Regulation (EU) No 549/2013 of the European Parliament and of the Council of 21 May 2013 on the European system of national and regional accounts in the European Union Text with EEA relevance

• 21.01Business accounts represent, alongside business surveys, a major source of information for corporate activity in national accounts. National accounting shares with business accounting a number of characteristics, the most noticeable of which are:

• (a) the recording of transactions in accounts, i.e. in two-column tables;

• (b) monetary valuation;

• (c) use of balancing items;

• (d) recording of transactions as they take place; and

• (e) internal coherence of the system of accounts.

• However, national accounting differs on a number of points, because it has a different objective: national accounting aims to describe within a coherent framework all the activities of a country and not just those of an enterprise or group of enterprises. This objective of a consistent picture across all entities in an economy and their relationship with the rest of the world brings constraints which do not affect business accounting.

• 21.02National accounting has international standards shared across every country in the world. The development and application of business accounting differ amongst countries. However, business accounting is moving to applying shared international standards. Harmonisation at world level began on 29 June 1973 with the creation of the International Accounting Standards Committee (IASC) whose mission was to develop basic accounting standards referred to as IAS (International Accounting Standards) and then later as IFRS (International Financial Reporting Standards), that could be applied across the world. In the European Union, the consolidated accounts of EU listed companies are prepared according to the IFRS frame of reference from 2005 onwards.

• 21.03Detailed guidelines on the contents of business accounts and how to link business accounts to national accounts belong in specialised manuals. This Chapter answers the most common questions raised when compiling national accounts on the basis of business accounts, and addresses specific issues of the measurement of corporate activity.

SOME SPECIFIC RULES AND METHODS OF BUSINESS ACCOUNTING

• 21.04In order to extract information from business accounts, national accountants should understand the international accounting standards for private corporations and for government bodies. The standards for private corporations are drawn up and maintained by the International Accounting Standards Board (IASB), and, for government bodies, by the International Public Sector Accounting Standards Board (IPSASB). The following paragraphs set out general principles of business accounting.

Time of recording

• 21.05Business accounts record transactions when they take place, giving rise to claims and obligations, independently of the payment. This is recording on an accruals basis, as opposed to a cash basis. The national accounts are also drawn up on an accruals basis.

Double entry and quadruple entry accounting

• 21.06In business accounts, each transaction of the enterprise is recorded in at least two different accounts, once on the debit side and once on the credit side for the same amount. This double entry system enables a check of the consistency of the accounts.

• In national accounts, a quadruple entry system can also be used for most transactions. A transaction is reflected twice by each of the institutional units involved, for example once as a non-financial transaction in the production, income and capital accounts, and once as a financial transaction associated with the change in financial asset and liability.

Valuation

• 21.07In business accounts and in national accounts, transactions are recorded at the price agreed upon by the transactors.

• Assets and liabilities are generally valued at their original or historical cost in the financial statements of business entities, in possible combination with other prices, e.g. market prices for inventories. Financial instruments should be valued at fair value, which aim to reflect prices observed in markets by using specific valuation techniques if necessary.

• In national accounts, assets and liabilities are recorded at current values at the time to which the balance sheet relates, not at their original valuation.

Income statement and balance sheet

• 21.08For business accounts, two financial statements are prepared: the income statement and the balance sheet. The income statement groups together the transactions for income and costs, and the balance sheet stocks of assets and liabilities. These statements show the balances of the accounts, and transactions at an aggregate level. The statements are presented in the form of accounts. Both statements are closely linked to each other. The balance of the income statement is a profit or loss of the enterprise. This profit or loss is also included in the balance sheet.

• 21.09The transaction accounts whose balance is included in the income statement are flow accounts. Their objective is to show the totals of income and expenditure during the financial year.

• 21.10Balance sheets are stock accounts. They show the value of the assets and liabilities at the end of the financial year.

NATIONAL ACCOUNTS AND BUSINESS ACCOUNTS: PRACTICAL ISSUES

• 21.11In order that national accountants may use business accounts on a large scale, and not just in isolated cases, a number of conditions must be met.

• The first is access to businesses’ accounts. Usually, the publication of accounts is mandatory for large enterprises. Databases of such accounts are set up by private or public bodies, and it is important that national accountants are able to access these. For large enterprises, it is generally possible to obtain accounts directly from them.

• The second condition is a minimum degree of standardisation of the accounting documents published by enterprises, since this is a necessary condition for computerised processing. A high level of standardisation is often associated with the existence of a body collecting accounts from enterprises in a standardised form. Collection may be organised on a voluntary basis, as in the case of the body running a financial statements centre which performs analyses for its members, or it may be made mandatory by law, as is the case where the collecting body is the tax authority. In both cases, national accountants are to request access to the databases, respecting the confidentiality policies that apply.

• 21.12Business accounts can be used when the accounts are not compiled on a standardised basis. In many countries, sectors of the economy are dominated by a small number of large enterprises, and the accounts of those large enterprises can be used for the national accounts. Useful information can also be found in the notes to the accounts, such as more detail or guidance on how to interpret the entries in the accounts.

• 21.13Business surveys are the other major source of data for the national accounts on corporate activities. Such surveys provide satisfactory results if the questions asked are compatible with entries and concepts of business accounts. An enterprise will not provide reliable information which is not based on its own internal information system. Business surveys are generally necessary, even in the best case where national accountants are able to access accounting databases, as the information contained in such databases is rarely detailed enough to meet all the needs of national accountants.

• 21.14Globalisation complicates the use of business accounts in preparing national accounts. Business accounts must be drawn up on a national basis to be useful and this is not the case when enterprises have subsidiaries abroad. When the activity of the enterprise extends beyond the national territory, adjustments are necessary to create a national picture based on the enterprise’s business accounts. Enterprises must provide to the business accounts database, either accounts on a national basis, or the adjustments to render the enterprise accounts on a national basis. When the accounts are collected from the enterprises by the tax authority, the tax authority generally requires that the data are provided on a national basis in order to be able to calculate the tax on profit, and this is the most favourable case for use in national accounts.

• 21.15Another practical condition is that the financial year should correspond with the reference period of the national accounts. For annual accounts, this is generally the calendar year, and so it is desirable, in order to make best use of business accounts, that the majority of these enterprises start their financial year on 1 January. Enterprises can choose other financial year start dates. For operations corresponding to flows in the national accounts, it is often acceptable to recreate accounts on the basis of the calendar year by combining proportions of two successive financial years, but for balance sheets this method provides less satisfactory results, especially for items liable to rapid fluctuations during the year. Quarterly accounts are often compiled by large enterprises but they are rarely collected on a systematic basis.

THE TRANSITION FROM BUSINESS ACCOUNTS TO NATIONAL ACCOUNTS: THE EXAMPLE OF NON-FINANCIAL ENTERPRISES

• 21.16The use of data from business accounts of non-financial enterprises for the preparation of national accounts requires several adjustments. These adjustments can be placed in three categories: conceptual adjustments, adjustments to enable consistency with the accounts of other sectors, and adjustments for exhaustiveness.

Conceptual adjustments

• 21.17Conceptual adjustments are required because business accounts are not based on exactly the same concepts as national accounts and because where these concepts are close to each other, the valuation methods can be different. Examples of conceptual adjustments for the calculation of output are as follows:

• (a) adjustment for the transition to the basic price. The turnover of enterprises is generally net of VAT but often includes taxes on products. Conversely, subsidies on products are rarely included in the turnover. It is therefore necessary to make an adjustment to the data from business accounts by deducting these taxes on products and adding these subsidies on products to arrive at an estimate of output at basic prices;

• (b) insurance premiums. Insurance premiums paid by enterprises are part of their expenditure, but national accounts require that they be broken down into three elements: net premiums, the insurance service and premium supplements. Only the part corresponding to the service is intermediate consumption, and a correction is made by deducting net premiums and premium supplements from the gross payment.

Adjustments to achieve consistency with the accounts of other sectors

• 21.18National accounts require that the accounts of enterprises are consistent with those of other enterprises and units in other institutional sectors. So, taxes and subsidies valued on the basis of accounts of enterprises must be consistent with those received by or paid by general government. In practice, this is not observed and a rule is needed in order to achieve consistency. Normally information from general government is more reliable than that from enterprises, and the data from business accounts is adjusted.

Examples of adjustments for exhaustiveness

• 21.19Examples of adjustments to enterprise accounting data for exhaustiveness are absence from statistical files, exemption from tax and social declarations, and evasion.

• Examples of specific adjustments are as follows:

• (a) evasion regarding output sold and sale of goods for resale. Enterprises may underestimate the value of sales to evade paying tax, and an adjustment is made for this under-declaration based on information provided by the tax offices;

• (b) income in kind is employee recompense in the form of goods and services supplied free of charge. When this output and income are not recorded in the business accounts, an adjustment is made to the recorded values, for use in the national accounts. Where employees are housed free of charge, an estimate of the corresponding property rentals is included in output and income of employees where they are not already included in the business accounts;

• (c) tips. When employees receive tips from customers of the enterprise, these must be considered as part of the turnover and thus of output. Tips not recorded as output and employee income in the business accounts are estimated and the output and income adjusted for the national accounts.

SPECIFIC ISSUES

Holding gains/losses

• 21.20Holding gains and losses are one of the main difficulties in the transition from business accounts to national accounts, mainly due to the nature of the information available in business accounts. For example, intermediate consumption of raw materials may not be a direct purchase, but a withdrawal from stock. In national accounts, the withdrawal from stock is valued at the current market price, while in business accounts the withdrawal from stock is valued at its historical cost, i.e. at the price of the goods when purchased. The difference between the two prices is a holding gain/loss in national accounts.

• 21.21Eliminating holding gains/losses on stocks is not easy as it requires the collection of numerous pieces of supplementary accounting information and the use of many assumptions. The information collected must relate both to the nature of the products stocked and the change in prices in the course of the year. Since the information available on the nature of products more often than not relates to sales and purchases rather than to the stocks themselves, it is necessary to base the estimates on models the relevance of which is difficult to verify. But, despite its imprecision, this exercise is the price that has to be paid for being able to use the data from business accounting.

• 21.22The valuations of assets at fair value not only provide a better picture of the balance sheet than valuations at historic cost but they also generate more data on holding gains/losses.

Globalisation

• 21.23Globalisation makes the use of business accounts more difficult when businesses have foreign establishments. The activity carried out beyond national borders must be excluded from the accounts in order to use them for national accounts. This exclusion is difficult except in the best case where tax regulations require enterprises to publish accounts for their activity exclusively on national territory. The existence of multi-national groups poses valuation problems, as exchanges between subsidiaries can be made on the basis of prices not observed in the open market, but set to minimise global tax burden. National accountants make adjustments to bring the prices of intra-group transactions into line with market prices. In practice this is extremely difficult, due to the lack of information and the lack of a comparable free market for highly specialised products. Adjustments can only be made in exceptional cases, based on an analysis that is accepted by experts in the area concerned.

• 21.24Globalisation has supported the reintroduction of recording imports and exports on the basis of change of ownership of goods, rather than change of physical location. This renders business accounts more appropriate for national accounts, as business accounts are also based on a change of ownership of goods rather than physical change of location. When an enterprise places processing with an enterprise based outside the national economic territory, business accounts are on the appropriate basis to act as a data source for the national accounts. Whilst this helps, there remain many measurement issues in the estimation of multinational businesses in the national accounts.

Mergers and acquisitions

• 21.25Corporate restructuring causes the appearance and disappearance of financial assets and liabilities. Where a corporation disappears as an independent legal entity because it has been absorbed by one or more corporations, all financial assets/liabilities including shares and other equity that existed between that corporation and those that absorbed it disappear from the system of national accounts. That disappearance is recorded as changes in sector classification, and structure in the other changes in the volume of assets accounts.

• 21.26However, the purchase of shares and other equity of a corporation as part of a merger is recorded as financial transaction between the purchasing corporation and the previous owner. Replacement of existing shares by shares in the takeover or new corporation are recorded as redemptions of shares accompanied by the issue of new shares. Financial assets/liabilities that existed between the absorbed corporation and third parties remain unchanged and pass to the absorbing corporation(s).

• 21.27Where a corporation is legally split up into two or more institutional units, new financial assets and liabilities (appearance of financial assets) are recorded as changes in sector classification and structure.

CHAPTER 22

SATELLITE ACCOUNTS

INTRODUCTION

• 22.01This Chapter provides a general introduction to satellite accounts. It describes and discusses how the central framework can be used as a building-block-system to serve many important specific data needs.

• 22.02Satellite accounts elaborate or modify the tables and accounts in the central framework to serve specific data needs.

• 22.03The central framework consists of the following:

• (a) integrated economic accounts (institutional sector accounts) providing an overview of all economic flows and stocks;

• (b) an input-output framework providing an overview of the supply and use of goods and services in current prices and in volume terms;

• (c) tables linking the industry information in the input-output framework with the institutional sector accounts;

• (d) tables on expenditure by function of government, households and corporations;

• (e) tables on population and employment.

• The accounts and tables can be on an annual or quarterly basis, and be national or regional.

• 22.04Satellite accounts can meet specific data needs by providing more detail, by rearranging concepts from the central framework or by providing supplementary information, such as non-monetary flows and stocks. They may deviate from the central concepts. Changing those concepts can improve the link with economic theory concepts such as welfare or transactions costs, administrative concepts such as taxable income or profits in the business accounts, and policy concepts such as strategic industries, the knowledge economy and business investments used in national or European economic policy. In such cases, the satellite system will contain a table showing the link between its major aggregates and those in the central framework

• 22.05Satellite accounts can range from simple tables to an extended set of accounts. Satellite accounts can be compiled and published on an annual or quarterly basis. For some satellite accounts, production at more extended intervals such as once every five years is appropriate.

• 22.06Satellite accounts can have various characteristics:

• (a) links to functions, as in functional satellite accounts;

• (b) links to industries or products, which is one type of special sector accounts;

• (c) links to institutional sectors, a second type of special sector accounts;

• (d) extension with physical or other non-monetary data;

• (e) extra detail;

• (f) use of supplementary concepts;

• (g) modification of some basic concepts;

• (h) use of modelling or inclusion of experimental results.

• For a specific satellite account, one or more of the characteristics mentioned in points (a) to (h) can apply. This is illustrated in Table 22.1.

Table 22.1 —  Overview of satellite accounts and their major characteristics

	Eight characteristics of satellite accounts	Eight characteristics of satellite accounts	Eight characteristics of satellite accounts	Eight characteristics of satellite accounts	Eight characteristics of satellite accounts	Eight characteristics of satellite accounts	Eight characteristics of satellite accounts	Eight characteristics of satellite accounts	Eight characteristics of satellite accounts
		Special sector accounts	Special sector accounts
	Functional accounts	Links to industries or products	Links to institutional sectors	Inclusion of non-monetary data	Extra detail	Supplementary concepts	Different basic concepts	Experimental results and more use of modelling	Part of EU transmission programme
1. Satellite accounts described in this Chapter	1. Satellite accounts described in this Chapter	1. Satellite accounts described in this Chapter	1. Satellite accounts described in this Chapter	1. Satellite accounts described in this Chapter	1. Satellite accounts described in this Chapter	1. Satellite accounts described in this Chapter	1. Satellite accounts described in this Chapter	1. Satellite accounts described in this Chapter	1. Satellite accounts described in this Chapter
Agricultural		X			X	X			X
Environmental	X	X		X	X	X	X	X	X
Health	X	X		X	X		X		X
Household production			X	X	X		X	X
Labour and SAM		X	X	X	X
Productivity and growth		X		X	X	X	X	X	X
R&D	X	X		X	X		X	X
Social protection	X			X	X				X
Tourism	X	X		X	X	X
2. Satellite accounts described in other chapters	2. Satellite accounts described in other chapters	2. Satellite accounts described in other chapters	2. Satellite accounts described in other chapters	2. Satellite accounts described in other chapters	2. Satellite accounts described in other chapters	2. Satellite accounts described in other chapters	2. Satellite accounts described in other chapters	2. Satellite accounts described in other chapters	2. Satellite accounts described in other chapters
Balance of payments			X		X				X
Government finance			X		X	X			X
Monetary and financial statistics, and flow of funds			X		X	X			X
Supplementary pension table			X		X	X	X	X	X
3. Examples of other satellite accounts with international guidelines, or in the EU data transmission programme	3. Examples of other satellite accounts with international guidelines, or in the EU data transmission programme	3. Examples of other satellite accounts with international guidelines, or in the EU data transmission programme	3. Examples of other satellite accounts with international guidelines, or in the EU data transmission programme	3. Examples of other satellite accounts with international guidelines, or in the EU data transmission programme	3. Examples of other satellite accounts with international guidelines, or in the EU data transmission programme	3. Examples of other satellite accounts with international guidelines, or in the EU data transmission programme	3. Examples of other satellite accounts with international guidelines, or in the EU data transmission programme	3. Examples of other satellite accounts with international guidelines, or in the EU data transmission programme	3. Examples of other satellite accounts with international guidelines, or in the EU data transmission programme
Corporate activity			X		X
Informal sector					X			X
Non-profit institutions			X		X			X
Public sector			X		X
Tax revenue tables			X		X				X

• 22.07In this Chapter, characteristics of satellite accounts will be discussed and the following nine different satellite accounts described briefly:

• (a) agricultural accounts;

• (b) environmental accounts;

• (c) health accounts;

• (d) household production accounts;

• (e) labour accounts and social accounting matrices;

• (f) productivity and growth accounts;

• (g) R&D accounts;

• (h) social protection accounts;

• (i) tourism accounts.

• Other chapters hold descriptions of other satellite accounts such as balance of payments, government finance statistics, monetary and financial statistics and the supplementary pension table.

• In the 2008 SNA, several satellite accounts are described at length which are covered to a limited extent in the ESA 2010. Examples are as follows:

• (a) 2008 SNA Chapter 21 Corporate activity accounts;

• (b) 2008 SNA Chapter 22 Public sector accounts;

• (c) 2008 SNA Chapter 23 Non-profit institutions accounts; and

• (d) 2008 SNA Chapter 25 Informal sector accounts.

• For international comparison of the level and composition of taxes, national tax revenue statistics are reported to the OECD, IMF and Eurostat. The concepts and data are fully linked to those in the national accounts. Tax revenue statistics is an example of a national accounts’ satellite.

• Those examples are of well-established satellite accounts, as they are subject to international guidelines or are already part of an international transmission programme. Satellite accounts developed in various countries illustrate the importance and usefulness of satellite accounts, and examples are:

• (a) cultural and creative sector accounts, illustrating the economic importance of the cultural and creative sectors;

• (b) education accounts, showing the economic importance of the supply, use and financing of education;

• (c) energy accounts, showing the economic importance of the various types of energy and their link to imports, exports and government taxes and subsidies;

• (d) fishery and forestry accounts, showing their economic importance for the nation and regions;

• (e) information and communication technology (ICT) accounts, showing the supply and use of major ICT products and their producers;

• (f) redistribution by public expenditure account, showing which income groups benefit from public expenditure on education, health care, culture and housing;

• (g) residential building accounts, showing the economic importance of residential building for the nation and regions;

• (h) safety-related accounts, showing public and private expenditure on safety;

• (i) sports-related accounts, showing the economic importance of sports;

• (j) water-related accounts, showing the interaction between the physical water system and the economy at national and river basin level.

• 22.08A major group of satellite accounts have a functional approach. The various functional classifications are described in this Chapter.

• 22.09The wide range of satellite accounts illustrates that the national accounts serve as a frame of reference for a variety of statistics. They also illustrate the merits and limitations of the central framework. By applying the concepts, classifications and presentations such as the supply and use tables of the central framework to a wide range of topics, the flexibility and relevance of the satellite accounts approach for these topics is demonstrated. At the same time, additions, rearrangements and conceptual modifications illustrate the limitations of the central framework for the study of these topics. For example, the environmental accounts extend the central framework to take account of environmental externalities and the household production accounts extend the production boundary to include unpaid household services. In this way, they demonstrate that the central framework’s concepts of product, income and consumption are not complete measures of welfare.

• 22.10Major advantages of satellite accounts include the following:

• (a) they are based on a set of clear definitions;

• (b) application of a systematic accounting approach. Examples are the breakdown of one total into various dimensions, such as the supply and use of goods and services by product and by industry; who produces, who pays and who benefits from a service; systematic stock-flow accounting; and consistent accounting in monetary and non-monetary terms. A systematic accounting approach is characterised by consistency and coherence. It also enables bookkeeping analyses based on decomposition, where change in the total is explained in terms of changes in the parts, change in value is explained by changes in volume and price, and changes in stocks are accounted for by the corresponding flows and constant ratios used in input-output analysis. Such bookkeeping analyses can be supplemented with modelling in which economic behaviour is taken into account;

• (c) linkage to basic national accounting concepts. Examples are the concepts of specific stocks and flows like production, compensation of employees, taxes, social benefits and capital formation, the concepts in the classifications by industry and by institutional sector such as the agriculture and manufacturing industries or the government sector, and major balancing items such as value added, domestic product, disposable income and net worth. Such basic national accounting concepts are well-established throughout the world, stable over time and their measurement is relatively immune to political pressure;

• (d) linkage to national accounts statistics; these are readily available, comparable over time, compiled to common international standards, and place the satellite accounts measures in the context of the national economy and its major components, such as the relationship with economic growth and public finance.

Functional classifications

• 22.11Functional classifications classify expenditure by sector, and by the purpose of the expenditure. They illustrate the behaviour of consumers, government, non-profit institutions and producers.

• 22.12The four different functional classifications that exist in the ESA are as follows:

• (a) classification of individual consumption by purpose (Coicop);

• (b) classification of the functions of government (COFOG);

• (c) classification of the purposes of non-profit institutions (COPNI);

• (d) classification of outlays of producers by purpose (COPP).

• 22.13In Coicop, 15 main categories are distinguished:

• (a) food and non-alcoholic beverages;

• (b) alcoholic beverages, tobacco and narcotics;

• (c) clothing and footwear;

• (d) housing, water, electricity, gas and other fuels;

• (e) furnishings, household equipment and routine household maintenance;

• (f) health;

• (g) transport;

• (h) information and communication;

• (i) recreation, sport and culture;

• (j) education services;

• (k) restaurants and accommodation services;

• (l) insurance and financial services;

• (m) personal care, social protection and miscellaneous goods and services;

• (n) individual consumption expenditure of non-profit institutions serving households (NPISHs); and

• (o) individual consumption expenditure of general government.

• The first 13 categories sum up total individual consumption expenditure by households. The last two identify individual consumption expenditure by NPISHs and general government sectors, i.e. their social transfers in kind. Together, all 15 items represent actual final consumption by households.

• 22.14The individual consumption expenditure of NPISHs and general government is broken down into five common sub-categories reflecting major policy issues: housing, health, recreation and culture, education, and social protection. These are also Coicop functions for the individual consumption expenditure by households; social protection is a sub-category of category 13, ‘personal care, social protection and miscellaneous goods and services’. As a consequence, Coicop also shows for each of these five common sub-categories, the role of private households, government and NPISHs. For example, it can describe the role of government in providing housing, health and education.

• 22.15Coicop also serves other major uses such as using the subcategories to show expenditure by households on consumer durables. Household budget surveys frequently use a classification scheme based on Coicop to collect household expenditure information. This can then be allocated to products for a supply and use table.

• 22.16The classification of government expenditure by function (COFOG) is a major tool for describing and analysing government finance. The 10 major divisions distinguished are:

• (a) general public services;

• (b) defence;

• (c) public order and safety;

• (d) economic affairs;

• (e) environmental protection;

• (f) housing and community amenities;

• (g) health;

• (h) recreation, culture and religion;

• (i) education; and

• (j) social protection.

• The classification is used to classify individual and collective consumption expenditure by the government. However, it also serves to illustrate the role of other types of expenditure such as subsidies, investment grants and social benefits, for pursuing policy purposes.

• 22.17For describing and analysing the expenditure of private non-profit institutions serving households, COPNI is used. The nine major categories distinguished are:

• (a) housing;

• (b) health;

• (c) recreation and culture;

• (d) education;

• (e) social protection;

• (f) religion;

• (g) political parties, labour and professional organisations;

• (h) environmental protection; and

• (i) services n.e.c.

• 22.18For describing and analysing the behaviour of producers, COPP can be used. Six main categories are distinguished:

• (a) outlays on infrastructure;

• (b) outlays on research and development;

• (c) outlays on environmental protection;

• (d) outlays on marketing;

• (e) outlays on human resource development;

• (f) outlays on current production programmes, administration and management.

• In combination with information by transaction, COPP can provide information on the ‘outsourcing’ of business services, i.e. the substitution of ancillary activities by purchases of corresponding services from other producers such as cleaning, catering, transport and research.

• 22.19COFOG and COPP show expenditure on environmental protection by the government and producers. This information is used to describe and analyse the interaction between economic growth and environment.

• 22.20Some expenditure, like final consumption expenditure and intermediate consumption, can be classified by function and by product group. The product classification shows which products are involved and gives a description of the different production processes and their links with the supply and use of products. This contrasts with the functional classifications as follows:

• (a) expenditure on different products can serve one function;

• (b) expenditure on one product can serve different functions;

• (c) some expenditure is not transactions in products, but can be very important for a functional classification, e.g. subsidies and social security benefits in cash for the classification of expenditure by general government.

MAJOR CHARACTERISTICS OF SATELLITE ACCOUNTS

Functional satellite accounts

• 22.21Functional satellite accounts focus on describing and analysing the economy for a function, such as environment, health, and research and development. For each function they provide a systematic accounting framework. They do not provide an overview of the national economy, but focus on what is relevant for the function. To that end, they show detail not visible in the aggregated central framework, rearrange information, add information on non-monetary flows and stocks, ignore what is irrelevant for the chosen function and define functional aggregates as the key concepts.

• 22.22The central framework is mainly institutional in nature. A functional satellite account can combine a functional approach with an activity and product analysis. Such a combined approach is useful for many fields, such as culture, sport, education, health, social protection, tourism, environmental protection, research and development (R&D), development aid, transportation, safety and housing. Most of the fields refer to services; they generally cover a number of activities and correspond in many cases to subjects that are related to questions of economic growth or of social concern.

• 22.23A key concept in functional satellite accounts is national expenditure on the function as shown in Table 22.2. This key concept is also useful in defining the coverage of the functional satellite account.

• 22.24To analyse the uses for a function involves asking questions such as ‘How many resources are devoted to education, transportation, tourism, environmental protection, and data processing?’. In order to answer such questions, decisions have to be made with regard to:

• (a) which products are relevant for the field concerned. National expenditure includes all the current uses of, and capital formation in, such products;

• (b) for which activities will capital be recorded;

• (c) which transfers are relevant for this field.

Table 22.2 —  National expenditure on a function or product

	Annual data series
Actual final consumption of the products chosen
Market products
Non-market products
Individual
Collective
Intermediate consumption
Actual
Internal
Gross capital formation
In the chosen products
Other
Chosen current transfers
Chosen capital transfers
Uses of resident units financed by the rest of the world
National expenditure

Table 22.3 —  The supply of characteristic and connected products

	Output by industry	Output by industry	Output by industry	Output by industry				Total	Imports	Total supply at basic prices	Trade and transport margins	Taxes on products	Subsidies on products	Total supply at purchasers’ prices
	Characteristic producers	Characteristic producers	Characteristic producers	Characteristic producers	Other producers	Other producers	Other producers	Total	Imports	Total supply at basic prices	Trade and transport margins	Taxes on products	Subsidies on products	Total supply at purchasers’ prices
	Principal product	Secondary product	Ancillary	Total	Principal	Secondary	Ancillary	Total	Imports	Total supply at basic prices	Trade and transport margins	Taxes on products	Subsidies on products	Total supply at purchasers’ prices
Characteristic products
1.
2.
…
Connected products
1.
2.
…
Other products
Total

Table 22.4 —  The use of characteristic and connected products

	Costs of production by industry	Costs of production by industry	Costs of production by industry	Costs of production by industry				Total	Exports	Final consumption	Final consumption	Final consumption	Total	Gross capital formation	Total use at purchasers’ prices
	Characteristic producers	Characteristic producers	Characteristic producers	Characteristic producers	Other producers	Other producers	Other producers	Total	Exports	Households	Government	NPISH	Total	Gross capital formation	Total use at purchasers’ prices
	Principal product	Secondary product	Ancillary	Total	Principal	Secondary	Ancillary	Total	Exports	Collective Individual	Collective Individual	Collective Individual	Total	Gross capital formation	Total use at purchasers’ prices
Characteristic products
1.
2.
…
Connected products
1.
2.
….
Other products
Total
Compensation of employees
Other net taxes on production
Consumption of fixed capital
Specific products (characteristic or connected)
Other
Operating surplus, net
Total
Supplementary information
Labour inputs
Gross fixed capital formation
Specific products
Other
Fixed capital stock, net
Specific products
Other

• 22.25Depending on the field, the design of a satellite account will emphasise the following:

• (a) the detailed analysis of the production and uses of the specific goods and services, such as R&D, ICT or transport;

• (b) the detailed analysis of transfers, such as for social protection;

• (c) production, uses and transfers equally, such as for education and health;

• (d) uses as such, in areas such as tourism and environmental protection;

• (e) the financing of social protection and health by government and non-profit institutions.

• 22.26Two types of products can be distinguished: characteristic products and connected products. The first category covers the products which are typical for the field under study. For such products, the satellite account can show how the products are produced, what kinds of producers are involved, what kinds of labour and fixed capital they use and the efficiency of the production process. For example, for health, characteristic products are health services, public administration services, education and R&D services in health.

• 22.27Connected products are relevant for a function without being typical, either by nature or because they are classified in broader categories of products. For example, for health, transport of patients is a connected service. Other examples of connected products are pharmaceutical products and other medical goods, like glasses. For such products, the satellite account does not show the features of production. The precise borderline between characteristic and connected products depends on the economic organisation in a country and the purpose of a satellite account.

• 22.28Some services may appear in two or more satellite accounts. For example, research in health services in higher education institutions is a product relevant for satellite accounts on research and development, as well as education and health. This also implies that the national expenditure on various functions may partly overlap; simple aggregation of such expenditures to arrive at a total as a percentage of GDP may involve double-counting.

• 22.29The concepts in the satellite account may deviate from those in the central framework. For example, voluntary work may be included in satellite accounts on education and health. For a satellite account on transport, the ancillary transport services can be shown separately. For a satellite account on development aid, the loans which are given at preferential conditions are accounted for. Benefits or costs resulting from rates of interest lower than the market ones are recorded as implicit transfers.

• 22.30For satellite accounts on social protection and development aid, specific transfers are the most important components of national expenditure. In other fields, such as education and health, the major part of the transfers, most of which are in kind, are a means of financing the acquisition by users. This implies that they are already included in expenditure on final consumption, intermediate consumption and capital formation and should not be recorded twice. However, this does not apply to all the transfers, e.g. student grants may serve to finance various outlays in addition to tuition fees or school books; this residual part should then be recorded as a transfer in the satellite account.

• 22.31The functional satellite account can provide an overview of the users or beneficiaries. The classification of users and beneficiaries can be based on the classification of institutional sectors and types of producers, e.g. market producers, non-market producers, government as a collective consumer, households as consumers and rest of the world. Various sub-categories may be distinguished, e.g. by industry and by institutional subsector.

• 22.32In many satellite accounts, households or individuals are the most important type of users and beneficiaries. In order to be useful for social policy and analysis, a further breakdown of households is necessary. Various criteria may be used according to different purposes, such as income, age, gender, location, etc. For policy and analysis, knowledge of the number of people concerned in each category is needed in order to calculate the average consumption or transfer, or the number of people who do not benefit.

Special sector accounts

• 22.33Special sector accounts provide an overview focused on one industry or product, a regrouping of various industries or products, one subsector or a regrouping of various subsectors. Three types of special sector accounts can be distinguished:

• (a) those linked to industries or products;

• (b) those linked to institutional sectors;

• (c) those combining both approaches.

• Examples of special sector accounts linked to industries or products are agricultural accounts, forestry and fishery accounts, tourism accounts, ICT accounts, energy accounts, transport accounts, residential building accounts and accounts for the creative sector.

• Examples of special sector accounts linked to institutional sectors are government finance statistics, monetary and financial statistics, balance of payments, public sector accounts, accounts for non-profit institutions, household accounts and accounts on corporate activity. Tax revenue statistics can be regarded as supplementary tables to government finance statistics.

• 22.34The special sector accounts can also focus on an integrated analysis of economic activities within one or more institutional sectors. For example, accounts for subsectors of non-financial corporations may be established by grouping according to their principal economic activity. The analysis may cover the full economic process, from production to accumulation. This can be done systematically at a fairly aggregated level of the standard industry classification. It can also be carried out for selected industries of special interest to a country. Similar analyses can be made for household production activities, at least up to the point where entrepreneurial income is calculated. It can also be useful to emphasise activities that play a predominant role in the economy’s external transactions. These key activities may include the petroleum sector, banking, mining activities, activities linked to specific crops, food products and beverages such as coffee, flowers, wine and whiskey, and tourism. They can play a vital role in the national economy, by accounting for an important part of exports, employment, foreign exchange assets and government resources. Key sectors may also include sectors that deserve special attention from the point of view of social economic policy. Examples of this are agricultural activities receiving subsidies and other transfers from central, local or European government, or that are protected by substantial import duties.

• 22.35The first step in drawing up special sector accounts is defining the key activities and their corresponding products. For this, items of the International Standard Industrial Classification (ISIC) or the corresponding national classification may need to be grouped together. The extension of the key sector depends on the economic circumstances and the requirements for policy and analysis.

• 22.36A goods and services account for the key products is established showing the resources and uses of these products. A production account and a generation of income account for the key industries are built up. For the key industries and products, detailed classifications are used for a full understanding of the economic process and the related valuation procedures in this field. There generally exists a combination of market and administered prices, and a complex system of taxes and subsidies.

• 22.37The key products and key industries may be analysed in the context of a supply and use table, as shown in Tables 22.5 and 22.6. Key industries are shown in detail in columns, and other industries may be aggregated. In the rows, key products are similarly shown in detail, and other products aggregated. At the bottom of the use table, rows show labour inputs, gross fixed capital formation and stocks of fixed assets. When the key activity is carried out by very heterogeneous types of producers, such as small farmers and big plantations owned and operated by corporations, the two groups of producers are distinguished, as they have different cost structures and behave differently.

• 22.38A set of accounts is compiled for the key sector. To this end, the key sector has to be delimited. In the case of oil and mining activities, the key sector generally consists of a limited number of big corporations. All transactions of the latter are covered, even when they carry out secondary activities. The distinction between public, foreign controlled and private corporations can also be fundamental when dealing with a key sector. The business accounts themselves have to be carefully studied for each big corporation involved to carry out an integrated analysis. Part of mining activities may be carried out by small corporations or unincorporated enterprises. These units must be included in the key sector, even if it is necessary to rely on partial information coming from statistical surveys or administrative data.

• 22.39In many cases, government plays an important role in connection with key activities, either via taxes and property income receipts, or via regulatory activity and subsidies. Accordingly, the detailed study of transactions between the key sector and general government is important. The classification of transactions may be extended to identify those flows connected with the key activity, including the relevant taxes on products. Such flows are received, in addition to the general budget itself, by various government agencies, such as ministries for special purposes, universities, funds and special accounts. For analysis, it can be very useful to indicate what uses are made by the government of such funds. This calls for an analysis by purpose of this part of government expenditure.

Table 22.5 —  A supply table for key industries and products

	Output by industry	Output by industry	Output by industry	Other producers	Total	Imports	Total supply at basic prices	Trade and transport margins	Taxes on products	Subsidies on products (—)	Total supply at purchasers’ prices
	Key industries	Key industries	Key industries	Other producers	Total	Imports	Total supply at basic prices	Trade and transport margins	Taxes on products	Subsidies on products (—)	Total supply at purchasers’ prices
	1	2 …	Total	Other producers	Total	Imports	Total supply at basic prices	Trade and transport margins	Taxes on products	Subsidies on products (—)	Total supply at purchasers’ prices
Key products
1.
2.
…
Other products
Total

Table 22.6 —  A use table for key industries and products

	Costs of production by industry	Costs of production by industry	Costs of production by industry	Costs of production by industry	Other producers	Total	Exports	Final consumption	Final consumption	Final consumption	Total	Gross capital formation	Total use at purchasers’ prices
	Key industries	Key industries	Key industries	Key industries	Other producers	Total	Exports	Households	Government	NPISH	Total	Gross capital formation	Total use at purchasers’ prices
	1	2	…	Total	Other producers	Total	Exports	Collective Individual	Collective Individual	Collective Individual	Total	Gross capital formation	Total use at purchasers’ prices
Characteristic products
1.
2.
…
Other products
Total
Compensation of employees
Other net taxes on production
Consumption of fixed capital
Operating surplus, net
Total
Supplementary information
Labour inputs
Gross fixed capital formation
Fixed capital stock, net

• 22.40When the key activities are based on natural non-renewable resources such as subsoil resources, the key sector accounts record the changes in these resources through new discoveries and depletion, in the other changes in volume of assets account and holding gains and losses on them in the revaluation account. Those data are crucial for assessing the economic performance of the economy. More broadly, the key sector accounts may be extended to environmental accounting.

• 22.41The key sector accounts can be presented in the framework of integrated economic accounts. A column or group of columns is introduced for key sectors and other columns are renamed where relevant, such as ‘other non-financial corporations’ or ‘other households’. This makes it possible to see the respective shares of the key sector and other sectors in transactions and balancing items. The precise format of such a table depends on the objectives pursued. One more step may consist in showing in additional tables the ‘from-whom-to-whom’ relationship between the key sector and other sectors, including the rest of the world.

Inclusion of non-monetary data

• 22.42A major characteristic of many satellite accounts is the inclusion of non-monetary data, such as data on CO2 emissions by industry in the environmental accounts or number of treatments by type of health care in the health accounts. The linkage of such non-monetary data with monetary data can provide key ratios, such as CO2 emissions per billions of euro of value added or the costs per treatment. Table 22.7 provides a wide range of examples.

Extra detail and supplementary concepts

• 22.43Two other major characteristics of satellite accounts are extra detail and supplementary concepts. A wide range of examples are provided in Tables 22.8 and 22.9.

Table 22.7 —  Examples of non-monetary data in satellites

Satellite	Example of non-monetary data	Ratio of monetary and non-monetary data?
Education accounts	Number of pupils and students	Costs and fees per pupil/student
Education accounts	Number of teacher	Compensation of employees per teacher
Environmental accounts	Tonnes of oil	Price of oil per barrel
Environmental accounts	CO2 emission by industry	CO2 emission by industry per bin euro of value added
Government finance	Employment in government sector	Compensation of employees per employee
Government finance	Number of social benefits	Average social benefit
Health accounts	Number of treatments/patients by type of health care	Costs per treatment/patient
Household production accounts	Time use in household production	Opportunity cost of time use
Labour accounts	Employment (hours worked/fte) by industry	Compensation of employees per hour worked/fte
Labour accounts	Number of jobs
Productivity and growth accounts	Labour input by industry	Labour productivity by industry
R&D accounts	Number of patents granted
R&D accounts	Employment in R&D sector	Compensation of employees per employee
Safety accounts	Number of prisoners	Costs per prisoner
Social protection accounts	Number of social benefits, e.g. pension beneficiaries	Average social benefit by (type of) scheme
Tourism accounts	Number of tourists	Expenditure per tourist

Table 22.8 —  Examples of extra detail in various satellites

Satellite	Extra detail
Agricultural accounts	More detail on the production of various agricultural products
Environmental accounts	Much more detail on the values of the stocks and flows of natural resources
Environmental accounts	More detail on environmental protection expenditure
Health accounts	Detailed breakdown of health care services
Household production accounts	Household production broken down by principal function (e.g. housing, nutrition, care)
Personal income and wealth accounts	Information on the distribution of personal income and wealth
Labour accounts and SAM	Compensation of employees and employment by age, gender and level of education
Social protection accounts	Revenue and expenditure by individual social protection scheme and grouping of schemes
Tax revenue tables	Tax revenue broken down into a much more detailed classification

Table 22.9 —  Examples of supplementary concepts in various satellites

Satellite	Supplementary concepts
Agricultural accounts	Three indicators of agricultural income
Environmental accounts	Environmental taxes
Government finance	Government revenue and expenditure
Informal sector accounts	Informal sector
Productivity and growth accounts	Total factor productivity
Social protection accounts	Total expenditure on old age benefits
Tax revenue tables	Total tax revenues according to various alternative definitions

Different basic concepts

• 22.44The use of different basic concepts is not common in satellite accounts. A relatively minor variation is that for various satellite accounts some services are not treated as ancillary, e.g. for a transport satellite account, transport service is not treated as ancillary. However, for some satellite accounts, major changes in the basic concepts can be required, e.g. in the environmental account domestic product could be adjusted for depletion of natural resources. Examples are provided in Table 22.10.

Use of modelling and inclusion of experimental results

• 22.45Some satellite accounts may be characterised by the inclusion of experimental results or the use of modelling; the figures in the satellite account are less reliable than those in the core accounts. However, compiling the core accounts also involves the use of econometric or mathematical models and the inclusion of experimental results. This is therefore not a fundamental difference between the core accounts framework and satellite accounts. These issues are illustrated by the examples in Table 22.11.

Table 22.10 —  Examples of different bask concepts in satellites

Satellite	Different basic concept
Environmental accounts	Adjustment of Domestic Product for depletion, defensive expenditure by the government and for degradation
Health accounts	Occupational health care is not an ancillary service
Household production accounts	Unpaid household services and volunteer services are inside the production boundary
Extended accounts	Accounts including substantially more extended concepts of production and capital formation (e.g. human capital and consumer durables)
Supplementary pension table	Unfunded defined pension benefits are treated as liabilities and assets
Transport accounts	Transport services are not an ancillary service

Table 22.11 —  Examples of the use of econometric or mathematical models in compiling the central framework and satellites

Central framework	Estimate of the value of financial or non-produced assets as the net present value of expected future revenue and expenditure
Central framework	Correcting household surveys for non-response using regression analysis
Central framework	Estimate of net fixed capital stock and consumption of fixed capital using the perpetual inventory method, expected economic life times and mathematical functions of depreciation
Central framework	Estimate of the value of the services of owner-occupied dwellings using housing stock data, market rents and regression analysis
Central framework	Estimate of seasonal corrections using a mathematical model
Central framework	Estimate of hedonic price changes using a mathematical model
Satellites	Satellites
Environmental accounts	Estimate of the value of depletion and degradation
Household production accounts	Estimate of the value of unpaid household services
Informal sector accounts	Experimental estimates of the value of all kinds of informal activities
Productivity and growth accounts	Estimate of the volume of capital input using age-efficiency functions for each type of asset
Supplementary pension table	Estimate of the pension entitlements using all kinds of actuarial assumptions about demography, discount rate and wage growth
Table with experimental results on treating R&D expenditure as capital formation	Table with experimental results on treating R&D expenditure as capital formation

Designing and compiling satellite accounts

• 22.46Designing and compiling a satellite account consists of four steps:

• (a) defining the purposes, uses and requirements;

• (b) selecting what is relevant from the national accounts;

• (c) selecting relevant supplementary information, e.g. from various specific statistics or administrative data sources;

• (d) combining both sets of concepts and figures into one set of tables and accounts.

• 22.47Designing and compiling satellite accounts for the first time often reveals unexpected results during the four steps. As a consequence, drawing up satellite accounts is a work-in-progress. Only after experience of compiling and using the satellite, and making modifications where necessary, can an experimental set of tables be transformed into a mature statistical product.

• 22.48In selecting what is relevant from the national accounts, three aspects can be distinguished: the international national accounting concepts, the operational concepts used in the national account statistics of a country, and the reliability of the national accounts statistics.

• 22.49In designing and compiling a satellite account, applying the concepts of the central framework for a purpose often reveals features. From the point of view of the purpose, these can be helpful as well as unexpected limitations. For example, in designing and compiling a research and development account for the first time, problems such as the overlap with R&D on software and health care, or the role of multinationals in importing and exporting R&D, may be revealed.

• 22.50A similar process applies to the operational concepts used in compiling national accounts statistics. Essential detail may turn out to be absent due to an excessively aggregate level of compilation or publication, or to the fact that universal concepts may not have been applied strictly. For example, the R&D activities by some major multinationals may be included in the industry of their major activities and not in the industry of R&D services.

• 22.51The reliability of parts of the national accounts statistics may be a problem. The national accounts statistics were compiled and published without the purpose of the satellite account in mind. Simply selecting the relevant figures out of the official national accounts statistics will often reveal that the size, composition or development over time is not plausible for the purpose. As a consequence, current data sources and compilation methods have to be checked and enhanced by additional data sources or improved compilation methods.

• 22.52Selecting relevant information from sources other than the national accounts such as other official statistics or administrative data sources will generate similar problems in terms of concepts and figures: the concepts officially used may reveal unexpected flaws in terms of the specific purpose of the satellite, the actual concepts used may differ from the official concepts and the reliability, detail, timing and frequency may pose problems. All these problems should be tackled, either through making additional estimates to overcome the difference in concepts, by classifying flows in non-monetary terms by industry or sector, or by adjusting the concepts used in the satellite account.

• 22.53Combining the national accounts information and the other information into one set of tables or accounts requires additional work: omissions, overlaps and numerical inconsistencies should be resolved and the plausibility of the results assessed. Preferably a fully balanced set of tables will result. However, it may be necessary to show discrepancies between data sources and alternative approaches.

• 22.54Transforming a consistent satellite account into a product for data users may involve additional steps. An overview table with key indicators for a number of years may be introduced. These key indicators could focus on describing the size, components and developments of the specific issue involved, or may show the links to the national economy and its major components. Extra detail or classifications relevant for political and analytical purposes may be added. Detail with little value added or compiled at relatively high costs may be dropped. Efforts could also focus on reducing the complexity of the tables, increasing simplicity and transparency for data users and including standard book-keeping decompositions in a separate table.

NINE SPECIFIC SATELLITE ACCOUNTS

• 22.55In the remainder of this Chapter, the following satellite accounts are discussed briefly:

• (a) agricultural accounts;

• (b) environmental accounts;

• (c) health accounts;

• (d) household production accounts;

• (e) labour accounts and SAMs;

• (f) productivity and growth accounts;

• (g) R&D accounts;

• (h) social protection accounts;

• (i) tourism satellite accounts.

Agricultural accounts

• 22.56An example of an agricultural account is the economic accounts for agriculture (EAA) ([^E0035]). Its purpose is to describe agricultural production and the development of agricultural income. This information is used for analysing the economic situation of a Member State’s agriculture and for monitoring and evaluating the common agricultural policy in the Union.