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BPM6 Accounting Principles Excluding Time of Recording and Valuation PowerPoint Presentation
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BPM6 Accounting Principles Excluding Time of Recording and Valuation

BPM6 Accounting Principles Excluding Time of Recording and Valuation

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BPM6 Accounting Principles Excluding Time of Recording and Valuation

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  1. BPM6 Accounting Principles Excluding Time of Recording and Valuation Course on Balance of Payments and International Investment Position Manual (BPM6) IMF-PFTAC Nadi November 22-December 1, 2010 BP03a

  2. Introduction • Flows and Positions • Accounting System • Time of Recording of Flows (next session) • Valuation (next session) • Aggregation and Netting • Symmetry of Reporting • Derived Measures • Changes from BPM5 (this & next session)

  3. Flows and positions • Relationship between flows and positions • What are transactions? • Types of transactions • Rearranging of transactions for statistical purposes • Other flows • Position at point in time

  4. Relationship between flows and positions • Flows (during a period) • = transactions (BOP) + other changes in assets and liabilities (reconciliation items in IIP) • Positions (IIP) are level of assets and liabilities at a point in time • Change in IIP from period 0 to period 1 • = Flows in period 1

  5. What are transactions? • Transactions are classified by the nature of the economic value provided • Goods, services, primary & secondary income, capital transfers, non produced non financial assets, and financial assets and liabilities. • May include intra unit transactions (that are considered to be analytically useful) • e.g. transactions between a branch in one country and its head office in another • Include illegal activities

  6. What are transactions? Cont. • Take place between two institutions, • A resident and a non-resident • Transactions involving financial assets and liabilities, between residents and between non residents excluded and included in reclassifications • By mutual agreement, or • By law (taxes and penalties) • May involve third parties • Guarantors • Agents

  7. Types of transactions • Exchanges and transfers • An exchange - something of value provided by something of equal value. • Transfer - some of value provided without something of value provided in return. • Monetary and non monetary • Monetary - involves cash payments, or creation of assets and liabilities • Non monetary – barter trade, goods and services in kind

  8. Rearranging of transactions • Rerouting, • e.g. social contribution paid by employers to government – incl. compensation of employees • Partitioning • Splitting interest/financial intermediation charges • Splitting financial derivatives from underlying assets • Splitting goods, freight and insurances changes

  9. Rearranging of transactions Cont. • Imputation • Retained earnings of direct investment enterprises • Investment income held on technical reserves by insurance corporations • Retained earnings of investment funds • Fiscal activity relating to government borrowing or outlays undertaken by a non-resident • Implicit taxes and charges associated with multiple exchange rate systems

  10. Other flows • Other flows (essentially do not occur by mutual agreement) • Volume changes • Monetisation and demonization of gold • Commercial debt cancellation • Transfer of assets due to residency change • Revaluation of assets

  11. Position at a point in time • Financial assets have corresponding liabilities • Except for monetary gold

  12. Accounting system • Based on broad book keeping principles • Peculiar some accountants might say! • Double and quadruple entry • Let’s not get carried away – in BOP we are only concerned with double (vertical) entry! • Types of accounting entries • Now this is important! – Learn it

  13. Accounting system: Double entry (vertical) • Vertical double entry • For a transactor, each transaction and other flow has a debit and credit entry • As we are concerned with only resident transactors, the BOP may be described as a vertical entries, or set of accounts • For positions, for each transactor, • Assets = Liabilities + Net worth

  14. Accounting system: Double entry (Horizontal) • Horizontal double entry • Refers to transactions between transactors, e.g. A buys goods from B. • A: goods debit, and B: goods credit • A: cash credit and B: cash debit

  15. Accounting system- Quadruple accounting Vertical double entry bookkeeping Horizontal double entry bookkeeping Unit A Unit B A acquires product from B B provides product to A A makes payment to B B receives payment from A

  16. Accounting system: Types of accounting entries • Goods and services • credit (exports) debit (imports) • Primary income and transfers • credit (income and transfers receivable) • debit (income and transfers payable) • Non produced non financial assets • credit (disposal) and debit (acquisition) • Incurrence of assets and liabilities • Increase in assets (debit) and liabilities (credit) • Decrease in assets (credit) and liabilities (debit)

  17. Accounting system: Examples of entries • Sale of goods to a nonresident • Exports 100 (CR.) • Currency 100 (DR.—Increase in financial assets) • Sale of shares for currency • Shares and other equity 50 (CR.—Reduction in financial assets) • Currency 50 (DR.—Increase in financial assets) • A borrower receives a loan • Loan 70 (CR.—Increase in liabilities) • Currency 70 (DR.—Increase in financial assets)

  18. Aggregation and Netting • Aggregates are summations • Of transactions (other flows and levels) within standard components • Of standard components to broader levels • And are hierarchical • Gross recording (current and capital account) • Credits and debits shown separately • Some special cases – merchanting and reverse investment

  19. Aggregation and Netting Cont. • Net recording (financial account) • Debits deducted from credits • Net is also used in some derived measures • e.g., “net lending/borrowing”

  20. Symmetry of reporting • Symmetry of reporting by counterparties is • important to ensure consistency, compatibility, and analytical usefulness • This is important in • bilateral comparisons, global balances and regional and global aggregates. • Symmetry is not always possibly • Conceptually – functional classification • Micro level data

  21. Derived measures • Are important analytical tools. • Balance on goods and services; • External financial assets minus external liabilities • Balance on trade in goods • Balance on trade in services • Balance on goods, services, and primary income • Current account balance • Net lending/ net borrowing: • – from current and capital accounts • – from financial account • Net international investment position

  22. Changes from BPM5 • Transactions in external assets • between two resident units or between two nonresidents are treated as reclassification • Imputed transactions clarified and specified • Migrants transfers become volume changes • Bookkeeping conventions explained • vertical double-entry • horizontal double-entry • quadruple entry bookkeeping

  23. Changes from BPM5 Cont. • The financial account uses the headings • “net acquisition of financial assets” • “net incurrences of liabilities” • The term “economic ownership” introduced • Income flows arising from reverse investment • where the direct investment enterprise owns less than 10 percent of the voting power of its direct investor are also to be recorded on a gross basis

  24. Changes from BPM5 Cont. • All capital account transactions are recorded on a gross basis • Currency union issues related to consolidated regional international accounts are discussed • Symmetry of reporting and derived measures are dealt with explicitly