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EXPLANATORY NOTES


INTRODUCTION

1 This publication, Australian Industry, 2005-06 (cat. no. 8155.0), presents estimates of the economic and financial performance of Australian industry in 2005-06.

2 The estimates presented have been derived using a combination of directly collected data from the annual Economic Activity Survey (EAS), conducted by the Australian Bureau of Statistics (ABS), and business income tax (BIT) data provided by businesses to the Australian Taxation Office (ATO). To produce estimates at the state and territory level, this combined dataset was then matched to a number of other ABS direct collections to obtain further state/territory dissections. These state and territory estimates, as well as the national ANZSIC class estimates (in Chapter 3), are considered to be experimental, and should be used with care. To assist analysis, please refer to Technical Note 2.

3 Similarly the employment estimates presented are a combination of directly collected data from the EAS, and modelled estimates using wages and salaries information provided as part of the BIT data supplied by businesses to the ATO. These data are also considered to be experimental; please see Appendix 1.

4 From 2006-07 reference year the Economic Activity Survey (EAS) results will be compiled using the 2006 edition of ANZSIC (an updated version of the industry classification) and new methodologies. As a result, a new series of these estimates will commence from 2006-07. When 2006-07 data are released, they will be accompanied by data for 2004-05 and 2005-06 on a comparable basis.

STATISTICAL UNITS USED

5 Statistical units are those entities from which statistics are collected, or about which statistics are compiled. In ABS economic statistics, the statistical unit is generally the business. All businesses in the EAS are recorded on the ABS Business Register (ABSBR).

6 The ABS uses an economic statistics units model on the ABSBR to describe the characteristics of businesses, and the structural relationships between related businesses. Within large and diverse business groups, the units model is used also to define reporting units that can provide data to the ABS at suitable levels of detail.

7 This units model allocates businesses to one of two sub-populations:

• Most businesses and organisations in Australia need to obtain an Australian Business Number (ABN). The vast majority of businesses are simple in structure and are allocated to the population which is maintained by the ATO. These are termed (by the ABS) ABN units.
• The remaining businesses are in the ABS maintained population, and are termed type of activity units, or TAUs.

9 For details about the ABSBR and how ABN units and TAUs contribute to the industry statistics in this publication, see Technical Note 1.

SCOPE AND COVERAGE

10 The businesses that contribute to the statistics in this publication are classified:

• by institutional sector, in accordance with the Standard Institutional Sector Classification of Australia (SISCA), which is detailed in Standard Economic Sector Classifications of Australia (SESCA) (cat. no. 1218.0)
• by industry, in accordance with the Australian and New Zealand Standard Industrial Classification (ANZSIC), 1993 edition (cat. no. 1292.0).

• in most industries, entities classified to SISCA Sector 3 General government. This exclusion particularly affects data presented for Education and Health and community services (ANZSIC Divisions N and O, respectively), in that the estimates relate only to private sector businesses. For the same reason, data for ANZSIC Division M Government administration and defence are also excluded. However, SISCA Sector 3 General government businesses classified to Water supply, sewerage and drainage services (ANZSIC Subdivision 37, within Division D) are included, so that the estimates include data for (for example) relevant local government TAUs;
• entities classified to ANZSIC Division K Finance and insurance.

13 The ANZSIC-based industry statistics presented in this publication are compiled differently from activity statistics. Each ABN unit or TAU on the ABSBR has been classified (by the ATO and the ABS respectively) to a single industry class irrespective of any diversity of activities undertaken. The industry class allocated is the one which provides the main source of income.

14 Some businesses engage, to a significant extent, in activities which are normally carried out by different industries. For example, a predominantly mining business may also undertake significant amounts of manufacturing. Similarly, a mining business may produce significant volumes of goods which are normally produced in different mining industries. Where a business makes a significant economic contribution to industries classified to different ANZSIC subdivisions, the ABS includes the business in the ABS maintained population, and 'splits' the TAU's reported data between the industries involved. Significance is determined using total income.

15 A TAU's reported data will be split if the inclusion of data relating to the secondary activity in the statistics for the industry of the primary activity distorts (by overstating or understating) either the primary or secondary industry statistics at the ANZSIC subdivision level by:

• 3% or more, where the industries of the primary and secondary activities are in the same ANZSIC division
• 2% or more, where the industries of the primary and secondary activities are in different ANZSIC divisions.

• the availability of such businesses (or units within them) for inclusion in the annual economic collections
• the delineation of the units, within those groups, for which data are to be reported.

SAMPLING

18 A sample of 21,487 businesses was selected for the directly collected part of the 2005-06 EAS collection. Each business was asked to provide data sourced primarily from financial statements, mainly by mail out questionnaires. The survey population (excluding large or otherwise significant businesses) was then matched to ATO BIT files. Key financial data, from these files, representing approximately 2,771,386 businesses were then used to supplement the ABS's directly collected information. For details, see Technical Note 1.

19 State/territory of operation is not taken into account in selecting the EAS sample. As a result, sampling error may be greater for smaller states/territories. To some extent, any increase in sampling error will have been offset by the use of ATO BIT data, which provides an increase in sample size across each state/territory. The sampling error at the state/territory level may become more significant at the ANZSIC division and subdivision levels, depending on the number of businesses that each business in the sample represents in that particular state/territory. For further details, see Technical Note 2.

REFERENCE PERIOD

20 The period covered by each collection is, in general, the 12 months ended 30 June. Where businesses are unable to supply information on this basis, an accounting period for which data can be provided is used for data other than that relating to employment. Such businesses make a substantial contribution to some of the estimates presented in this publication. As a result, the estimates can reflect trading conditions that prevailed in periods outside the twelve months ended June in the relevant year.

21 Although financial data estimates relate to the full twelve months, employment estimates relate to the last pay period ending in June of the given year. As such, estimates of wages and salaries per person employed can be affected by any fluctuations in employment during the reference period.

22 Financial data presented incorporate all units in scope of the EAS collection that were in operation at any time during the year. They also include any temporarily inactive units, i.e. those units which were in the development stage or which were not in operation, but which still existed and held assets and liabilities and/or incurred some non-operating expenses (e.g. depreciation, administration costs).

RELIABILITY OF ESTIMATES

23 For information about this subject, see Technical Note 2.

INDUSTRY PERFORMANCE MEASURES

24 This publication presents a wide range of data that can be used to analyse business and industry performance.

25 Differences in accounting policy and practices across businesses and industries can lead to some inconsistencies in the data input to the statistics. Although much of the accounting process is subject to standards, there is still a great deal of flexibility left to individual managers and accountants in the accounting policies and practices that they adopt. For example, the way profit is measured is affected by management policy about such issues as depreciation rates, bad debt provisions and write off, and goodwill write off. The varying degree to which businesses consolidate their accounts may also affect any industry performance measures calculated.

26 A range of performance measures, usually referred to as ratios, can be produced from the data available from businesses' financial statements. The performance measures presented in this publication comprise:

• profitability ratios, which measure rates of profit on sales
• debt ratios, which indicate the ability of businesses to meet the cost of debt financing
• investment ratios, which indicate the capacity of business to invest in capital assets
• labour measures, which relate output, labour costs and employment.

28 Those ratios compiled from a combination of flow (whole period) and level (beginning or end of period) items need to be treated with additional caution. Ratios which include both level and flow items in their derivation may be volatile due to the timing and other differences involved. In particular, this should be taken into account when considering those measures expressed as values per person employed. For example, working proprietors and partners are included in estimates of employment but their drawings are not included in wages and salaries. This will affect estimates of wages and salaries per person employed for those industries where a substantial proportion of businesses are sole proprietorships or partnerships. It may, therefore, be preferable to base any analysis on a range of data presented rather than focusing on one variable.

29 The above limitations are not meant to imply that analysis based on these data should be avoided, only that they should be borne in mind when interpreting the data presented in this publication.

INDUSTRY VALUE ADDED

30 Industry value added is the measure of the contribution by businesses in each industry to gross domestic product. Table 2.3 presents estimates of the components of industry value added for all industries that are within the scope of the collection.

31 The presentation of industry value added in this table is relevant to those businesses that are classified as 'market' producers, that is, businesses which sell their output at economically significant prices. Industry value added is derived in a different way for non-market producers. The industries in which non-market producers make the most significant contribution to industry value added are Health and community services (private) and Personal and other services. See the Glossary item for detailed definitions.

INTERNATIONAL FINANCIAL REPORTING STANDARDS

32 The new Australian equivalents to International Financial Reporting Standards (AIFRS) began to be progressively implemented in Australia from 1 January 2005. As a result, a number of items in the financial accounts of Australian businesses have been affected by changed definitions, which have in turn affected both Income Statements and Balance Sheets. A range of ABS economic collections source data from financial accounts of businesses, and use those data to derive economic statistics. There have been no changes in the associated economic definitions.

33 After monitoring data items since March quarter 2005 it has been concluded that most affected published data series have been affected by data breaks, but that the magnitude of such breaks cannot be determined without imposing disproportionate load upon data providers to ABS surveys and other administratively collected data. ABS will continue to monitor developments and report any significant identified impacts or changes in methodology as a result of AIFRS.

STATE AND TERRITORY EXPERIMENTAL ESTIMATES

34 For details of the process used to derive state/territory proportions from EAS data, refer to Technical Note 1 paragraphs 21-27.

NEW BUSINESSES

35 Data in this publication have been adjusted to allow for lags in processing new businesses to the ABSBR. The effect of these adjustments is generally 1% or less for most ANZSIC industry divisions and for most states and territories.

EMPLOYMENT DATA

36 This issue includes employment estimates for Australian industries for 2004-05 and 2005-06. For information about how these have been derived, please see Appendix 1.

COUNTS OF OPERATING BUSINESSES

37 The numbers of operating businesses presented in this publication are intended to represent counts of businesses which are operating at 30 June in the relevant year and which satisfy the scope criteria (as set out above) for inclusion in these statistics.

38 They are intended to provide indicative measures of the size of such business populations over time. As such they may differ from the detailed numbers shown in Counts of Australian Businesses, including Entries and Exits, June 2003 to June 2006 (cat. no. 8165.0). The scope of the estimates presented there excludes entities which are not considered to be actively trading in the market sector. The criteria for this exclusion relate to various characteristics of a business: its industry; type of legal organisation (e.g., charitable institutions are excluded); institutional sector (see Scope and Coverage, above); or Business Activity Statement (BAS) remittance history. These criteria do not presently exclude businesses from the Economic Activity Survey, with the result that such businesses contribute to the business counts (and aggregates) presented in Australian Industry but not to those in Counts of Australian Businesses, including Entries and Exits. Most of these are non-employing businesses, and the industries most affected by their exclusion are Construction (ANZSIC Division E), Property and Business Services (Division L), and Personal and Other Services (Division Q).

39 In future, the scope of Counts of Australian Businesses, including Entries and Exits will be adopted for both series and the differences eliminated. To minimise disruption to the series in Australian Industry, this will coincide with the other changes to take effect from 2006-07 (see Explanatory Notes paragraph 4).

ACKNOWLEDGMENT

40 ABS publications draw extensively on information provided freely by individuals, businesses, governments and other organisations. Their continued cooperation is very much appreciated: without it, the wide range of statistics published by the ABS would not be available. Information received by the ABS is treated in strict confidence as required by the Census and Statistics Act 1905.

RELATED PUBLICATIONS

41 Users may also wish to refer to the following publications:

• Australian Labour Market Statistics (cat. no. 6105.0) - Quarterly publication
• Australian National Accounts: National Income, Expenditure and Product (cat. no. 5206.0) - Quarterly publication
• Australian National Accounts: State Accounts, 2005-06 Reissue (cat. no. 5220.0) released on 13 November 2006 - Annual publication
• Business Indicators, Australia (cat. no. 5676.0) - Quarterly publication
• Counts of Australian Businesses, including Entries and Exits, June 2003 to June 2006 (cat. no. 8165.0) released on 26 February 2007 - Irregular publication
• Electricity, Gas, Water and Sewerage Operations, Australia, 2005-06 (cat. no. 8226.0) released on 17 September 2007 - Annual publication
• Job Vacancies, Australia (cat. no. 6354.0) - Quarterly publication
• Labour Price Index (cat. no. 6345.0) - Quarterly publication
• Manufacturing Industry, Australia, 2005-06 (cat. no. 8221.0) to be released on 10 December 2007 - Annual publication
• Mining Operations, Australia, 2005-06 (cat. no. 8415.0) released on 18 October 2007 - Annual publication
• Private New Capital Expenditure and Expected Expenditure, Australia (cat. no. 5625.0) - Quarterly publication
• Research and Experimental Development, Businesses, Australia, 2005-06 (cat. no. 8104.0) released on 21 August 2007 - Annual publication
• Year Book Australia, 2007 (cat. no. 1301.0) released on 24 January 2007 - Annual publication

43 Current publications and other products released by the ABS are available from the Statistics View on the ABS web site. The ABS also issues a daily Release Advice on the web site which details products to be released in the week ahead.

ADDITIONAL DATA

44 Further data about Australian industry, derived from the annual Economic Activity Survey, are available in the spreadsheet released in conjunction with this publication. This spreadsheet now includes data previously released in the following electronic products (which are now discontinued):

• Australian Industry: States, Territories and Australia, Industry Subdivision - Experimental Estimates, Data Report (cat. no. 8155.0.003) and
• Australian Industry: Summary of Industry Performance, Australia, Data Report (cat. no. 8155.0.55.002).

ABS DATA AVAILABLE ON REQUEST

46 As well as the statistics included in this and related publications, the ABS may have other relevant data available on request and for a charge. Inquiries should be made to the National Information and Referral Service on 1300 135 070.

47 Information is also available online via a selection of industry-specific theme pages. To access these theme pages, go to the ABS web site home page <www.abs.gov.au>. Open the Industry link shown under Themes (located in the left-side navigator 'Quick links'), then select one of the links shown under Industry.

ROUNDING

48 Where figures have been rounded, discrepancies may occur between totals and the sums of the component items. Due to data being adjusted for lags in processing new businesses to the ABSBR (see Explanatory Notes paragraph 35), this 'rounding rule' also applies to counts of businesses.

49 Proportions, ratios and other calculated figures shown in this publication have been calculated using unrounded estimates and may be different from, but are more accurate than, calculations based on the rounded estimates.