All financial assets (with the exception of monetary gold in the form of gold bullion held as reserve assets) have matching counterpart liabilities, and are discussed together in this chapter to emphasise the counterparty relationship between them. In GFS, transactions record the change in the stock positions of financial assets and liabilities, and form part of the analytical framework (see Diagram 4.1 of this manual).

Transactions that increase a unit’s holdings of a financial asset are called acquisitions, while transactions that decrease a unit’s holdings of a financial asset are called disposals (with the exception of amortisation). Paragraph 9.4 of the IMF GFSM 2014 defines transactions that increase liabilities as the incurrence of liabilities in GFS, and transactions that decrease liabilities as repayments, reductions, withdrawals, redemptions, liquidations, or extinguishments of liabilities.

Paragraph 9.5 of the IMF GFSM 2014 notes that transactions in financial assets and liabilities explain how net lending / net borrowing is financed by means of changes in holdings of financial assets and liabilities, that is, total financing. Paragraph 9.3 of the IMF GFSM 2014 notes the following important types of transactions:

• Transactions involving revenue, expense, the transfer of economic ownership of a good or non-financial asset, or the provision of a service or labour - these almost always entail a counterpart entry in transactions in financial assets and liabilities for means of payment or claims on future means of payment. Even many transactions in kind (such as barter transactions and remuneration in kind), could conceptually lead to counterpart transactions in financial assets and / or liabilities when the timing of the exchange does not coincide. The sale of a good, service, or asset may have as its counterpart a change in currency or transferable deposit.
• New financial claims - these are often created by transactions in which a creditor advances funds to a debtor. The creditor then acquires a financial asset and the debtor incurs a liability.
• Some transactions in financial assets and liabilities are simply exchanges of financial instruments.
• Financial claims terminated by transactions - in some cases, the debtor pays the creditor the funds stipulated by the financial instrument, thereby terminating the claim. In other cases, the debtor buys its own instrument in the market.
• Accrued interest - this is deemed to be reinvested in an additional quantity of the underlying financial instrument by means of a transaction.
• The trading and settlement of financial derivative contracts.

In Australian GFS, the value of an acquisition or disposal of an existing financial asset or liability is its exchange value, which is the current market value. For debt instruments, the market value is conceptually equal to the required future payments of principal and contractual interest discounted at the existing market yield. The use of the current market value as the basis of the valuation of transactions in financial assets and liabilities in GFS is in line with the creditor approach. The creditor approach assumes that  future interest expense is recalculated each time there is a change in the interest rate. An increase in the market interest rate leads to a decrease in the market value of the instrument for the creditor, and a corresponding holding gain for the debtor. If there are no further changes in the interest rate, then the gradual increases in the market value of the instrument over the remaining period will be treated as interest expenses not elsewhere classified (ETF 1279, COFOG-A, SDC). The valuation of financial assets and liabilities (including the current market value and the creditor approach) is further discussed in Chapter 8 Part D of this manual.

The value of transactions in financial assets can sometimes be determined by the value of the counterpart transaction. For example, the initial value of a loan resulting from a financial lease is the current market value of the non-financial asset that is leased. The value of an account payable resulting from the purchase of goods or services is the current market value of the goods acquired or services received.

All service charges, fees, commissions, and similar payments for services provided in carrying out transactions in financial assets and liabilities, and any taxes payable on transactions in financial assets and liabilities are excluded from the value of the transaction in the financial asset or liability. Paragraph 9.8 of the IMF GFSM 2014 indicates that this is because these are expenses and should be recorded as use of goods and services (ETF 1233, COFOG-A, SDC) in GFS.

For Australian GFS purposes, the value of transactions expressed in a foreign currency need to be converted to the domestic currency using the midpoint of the buying and selling exchange rates at the time that the transaction takes place. If a transaction expressed in a foreign currency involves the creation of a financial asset or liability, such as other accounts receivable / payable, and is followed by a second transaction in the same foreign currency that extinguishes the financial asset or liability, then both transactions are valued at the exchange rates effective when each takes place. Any difference in the value of the portion between the two transactions due to changes in the exchange rate is recorded as holding gains and losses on financial assets (ETF 5111, TALC) or holding gains and losses on liabilities (ETF 5113, TALC).

The IMF GFSM 2014 and the 2008 SNA value transactions in debt instruments using the nominal value, under the debtor approach. The nominal value is conceptually equal to the required future payments of principal and interest discounted at the contractual interest rate. The debtor approach assumes that interest payments are fixed in advance, and accrued interest is determined using the original yield-to-maturity which is established at the time of the security issuance. In contrast to the international standards, the ABS considers the current market value (under the creditor approach) as a more accurate measurement of the value of assets and transactions in financial assets and liabilities.

The essential difference between nominal value and the market value is the use of current yield instead of contractual rates as the discount rate applicable. The use of historical (contractual) interest rates under the nominal value to determine current valuation is not supported in Australian macroeconomic statistics. The ABS departs from the international standards and applies the market valuation principle in all circumstances in ABS economic statistics.

Transactions in financial assets and liabilities are recorded when the economic ownership of the asset or liability changes. That is, when the asset is created or liquidated, or when the addition or reduction in the amount of the financial instrument is made. Paragraph 9.13 of the IMF GFSM 2014 indicates that the time of recording of financial assets or liabilities is usually clear when the transaction involves an exchange of existing financial assets, or simultaneous creation or extinction of a financial asset and a liability. In most cases, this will be when a contract is signed, or when money or some other financial asset is paid by the creditor to the debtor or repaid by the debtor to the creditor.

Paragraph 9.14 of the IMF GFSM 2014 further states that the parties to a transaction may sometimes perceive economic ownership to change on different dates because they acquire the documents evidencing the transaction at different times. This variation is usually caused by the process of clearing cheques or e-payment transactions or the length of time these are in transit. The amounts involved may be substantial in the case of transferable deposits and other accounts receivable or payable. If there is disagreement on when a transaction takes between two general government units or a government unit and a public corporation, the date on which the creditor receives the payment is taken to be the date of record because a financial claim exists up to the point that the payment is cleared and the creditor has control of the funds.

When a transaction in a financial asset or liability involves a non-financial component, paragraph 9.15 of the IMF GFSM 2014 recommends that the time of recording is determined by the non-financial component. For example, when a sale of goods or services gives rise to a trade credit, the transaction should be recorded when economic ownership of the goods is transferred, or when the service is provided. When a financial lease is created, the loan implicit in the transaction is recorded when control over the non-financial produced asset changes. A financial lease is defined as a contract under which the lessor (as the legal owner of an asset), conveys all the risks and rewards of ownership of the asset to the lessee. Under this arrangement, the lessor provides an imputed loan which allows the lessee to acquire the risks and the rewards of the asset, but the lessor retains the legal title (ownership) of the asset. The lessor will record a loan (corresponding to the market value of the leased asset) to the lessee on their balance sheet, and the lessee will record both the market value of the leased asset and an equivalent loan liability on their balance sheet when the lease is signed, or economic control of the asset changes hands.

Some transactions, such as the accrual of interest expense, take place continuously in concept. In this case, the transaction in the associated financial asset or liability also takes place continuously in concept, and a summation of these continuous amounts is recorded as transactions for the period or balance at the end of the period.

Consolidation is a method of presenting statistics for a set of units (or entities) as if they constituted a single unit. Paragraph 9.18 of the IMF GFSM 2014 states that a consolidated set of accounts for a unit (or group of units) is produced by an aggregation of all flows and stock positions within an agreed analytical framework, followed by the elimination of all flows and stock positions that represent relationships among the units or entities being consolidated. In other words, a transaction or stock holding of one unit is paired with the corresponding transaction or stock holding recorded for the second unit, and then the paired transactions or stock holdings are eliminated from the aggregates for the group.

Transactions in financial assets are eliminated when the two parties to the transaction are units that are being consolidated. An example shown in paragraph 9.19 of the IMF GFSM 2014 notes that if a local government unit purchases a security issued by the central government, both the acquisition of the financial asset and the incurrence of the liability would disappear in a presentation of statistics for the entire general government sector but not in a presentation of either the central or the local government subsector separately.

A further example of consolidation can be shown when compiling accounts for the public sector as a whole. If a general government unit owns a bond issued by a public financial corporation, then the stocks of the bond held as assets of the general government unit and the counterpart bond liability of the public financial corporation are eliminated from the aggregates for bond assets and liabilities of the public sector. Similarly, interest revenues and interest expenses related to the bond are also eliminated from the relevant public sector aggregates.

In Australian GFS, input data is sourced from the financial accounts of the state and territory treasuries, the Department of Finance, local government units, and universities. This input data is classified to the GFS framework using a variety of input classifications in order to produce the variety of output statements that the ABS publish on a quarterly and annual basis.

Detailed data on transactions in financial assets and liabilities by type of financial asset and liability are used to populate the statement of stocks and flows and the statement of stocks and flows of financial assets by source, for the Commonwealth general government, state and territory general government, and local general government sectors. The statement of stocks and flows and the statement of stocks and flows of financial assets by source are further discussed in Chapter 15 of this manual.

In order to record the requisite level of detail on transactions in financial assets and liabilities (ETF 3) for GFS purposes, a number of classifications must be used, including the:

• Type of asset and liability classification (TALC) - this identifies financial assets and liabilities by type of asset / liability (for further information on the TALC, see paragraphs 4.53 to 4.69, 8.146 to 8.201, and Appendix 1, paragraph A1A.259 to A1A.360).
• Source destination classification (SDC) - the asset SDC identifies the sector in which the asset is held and the liability SDC identifies the sector against which the liability is held. Further information on the SDC can be found in paragraphs 4.47 to 4.52 and Appendix 1, paragraph A1A.4.

The detailed classification of transactions in financial assets and liabilities is shown in Table 10.1 below. This shows a hierarchical classification of transactions in financial assets and liabilities, and the additional classification codes required to populate the GFS statement of stocks and flows and the statement of stocks and flows of financial assets by source for output purposes.

As stated in paragraph 10.3 of this manual, financial assets and liabilities are discussed together in this chapter to emphasise the counterparty relationship between them. As can be seen from Table 10.1, transactions in financial assets and liabilities are classified using the transactions in financial assets and liabilities (ETF 3) classification which provides the broad framework. Transactions in financial assets and liabilities are further classified by the TALC to identify the type of financial asset and liability. An appropriate SDC code must be selected to identify the source or destination of transactions in financial assets and liabilities. The letters and numbers in brackets that appear after each classification category in the below paragraphs signify the GFS classification codes related to each category.

These items record the current market value of the transactions in financial assets and liabilities of public sector units. In GFS, all transactions in financial assets (except for monetary gold in the form of gold bullion held as reserve assets) have counterpart liabilities (see paragraphs 8.156 to 8.158 of Chapter 8 of this manual for further information on monetary gold). In GFS, transactions in financial assets and liabilities are classified as:

• Transactions in currency and deposits (ETF 3111, TALC 41, SDC and ETF 3211, TALC 51, SDC);
• Transactions in securities and related assets / liabilities (ETF 3111, TALC 42, SDC and ETF 3211, TALC 52, SDC);
• Transactions in loans and placements (ETF 3111, TALC 43, SDC and ETF 3211, TALC 53, SDC);
• Transactions in insurance, superannuation and standardised guarantee schemes (ETF 3111, TALC 44, SDC and ETF 3211, TALC 54, SDC); and
• Transactions in other financial assets / liabilities (ETF 3111, TALC 45, SDC and ETF 3211, TALC 55, SDC).

Transactions in currency and deposits (ETF 3111, TALC 41, SDC and ETF 3211, TALC 51, SDC) record the current market value of transactions in cash and types of deposits. In GFS, transactions in currency and deposits are further identified as:

• Transactions in cash and deposits (ETF 3111, TALC 411, SDC and ETF 3211, TALC 511, SDC)
• Transactions in Special Drawing Rights (SDRs) (ETF 3111, TALC 412, SDC 130 and ETF 3211, TALC 512, SDC 130);
• Transactions in monetary gold (bullion) (ETF 3111, TALC 413); and
• Transactions in monetary gold (allocated and unallocated) (ETF 3111, TALC 414, SDC 130, and ETF 3211, TALC 511, SDC 130)

Transactions in cash and deposits (ETF 3111, TALC 411, SDC and ETF 3211, TALC 511, SDC) record the current market value of transactions in cash and deposits as financial assets and liabilities. Paragraph 9.34 of the IMF GFSM 2014 specifies that currency in the form of cash is treated as a liability of the unit that issues the currency. In Australia, currency in the form of cash consists of notes issued by the Reserve Bank of Australia, and coins issued by the Australian Treasurer. When new currency is put into circulation, a transaction is recorded that increases the unit's liability for currency. Usually, the counterpart to the increase in liabilities is an increase in the unit’s financial assets, most likely deposits.

Seigniorage profits (i.e. the difference between the value of currency issued and its costs of production, including the costs of base metals) for the issuer of currency are implicitly included as part of transactions in cash and deposits (ETF 3111, TALC 411, SDC) and are not treated as revenue. Transactions in gold and commemorative coins that do not circulate as legal tender are treated as acquisitions of non-financial assets (change in inventories) (ETF 4111, TALC 21, COFOG-A), or acquisitions of non-financial assets (valuables) (ETF 4111, TALC 22, COFOG-A) rather than currency. The cost of producing new currency is an expense transaction that is unrelated to the value of transactions in cash.

Paragraph 9.35 of the IMF GFSM 2014 notes that transactions in unallocated accounts for precious metals (including gold) are classified as deposits, except for transactions between two monetary authorities (these are central banks, in Australia's case this is the Reserve Bank of Australia) in unallocated gold accounts for reserves purposes. If a monetary authority acquires an unallocated gold account from a non-monetary authority, the transaction is recorded as a transaction in financial assets (cash and deposits) (ETF 3111, TALC 411, SDC) and then reclassified as monetary gold (allocated and unallocated) via an other changes in the volume of financial assets - monetary gold (allocated and unallocated) (ETF 5211, TALC 414) entry in the accounts. Further information on cash and deposits can be found in paragraphs 8.150 to 8.154 of this manual. Further information on other changes in the volume of assets can be found in Chapter 11 of this manual.

Transactions in Special Drawing Rights (SDRs) (ETF 3111, TALC 412, SDC 130 and ETF 3211, TALC 512, SDC 130) record the current market value of transactions in Special Drawing Rights (SDRs) in the form of financial assets (ETF 3111, TALC 412, SDC 130) and liabilities (ETF 3211, TALC 512, SDC 130) held by the Commonwealth Government of Australia. SDRs are international reserve assets created by the International Monetary Fund (IMF) and allocated to its members to supplement reserve assets.

Paragraph 9.31 of the IMF GFSM 2014 states that SDRs are held exclusively by participants of the IMF’s SDR Department and prescribed holders, and are transferable among them. The creation of SDRs (referred to as allocations of SDRs) and the extinction of SDRs (cancellations of SDRs) are recorded as transactions in GFS. Transactions in SDRs take place when a holder exercises its right to obtain foreign exchange (or other reserve assets) from other participants and prescribed holders, and when SDRs are sold, loaned, or used to settle financial obligations.

Paragraph 9.32 of the IMF GFSM 2014 notes that at the time of the SDR allocation, the amounts recorded as SDR allocations (liabilities) and holdings (financial assets) are identical. In Australia's case, holdings of SDRs are held by the Reserve Bank of Australia (RBA) as reserve assets, and allocations of SDRs are held against the Commonwealth Treasury. The RBA (as official holder of SDR assets) is able to exchange some (or all) of its SDR holdings with other official holders for a freely usable currency(ies). Transactions in SDRs (and the resulting stock positions) are recorded at their gross amounts in GFS. Further information on SDRs can be found in paragraph 8.155 of this manual.

Transactions in monetary gold (bullion) (ETF 3111, TALC 413, SDC 130) records the current market value of transactions in gold in the form of bullion that is held as reserve assets. Monetary gold in the form of bullion is a type of financial asset that has no counterpart liability in GFS. Paragraph 7.128 of the IMF GFSM 2014 states that gold bullion takes the form of coins, ingots or bars with a purity of at least 995 parts per 1000. Paragraph 9.28 of the IMF GFSM 2014 indicates that transactions in monetary gold are the exclusive responsibility of monetary authorities, which will normally be the central bank (in Australia's case, this is the Reserve Bank of Australia).

Paragraph 9.29 of the IMF GFSM 2014 notes that transactions in monetary gold held as reserve assets can only take place between two monetary authorities (in Australia's case, this is the Reserve Bank of Australia), or between a monetary authority and an international financial organisation (such as the IMF, or the World Bank). If the monetary authority adds to its holdings of monetary gold by acquiring newly mined gold or existing gold offered on the private market, then the gold so acquired is said to have been monetised. In this case, no transaction in financial assets should be recorded. Instead, the acquisition of the gold should first be recorded as transactions in non-financial assets (net) - valuables (ETF 4114, TALC 221, COFOG-A, SDC), and then reclassified as monetary gold through an other changes in volume of financial assets - monetary gold (bullion) (ETF 5211, TALC 413, SDC 130) entry in the accounts. Further information on monetary gold (bullion) can be found in paragraphs 8.156 to 8.157 of this manual. Other economic flows are further discussed in Chapter 11 of this manual.

Transactions in monetary gold (allocated and unallocated) (ETF 3111, TALC 414, SDC 130 and ETF 3211, TALC 511, SDC 130) records the current market value of transactions in monetary gold in the form of allocated and unallocated gold accounts held as reserve assets. Paragraph 7.127 of the IMF GFSM notes that allocated gold accounts provide ownership of a specific piece of gold. Transactions in unallocated gold accounts represent a claim against the account custodian to deliver gold. For these accounts, the account provider holds title to a reserve base of physical gold and issues claims to account holders denominated in gold. When held as reserve assets, transactions in allocated gold accounts are classified as transactions in financial assets (net) - monetary gold (allocated and unallocated) (ETF 3111, TALC 414, SDC 130) with the counterpart liability recorded as transactions in liabilities (net) (cash and deposits) (ETF 3211, TALC 511, SDC 130). Further information on monetary gold (allocated and unallocated) can be found in paragraph 8.158 of this manual.

Transactions in securities and related assets / liabilities (ETF 3111, TALC 42, SDC and ETF 3211, TALC 52, SDC) record the current market value of transactions in public sector securities and related financial assets and liabilities. In GFS, transactions securities and related assets and liabilities are further identified as:

• Transactions in debt securities (ETF 3111, TALC 421, SDC and ETF 3211, TALC 521, SDC);
• Transactions in financial derivatives (ETF 3111, TALC 422, SDC and ETF 3211, TALC 522, SDC);
• Transactions in employee stock options (ETF 3111, TALC 423, SDC and ETF 3211, TALC 523, SDC);
• Transactions in equity including contributed capital (ETF 3111, TALC 424, SDC and ETF 3211, TALC 524, SDC); and
• Transactions in investment fund shares or units (ETF 3111, TALC 425, SDC and ETF 3211, TALC 525, SDC).

Transactions in debt securities (ETF 3111, TALC 421, SDC and ETF 3211, TALC 521, SDC) record the current market value of transactions in debt securities in the form of financial assets (ETF 3111, TALC 421, SDC) and liabilities (ETF 3211, TALC 521, SDC). In Australian GFS, debt instruments are valued at the current market value using the creditor approach. Transactions in debt securities include transactions in bills, bonds, debentures, negotiable certificates of deposit, asset-backed securities, etc.

If arrears arise and the contract provides for a change in the characteristics of a financial instrument when it goes into arrears, this change is recorded as transactions in debt securities (ETF 3111, TALC 421, SDC and ETF 3211, TALC 521, SDC) in Australian GFS. The treatment applies to situations where the original contract remains, but the terms within it changes (for example, interest rates or repayment periods). Note that the Australian GFS departs from the international standards in this respect. Paragraph 10.84 of the IMF GFSM 2014 recommends that changes in the characteristics of financial instruments when they go into arrears be recorded as reclassifications of financial assets / liabilities through an other change in the volume of assets and liabilities entry in the accounts rather than transactions.

Bonds that are convertible into preference shares are recorded as transactions in debt securities (ETF 3111, TALC 421, SDC and ETF 3211, TALC 521, SDC) in the Australian GFS when the option is exercised. Note that the Australian GFS departs from the international standards in this respect. Paragraph 10.84 of the IMF GFSM 2014 recommends that when the option is exercised, the bonds are reclassified as equity and investment fund shares through an other changes in the volume of assets entry.

In cases where general government units issue negotiable securities that sell in secondary markets, the holders of the security may change during the life of the security. In Australian GFS, this change in the debtor / creditor relationship is recorded as transactions in debt securities (ETF 3111, TALC 421, SDC and ETF 3211, TALC 521, SDC). Note that the Australian GFS departs from the international standards in this respect. Paragraph 10.79 of the IMF GFSM recommends this change in the debtor / creditor relationship be recorded as a reclassification under other changes in the volume of assets and liabilities. Debt securities are further discussed in paragraphs 8.160 to 8.161, and Chapter 13 Part B of this manual.

Transactions in financial derivatives (ETF 3111, TALC 422, SDC and ETF 3211, TALC 522, SDC) record the current market value of transactions in financial derivative assets (ETF 3111, TALC 422, SDC) and financial derivative liabilities (ETF 3211, TALC 522, SDC). Paragraph 9.70 of the IMF GFSM 2014 notes that transactions involving financial derivatives may arise at inception, on secondary markets, with ongoing servicing (such as for margin payments), and at settlement. In Australian GFS, transactions in financial derivatives include transactions in repurchase agreements and gold swaps.

Paragraph 9.70 of the IMF GFSM 2014 further indicates that any commission payable to brokers or other intermediaries for arranging a financial derivatives contract is treated as a payment for a service in GFS. In many cases, however, financial derivatives transactions involve implicit service charges and it is usually not possible to estimate the service element. In such cases, the entire value of the transaction should be treated as transactions in financial derivatives (ETF 3111, TALC 422, SDC and ETF 3211, TALC 522, SDC). Financial derivatives are further discussed in paragraphs 8.162 to 8.164, and Chapter 13 Part B of this manual.

If the amount payable under a derivative remains due for payment after the derivative matures, the amount due no longer represents a derivative because the value is fixed. In Australian GFS, this amount is recorded as transactions in financial derivatives (ETF 3111, TALC 422, SDC and ETF 3211, TALC 522, SDC). Note that the Australian GFS departs from the international standards in this respect. Paragraph 10.84 of the IMF GFSM 2014 recommends that the derivative is reclassified under other accounts receivable or payable through an other changes in the volume of assets entry in the accounts. Financial derivatives are further discussed in Chapter 13 Part B of this manual.

Box 10.1 below contains information on recording transactions in financial derivatives and is based on paragraphs 9.71 to 9.76 of the IMF GFSM 2014:
 

Source: Based on paragraphs 9.71 to 9.76 of the International Monetary Fund Government Finance Statistics Manual, 2014

Transactions in employee stock options (ETF 3111, TALC 423, SDC and ETF 3211, TALC 523, SDC) record the current market value of transactions in employee stock options in the form of financial assets (ETF 3111, TALC 423, SDC) and liabilities (ETF 3211, TALC 523, SDC). As stated in paragraph 8.165 of this manual, employee stock options are defined as options to buy the equity of an entity, that are offered to employees of that entity as a form of remuneration. Paragraph 9.77 of the IMF GFSM 2014 notes that general government units are unlikely to issue stock options. Only entities with issued share capital can create employee stock options, so they may only arise for public corporations in Australian GFS. An employee stock option is created on a given date (known as the grant date), providing that an employee may purchase a given number of shares of the employer’s stock at a stated price (known as the strike price), either at a stated time (known as the vesting date) or within a period of time (known as the exercise period) immediately following the vesting date.

At the grant date, paragraph 9.78 of the IMF GFSM 2014 recommends that transactions in employee stock options (ETF 3211, TALC 523, SDC) be recorded as the corresponding entry to wages and salaries in kind (ETF 1222, COFOG-A, SDC). The value of the employee stock options recorded as compensation of employees should be spread over the period between the grant and vesting dates, if possible. Any change in the value of the employee stock options between the grant and vesting date should be classified as holding gains and losses on financial assets / liabilities (ETF 5111 or ETF 5113, TALC).

When the option is exercised, paragraphs 9.79 and 9.80 of the IMF GFSM 2014 recommend that the transaction in the employee stock option is recorded at a value that reflects the difference between the market price of the equity and the price paid by the buyer for the equity. Any change in the value between vesting date and exercise date is not treated as compensation of employees but as a holding gain or loss. In practice, it is unlikely that estimates of the costs of employee stock options to the employers are revised between the grant date and the exercise date. For pragmatic reasons, therefore, the whole of the increase between grant date and exercise date is treated as a holding gain or loss. Cancellation of employee stock options are recorded as other changes in the volume of assets. Further information on employee stock options can be found in paragraphs 8.165 to 8.168 of this manual. Holding gains and losses and other changes in the volume of assets are further discussed in Chapter 11 of this manual.

Transactions in equity including contributed capital (ETF 3111, TALC 424, SDC and ETF 3211, TALC 524, SDC) record the current market value of transactions in equity (including contributed capital) in the form of financial assets (ETF 3111, TALC 424, SDC) and liabilities (ETF 3211, TALC 524, SDC). Paragraph 9.47 of the IMF GFSM 2014 states that the treatment of transactions in publicly traded shares is generally straightforward, however, problems may be created by the operations of quasi-corporations and public corporations.

Paragraph 9.48 of the IMF GFSM 2014 notes that additions to the funds and other resources of a quasi-corporation (including in-kind transfers of non-financial assets) are treated as acquisitions of equity by the owner of the quasi-corporation. This includes new finance made available for use by the enterprise in purchasing non-financial produced assets, accumulating inventories, acquiring financial assets, or redeeming liabilities. Similarly, receipt by the owner of proceeds from sales of any of the quasi-corporation’s assets, transfers in kind from the quasi-corporation, and withdrawals by the owner of accumulated retained earnings of the quasi-corporation are treated as reductions in equity assets by the owner. Liquidating dividends payable to shareholders when an enterprise becomes bankrupt (or is otherwise wound up) should also be recorded as withdrawal of equity.

For government units, paragraph 9.49 of the IMF GFSM 2014 indicates that regular transfers to corporations or quasi-corporations to cover persistent operating deficits are classified as either subsidies on products (ETF 1252, COFOG-A, SDC) or other subsidies on production (ETF 1253, COFOG-A, SDC), but if payments from government are irregular and are made to cover accumulated losses or exceptional losses due to factors outside the control of the enterprise, then they are treated as a capital transfer under capital transfer expenses not elsewhere classified (ETF 1269, COFOG-A, SDC). If government makes a transfer to a public corporation to finance all (or part) of the costs to finance its acquisition of non-financial assets, this also is recorded as equity unless there is no reasonable expectation of a sufficient rate of return on the investment, in which case the transfer is recorded as capital transfer expenses not elsewhere classified (ETF 1269, COFOG-A, SDC). Regular withdrawals of the income from public corporations or quasi-corporations are property income under, respectively, dividend income (including tax equivalents) (ETF 1132, SDC) or withdrawals of income from quasi-corporations (ETF 1133, SDC). The exception occurs when dividends are disproportionately large relative to the recent level of dividends and earnings (referred to as super dividends). Any dividends declared greatly in excess of the recent level of dividends and earnings should be treated as a transaction of withdrawal of owners’ equity via transactions in financial assets (net) - equity including contributed capital (ETF 3111, TALC 424, SDC or ETF 3211, TALC 524, SDC) from the public corporation. This will be the case for distributions by public corporations to shareholders of proceeds from privatisation receipts and other sales of assets and large and exceptional one-off payments based on accumulated reserves or holding gains.

Government units may acquire equity in a public corporation or quasi-corporation as a result of legislation or an administrative change creating the corporation or quasi-corporation. Paragraph 9.50 of the IMF GFSM 2014 notes that in some cases, this event will amount to a reclassification of existing assets and liabilities, which is recorded as an other economic flow that results in an addition of equity to the government unit’s balance sheet. An advance of funds to create the new enterprise is a transaction reflecting the purchase of equity. Retained earnings of a foreign direct investment enterprise are treated as if they were distributed and remitted to foreign direct investors in proportion to their ownership of the equity of the enterprise and then reinvested by them by means of additions to equity. Further information on equity including contributed capital can be found in paragraphs 8.169 to 8.170 of this manual.

Membership dues and subscription fees payable to international organisations are treated as transactions in equity including contributed capital (ETF 3211, TALC 524, SDC) in cases when there is a possibility (even if unlikely) of repayment of the residual value of the international organisation after the claims of all creditors have been met. If there is an exchange of a payment to an international organisation for some kind of a service, then the payments are treated as use of goods and services (ETF 1233, COFOG-A, SDC). If there is nothing received in return for payments to international organisations, then the payments are treated as a transfer under current grant expenses (ETF 1251, COFOG-A, SDC 929). Paragraph 9.52 of the IMF GFSM 2014 further states that a capital contribution to an international organisation or non-profit institution is treated as capital grant expenses (ETF 1261, COFOG-A, SDC 929) if it does not give rise to equity for the provider of the contribution.

The term 'privatisation' is used to describe the disposal of the controlling equity of a public corporation or quasi-corporation to private owners by a government unit or a public corporation. Paragraph 9.53 of the IMF GFSM 2014 states that such a disposal is treated as a transaction in equity, and the public corporation is reclassified to a private corporation through an entry in other changes in the volume of assets and liabilities. Further information on other changes in the volume of assets and liabilities is found in Chapter 11 of this manual. If a public corporation or quasi-corporation sells some of its assets and provides part or all of the proceeds to its parent government unit, then the provision of the proceeds would also be a disposal of equity of the government unit. Brokers’ commissions and other privatisation costs are treated as expense transactions, just as all other costs of ownership transfer related to the acquisition or disposal of a financial asset. Further information on the costs of ownership transfer can be found in Chapter 8 of this manual.

Paragraph 9.54 of the IMF GFSM 2014 notes that government units also can be privatised. If the assets disposed of as a single transaction constitute a complete institutional unit, the transaction should be classified as a sale of equity. The government is assumed to have converted the unit to a quasi-corporation immediately prior to disposal by means of a reclassification of assets, which should be recorded as an other economic flow. If the assets disposed of do not constitute a complete institutional unit, then the transactions should be classified as a disposal of the individual non-financial and / or financial assets.

The term 'nationalisation' is sometimes used to describe the acquisition of a private corporation or quasi-corporation by a government unit from private owners. Paragraph 9.55 of the IMF GFSM 2014 indicates that such an acquisition is treated as a transaction in equity. In some cases, government units may acquire ownership of a private corporation or quasi-corporation by way of confiscation or appropriation. In these cases, there is no payment to the owners (or compensation may not be commensurate with the current market value of assets seized). This action is not the result of a transaction by mutual agreement, but a unilateral decision taken by government. Therefore, the value of the seized assets are recorded as other changes in the volume of assets (ETF 5211, TALC and / or ETF 5212, TALC). Further information on other changes the volume of assets can be found in Chapter 11 of this manual.

Transactions in investment fund shares or units (ETF 3111, TALC 425, SDC and ETF 3211, TALC 525, SDC) record the current market value of transactions in investment fund shares or units in the form of financial assets (ETF 3111, TALC 425, SDC) and liabilities (ETF 3211, TALC 525, SDC). Paragraph 9.56 of the IMF GFSM 2014 indicates that changes to the value of investment funds due to the issuance or repayment of shares or units are recorded as transactions in GFS. The increase (or decrease) in the value of investment fund shares or units, other than from holding gains and losses, is recorded as distributed to the share or unit holders and reinvested by the holders in the shares or units. This treatment is similar to the treatment of retained earnings of a foreign direct investment enterprise. Gains and losses arising from the value of an asset or fund to reflect its current market value are not recorded as transactions, but as holding gains or losses. Further information on investment fund shares or units can be found in paragraphs 8.171 to 8.172, and Chapter 13 Part B of this manual. Further information on holding gains or losses can be found in Chapter 11 of this manual.

These items record the current market value of transactions in loans and placements. In GFS, transactions in loans and placements are further identified as:

• Transactions in finance leases (ETF 3111, TALC 431, SDC and ETF 3211, TALC 531, SDC);
• Transactions in advances - concessional loans (ETF 3111, TALC 432, SDC and ETF 3211, TALC 532, SDC);
• Transactions in advances other than concessional loans (ETF 3111, TALC 433, SDC and ETF 3211, TALC 533, SDC); and
• Transactions in other loans and placements not elsewhere classified (ETF 3111, TALC 439, SDC and ETF 3211, TALC 539, SDC).

Transactions in finance leases (ETF 3111, TALC 431, SDC and ETF 3211, TALC 531, SDC) record the current market value of transactions in finance lease assets (ETF 3111, TALC 431, SDC) and liabilities (ETF 3211, TALC 531, SDC). Paragraph 9.45 of the IMF GFSM 2014 states that when goods are acquired under a financial lease, a change of economic ownership from the lessor to the lessee is deemed to take place, even though the leased goods legally remain the property of the lessor. This change in economic ownership is financed by a loan transaction where the lessor and lessee record a loan equal to the market value of the asset, with the loan being gradually paid off over the period of the lease. Instalments consist of payments against the outstanding value of the loan. Interest accrued on the loan is classified as interest income (ETF 1131, SDC) or interest expenses not elsewhere classified (ETF 1279, SDC). Further information on finance leases can be found in paragraph 8.174, and Chapter 13 Part H of this manual.

Transactions in advances - concessional loans (ETF 3111, TALC 432, SDC and ETF 3211, TALC 532, SDC) record the value of transactions in advances in the form of concessional loan assets (ETF 3111, TALC 432, SDC) and liabilities (ETF 3211, TALC 532, SDC). Concessional loans are defined as loans which occur when public sector units lend to others and the contractual interest rate is intentionally set below the market interest rate that would otherwise apply. Public sector units can also be debtors in a concessional lending arrangement if they are in receipt of advances in the form of concessional loans from another level of government, a foreign government or an international organisation. Further information on concessional loans can be found in paragraphs 8.175 to 8.176, and Chapter 13 Part B of this manual.

Transactions in advances other than concessional loans (ETF 3111, TALC 433, SDC and ETF 3211, TALC 533, SDC) record the value of advances (other than concessional loans) in the form of financial assets (ETF 3111, TALC 433, SDC) and liabilities (ETF 3211, TALC 533, SDC). Further information on advances other than concessional loans can be found in paragraphs 8.177 to 8.179, and Chapter 13 Part B of this manual. While the international standards treat transactions in repurchase agreements and gold swaps as loans, Australian GFS treats these as transactions in financial derivatives (ETF 3111, TALC 422, SDC and ETF 3211, TALC 522, SDC). Further information on transactions in financial derivatives can be found in paragraphs 10.40 to 10.43 of this manual.

Transactions in other loans and placements not elsewhere classified (ETF 3111, TALC 439, SDC and ETF 3211, TALC 539, SDC) record the current market value of transactions in other loans and placements in the form of financial assets (ETF 3111, TALC 439, SDC) and liabilities (ETF 3211, TALC 539, SDC) that are not elsewhere classified. This item records the value of loans and placements other than those associated with finance leases (ETF 3111, TALC 431, SDC and ETF 3211, TALC 531, SDC); advances - concessional loans (ETF 3111, TALC 432, SDC and ETF 3211, TALC 532, SDC); and advances other than concessional loans (ETF 3111, TALC 433, SDC and ETF 3211, TALC 533, SDC). Further information on other loans and placements can be found in paragraphs 8.180 to 8.182 of this manual.

Transactions in insurance, superannuation and standardised guarantee schemes (ETF 3111, TALC 44, SDC and ETF 3211, TALC 54, SDC) record the current market value of transactions in financial assets and liabilities held in connection to public sector operated insurance, superannuation, and standardised guarantee schemes. In GFS, transactions in insurance, superannuation, and standardised guarantee schemes are further classified as:

• Transactions in non-life insurance technical reserves (ETF 3111, TALC 441, SDC and ETF 3211, TALC 541, SDC);
• Transactions in life insurance and annuities entitlements (ETF 3111, TALC 442, SDC and ETF 3211, TALC 542, SDC);
• Transactions in provisions for defined benefit superannuation (ETF 3111, TALC 443, SDC and ETF 3211, TALC 543, SDC);
• Transactions in claims of superannuation funds on superannuation managers (ETF 3111, TALC 444, SDC and ETF 3211, TALC 544, SDC); and
• Transactions in provisions for calls under standardised guarantee schemes (ETF 3111, TALC 445, SDC and ETF 3211, TALC 545, SDC).

Transactions in non-life insurance technical reserves (ETF 3111, TALC 441, SDC and ETF 3211, TALC 541, SDC) record the current market value of transactions in non-life insurance technical reserve financial assets (ETF 3111, TALC 441, SDC) and liabilities (ETF 3211, TALC 541, SDC). Paragraph 9.58 of the IMF GFSM 2014 indicates that in general, non-life insurance premiums are paid in advance of the period covered by the policy. On an accrual basis, all such prepaid premiums are transactions that increase the insurance unit’s liability and the policyholder’s asset for insurance technical reserves. As the period covered by the premium progresses, the insurance unit continuously earns the premium, which requires a transaction to decrease its liability and the policyholder’s asset for non-life insurance technical reserves.

Paragraph 9.59 of the IMF GFSM 2014 further indicates that when events occur that give rise to a valid claim, a transaction is recorded that increases reserves against outstanding claims as a liability of the insurance unit and an asset of the beneficiaries. If the payment of the claim is delayed for a substantial length of time or consists of periodic payments over several reporting periods, the value of the transaction corresponds to the present value of the expected payments.

Paragraph 9.60 of the IMF GFSM 2014 states that the change in unearned premiums and reserves against outstanding claims is shown as a transaction in liabilities of the insurer and a transaction in assets of the policyholders. Revenue is discussed in Chapter 6 of this manual, and expenses are discussed in Chapter 7 of this manual. Further information on non-life insurance technical reserves can be found in paragraphs 8.184 to 8.185 of this manual.

Transactions in life insurance and annuities entitlements (ETF 3111, TALC 442, SDC and ETF 3211, TALC 542, SDC) record the current market value of transactions in life insurance and annuities entitlements in the form of financial assets (ETF 3111, TALC 442, SDC) and liabilities (ETF 3211, TALC 542, SDC). Paragraph 9.62 of the IMF GFSM 2014 notes that it is unlikely for general government units to incur liabilities or hold assets with respect to life insurance and annuities, unless they provide such schemes to their employees. Changes in life insurance and annuities entitlements are transactions in liabilities for the insurer and transactions in financial assets for the policyholders. In the case of annuities, the transactions constitute a stream of ongoing payments, rather than a lump sum that reduces the liability. Further information on life insurance and annuities entitlements can be found in paragraphs 8.186 to 8.187 of this manual.

Transactions in provisions for defined benefit superannuation (ETF 3111, TALC 443, SDC and ETF 3211, TALC 543, SDC) record the current market value of transactions in provisions for defined benefit superannuation financial assets (ETF 3111, TALC 443, SDC) and liabilities (ETF 3211, TALC 543, SDC). Note that in Australian GFS, only the net liability position for provisions for defined benefit superannuation is shown. The asset position of provisions for defined benefit superannuation is currently recorded for conceptual completeness in alignment with the international standards and will report a zero balance and zero transactions.

Paragraph 9.64 of the IMF GFSM 2014 states that for a defined benefit scheme, contributions receivable from employees; employers; or other institutional units on behalf of individuals or households with claims on the public sector unit operating the defined benefit superannuation scheme for future pension benefits, will increase the unit’s liability for pension entitlements. The increase in the existing liability is recorded as transactions in provisions for defined benefit superannuation (ETF 3211, TALC 543, SDC) with the corresponding entry being an expense in the form of imputed employers' contributions - defined benefit superannuation (ETF 1213, COFOG-A, SDC). Payments to retired persons or their dependents and survivors in the form of periodic payments or lump sums reduce the liability through transactions in provisions for defined benefit superannuation (ETF 3211, TALC 543, SDC), with a decrease in cash and deposits (ETF 3211, TALC 511, SDC) as the counterpart entry. On a cash basis, the benefits paid should be recorded as an expense in the form of cash paid for employee superannuation - defined benefit scheme (ETF 2122, SDC).

Paragraph 9.66 of the IMF GFSM 2014 notes that on occasion, large one-off transactions (lump sums) may occur between a government and another institutional unit, often a public corporation, linked to superannuation reforms or to privatisations of public corporations. The goal may be to make the public corporation competitive and financially more attractive by removing existing superannuation liabilities from the balance sheet of the corporation. This goal is achieved by government assuming the liability in question in exchange for an asset or assets from the public corporation. If the value of the assets receivable is equal to the value of the liability assumed, the transaction is recorded as an exchange of assets and liabilities. However, the value of the asset(s) may not be the same value as the liability:

• If the value of the asset(s) receivable is less than the value of the liability incurred, an expense in the form of a capital grant expense (ETF 1261, COFOG-A, SDC) from government to the public corporation should be recorded for the difference. The assumer (government) records an increase in liabilities for superannuation entitlements, an increase in the relevant financial and / or non-financial assets, and an expense in the form of capital transfer to the public corporation. The public corporation records a decrease in liabilities for superannuation entitlements in the form of transactions in liabilities (net) - provisions for defined benefit superannuation (ETF 3211, TALC 543, SDC), a decrease in financial and / or non-financial assets as provisions for defined benefit schemes (ETF 8543, SDC or ETF 8543, SDC), and revenue in the form of a capital transfer from government as revenue from capital grants (ETF 1151, SDC).
• If the value of the asset(s) receivable is more than the value of the liability incurred, a capital transfer from the public corporation to the government is recorded for the difference as capital grant expenses (ETF 1261, COFOG-A, SDC). The public corporation records a decrease in liabilities for superannuation entitlements as transactions in liabilities (net) - provisions for defined benefit superannuation (ETF 3211, TALC 543, SDC), a decrease in financial and / or non-financial assets as provisions for defined benefit schemes (ETF 8543, SDC) or (ETF 8543, SDC), and an expense in the form of a capital transfer to government as capital grant expenses (ETF 1261, COFOG-A, SDC).

Changes in superannuation entitlements constitute an expense transaction if the change is made by mutual agreement between the policyholder and the operator of the scheme. Expenses are further discussed in Chapter 7 of this manual. If changes to superannuation entitlements occur unilaterally (such as a change in actuarial assumptions), then this constitutes an other change in the volume of assets and liabilities. Other changes in the volume of assets and liabilities are further discussed in Chapter 11 of this manual. If the changes in superannuation entitlements is a result of a change to the discount rate, then this constitutes a holding gain or loss. Further information on provisions for defined benefit superannuation can be found in paragraphs 8.188 to 8.190 of this manual. Holding gains and losses are further discussed in Chapter 11 of this manual.

Transactions in claims of superannuation funds on superannuation managers (ETF 3111, TALC 444, SDC and ETF 3211, TALC 544, SDC) record the current market value of transactions in claims of public sector operated superannuation funds on superannuation managers in the form of financial assets (ETF 3111, TALC 444, SDC) and liabilities (ETF 3211, TALC 544, SDC). Paragraph 9.68 of the IMF GFSM 2014 indicates that an employer may contract with a third party to administer a superannuation fund for its employees (known as a non-autonomous superannuation scheme). When the funding of a deficit of the superannuation fund is the responsibility of the employer or other sponsor (superannuation manager), then a claim of the superannuation fund on the manager accrues. Similarly, if the employer or sponsor (superannuation manager) has a right to claim surpluses of the superannuation fund, then a claim of the manager to the superannuation fund may accrue. Further information on claims of superannuation fund on superannuation managers can be found in paragraph 8.191 of this manual.

Transactions in provisions for calls under standardised guarantee schemes (ETF 3111, TALC 445, SDC and ETF 3211, TALC 545, SDC) record the current market value of transactions in provisions for calls under standardised guarantee schemes operated by public sector units in the form of financial assets (ETF 3111, TALC 445, SDC) and liabilities (ETF 3211, TALC 545, SDC). When operating standardised guarantee schemes (such as student loan guarantee schemes, deposit guarantee schemes, and export credit guarantee schemes), units record transactions in provisions for calls under standardised guarantee schemes (ETF 3211, TALC 545, SDC) for liabilities comprised of:

• Prepayments of net fees: fees prepaid in the reporting period less previously prepaid fees earned for the reporting period; and
• Provisions for outstanding calls: expected calls less any expected asset recoveries on the standardised guarantees provided in the recording period less any calls settled in the recording period.

Further information on provisions for calls under standardised guarantee schemes may be found in paragraphs 8.192 to 8.193 of this manual.

Transactions in other financial assets (ETF 3111, TALC 45, SDC) and other liabilities (ETF 3211, TALC 55, SDC) record the current market value of transactions in other financial assets and other liabilities held by public sector units. In GFS, transactions in other financial assets / other liabilities are further classified as:

• Transactions in provisions for employee entitlements other than superannuation (ETF 3111, TALC 451, SDC and ETF 3211, TALC 551, SDC);
• Transactions in accounts receivable / Accounts payable (ETF 3111, TALC 452, SDC and ETF 3211, TALC 552, SDC); and
• Transactions in other financial assets / Other liabilities (ETF 3111, TALC 459, SDC and ETF 3211, TALC 559, SDC).

Transactions in provisions for employee entitlements other than superannuation (ETF 3111, TALC 451, SDC and ETF 3211, TALC 551, SDC) record the current market value of transactions in provisions for employee entitlements other than superannuation in the form of assets (ETF 3111, TALC 451, SDC) and liabilities (ETF 3211, TALC 551, SDC). These consist of transactions in employment provisions such as sick leave paid to employees on resignation or retirement; recreation leave; long service leave; and workers’ compensation (where benefits are paid by an employer and not a separate insurer). Note that in Australian GFS, only the net liability position for transactions in provisions for employee entitlements other than superannuation (ETF 3211, TALC 551, SDC) is shown. The asset position of transactions in provisions for employee entitlements other than superannuation (ETF 3111, TALC 451, SDC) is recorded for conceptual completeness in alignment with the international standards and will report a zero balance and zero transactions. Further information on provisions for employee entitlements other than superannuation can be found in paragraphs 8.195 to 8.197 of this manual.

Transactions in accounts receivable (ETF 3111, TALC 452, SDC) and accounts payable (ETF 3211, TALC 552, SDC) record the current market value of transactions in accounts receivable (ETF 3111, TALC 452, SDC) and accounts payable (ETF 3211, TALC 552, SDC). Paragraphs 9.82 and 9.83 of the IMF GFSM 2014 note that these types of transactions consist of items such as trade credits and advances, and miscellaneous other items due to be paid or received. Transactions in trade credits occur when credit is extended directly to purchasers of goods and services including amounts paid in advance of work being performed, or for prepayments of goods and services. Transactions in accounts receivable / accounts payable may also occur with respect to the assumption of debt by public sector units, accrued but unpaid taxes, dividends, purchases and sales of securities, rent, accrued wages and salaries, social contributions, social benefits, and similar transactions. Prepayments of taxes are also included in these categories. However, accrued but unpaid interest should be added to the underlying asset rather than included in this category. Further information on accounts receivable and accounts payable can be found in paragraphs 8.198 to 8.200 of this manual.

Transactions in other financial assets (ETF 3111, TALC 459, SDC) and other liabilities (ETF 3211, TALC 559, SDC) record the current market value of transactions in other financial assets (ETF 3111, TALC 459, SDC) and liabilities (ETF 3211, TALC 559, SDC) other than those classified under provisions for employee entitlements other than superannuation (ETF 3111, TALC 451, SDC and ETF 3211, TALC 551, SDC), accounts receivable (ETF 3111, TALC 452, SDC); and accounts payable (ETF 3211, TALC 552, SDC). Further information on other financial assets (and other liabilities) not elsewhere classified can be found in paragraph 8.201 of this manual.