## 1. GFS for General Government: Nature of Accounts, 2003 and 2013 ## Source details **Canonical URL:** [1. GFS for General Government: Nature of Accounts, 2003 and 2013](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2016/_wp1695.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2016/_wp1695.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2016/_wp1695.pdf.json) --- ### Introduction: fiscal illusions and the role of accrual accounts - Cash-basis accounting and limited recognition of assets and liabilities create fiscal illusions: examples include delaying payments, treating proceeds of asset sales as revenue, off-market swaps, public-private partnerships, and unrecognized pension obligations. - Recognizing a broad array of properly valued assets and liabilities on government balance sheets and measuring the deficit as the decline in net worth (or the part due to transactions) reduces many such illusions. - Accrual-based approaches align with IPSASB (2014) and the IMF Government Finance Statistics Manual (IMF, 2015); long-term projections of future fiscal cash flows can help address sustainability concerns even if present-value recognition is not standard. ### Sample and scope - The paper examines 28 economies classified as advanced by IMF (2002): AUS, AUT, BEL, CAN, CYP, DNK, FRA, FIN, DEU, GRC, HKG, ISL, IRL, ISR, ITA, JPN, KOR, LUX, NLD, NZL, NOR, PRT, SGP, ESP, SWE, CHE, GBR, USA. - The focus is on reporting of Government Finance Statistics (GFS) to the IMF, supplemented by central government accounts and published long-term fiscal projections where relevant. ### Overview of changes in accounts and GFS (2003–13) - All 28 economies now report data for general government (coverage score = 3 in the figure’s scale). - Summary balance sheet reporting (the “stocks” series): - The average advanced economy reports just over two items (maximum = three: liabilities, financial assets, nonfinancial assets). - Many report a financial balance sheet (liabilities and financial assets). - Flow statements: - Maximum = three (statement of sources and uses of cash; accrual-based statement of government operations; statement of other economic flows). - Little progress in reporting all three; most economies still report only one flow statement. - Only Hong Kong SAR reports all three flow statements. - An overall comprehensiveness index ranges from 0 to 100 (the figure uses such an index to summarise coverage). ### Availability of accrual accounts for central government - Number of central governments publishing accounts including a balance sheet and an accrual-based operating statement: - Available in 2003: 8 governments. - Available now (2013): 16 governments. - The matrix in Table 2 shows progress, with many governments now publishing accrual accounts; some exceptions and classification caveats are noted (e.g., Japan, Hong Kong SAR, Israel counted though not official audited accounts; Korea missing). ### Selected features of available accrual accounts (high-level findings) - Time to publication (examples from Table 3): - Australia: 5 months after year end; accounts publish audit opinion in report; monthly interim statements; cash-flow statement = Yes; deficit reconciled with change in net worth = Yes; all controlled entities consolidated = Yes. - Denmark: 3 months after year end; audit opinion 6 months later; no interim statements; cash-flow statement = No; deficit reconciled = Yes; consolidation = No. - Japan: 12 months after year end; audit opinion = Not audited; no interim statements; cash-flow statement = Yes; deficit reconciled = Yes; consolidation = Yes. - New Zealand: 3 months after year end; audit opinion in report; monthly interim statements; cash-flow statement = Yes; deficit reconciled = Yes; consolidation = Yes. - United Kingdom: 12 months after year end; audit opinion in report; no interim statements; cash-flow statement = Yes; deficit reconciled = Yes; consolidation = Yes (only one shown that consolidates local governments). - Notes and caveats include variations in audit practice, cash-like information presented in some cases, and partial consolidation differences. ### Specific assets and liabilities: recognition in GFS and accounts - Accounts payable and receivable: - All 16 governments shown in the right-hand column of Table 2 recognize accounts payable and receivable and report an accrual measure of the deficit. - Table 4 evidence: treating data as unavailable when reported amounts < 2 percent of expense or revenue (average values in 2013 are 15 and 17 percent respectively). - Data availability for other accounts receivable and payable: - Available in 2013: 22 of 28 countries. - Available in 2003: 7 of 28 countries. - Financial assets (e.g., shares in state-owned enterprises): - Recognition is now standard in the accounts of the governments shown as having accrual accounts in Table 2. - All governments shown as producing financial-only or full-accrual GFS in Table 1 report financial assets and a deficit measure unaffected by sales/acquisitions of such assets. - Nonfinancial assets (land, buildings, etc.): - Recognition has improved but remains less prevalent than financial assets. - All governments in the right-hand column of Table 2 recognize nonfinancial assets on their balance sheet except Iceland. - In GFS, all economies reporting full-accrual GFS for general government in 2013 (10 economies) report a total value for nonfinancial assets and a deficit measure unaffected by sales/acquisitions of such assets. - Under a stricter criterion requiring some detail (breakdown by type), seven economies meet the requirement in 2013—an improvement over 2003. - Derivatives: - Reporting has improved but remains unsatisfactory. - Fifteen economies reported nonzero values for derivatives of general government in 2013, whereas only two did in 2003. - Defined-benefit pensions for government employees: - The classification of GFS balance sheet items facilitates assessment of pension recognition, but specific treatment and prevalence vary across countries. ### Key cross-cutting findings - Significant movement toward accrual accounting and broader balance-sheet recognition in advanced economies between 2003 and 2013, but progress is uneven across asset classes and countries. - Improvements most apparent in recognition/reporting of financial assets and accounts payable/receivable; weaker progress for detailed nonfinancial asset breakdowns, comprehensive flow statements, and derivatives. - Differences persist between what is reported to the IMF as GFS and what some governments publish domestically; GFS provide consistent, consolidated measures suited to cross-country and macroeconomic analysis, but may omit domestically published items. ### Reporting of financial derivatives in GFS - Zero values in GFS often reflect incomplete reporting rather than absence of positions. - Evidence of inconsistent reporting: - A zero on the balance sheet is sometimes accompanied by a nonzero value for transactions in derivatives in another GFS table. - Accounts of the central government, or some other entity in general government, sometimes reveal the use of derivatives despite zeros on the consolidated balance sheet. - Table 6 indicates many economies recorded zero or not available in 2013 while being nonzero in 2003, and vice versa. ### Recognition of liabilities for defined-benefit pensions for government employees - Progress is limited in recognizing liabilities for the unfunded part of defined-benefit pensions on government balance sheets. - Liabilities for the unfunded part are recognized on the face of the balance sheet of at least eight central governments in the sample: Australia, Canada, Iceland, Israel, New Zealand, Sweden, the United Kingdom, and the United States. - Improvement relative to 2003 occurred for Israel and the United Kingdom. - GFS presentation rule: pensions for government employees should be shown under “insurance technical reserves” unless there is no defined-benefit pension scheme for past or present government employees or all government employees are covered by the same system as private-sector employees. - Most economies report a zero or missing value for insurance technical reserves (see Table 7). - The number of economies reporting amounts under insurance technical reserves large enough to be employee pensions was 2 in 2013 and 6 in 2013. - New Zealand appears to have reported a liability, but under the heading of other accounts payable (comparison with central government GFS releases noted). ### Summary of recognition progress (Table 8) - Table 8 summarizes recognition in 2003 and 2013 (Number of economies out of 28): - Accounts payable and receivable: Recognized in 2003 = 7; Recognized in 2013 = 22; Increase = 15 - Nonfinancial assets: Recognized in 2003 = 1; Recognized in 2013 = 7; Increase = 6 - Derivatives: Recognized in 2003 = 2; Recognized in 2013 = 15; Increase = 13 - Employee pensions: Recognized in 2003 = 2; Recognized in 2013 = 5; Increase = 3 ### Projections of long-term deficits or debt (Table 9) - No GFS balance sheet includes liabilities for pensions for the public or other social spending that create implicit liabilities; no asset related to future tax revenue is included. - The US government discloses extended long-term fiscal projections in a note, following FASAB (2009) requirements. - The 2013 GFS Yearbook includes a memorandum item for “obligations for social security benefits,” but no country in the sample provided the relevant data. - Many governments publish long-term projections of associated cash flows. - Table 9 tracks availability of routinely published projections that meet these criteria: no more than four years old, covering at least 30 years, and including forecasts of the debt or deficit. - In 2003, only seven such projections appear to have been available. - In 2013, 15 such projections are available. - Some countries publish projections of spending and revenue items sensitive to aging even if they do not project the deficit or debt. ### Conclusion: progress, gaps, and quality concerns - Substantial progress in (a) recognizing assets and liabilities on balance sheets and (b) generating deficit measures that account for transactions in those assets and liabilities. - Persistent gaps: - Many assets and liabilities remain off balance sheet in many countries. - Data quality may be poor even when recognition occurs. - External scrutiny (e.g., Eurostat’s scrutiny for European GFS) improves quality in some jurisdictions; elsewhere, scrutiny may be limited. - Few countries have central government accounts that are audited, comprehensive, timely, and accompanied by similar interim statements (see Table 3 referenced in the source). - Recognition and accurate measurement will not eliminate fiscal illusions; closing recognition loopholes will likely prompt discovery of additional off-balance-sheet items. *Source: _wp1695 - 1. GFS for General Government: Nature of Accounts, 2003 and 2013 (extracted from the supplied chapter content).* ### 1. GFS for General Government: Nature of Accounts, 2003 and 2013 .....................................7 ### 1. GFS for General Government: Nature of Accounts, 2003 and 2013 ### Introduction: fiscal illusions and the role of accrual accounts - Cash-basis accounting and limited recognition of assets and liabilities create fiscal illusions: examples include delaying payments, treating proceeds of asset sales as revenue, off-market swaps, public-private partnerships, and unrecognized pension obligations. - Recognizing a broad array of properly valued assets and liabilities on government balance sheets and measuring the deficit as the decline in net worth (or the part due to transactions) reduces many such illusions. - Accrual-based approaches align with IPSASB (2014) and the IMF Government Finance Statistics Manual (IMF, 2015); long-term projections of future fiscal cash flows can help address sustainability concerns even if present-value recognition is not standard. ### Sample and scope - The paper examines 28 economies classified as advanced by IMF (2002): AUS, AUT, BEL, CAN, CYP, DNK, FRA, FIN, DEU, GRC, HKG, ISL, IRL, ISR, ITA, JPN, KOR, LUX, NLD, NZL, NOR, PRT, SGP, ESP, SWE, CHE, GBR, USA. - The focus is on reporting of Government Finance Statistics (GFS) to the IMF, supplemented by central government accounts and published long-term fiscal projections where relevant. ### Overview of changes in accounts and GFS (2003–13) - All 28 economies now report data for general government (coverage score = 3 in the figure’s scale). - Summary balance sheet reporting (the “stocks” series) shows the average advanced economy reports just over two items (maximum = three: liabilities, financial assets, nonfinancial assets); many report a financial balance sheet (liabilities and financial assets). - Flow statements: maximum = three (statement of sources and uses of cash; accrual-based statement of government operations; statement of other economic flows). There has been little progress in reporting all three; most economies still report only one flow statement. - Only Hong Kong SAR reports all three flow statements. - An overall comprehensiveness index ranges from 0 to 100 (the figure uses such an index to summarise coverage). ### Availability of accrual accounts for central government - Number of central governments that published accounts including a balance sheet and an accrual-based operating statement: - Available in 2003: 8 governments. - Available now (2013): 16 governments. - The matrix in Table 2 shows progress, with many governments now publishing accrual accounts; some exceptions and classification caveats are noted (e.g., Japan, Hong Kong SAR, Israel counted though not official audited accounts; Korea missing). ### Selected features of available accrual accounts (high-level findings) - Time to publication (examples from Table 3): - Australia: 5 months after year end; accounts publish audit opinion in report; monthly interim statements; cash-flow statement = Yes; deficit reconciled with change in net worth = Yes; all controlled entities consolidated = Yes. - Denmark: 3 months after year end; audit opinion 6 months later; no interim statements; cash-flow statement = No; deficit reconciled = Yes; consolidation = No. - Japan: 12 months after year end; audit opinion = Not audited; no interim statements; cash-flow statement = Yes; deficit reconciled = Yes; consolidation = Yes. - New Zealand: 3 months after year end; audit opinion in report; monthly interim statements; cash-flow statement = Yes; deficit reconciled = Yes; consolidation = Yes. - United Kingdom: 12 months after year end; audit opinion in report; no interim statements; cash-flow statement = Yes; deficit reconciled = Yes; consolidation = Yes (only one shown that consolidates local governments). - Notes and caveats include variations in audit practice, cash-like information presented in some cases, and partial consolidation differences. ### Specific assets and liabilities: recognition in GFS and accounts - Accounts payable and receivable: - All 16 governments shown in the right-hand column of Table 2 (i.e., those now counted as having accrual accounts) recognize accounts payable and receivable and report an accrual measure of the deficit. - Table 4 evidence: treating data as unavailable when reported amounts < 2 percent of expense or revenue (average values in 2013 are 15 and 17 percent respectively). - Data availability for other accounts receivable and payable: - Available in 2013: 22 of 28 countries. - Available in 2003: 7 of 28 countries. - Financial assets (e.g., shares in state-owned enterprises): - Recognition is now standard in the accounts of the governments shown as having accrual accounts in Table 2. - All governments shown as producing financial-only or full-accrual GFS in Table 1 report financial assets and a deficit measure unaffected by sales/acquisitions of such assets. - Nonfinancial assets (land, buildings, etc.): - Recognition has improved but remains less prevalent than financial assets. - All governments in the right-hand column of Table 2 recognize nonfinancial assets on their balance sheet except Iceland. - In GFS, all economies reporting full-accrual GFS for general government in 2013 (10 economies) report a total value for nonfinancial assets and a deficit measure unaffected by sales/acquisitions of such assets. - Under a stricter criterion requiring some detail (breakdown by type), seven economies meet the requirement in 2013—an improvement over 2003. - Derivatives: - Reporting has improved but remains unsatisfactory. - Fifteen economies reported nonzero values for derivatives of general government in 2013, whereas only two did in 2003. - Defined-benefit pensions for government employees: - The classification of GFS balance sheet items facilitates assessment of pension recognition, but specific treatment and prevalence vary across countries (detailed treatment follows in later sections of the source document). ### Key cross-cutting findings - Significant movement toward accrual accounting and broader balance-sheet recognition in advanced economies between 2003 and 2013, but progress is uneven across asset classes and countries. - Improvements most apparent in recognition/reporting of financial assets and accounts payable/receivable; weaker progress for detailed nonfinancial asset breakdowns, comprehensive flow statements, and derivatives. - Differences persist between what is reported to the IMF as GFS and what some governments publish domestically; GFS provide consistent, consolidated measures suited to cross-country and macroeconomic analysis, but may omit domestically published items. *Source: _wp1695 - 1. GFS for General Government: Nature of Accounts, 2003 and 2013 (extracted from the supplied chapter content).* ### 2003. Zero values can of course arise if no entity in general government has outstanding ### _wp1695 - 2003. Zero values can of course arise if no entity in general government has outstanding ### Reporting of financial derivatives in GFS - Zero values in GFS often reflect incomplete reporting rather than absence of positions. - Evidence of inconsistent reporting: - A zero on the balance sheet is sometimes accompanied by a nonzero value for transactions in derivatives in another GFS table. - Accounts of the central government, or some other entity in general government, sometimes reveal the use of derivatives despite zeros on the consolidated balance sheet. - Table 6 (GFS for General Government: Financial Derivatives) indicates many economies recorded zero or not available in 2013 while being nonzero in 2003, and vice versa (country lists appear in the source table). ### Recognition of liabilities for defined-benefit pensions for government employees - Progress is limited in recognizing liabilities for the unfunded part of defined-benefit pensions on government balance sheets. - Liabilities for the unfunded part are recognized on the face of the balance sheet of at least eight central governments in the sample: Australia, Canada, Iceland, Israel, New Zealand, Sweden, the United Kingdom, and the United States. - Improvement relative to 2003 occurred for Israel and the United Kingdom. - GFS presentation rule: pensions for government employees should be shown under “insurance technical reserves” unless there is no defined-benefit pension scheme for past or present government employees or all government employees are covered by the same system as private-sector employees. - Most economies report a zero or missing value for insurance technical reserves (see Table 7). - The number of economies reporting amounts under insurance technical reserves large enough to be employee pensions was 2 in 2013 and 6 in 2013. (Source text presents these counts verbatim.) - New Zealand appears to have reported a liability, but under the heading of other accounts payable (comparison with central government GFS releases noted). ### Summary of recognition progress (Table 8) - Table 8 summarizes recognition in 2003 and 2013 (Number of economies out of 28): - Accounts payable and receivable: Recognized in 2003 = 7; Recognized in 2013 = 22; Increase = 15 - Nonfinancial assets: Recognized in 2003 = 1; Recognized in 2013 = 7; Increase = 6 - Derivatives: Recognized in 2003 = 2; Recognized in 2013 = 15; Increase = 13 - Employee pensions: Recognized in 2003 = 2; Recognized in 2013 = 5; Increase = 3 - Source for these counts: Tables 4–7 in the original document. ### Projections of long-term deficits or debt (Table 9) - No GFS balance sheet includes liabilities for pensions for the public or other social spending that create implicit liabilities; no asset related to future tax revenue is included. - The US government discloses extended long-term fiscal projections in a note, following FASAB (2009) requirements. - The 2013 GFS Yearbook includes a memorandum item for “obligations for social security benefits,” but no country in the sample provided the relevant data. - Many governments publish long-term projections of associated cash flows. - Table 9 tracks availability of routinely published projections that meet these criteria: no more than four years old, covering at least 30 years, and including forecasts of the debt or deficit. - In 2003, only seven such projections appear to have been available. - In 2013, 15 such projections are available. - Some countries publish projections of spending and revenue items sensitive to aging even if they do not project the deficit or debt. ### Conclusion: progress, gaps, and quality concerns - There has been substantial progress in (a) recognizing assets and liabilities on balance sheets and (b) generating deficit measures that account for transactions in those assets and liabilities. - Persistent gaps: - Many assets and liabilities remain off balance sheet in many countries. - Data quality may be poor even when recognition occurs. - External scrutiny (e.g., Eurostat’s scrutiny for European GFS) improves quality in some jurisdictions; elsewhere, scrutiny may be limited. - Few countries have central government accounts that are audited, comprehensive, timely, and accompanied by similar interim statements (see Table 3 referenced in the source). - Recognition and accurate measurement will not eliminate fiscal illusions; closing recognition loopholes will likely prompt discovery of additional off-balance-sheet items. *Italic: Source — IMF (extracted content provided from the supplied PDF).* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2016/_wp1695.pdf_