EXPLANATORY NOTES


INTRODUCTION

1 This publication, Australian Industry, 2006-07 (cat. no. 8155.0), presents estimates of the economic and financial performance of Australian industry in 2006-07. The estimates 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 Activity Statement (BAS) data provided by businesses to the Australian Taxation Office (ATO).

2 This publication represents the first release of these estimates using the 2006 edition of the Australian and New Zealand Standard Industrial Classification (ANZSIC) (cat. no. 1292.0). Because of the combined effect of this new classification and methodological changes, a new series has commenced with the 2006-07 data. See Technical Note 1 for further details.


DATA AVAILABILITY ISSUES

3 As explained in paragraphs 10-19 in Technical Note 1, the collection design for 2006-07 now utilises ATO Business Activity Statement data as auxiliary information to assist in the stratification of the business population and in the estimation methodology, which has been changed to generalised regression estimation. As this collection is in a transition phase, the focus has been to concentrate on a selected subset of the data items traditionally released in this publication. As the new processes and systems are firmly established, the full range of data items, including employment and business counts, are expected to be reinstated in future releases.

4 Experimental estimates at the ANZSIC class level have also traditionally been released in past editions of this publication. With the move away from ATO Business Income Tax data to the more timely ATO Business Activity Statement data for collection design and estimation, the ABS is still developing and validating its new experimental ANZSIC class level series. It is also expected that ANZSIC class level estimates will be reinstated in future releases.

5 The associated data spreadsheets have in the past contained time series at the ANZSIC subdivision level. It was intended to release similar detail for 2006-07, but bridging the effects of the new ANZSIC, collection design and estimation methodology to the earlier data series has been difficult (see paragraph 22 in Technical Note 1), and the data is not considered reliable enough to publish at this time. There may be cases where some ANZSIC subdivision data are available for release, but only if requested by users. Such requests should be made to the contact officer listed on the front page of the publication and will be considered on a case by case basis.


STATISTICAL UNITS USED

6 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).

7 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.

8 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 Together these two sub-populations (of ABN units and TAUs) make up the ABSBR population, from which the EAS samples are taken.

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


SCOPE

11 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), 2006 edition (cat. no. 1292.0).

12 The scope of the EAS estimates in this publication consists of all business entities in the Australian economy, except for:

• in most industries, entities classified to SISCA Sector 3 General government. This exclusion particularly affects data presented for Education and training and Health care and social assistance (ANZSIC Divisions P and Q, respectively), in that the estimates relate only to private sector businesses. For the same reason, data for ANZSIC Division O Public administration and safety are also excluded. However, SISCA Sector 3 General government businesses classified to Water supply, sewerage and drainage services (ANZSIC Subdivision 28, within Division D) are included, so that the estimates include data for (for example) relevant local government TAUs;
• entities classified to ANZSIC Division K Financial and insurance services.

13 Note that government-owned or controlled Public Trading Enterprises are included.


COVERAGE

14 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.

15 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.

16 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.

17 The ABS attempts to maintain a current understanding of the structure of the large, complex and diverse business groups that form the ABS maintained population on the ABSBR, through direct contact with those businesses. Resultant changes in their structures on the ABSBR can affect:

• 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.

18 The ABS attempts to obtain data for those businesses selected for direct collection and which ceased operation during the year, but it is not possible to obtain data for all of them.


IMPROVEMENTS TO COVERAGE

19 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 4% or less for most ANZSIC industry divisions and for most states and territories.


ANZSIC93 AND ANZSIC06

20 The estimates in this publication are based on ANZSIC06. Data in previous issues were based on the 1993 version of the ANZSIC (ANZSIC93). ANZSIC06 was adopted to provide a more contemporary industrial classification system, taking into account issues such as changes in the structure and composition of the economy, changing user demands and compatibility with international classification standards.

21 ANZSIC06 contains 19 industry divisions, compared to 17 under ANZSIC93. The Property and Business Services division in ANZSIC93 has been rearranged into three divisions: Rental, Hiring and Real Estate Services; Professional, Scientific and Technical Services; and Administrative Support Services. Also, several divisions were renamed to better reflect their composition or the terminology in current usage.

22 The number of subdivisions increased from 53 under ANZSIC93 to 86 under ANZSIC06, with substantial increases also occurring at group and class levels.

23 Apart from the changes mentioned above, the restructuring of the ANZSIC has resulted in considerable reclassification of businesses between divisions. For example, units primarily engaged in publishing or the combined activity of publishing and printing classified to Division C Manufacturing under ANZSIC93 are now classified to Division J Information Media and Telecommunications under ANZSIC06. Units mainly engaged in repairing and/or maintaining equipment and machinery previously classified to Division C Manufacturing, are now classifed under the Repair and Maintenance subdivision within Division S Other Services.

24 For further details, see Australian and New Zealand Standard Industrial Classification (ANZSIC), 2006 (cat. no. 1292.0).


HISTORICAL COMPARISONS

25 To provide comparability with the 2006-07 estimates, the estimates for 2004-05 and 2005-06 presented in table 1.1 take into account the various changes in collection design, estimation methodology and scope, as well as the introduction of ANZSIC06. Although systems were primarily designed to produce estimates at industry division level for the key data variables contained in table 1.1, additional information may be available on request. For further information on the process of producing these historical estimates please see Technical Note 1 paragraph 22.


SURVEY SAMPLE DESIGN

26 A sample of 20,781 businesses was selected for the directly collected part of the 2006-07 EAS collection. Each business was asked to provide data sourced primarily from financial statements, mainly by mail out questionnaires. Businesses were also asked to supply key details of their operations by state and territory, enabling the production of the state/territory estimates contained in table 3.1

27 Auxiliary information about wages and salaries and turnover for 2,008,430 businesses (including those sampled), sourced from Australian Tax Office (ATO) Business Activity Statement (BAS) data, were used to improve the estimates produced from the survey data. Section 16(4)(ga) of the Income Tax Assessment Act 1936 provides for the ATO to pass information to the Australian Statistician for the purposes of the Census and Statistics Act 1905.


REFERENCE PERIOD

28 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. 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.

29 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

30 In an estimate based on a sample survey there are two types of error possible: sampling error and non-sampling error.

31 Sampling error occurs because a sample, rather than the entire population, is surveyed. One measure of the likely difference resulting from not including all businesses in the survey is given by the standard error. There are about two chances in three that a sample estimate will differ by less than one standard error from the figure that would have been obtained if all businesses had been included in the survey, and about nineteen chances in twenty that the difference will be less than two standard errors. Standard errors for the current estimates of key variables are shown in Technical Note 2.

32 Non-sampling error arises from inaccuracies in collecting, recording and processing the data. The most significant of these errors are: misreporting of data items; deficiencies in coverage; non-response; and processing errors. Every effort is made to minimise reporting error by the careful design of questionnaires and efficient data processing procedures.

33 For more detailed information about this subject, see Technical Note 2.


QUALITY INDICATORS

34 In the 2006-07 survey of Australian industry, there was a 90.1% response rate from all businesses that were surveyed and found to be operating during the reference period. Data were imputed for the remaining 9.9% of operating businesses. This imputation contributed 7.9% to the estimate of sales and service income for Total selected industries.


INDUSTRY PERFORMANCE MEASURES

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

36 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.

37 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.

38 A further explanation of each ratio can be found in the Glossary.

39 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

40 Industry value added is the measure of the contribution by businesses in each industry to gross domestic product. Table 1.3 presents estimates of the components of industry value added for all industries that are within the scope of the collection.

41 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 care and social assistance (private) and Other services. See the Glossary item for detailed definitions.


INTERNATIONAL FINANCIAL REPORTING STANDARDS

42 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.

43 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.


ROUNDING

44 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 19), this 'rounding rule' also applies to counts of businesses.

45 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.


ACKNOWLEDGMENT

46 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

47 Users may also wish to refer to the following publications:
Electricity, Gas, Water, and Waste Services , Australia, 2006-07, cat. no.8226.0, released on 9 July 2008 - Annual publication
Manufacturing Industry, Australia, 2006-07, cat. no. 8221.0, released on 6 August 2008 - Annual publication
Mining Operations, Australia, 2006-07, cat. no. 8415.0, released on 22 July 2008 - Annual publication

48 A range of publications presenting detailed results of surveys of selected service industries are also produced by the ABS. In general, these publications contain considerable detail about the employing sector of each industry.
Accommodation Services, Australia, 2006-07, cat. no. 8695.0, released on 25 June 2008 - Irregular publication
Cafes, Restaurants and Catering Services, Australia, 2006-07, cat. no. 8655.0, released on 28 April 2008 - Irregular publication
Performing Arts, Australia, 2006-07, cat. no. 8697, released on 28 May 2008, - Irregular publication
Television, Film and Video Production and Post-Production Services, Australia, 2006-07, cat. no. 8679.0, released on 22 July 2008 - Irregular publication
Digital Game Development Services, Australia, 2006-07, cat. no. 8515.0, released on 8 April 2008 - Irregular publication
Information and Communication Technology, Australia, 2006-07, cat. no. 8126.0, released on 7 October 2008 - Biennial publication.

49 For a list of publications and electronic releases that present data about Australian industry using ANZSIC93, please refer to the 2005-06 edition of this publication.

50 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.


ABS DATA AVAILABLE ON REQUEST

51 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.