations in Guidance Notes endorsed by the Advisory Expert Group (AEG) on National Accounts and the IMF Balance of Payments Committee (BOPCOM). - The Guidance Note acknowledges that a multitude of Guidance Notes can be considered relevant, directly and indirectly, in the context of valuation. ### Authorship and acknowledgements - The Guidance Note has been drafted by Peter van de Ven, lead editor of the update of the 2008 SNA. - Contributors and reviewers acknowledged include: Alessandra Alfieri (UNSD), Brenda Bugge (Statistics Canada), Bram Edens (UNSD), Dennis Fixler (US BEA), Aldo Femia (ISTAT), João Carlos Fonseca (IPSAS Secretariat), Kevin Fox (University of New South Wales), Pete Harper (project manager of the update of the 2008 SNA), Anil Markandya (BC3 Basque Centre for Climate Change), Carl Obst (editor of the update of the 2008 SNA and independent consultant), Marshall Reinsdorf (editor of the update of the 2008 SNA), Catherine van Rompaey (World Bank), Michael Smedes (Australian Bureau of Statistics), Phil Stokoe (IMF), and Jorrit Zwijnenburg (OECD). - Special thanks are given to Michael Connolly, Bram Edens, João Carlos Fonseca, Pete Harper, David Wasshausen, and IMF staff responsible for BPM6, GFSM 2014, and MFSMCG 2016 for reviewing the Guidance Note in detail and providing comments and suggestions. ### Organization of the Guidance Note - Section 2: Main principles for valuing transactions and positions, including conceptual starting points and references to business and public sector accounting standards. - Section 3: Development of a set of criteria to evaluate the alignment of valuation methodologies to these principles. - Section 4: Methods for valuing transactions. - Section 5: Methods for valuing positions. - Section 6: Summary of the main recommendations. *The Guidance Note (1. Introduction).* ### 2. The general principles for valuing transactions and positions ### 2. The general principles for valuing transactions and positions ### Valuation principles for transactions - Core principles derived from paragraphs 3.118 and 3.119 of the 2008 SNA: - “the SNA does not attempt to determine the utility of the flows and stocks that come within its scope. Rather, it measures the current exchange value of the entries in the accounts in money terms, that is, the values at which goods, services, labour or assets are in fact exchanged or else could be exchanged for cash”. - Transactions should be valued consistent with “amounts of money that willing buyers pay to acquire something from willing sellers; the exchanges are made between independent parties and on the basis of commercial considerations only, sometimes called ‘at arm’s length’.” - Prices paid or exchange values “... should not necessarily be construed as equivalent to a free market price; that is, a market transaction should not be interpreted as occurring exclusively in a purely competitive market situation. In fact, a market transaction could take place in a monopolistic, monopsonistic, or any other market structure”. - BPM6 alignment: - BPM6 paragraph 3.67 connects market prices with exchange values: “Market prices refer to current exchange value, that is, the values at which goods and other assets, services, and labors are exchanged or else could be exchanged for cash. Market prices are the basis for valuation in the international accounts”. - Conceptual cautions: - Observed exchange values or observed market prices can create implicit circularity when used to describe valuation principles; using observed values is more appropriate when describing valuation methods. - The broader term “exchange values” (including “or else could be exchanged for cash”) is recommended, but should not be taken as equivalent to observed exchange values. - The SNA and BPM exclude consumer surplus: the standards measure exchange values, not utility. ### Link to economic theory and arm’s-length principle - The exchange value/market price concept links directly to economic theory (see SEEA Ecosystem Accounting Annex 12.1 excerpt in Annex 1). - The arm’s length principle (ALP) is consistent with these valuation principles: transactions between independent parties acting in their own self-interest, with equal bargaining power and no duress. ### Exceptions to use of observed market prices / exchange values - Two specific exceptions identified by the 2008 SNA and BPM6 where observed market prices are not appropriate: 1. Distorted transfer pricing (paragraphs 3.131–3.133 of 2008 SNA; paragraphs 3.76–3.77 of BPM6) - Transfer pricing covers “transactions between affiliated enterprises, manipulative agreements with third parties, and certain non-commercial transaction, including concessional interest”. - “Prices may be under- or over-invoiced, in which case an assessment of a market-equivalent price needs to be made”. - Practical issues: - Substantial OECD guidance exists but evidence of profit shifting persists. - ISWGNA Task Team guidance (G.2, G.5) concludes statisticians face near-impossibility of making comprehensive adjustments except via simple methods (e.g., proportional allocation of profits). - Recommendation: rely on adequate pricing in business and public sector records and engage with corporate accountants to understand valuation principles in source data. - Both 2008 SNA and BPM6 provide guidance to adjust transfer prices where amounts are substantial and relevant source data exist, but the exercise requires cautious and informed judgment and raises issues of concomitant income/financial adjustments and international consistency. - Recommendation for future guidance: conceptually require adjustments for transfer prices, while acknowledging practical impossibility of consistent implementation. 2. Concessional pricing (paragraph 3.134 of 2008 SNA; paragraph 3.79 of BPM6) - Defined as “non-commercial transaction ... at implied prices that include some element of grant or concession so that those prices ... are not market prices”. - Examples: loans by governments, loans by employers to employees, loans between related households, loans between affiliated enterprises. - Treatment and developments: - Guidance F.15 and an issues note address concessional lending treatment. - Joint meeting conclusions (21st AEG on National Accounts and 39th BOPCOM, 19–20 October 2022) agreed: - “... to never record a transfer element for concessional lending in the ‘central framework’ of national accounts and external sector statistics, except for concessional loans provided by employers to employees.” - Remove the exception for loans/deposits by central banks (as in 2008 SNA and GFSM 2014). - Classify the transfer element for concessional loans by employers to employees as a sequence of current transfers in the “central framework.” - Compile supplementary items for the transfer element for concessional loans provided in a non-market context (governments, central banks, international organizations), recording the transfer element “... as capital transfers at inception”. - Rationale: concessional element reflects an explicit policy decision and aligns with IPSAS recommendations. - Cross-subsidising / bundled pricing: - Not explicitly addressed in 2008 SNA beyond example of insurance premiums (paragraph 17.39). - Examples: subsidised smartphones by telecoms, free online games encouraging in-game purchases, free software encouraging support purchases. - Guidance Note DZ.8 notes subsidised products are often part of a bundle; general assumption: no imputations should be recorded, treating subsidised and marked-up products as product bundles. ### Short summary on valuation principles for transactions (paragraphs 18–19) - Agreed elements: - Transactions should not represent utility; consumer surplus is excluded. - Transactions should represent prices between willing buyers and sellers at arm’s length. - Market structure (monopoly, monopsony, etc.) is typically irrelevant to valuation. - Market prices or exchange values best represent principles; observed transaction values are used in practice as approximations. - Exceptions where observed exchange values may be inappropriate: transfer pricing and concessional pricing. - Practical limitations: - Adequate adjustments for transfer prices are conceptually recommended but practically almost impossible and difficult to record consistently. - For some concessional lending, monitoring via supplementary items is proposed. - When observable exchange values are unavailable: - Market-equivalent prices are first preference. - In absence of market-equivalent prices, valuation methods should approximate the principles: “... In the absence of market transactions, valuation is made according to costs incurred (for example, non-market services produced by government) or by reference to market prices for analogous goods or services (for example, services of owner-occupied dwellings)” (paragraph 2.59 of the 2008 SNA). - Section 4 of the Guidance Note discusses methods to approximate valuation principles in more detail. ### Valuation principles for positions (balance-sheet valuation) - General rule (paragraph 13.16 of 2008 SNA; paragraph 3.84 of BPM6): - “For the balance sheets to be consistent with the accumulation accounts of the SNA, every item in the balance sheet should be valued as if it were being acquired on the date to which the balance sheet relates. This implies that when they are exchanged on a market, assets and liabilities are to be valued using a set of prices that are current on the date to which the balance sheet relates and that refer to specific assets.” - Consistent with “fair value” notion in IFRS 13: “... the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”. - Distinction between initial recognition and subsequent valuation: - Initial recognition: transaction valuation principles apply; treatment of transfer-of-ownership costs differs (non-financial assets: transfer costs included in initial value; financial assets: transfer costs excluded), per paragraphs 3.122, 10.48, 13.34, and 13.42 of 2008 SNA. - Subsequent valuation: complications arise when active markets do not exist for assets. - Valuation approaches for non-financial assets used in production: - Two basic approaches: - Market prices for similar (second-hand) assets. - Contribution of capital services (including consumption of fixed capital) over the remaining service life — commonly approximated via written-down replacement cost adjusted for price changes, using the Perpetual Inventory Method (PIM) to replicate the net present value of future capital services. - When active second-hand markets exist (generic transport equipment, dwellings), capital services valuation will typically follow second-hand market prices. - For specialized or thin second-hand markets: - Second-hand market prices may be close to scrap value and not reflect going-concern capital services. - Second-hand assets may not be comparable to assets being valued. - Valuation of non-traded natural resources and exploitation rights: - Rights may be priced below the full resource rent; if rights are non-transferable, market price could be zero despite future capital services. - Consistency requirement for financial positions: - National accounts require consistency in valuation of debtor and creditor positions for financial instruments. - This consistency helps justify applying nominal values for financial instruments not actively traded on markets. *Source: IMF Guidance Note — “6-issues-note-ai1-valuation-principles-and-methodologies”, Section 2: The general principles for valuing transactions and positions.* ### Section 5. Some would argue that such a valuation is somewhat inconsistent with a valuation at fair ### Valuation principles and methodologies — Section 5 ### Short summary on the valuation principles for positions - Recommendation to further elaborate the principles of valuing positions in the 2025 SNA along the lines laid out in paragraphs 20–26. - Maintain the valuation principles of the 2008 SNA and BPM6: “every item in the balance sheet should be valued as if it were being acquired on the date to which the balance sheet relates”, with one important exception for non‑financial assets used in production. - For non‑financial assets used in production, the dominant principle is the value of the asset in providing future capital services to the economic agents using them in production; this valuation is considered quite different and the guidance recommends not treating it as merely one method to approximate the general principle. ### Relationship between standards for macro‑economic statistics and business and public sector accounting standards - The SNA and BPM valuation principles for positions are very similar to the concept of “fair value” applied in business and public sector accounting standards. - IPSAS Exposure Draft 77 on Measurement (still under discussion) introduces “current operational value”, defined as: - “… the value of an asset used to achieve the entity’s service delivery objectives at the measurement date”. - Distinctions from fair value: - (a) is explicitly an entry value and includes all the costs that would necessarily be incurred when obtaining the asset; - (b) reflects the value of an asset in its current use, rather than the asset’s highest and best use; - (c) is entity‑specific and therefore reflects the economic position of the entity, rather than the position prevailing in a hypothetical market. - A valuation of non‑financial assets using the Perpetual Inventory Method would fit this valuation almost perfectly. ### Levels of information/preference for valuation evidence (three levels) - Level 1: Quoted prices in active markets for identical assets (or liabilities). Such a quoted market price in an active market provides the most reliable evidence of fair value. - Level 2: Observable information on: - (i) quoted prices for similar assets (or liabilities) in active markets; - (ii) quoted prices for identical or similar assets (or liabilities) in markets that are not active; - (iii) information other than quoted prices that are observable for the asset or liability, for example interest rates and yield curves, implied volatilities and credit spreads; - (iv) information that can be derived principally from or corroborated by observable market data by correlation or other means. - Level 3: When no observable information is available, other information usually based in an entity's own data, taking into account all information about market participant assumptions that is reasonably available. Examples include: - (i) constant pre‑payment rate; - (ii) forecast of cash flows for a cash‑generating asset; - (iii) forecast of profit or loss for a cash‑generating asset. ### Criteria for evaluating valuation methodologies - The starting point is the list developed in Guidance Note D.2 on Valuation of unlisted equity in direct investment, modified for broader application. - Proposed criteria: - Methodological soundness of the valuation methodology: produce reliable market(-equivalent) prices; accuracy of results; limit horizontal and vertical discrepancies in macro‑economic statistics. - Replicability of the methodology: application in slightly different circumstances or by different statisticians should lead to similar results. - Accuracy of the resulting estimates: results should be sufficiently accurate for their purpose. - Comparability of the resulting estimates: methods should lead to comparable results across institutional sectors and across countries. - Availability of relevant source data: information needed should be available and easily provided by relevant economic actors in a timely and consistent manner; preferable that methods be based on available information from an economic actor rather than subjective assumptions. - Simplicity of the valuation methods: methods that incorporate modelling and estimation techniques could present problems of applicability given varied levels of statistical development. ### Trade‑offs, practical considerations, and warnings - The criteria can conflict; examples highlighted: - Complex modelling may better approximate market price but can be problematic where few or no listed companies exist or where statistical expertise or data are lacking, harming comparability. - Use of subjective assumptions, even if improving alignment with market price, can hamper international comparability because consistent application across countries is unlikely. - Simple methodologies based on available source data may provide excellent indicators of market price but might apply only to a limited subset of economic actors, undermining comparability across institutional sectors and industries. - Differences in legal standards for business and public sector accounting can affect international comparability (e.g., accounting standards may permit historical cost for non‑financial assets used in production while national accounts require current replacement costs). - Awareness is warranted of differences in recognition and valuation practices, for example for intellectual property products produced on own account (see paragraph 3.140 of the 2008 SNA referenced in the discussion). *International Monetary Fund — Guidance note: Valuation principles and methodologies (6‑issues‑note‑ai1‑valuation‑principles‑and‑methodologies), Section 5.* ### 4. Valuation methodologies for transactions ### 4. Valuation methodologies for transactions ### Overview and context - The section reviews valuation methodologies for transactions and evaluates their appropriateness against the general valuation principles in the 2008 SNA and BPM6. - Guidance is assessed using criteria from Section 3 of the Guidance Note and incorporates recently agreed recommendations for the update of the 2008 SNA and BPM6, including Guidance Note WS.3 on Unpaid household service work and relevant aspects of the SEEA Central Framework. - Methods are discussed in order of preference, noting that not all methods apply to every transaction type. ### Observed exchange values (observed market prices) - Observed exchange values are generally the most appropriate measure in line with SNA and BPM valuation principles. - Conceptual exceptions exist (e.g., distorted transfer prices between affiliated enterprises and concessional pricing), but in practice adjustments are generally not recommended because of feasibility and international consistency considerations; reliance on source data is recommended. - For transfer pricing, close engagement with business and public sector accounting practice and OECD BEPS guidance is highly recommended. - Advantages: - Conceptually preferable and typically aligns with available source data. - Does not raise international comparability concerns in general. - Method is relatively straightforward and avoids subjective imputations of market prices. - Complications and technical points: - SNA valuation layers: uses of goods and services typically at purchasers’ prices; preferred valuation of output and value added is at basic prices (paragraph 2.63 of the 2008 SNA); producers’ prices may be used when basic prices are not feasible. - Imports and exports are currently valued free-on-board (exporter’s customs frontier). Guidance Note G.1 recommends introducing invoice values as the new principle in the 2025 SNA to align valuation more closely with exchange values agreed between economic agents. - Decomposition of observed exchange values is required to conform to SNA valuation layers; exchange values should be the starting point for decomposition. - Margin pricing issues: for trading-type services (e.g., wholesale and retail; trading in financial assets) output valuation may rely on differences between purchases and sales; for insurance and FISIM, partitioning may require indirect valuation of the service element (see paragraphs 6.175–6.206 referenced). ### Market-equivalent prices - Applicable where actual exchange values are not available; prices of similar goods, services, and assets are used to approximate market prices. - Particularly relevant for: - barter transactions; - consumption of goods produced for own final use; - housing services from owner-occupied dwellings; - exceptional own-account capital formation of assets where the asset type is regularly traded (e.g., dwellings; cloud services providers building their own servers). - Preconditions and cautions: - Homogeneity or comparability of goods/services/assets is essential; where lacking, hedonic adjustments may be acceptable but can be data-intensive and complex. - Comparative goods/services/assets must be traded under the same market conditions (e.g., rentals subsidised by government are not appropriate comparators for owner-occupied housing in a competitive market). - Markets used for comparison should be well-established and not too thin; thin markets can be problematic (e.g., certain dwelling types). - Conceptual soundness and comparability: - If conditions are met, market-equivalent pricing is conceptually sound and yields comparable results, though methods (hedonics) may lack simplicity. ### Indirect valuation - Used in relatively exceptional cases where transactions must be based on indirect methods. - Example: imputation of reinvested earnings (BPM6 paragraph 3.74; 2008 SNA paragraph 7.139) where valuation is based on net saving of direct investment enterprises before distribution of reinvested earnings; reinvested earnings are thus derived indirectly from observed exchange values. - Details and compilation issues for such transactions are beyond the scope of this Guidance Note; see BPM6 paragraphs 8.15–8.16 and 11.33–11.47 and Guidance Note D.16 on retained earnings. ### Sum-of-costs method - Description: market prices are approximated by summing costs of (i) intermediate consumption; (ii) compensation of employees; (iii) other taxes less subsidies on production; (iv) consumption of fixed capital (depreciation); and (v) return on invested capital. - Typical applications: - non-market output of government and NPISHs (currently without return on invested capital); - own-account production of fixed assets (and less significantly other goods for own final use) when market-based estimates are infeasible. - Key practical and conceptual questions: - Estimation of compensation of employees for unincorporated enterprises (labour input by owners/family often not paid as compensation). 2008 SNA paragraph 6.126 recommends estimating mixed income if separate estimation is not possible, but that raises benchmarking questions. It may be more feasible to impute labour input separately based on wage rates for similar work. - Extent of capital services to include: 2008 SNA currently recommends accounting only for capital services from fixed assets, excluding non-produced assets (land, inventories). Recent Guidance Notes propose including payments for accessing personal data as rent (Guidance Note DZ.6) and accounting for depletion of natural resources and biological resources as production costs (Guidance Notes WS.6 and WS.8), suggesting inclusion of capital services from non-produced assets in the sum-of-costs approach where appropriate. - Estimation of return to capital: 2008 SNA paragraph 6.245 compares consumption of fixed capital with rental under operational lease and notes rental should cover maintenance costs, consumption of fixed capital, and interest costs. The Guidance Note suggests adding explicit guidance recommending use of a rate of return to capital from an opportunity-cost perspective, potentially a weighted average reflecting industry net operating surplus and borrowing costs; discount rate recommendations appear in GN WS.10 on Valuation of mineral and energy resources. - Inclusion of return to invested capital in non-market services: controversial during 1993 SNA update; AEG discussions (Bangkok, 18 – 22 July 2005) produced mixed outcomes. At the 21st AEG meeting (17 – 21 October 2022, Washington DC) the discussion on including a return to invested capital in valuation of non-market services (and which capital items to include) was agreed to be re-opened; a separate issues note will reflect pros and cons of aligning the sum-of-costs application. - Pros and cons: - Conceptually consistent with SNA/BPM valuation principles; resembles producers’ pricing behavior where costs must be recouped. - For own-account fixed asset production by private producers, expenditures including return on capital indicate willingness to pay. - For non-market government production, public expenditures reflect societal willingness to pay via taxes/user charges (per Annex 12.1 of SEEA Ecosystem Accounting). - Sum-of-costs does not inherently impair international comparability if consistency exists across countries in the relationship between public expenditures and true service values. - The method is attractive because of simplicity and generally available source data; however, distinguishing relevant labour costs for some own-account fixed assets can be problematic. ### Valuation of unpaid household services - Guidance developed for the update of the 2008 SNA and BPM6 (Guidance Note WS.3) is especially relevant for transaction valuation. - Conceptually preferable valuation for unpaid household services is using market prices of similar goods/services, but practical difficulties arise in obtaining quantities and comparable market data (quality and productivity adjustments). - In practice, valuation of household-produced services for own final use generally uses the sum-of-costs approach, with imputed values for labour input adjusted for quality and productivity. - Major debate: whether to value labour input using replacement costs or opportunity costs. - Opportunity costs may be relevant if households are unconstrained in time allocation or for welfare-measure aims. - For approximating market prices consistent with national accounts, replacement costs are considered the most appropriate. - Practical limits: - Use of broad labour categories with wide cost ranges can reduce accuracy and international comparability. - Time-use surveys are the primary source for labour input; lack of high-quality, timely, and disaggregated time-use data hampers accurate and time-consistent estimates. ### Short summary of preferred methods by transaction type - For goods, services, and assets transacted on the market via monetary settlement: - Values actually exchanged are the basis for valuation. - For barter transactions and consumption of goods produced for own final use: - Prices usually derived from market transactions of similar goods, services, and assets (market-equivalent prices). - For unpaid household services produced for own final use: - Distinguish housing services from owner-occupied dwellings (included in SNA production boundary) from other household services. - For owner-occupied housing services: preferred method is market-equivalent prices derived from similar market transactions, with adequate adjustments for heterogeneity. - For other unpaid household services: market-equivalent prices may be used, but due to data limitations the default is the sum-of-costs method. - For own-account capital formation of assets: - Default option is sum-of-costs. - If assets are homogeneous and regularly traded (e.g., dwellings), preference is for market-equivalent prices adjusted for heterogeneity. - For non-market output of government and NPISHs: - Output and final consumption should be valued using the sum-of-costs method. - Whether to include an imputed return to invested capital in this valuation remains subject to ongoing discussion. *Source: IMF Guidance Note "6-issues-note-ai1-valuation-principles-and-methodologies", section 4: Valuation methodologies for transactions.* ### 5. Valuation methodologies for positions ### 5. Valuation methodologies for positions ### Overview and scope - Paragraph 63: The section provides an overview of valuation methodologies for positions and evaluates their appropriateness against the general principles in Section 2 of the Guidance Note. The discussion does not concern initial recognition (when assets enter balance sheets); that was addressed for flows in the previous section. - Paragraph 64: The starting point for the overview is guidance in the 2008 SNA and, for financial instruments, BPM6. The evaluation of methods uses the criteria in Section 3. Recently agreed recommendations for updates to the 2008 SNA and BPM6, including Guidance Notes and SEEA Central Framework material (notably on mineral and energy resources and human capital), are reflected where relevant. Concise information on this additional guidance is presented in Annex 3 of the Guidance Note. - Paragraph 65: The discussion distinguishes asset types because method relevance differs across asset types. Consistent valuation of financial assets and liabilities is emphasized: with the exception of monetary gold (and potentially crypto assets, contingent on Guidance Note F.18 outcomes), total financial assets should equal liabilities. ### Observed market prices (market valuation) - Paragraph 66: Observed market prices are the most direct way to obtain current (market) prices for positions at a point in time; ideally from markets trading in considerable volumes with regular price listings. Recent market transactions may be used if trading is occasional. - Paragraph 67: Applicability is limited mainly to financial instruments that are homogeneous and actively traded (paragraph 13.20 of the 2008 SNA). Users often request nominal value information for debt securities in addition to market prices. Example: government debt principal method is valuation at nominal value, reflecting actual future principal payments including accrued interest. - Paragraph 68: Observed market prices are conceptually sound where assets are homogenous and traded in active markets. The method supports (international) comparability and aligns with fair value in business accounting (IFRS 13 defines fair value of a liability as the price that would be paid to transfer the liability in an orderly transaction between market participants at the measurement date). Source data for some liabilities may be recorded at face or nominal value and require adjustment. More granular securities data have become available in the past decade. ### Market-equivalent prices - Paragraph 69: Market-equivalent prices approximate current prices using observable market prices of similar assets; expert estimates based on market information can be included. - Paragraph 70: Applicable to less homogeneous non-financial assets regularly traded (e.g., dwellings, certain second-hand transport equipment). For dwellings, market prices combine structure and land; national accounts separate these elements, but market prices can benchmark estimates for the two elements. Reference is made to the Eurostat-OECD Compilation Guide on Land Estimations. - Paragraph 71: For infrequently traded debt securities and equities, market-equivalent prices may use prices of similar frequently traded instruments (e.g., a five-year infrequently traded bond may be approximated by a comparable five-year publicly traded bond), with adjustments for liquidity and/or risk differences. - Paragraph 72: Expert estimates (insurance, tax) may be the only viable option for valuables and can assist with real estate valuation. - Paragraph 73: For fixed assets used in production, market-equivalent prices may be less appropriate because national accounts focus on capital services; written-down replacement costs are often considered more appropriate. For some regularly traded non-financial assets, market prices can complement PIM estimates if heterogeneity adjustments are feasible. - Paragraph 74: Market-equivalent valuation is conceptually sound if adjustments for heterogeneity are based on observable data. Subjective assumptions (e.g., adjusting for lesser tradability of unlisted shares) can harm international comparability. The method is broadly consistent with the fair value principle in business accounting. ### Valuation based on past expenses (historical and written-down replacement costs; PIM) - Paragraph 75: When market or market-equivalent prices are unavailable, valuation based on past expenses adjusted for price changes is the next-best method. Two basic approaches depending on depreciation: - (i) historical acquisition price; and - (ii) written-down replacement costs (includes depreciation, obsolescence, accidental damage). - Own-account produced fixed assets are typically valued using the sum-of-costs method (see Section 3). - Paragraph 76: Past-expenses valuation is commonly applied to produced non-financial assets through the Perpetual Inventory Method (PIM). Historical acquisition price can be used for valuables and some financial instruments. Values adjusted for price changes are superior to unadjusted historical prices. - Paragraph 77: Written-down replacement cost can be superior to market(-equivalent) prices when second-hand market prices are not representative of future capital services. Application requires long time series of past expenditures (including price developments), service life information, age-price/age-efficiency profiles, and discard patterns. - Paragraph 78: Detailed PIM technicalities are beyond the Guidance Note; OECD Manual on Measuring Capital (2009, 2nd edition) is cited for guidance. Observable information on service lives is often not available, necessitating assumptions or guestimates. Asset values are capped by past expenditures (adjusted for price changes). - Paragraph 79: Past-expenses valuation is generally conceptually sound with adequate price-change adjustments. Accuracy may suffer due to lack of observable service-life and retirement pattern data, harming international comparability unless common recommendations are used. PIM is technically complex but supported by available software; gross fixed capital formation data are generally available, though consistent long time series and starting capital stock estimation can be problematic. ### Nominal value (typical for non-traded financial instruments) - Paragraph 80: Nominal value is typically applied to financial instruments not traded via markets (deposits, loans) and currency. Nominal value is defined in the 2008 SNA as “the amount the debtor owes to the creditor, which comprises the outstanding principal amount including any accrued interest” (paragraph 3.157). BPM6 has a more elaborate definition (paragraph 3.88). Guidance Note F.8 recommends aligning the 2008 SNA definition with BPM6 paragraph 3.88(b), adding that nominal value “reflects the sum of funds originally advanced, plus any subsequent advances, plus any interest that has accrued, less any repayments”. - Paragraph 81: For zero-coupon and deep-discount bonds and some instruments not accruing interest, GFSM 2014 guidance is recommended: the nominal value equals the Net Present Value of future payments using the market interest rate as discount rate (see paragraph 7.30 and Box 2.4 of the Public Sector Debt Guide). This adjustment is not recommended for concessional loans, for which nominal value aligned with agreed outstanding principal including accrued interest is appropriate. The Guidance Note recommends extending SNA and BPM guidance on nominal value by incorporating GFSM 2014 details. - Paragraph 82: BPM6 paragraph 3.86 clarifies pragmatic reasons for nominal valuation: data availability, symmetry between debtors and creditors, loans’ non-negotiability making market price estimation subjective, and nominal value showing actual legal liability and creditor recovery starting points. BPM6 recognizes nominal value provides an incomplete view when loans are non-performing and recommends recording nominal value of non-performing loans as memorandum/supplementary items. Loans that become negotiable de facto should be reclassified under debt securities. - Paragraph 83: Guidance Note F.9 discusses nominal value versus full fair value for loans and ultimately recommends retaining nominal valuation while allowing reassessment (value reset) beyond bankruptcy/liquidation when public evidence of loan deterioration exists. A full fair value approach (not recommended) would adjust for expected loan losses and interest-rate-driven value changes. - Paragraph 84: Business and public sector accounting recommend “amortized cost” for financial debt instruments not actively traded and held to maturity; nominal value is close to amortized cost, though amortized cost also includes loss allowance adjustments. Guidance Note WS.8 on Recording of provisions recommends improved accounting for provisions/impairments in supplementary tables to link macroeconomic statistics with corporate accounting. - Paragraph 85: Conceptually, nominal value differs from market value and differences can be significant. Nominal valuation for non-actively traded financial instruments is a valid approach given SNA consistency requirements. From a creditor’s perspective, market-value-type valuation has merits. International comparability is generally acceptable for nominal values, though large cross-country inflation divergences can hamper comparisons. Data availability for nominal values is generally good. ### Indirect valuation (unlisted equity) - Paragraph 86: For unlisted equity, the 2008 SNA and BPM6 provide indirect valuation methods: rather than directly valuing unlisted equity, the intrinsic value of the corporation is used to infer equity value. Paragraph 86 notes three alternative options are suggested (text continues beyond provided excerpt). ### Cross-cutting observations and methodological priorities - Consistency: The Guidance Note emphasizes consistent valuation of financial assets and liabilities so total financial assets equal liabilities (except monetary gold and potentially crypto assets pending Guidance Note F.18 outcomes) (paragraph 65). - Hierarchy of preference (summary referenced at end of section): The Guidance Note indicates that more explicit recommendations on hierarchy of preferred valuation methods are provided in the section summary (not included in excerpt). - Data and comparability trade-offs: - Observed market prices: high conceptual soundness and comparability where available (paragraphs 66–68). - Market-equivalent prices: usable with careful heterogeneity adjustments; risk of subjectivity harms comparability (paragraphs 69–74). - Past-expenses/PIM: widely applicable for produced non-financial assets; requires significant assumptions and long time series; capped by past expenditures (paragraphs 75–79). - Nominal value: pragmatic and consistent for non-traded financial instruments; differs conceptually from market value and may limit economic-substance comparability in high-inflation contexts (paragraphs 80–85). - Interaction with accounting standards: - Fair value concepts in IFRS 13 align with observed/market-equivalent approaches for assets and liabilities (paragraph 68). - Amortized cost in business/public sector accounting is similar to nominal valuation for debt instruments not actively traded (paragraph 84). - Guidance Note recommendations referenced: - Guidance Note F.8 on nominal valuation details and reporting debt securities at nominal value as a supplementary item (paragraphs 67, 80). - Guidance Note F.9 on valuation of loans addresses nominal versus fair value and recommends retaining nominal valuation with limited reassessment options (paragraphs 82–83). - Guidance Note WS.8 on Recording of provisions suggests improvements to link macro statistics and corporate accounting on impairments (paragraph 84). - Guidance Note CM.4 recommends an international “capital measurement internet-based information hub” to improve consumption of fixed capital estimates and PIM inputs (footnote referenced in paragraph 78). - Practical considerations: - Availability of granular securities data has improved in the past decade (paragraph 68). - Expert estimates remain important for valuables and some real estate valuations (paragraph 72). - PIM implementation requires long consistent time series and reliable starting capital stock estimates; software is available but method is technically complex (paragraph 79). *Source: IMF Guidance Note — "Valuation principles and methodologies", section 5: Valuation methodologies for positions.* ### 13.71 of the 2008 SNA and, in some cases using a slightly different terminology, paragraph 7.16 of ### Valuation principles and methodologies (excerpts from guidance for the update of the 2008 SNA) ### Valuation methods for unlisted equity - Paragraph reference: 13.71 of the 2008 SNA; guidance further refined in Guidance Note D.2 on Valuation of unlisted equity. - Recommended valuation methods for unlisted equity (including equity in quasi-corporations) are: - (i) own funds at book value; - (ii) recent transaction prices; - (iii) market capitalization (referred to in paragraph 86 as book values). - Definitions and approaches preserved exactly: - Net asset value: appraisals by knowledgeable management or directors, or provided by independent auditors, to obtain total assets at current value less total liabilities (excluding equity) at market value. - Book values: “own funds at book value”, adjusted with ratios based on suitable price indicators (e.g., prices of listed shares to book value in the same economy with similar operations), or assets carried at cost revalued to current period prices using suitable asset price indices. - Own funds at book value: the value recorded in the books as the sum of (i) paid-up capital (excluding any shares on issue that the enterprise holds in itself and including share premium accounts); (ii) all types of reserves identified as equity in the enterprise’s balance sheet; (iii) cumulated reinvested earnings; and (iv) holding gains or losses included in own funds in the accounts, whether as revaluation reserves or profits or losses. - Three other methods suggested for valuing unlisted equity: - (i) recent transaction price (method based on observed market(-equivalent) prices); - (ii) present value/price to earnings ratio (value approximated by discounting forecasted future profits; see “net present value of future returns”); - (iii) apportioning global value (used to value unlisted equity of foreign direct investment enterprises). - Practical guidance: - Annex VII of Guidance Note D.2 contains a decision tree with a clear prioritisation of valuation methods based on available source data. - Application requires sufficiently detailed balance sheet data for the relevant corporations. - Conceptual caution: - Indirect valuation methods aim to approximate market prices but may misrepresent value for start-up companies where equity value is driven by expectations about future profits; intrinsic (sometimes negative) value can be far below takeover-observed values. ### Net present value of future returns - Use cases where net present value (NPV) is typically applied: - defined benefit pension entitlements; - unlisted equity when other methods are less appropriate; - natural resources. - Other possible uses: - limited number of fixed assets lacking past capital formation expense data (e.g., some intellectual products, artistic originals); - alternative for valuing some other financial assets when other valuation methods are less appropriate. - Preconditions and challenges: - The method can only be used for non-financial assets if there is a direct link between the resource rent and the asset (no other assets generating the residual income). - Requires forecasting future income streams with assumptions on asset life; future extraction paths; regeneration potential for renewable resources; expected income flows; choice of discount rate. - Often considered a last resort and applied only for certain asset classes (natural resources) when reliable market transaction estimates are unavailable. - Ownership of extraction rights issue: - Governments often (legal owners) provide extraction rights to private corporations for annual payments or prepaid periods; such rights may be non-transferable and thus valued at zero despite private corporation deriving value via appropriated resource rents. - The “split-asset” recording question (how to record the part of resource rents appropriated by the exploiter, represented by the difference between total resource rents and actual royalties paid) remains unresolved and is part of the testing programme for the update of the 2008 SNA. - Related guidance: - Guidance Note WS.10 on Valuation of mineral and energy resources contains detailed recommendations for estimating elements feeding into measurements of mineral and energy resources; recommendations endorsed and to be included in the 2025 SNA. - SEEA Central Framework provides detailed guidance on applying the NPV method to natural resources; SNA guidance could benefit from referencing SEEA clarifications. - Conceptual conclusion: - Conditional on the direct link between residual resource rents and the asset, the NPV method is conceptually sound to approximate future capital services. - Preference should be given to market prices when extraction rights are auctioned competitively; in practice such conditions are often absent. - Between written-down replacement costs and NPV, written-down replacement costs are generally preferred for prudency; but for many natural resources NPV using the residual value method is the practical choice. ### Valuation of data and human capital - Data (Guidance Note DZ.6 on Recording of data in the national accounts): - Definition: “information content that is produced by accessing and observing phenomena; and recording, organizing and storing information elements from these phenomena in a digital format, which provide an economic benefit when used in productive activities”. - Most data produced in-house from observable phenomena collected for free (possibly as a by-product of primary output). - Two valuation methods considered: - written-down replacement costs (preferred for prudency and because the link between data and profits is less direct); - net present value of future returns. - Practical difficulty: breaking out relevant expenditures and distinguishing current expenditures from capitalizing expenditures. - Guidance Note proposes recording monetary payments for (access to) observable phenomena as payments of rent and adding these rent payments as a cost element in resource rent estimation (issues elaborated in Guidance Note AI.2 on Treatment of rent for recording of data, marketing assets and biological resources). - Human capital (Guidance Note WS.4 on Labour, human capital and education): - Choice between written-down acquisition costs and NPV of future income streams. - Written-down acquisition costs: expenditures may be relatively easy to collect; but require assumptions on service lives and depreciation patterns; measurement of unpaid labour (e.g., studying at home) would rely on income foregone. - NPV method: requires agreement on which income to use and forecasting future incomes over lengthy periods. - No firm recommendation; suggests gaining practical experience by applying both methods to compare and evaluate. ### SEEA Central Framework guidance on natural resources - Three methods suggested for estimating value of natural resources: - (i) net present value of future resource rents, with resource rent calculated using the “residual value method” (rent estimated as residual value of operating surplus after deduction of capital services: consumption of fixed capital and return to invested capital); - (ii) “appropriation method” (rent estimated using actual payments made to owners of environmental assets); - (iii) “access price method” (based on market prices of licences and quotas used to control access). - Practical evaluation and recommendation: - Collected fees, taxes and royalties often understate total resource rents because rates are set with other priorities in mind (e.g., encouraging investment and employment). - Appropriation and access price methods are heavily influenced by a country’s institutional arrangements and may misrepresent true rents unless used cautiously (e.g., where rights are auctioned competitively). - SEEA recommends compiling resource rent estimates based on the residual value method and reconciling, where possible, with estimates from the other methods. - SEEA contains much more detailed guidance on applying NPV; SNA guidance could substantially improve by referencing SEEA details. - Practical viability: - With sufficiently granular source data and depending on accuracy requirements, good approximations of the value of natural resources should be possible. - The NPV method does not pose major technical expertise obstacles for application when conditions are met. ### Summary hierarchy and preferred valuation methods by asset category - General note: Application of valuation methods is highly asset-type dependent; difficult to set a single generic order of preference. - Asset categories and recommended approaches: - Financial instruments (actively traded): use observed market(-equivalent) prices; if unavailable (e.g., some derivatives) resort to pricing models. For debt securities, compile nominal value as supplementary items, especially for liability positions. - Financial instruments (not typically traded) subgroup distinctions: - (i) deposits, loans, other accounts receivable/payable: valuation at nominal value recommended. - (ii) unlisted equity: see paragraph 13.71 and Guidance Note D.2 decision tree for hierarchy of methods. - (iii) insurance technical reserves and pension entitlements: where claims constitute future benefit streams (e.g., annuities, defined benefit pensions), valuation based on actuarial NPV of future benefits; defined contribution scheme claims equal to accumulated assets valued according to methods for the underlying assets. - Fixed assets (produced): preferred method is written-down replacement costs using the Perpetual Inventory Method. Second-hand market prices may be used to verify estimates where well-established markets exist (e.g., dwellings including land, some transport equipment). For assets lacking past investment expense data (e.g., artistic originals), NPV of expected future benefits may be an option. Written-down historical costs and/or service lives from tax authorities are considered inferior. - Valuables: observed market(-equivalent) prices generally not recommended due to heterogeneity; exceptions include gold bullion where market prices are active. Usually rely on historic acquisition costs, possibly adjusted using recent comparable market transaction developments; expert assessments (e.g., insurance corporations) recommended when available. - Non-produced non-financial assets (natural resources): observed exchange values preferred where available; otherwise NPV of future resource rents is the practical method to reflect future capital services. - Inventories (materials and supplies, finished products, military inventories, goods for resale): use relevant observed market prices. Work-in-progress valuation based on (expected) market prices or contractual agreed prices, with the finalized portion entering the balance sheet. *Source: Guidance material for the update of the 2008 SNA (valuation principles and methodologies, including Guidance Notes D.2, WS.10, WS.4, DZ.6, AI.2 and references to the SEEA Central Framework).* ### 6. Conclusions and way forward ### 6. Conclusions and way forward ### General finding - The guidance of the 2008 SNA and BPM6 is still considered generally fit for purpose, but a number of issues warrant updates or clarifications to valuation principles and methods (paragraph 111). ### Recommendations (paragraphs 112–119) - Recommendation 1: - Clarify overarching principles for valuing transactions by using either: - the term “market prices”, defined as the prices paid between two independent parties, i.e., a valuation of transactions at arm’s length, or - the term “exchange values”, defined as the values at which goods, services, labour or assets are in fact exchanged (between two independent parties) or else could be exchanged for cash. - Distinguish these principles from observed market prices or observed exchange values, which are the preferred methods for valuing transactions and positions. - Further clarify principles for valuing positions, in particular non-financial assets, introducing and elaborating the notion of capital services or – as framed in IPSAS – current operational value (paragraph 112). - Recommendation 2: - Add clarifications on the appropriateness of market conditions when using observed market prices to arrive at market-equivalent prices, focusing on market maturity and distortions (for example, government interventions). This recommendation does not concern market structures (competitive, monopolistic, oligopolistic, monopsonistic) for which macro-economic statistics are typically indifferent (paragraph 113). - Recommendation 3: - Add clarifications on the application of the sum-of-costs method, including: - estimation of labour input provided by owners and family members of unincorporated enterprises; - extent of capital services to be included; - the rate to be used in estimating the return on invested capital. - Note that extending capital services to include other non-financial assets beyond fixed assets would require a change to the 2008 SNA. This recommendation does not concern consistency of the sum-of-costs method for market and non-market producers (paragraph 114). - Recommendation 4: - Add clarifications on the application of the net present value of resource rents for natural resources when the resource rent is estimated by the residual value method. - Include more details on application of the net present value method in line with SEEA Central Framework and Guidance Note WS.10 on Valuation of mineral and energy resources (paragraph 115). - Recommendation 5: - Add clarifications on the concept of nominal value, in line with guidance in GFSM 2014 and PSDG, including measurement of nominal values for zero-coupon/deep-discounted securities and other debt instruments that do not accrue interest (paragraph 116). - Recommendation 6: - Include recommendations on alternative valuation methodologies on transactions and positions beyond the central framework of national accounts (first and foremost unpaid household services and human capital, disregarding ecosystem services and assets for the time being). This could be included concisely in the general text and more extensively in new chapters on well-being and sustainability (paragraph 117). - Recommendation 7: - Provide more details on the relationship between the SNA and BPM and business and public sector accounting standards, with more extensive text likely suited to the chapters on non-financial corporations and government (paragraph 118). - Recommendation 8: - Reconsider the ordering and consolidation of general guidance on valuation principles and methods in the 2008 SNA, introducing a more in-depth discussion in the 2025 SNA Chapter 4/BPM7 Chapter 3 on Flows, stocks and accounting rules, along the lines of this Guidance Note. - Consider an annex with more details on methods for valuing transactions and positions; retain specific guidance on valuing particular transactions and assets in the most relevant chapters (paragraph 119). ### Endorsement and consultation - At their joint meeting held on 27 – 28 March 2023, the AEG on National Accounts and BOPCOM basically endorsed all recommendations and expressed a clear preference for using the term “exchange values” for the overarching principle for valuing transactions (paragraph 120). - A written consultation followed the meeting; feedback from the meeting and written consultation is reflected in the final version of the Guidance Note (paragraph 120). ### Annex 1 excerpt: concept of market prices (SEEA Ecosystem Accounting) - Supply and demand framework: - X-axis: quantities; Y-axis: prices. - Individual willingness to pay (WTP) typically decreases with each additional unit; willingness to accept (WTA) increases with price, producing downward-sloping demand and upward-sloping supply curves. - Interpretation of areas under curves for quantity X0 when market price is P1: - Total WTP for X0 is the area under the demand curve (areas X, Y and Z). - Sum of money exchanged = X0 * P1 = areas Y and Z; this reflects the exchange value recorded in the accounts. - Area X = consumer surplus (benefit above payment). - Area Z = costs of supply. - Area Y = producer surplus (additional benefit to producer). - Two key implications: - The price paid multiplied by quantity establishes the exchange value; price can be referred to as the marginal value of the good (price equals marginal value to buyer and marginal cost to producer). - Welfare derived from a product equals total WTP, which includes payment and consumer surplus; national accounts record accounting values (payments) not consumer surplus. - A small increase in availability of a product generates a change in welfare approximately equal to the change in accounting value; this underpins formal proofs that variations in material well-being are reasonably well represented by changes in Net Domestic Product (NDP), subject to the absence of externalities and the provision of goods and services through competitive markets (Annex 1). - Note: connections to wealth distribution and relative poverty important for individual well-being are not captured in aggregate measures (footnote 22). *Source: Guidance Note — Conclusions and way forward, IMF.* ### Introduction ### Introduction ### Overview - Annex provides an overview of guidance on the valuation of certain transactions and assets included in a number of Guidance Notes drafted in relation to the update of the 2008 SNA. - Three topics concern valuation issues relevant for the “central framework” of national accounts; other topics are part of the extended accounts to improve accounting for well-being and sustainability. - Topics addressed (starting with those affecting the central framework): data; unlisted equity; mineral and energy resources; human capital; and unpaid household services. ### Valuation of data - Context: Accounting for data and its contribution to economic growth is increasingly important in the age of digitalisation; Guidance Note DZ.6 on the “Recording of data in the national accounts” has been drafted. - Market prices: - Most data used in production is constructed on an own account basis and is not actively traded on the market. - Even with functioning markets, data are extraordinarily heterogeneous, making assignment of prices difficult. - Two SNA valuation options considered: - (i) applying the perpetual inventory method (PIM) on the basis of estimates of gross fixed capital formation, which are based on a sum-of-costs approach; and - (ii) deriving the value on the basis of the net present value of future earnings attributable to the asset (NPV). - Advantages and concerns: - PIM / sum-of-costs: easier for statistical offices due to similarity with other own-account intellectual property products; concerns: - inability to measure potential productivity improvement when using a sum-of-costs approach; production of data itself has become more efficient over time, and productivity improvements are hard to identify under sum-of-costs; - delineation of which costs to include: producing valuable data depends on access to useful “observable phenomena” (OPs) and creative ways to obtain them; many costs may be by-products of other activities, raising questions about inclusion in sum-of-cost valuation. - NPV: theoretically more accurate (captures profitability and information embedded in data sets); concerns: - data can have many context-dependent uses, may be reused multiple times, making future-earnings attribution extremely challenging; - unlike natural resources, for data many parameters (stock, use pattern, price path, depletion timing) are unknown; statistical offices likely to face significant difficulties sourcing required information from producers; - additional concerns about introducing external non-produced effects (e.g., monopolistic network effects) or unacceptable assumptions for national accounts (see referenced critique). - Conclusion: Digitalisation Task Team is considering the PIM / sum-of-costs option as the most viable. ### Valuation of unlisted equity - Background: Paragraph 13.71 of the 2008 SNA provides six alternatives for valuing unlisted equity; a broad range of options may lead to lack of international comparability and increased bilateral asymmetries; further guidance requested for the 2025 SNA. Results are included in Guidance Note D.2 on “Valuation of unlisted equity”. - Grouping of valuation methods in the Guidance Note: - (i) valuation based on recent transactions; - (ii) valuation based on accounting data of the corporation (e.g., net asset value, present value/price to earnings ratios, and own funds at book value (OFBV)); - (iii) valuation based on the value of a comparable corporation or of a group of comparable corporations (e.g., market capitalization method). - Criteria important in choice of valuation model: - Availability: information needed should be equally available to all macroeconomic compilers and easily provided by enterprises in a timely and consistent manner; reliance on available company information preferred to subjective assumptions; transaction prices are not widely available for unlisted companies; OFBV may not be readily available for private companies. - Simplicity: methods requiring extensive modelling/estimation techniques may present applicability and comparability problems across countries; ratio-based methods require comparable listed-company ratios and sector/industry breakdowns; centralized international estimation was suggested as an option. - Comparability: consistency across economies is essential; OFBV was recommended in some cases to limit bilateral asymmetries but may not ensure cross-country comparability due to differences in accounting standards (IFRS vs GAAP vs nGAAP) and legal forms. - Methodological soundness: methods should produce reliable market value equivalents; lack of benchmarks to validate estimates can be a drawback; soundness is important due to links between External Sector Statistics and National Accounts. - Assessment and annexes: Annex IV provides advantages and disadvantages of methods; Annex VI contains an assessment of six methods according to selected criteria. - Preferred methods recommended: - Own Funds at Book Value (OFBV), transaction prices, and market capitalization. - Updated standards should explain the concept: in absence of market prices, own funds as the difference between assets and liabilities of unlisted corporations are measured at market prices, consistent with core macroeconomic principles. - Compilers are to use a decision tree to implement one of the three preferred methods (see Annex VII); the decision tree also serves as guidance for fallback methods where countries cannot implement preferred methods. ### Valuation of mineral and energy resources - Objective: Guidance Note WS.10 on “Valuation of mineral and energy resources” provides detailed guidance on application of Net Present Value (NPV) of future resource rents for mineral and energy resources; the NPV method itself is not questioned. - Recommendations for updated SNA guidance: - Include clarifications on delineation of mineral and energy resources using the same three resource classes as SEEA 2012: “commercially recoverable resources”, “potentially commercially recoverable resources” and “non-commercial and other known deposits”. Where reliable value information exists, these classes should be included provided separate estimates can be compiled. - Underline that the aim of the SNA (and the SEEA) is to compile market(-equivalent) values, not social values (e.g., consumer surplus/welfare-based measures). - Add clarifications on NPV calculations for mineral and energy resources by explicitly referring to Chapter 5 in the SEEA-CF, including recommendations: - (i) use a constant rate of extraction or the most recent quantity of extraction as forecasts of future production; and - (ii) assume that the output price of the extracted resource follows a long-run historical trend. - Explain that different types of mineral and energy resources may require slightly different NPV treatments and underscore importance of distinguishing types (e.g., renewable vs non-renewable). - Advise compilers to try to compile values at a disaggregated level, ideally at the deposit level, then aggregate to national level. - Emphasise specific compilation issues: (i) sensitivity of results to choice of discount rate; (ii) heterogeneity of extraction costs across space; (iii) constraints on mineral production at micro level due to initial investments in physical capital; and (iv) volatility introduced by short-run commodity price fluctuations. ### Valuation of unpaid household services - Context: Guidance Note WS.3 on “Unpaid household service work” provides guidance for measuring production of household services for own final use as part of well-being and sustainability accounts. - Two valuation methods distinguished: - (i) input method (sum-of-costs approach): valuation based on inputs needed to produce the services (unpaid labour input, intermediate goods and services, and consumption of fixed capital). - (ii) output method (market-equivalent prices): valuation based on units of service produced and consumed and comparability to prices of equivalent market services. - Comparative strengths and weaknesses: - Output method advantage: comparability to prices of equivalent market services; preferable to measure transitions across the production boundary and to extend GDP time series including unpaid household service work. - Sum-of-costs advantage: enables disaggregation by sub-populations, household distribution, and breakdown into activity types via time-use surveys; disadvantages include survey cost, possible lack of coverage of passive or “on-call” activities, and potential non-response bias. - Use of both methods is valuable for cross-checking and balancing results. - Wage-rate choices for valuing labour input (sum-of-costs): - Replacement cost approach: construct an average post-tax, hourly wage representative of relevant activities covered in unpaid household services. - Opportunity cost approach: use average hourly wage across the whole economy to estimate market income foregone. - Evaluation: - Opportunity cost approach is most relevant to individual utility-maximizing decisions but implicitly incorporates consumer surplus, making it inconsistent with market prices and less relevant to national accounts. - Replacement cost is more appropriate when the purpose is to capture only the value of own-account household production rather than full consumption/welfare. ### Valuation of human capital - Context: Guidance Note WS.4 on “Labour, human capital and education” provides guidance as part of accounts to monitor well-being and sustainability; reference made to the UNECE Guide on Measuring Human Capital. - Two alternative valuation methods considered: - Cost-based approach: uses costs of generating human capital (expenditures on education, training, employer-provided courses, time spent learning/studying, expenditures on books and training material) as a starting point. - Lifetime income approach: estimates value by calculating the net present value of future earnings attributable to human capital. - Theoretical and practical considerations: - UNECE Guide: net present value (lifetime income) seems most viable conceptually because it adds all future benefits allocable to the asset and replicates a market-equivalent valuation, but measurement requires assumptions on future active population development, level of economic benefits, and is significantly affected by the discount rate. - Cost-based estimation is typically provided as an alternative due to fewer speculative assumptions, but it also requires assumptions (distinguishing current expenditures from capital-adding expenditures, measuring and valuing unpaid activities, assumptions on service lives and depreciation patterns). - Empirical note: estimates from the lifetime income approach are usually (substantially) higher than those from the cost-based approach; reasons include attribution of future labour income not fully to human capital and inherited (non-produced) components. - Conceptual observation: under perfect competition, cost-based approach could yield results equal to lifetime income approach; difference could be attributed to operating surplus/mixed income from investing in education. - Further details: Chapter 3 of the UNECE Guide discusses methodologies, challenges, and practical problems in estimating human capital stocks. --- _Source: https://www.imf.org/-/media/files/data/statistics/bpm6/approved-guidance-notes/6-issues-note-ai1-valuation-principles-and-methodologies.pdf_