October 7, 2022

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The Canadian System of Macroeconomic Accounts (CSMA) is a source of invaluable information for businesses, governments and citizens. These accounts provide users with important insights into the inner-workings of the economy, current economic trends and interactions between the various sectors of the economy. In order for these accounts to remain relevant, the underlying concepts, methods, classification systems and data sources need to be periodically updated.
Statistical revisions are carried out regularly in the CSMA to incorporate the most current information available. Generally, these revisions are limited to the months or quarters within a given reference year, or, on an annual basis, to the preceding two to three years.
Periodically, comprehensive revisions are conducted, which generally entail revisions beyond the scope of the standard revision window. These provide an opportunity to enhance estimation methods and incorporate improved data sources and concepts.
This paper highlights the proposed changes to the Financial and Wealth Accounts (FWA), which represent an integrated set of accounts within the larger CSMA. The FWA is comprised of the National Balance Sheet Accounts (NBSA), the Financial Flow Accounts (FFA), and the Other Changes in Assets Account (OCAA).
A primary objective of these revisions is to increase the interpretability and consistency of estimates while better aligning to international guidelines. The desired results are estimates that will better serve the needs of domestic and international users, aid policy-makers in making informed decisions, and allow Canadians to further understand the financial footing on which they rest.
The following sections will enumerate the key revisions, presenting the justification, scope of changes, and other notable details. If you have any feedback related to these proposals, please send us an email at statcan.neadinfodcen-neadinfodcen.statcan@statcan.gc.ca.
The financial assets and liabilities in the National Balance Sheet Accounts have historically been presented at two valuations, market value (MV) and book value (BV). The concept of market value is straight forward, it is equal to the value at which a specific financial asset or liability could be bought or sold in the market at a specific point in time. The concept of book value is less clear in this context. Book values from a general business accounting perspective simply reflect what is recorded on one’s business accounting books and may mean different things for different instruments depending on the valuation method chosen. For example, the book value of debt liabilities are in line with the concept of nominal value. Nominal values are the amount owed by the debtor to the creditor at any point in time, including both accrued interest and the amortization of premiums or discounts. The book value of equity liabilities are akin to the net asset position of the corporation (i.e., assets less liabilities equals equity). The book value on the asset side could be equal to the cost to acquire the financial asset, the market value of the asset, or some other measure similar to nominal values. From a macroeconomic accounting perspective, there is no clear definition on what book-value should represent nor guidance on how it should be measured.
Historically, the entire balance sheet was published on solely a book value basis between 1961 and 1969 after which both book values and market values were provided between 1970 and 2011.Note The current iteration of the national balance sheet (1990 to present) produces all assets and liabilities on a market value basis and certain assets and liabilities on a book value basis. A summary of the valuation of key financial instruments by sector is presented below.
The general governments sector includes five sub-sectors: Federal general government, Provincial and territorial general governments, Local general governments, Aboriginal general governments, and Social security funds.
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Currently, producing book values for financial assets held by general government is difficult in light of the definitional challenges as well as the nature of data sources, which tend to be reported on a market-value basis. Thus, book value estimates are derived using a mixture of indicators including market-to-book value ratios from both the issuer side for debt securities and the asset side of trusteed pension funds. For the latter, a sample of pension funds provide their acquisition cost and market values for financial assets on a quarterly basis. However, this overall approach produces estimates that are both difficult to interpret and which substitute potentially irrelevant valuation trends from another sector.
Given these challenges, the FWA will stop producing book values on the asset side for all implicated sectors. As seen in Table 2, the largest impact would be to equity and investment fund share assets of provincial and territorial general governments and social security funds.
The Financial and Wealth Accounts (FWA) produces estimates of government debt as well as various ratios of debt to gross domestic product (GDP) for government sectors in the data table “Financial indicators of general government sector, national balance sheet accounts” (38-10-0237-01). In the FWA, net debt is defined as the value of all financial liabilities less all financial assets, both at book-value. As such, the measure can be better termed net financial liabilities as it is a more encompassing measure than net debt. The label for this ratio will be updated to reflect the more accurate terminology and to distinguish it from other net debt measures.
Additionally, the decision to discontinue book-value estimates will have implications for the existing net debt to GDP ratio (to be renamed net financial liabilities). The new comparable indicator would use market values for assets and nominal values (akin to book values) for liabilities. The impact of the change can be seen in Chart 1.
Rather than reflecting a net debt level based on assets that have been re-valued to a book-value concept using approximations, the new ratio will reflect the liabilities that remain after all financial assets have been liquidated at market prices. This definitional change will ensure a better alignment with international guidelines such as the System of National Accounts compilation guide (SNA 2008), which recommends market valuation as the default approach, and improve consistency with other leverage indicators within the FWA, which present other financial ratios using assets on a market-value basis.
Comparison of net financial liabilities-to-GDP ratio using current and revised methodologies
Table 3 summarizes other items currently under active development that may be incorporated in the upcoming release or subsequent releases of the FWA.
CSMA comprehensive revisions normally encompass six types of revisions: conceptual revisions, methodological revisions, classification revisions, statistical revisions, presentational revisions and content revisions.
This was partially the result of the introduction of fair-value accounting, which provided guidance to compilers of financial statements on recording assets and liabilities at a market-value basis (marked-to-market directly via available market prices of through other methods for less liquid items). Additionally, further motivation was provided by the development of methodologies within the FWA to measure certain instruments at market-value such as listed share liabilities, with information readily available from exchanges, and thus record the holdings of these shares at market-value.
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Published by authority of the Minister responsible for Statistics Canada.
© Her Majesty the Queen in Right of Canada as represented by the Minister of Industry, 2022
All rights reserved. Use of this publication is governed by the Statistics Canada Open Licence Agreement.
Catalogue no. 13-605-X
Frequency: Occasional
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