OVERVIEW OF THE INTERNATIONAL ACCOUNTS

International accounts cover the closely related and integrated balance of payments and international investment position statistics. Diagram 31.1 presents the broad structure and relationship of these statistics.

Australia’s balance of payments provides a statistical statement that systematically summarises the economic transactions between residents of Australia and non-residents (residents of other countries). Residents may be people, businesses or other organisations who have a centre of economic interest in Australia. Economic transactions cover the provision (changes in ownership) of goods, the provision of services, income, financial claims on and liabilities to the rest of the world, and transfers without anything provided in exchange (such as gifts).

Australia’s international investment position is a balance sheet of the stock of foreign financial assets and liabilities of Australian residents. International investment statistics integrate the balance sheet positions at two points in time. They show increases and decreases in the levels of assets and liabilities as a result of transactions (investment flows, including reinvestment of earnings), together with changes that affect either the value of the stock (price, exchange rate) or the volume of the stock (other adjustments) of financial assets and liabilities.

Australia's national and international accounts are compiled in accordance with the conceptual framework described in the 2008 System of National Accounts. The statistical standards for the international accounts are elaborated in the International Monetary Fund’s Balance of Payments and International Investment Position Manual, Sixth Edition (BPM6). The concepts of residency, transactions, valuation and time of recording are common to the national accounts, balance of payments and international investment position statistics.

Australia’s international accounts statistics presented in this chapter cover both the balance of payments and the international investment position. The balance of payments accounts systematically present the economic transactions between Australia and the rest of the world, and incorporate four types of economic transactions. The first involves the provision of real resources, that is, transactions in goods, services and primary income. The second involves the provision of financial resources, that is, financial assets and liabilities. The third covers those one-sided transactions of a current nature (described as secondary income or current transfers) that are offsets to transactions in current real or financial resources undertaken without an exchange. Current transfers are not associated with, nor do they finance, fixed assets. For example, famine relief, whether in cash or in kind, has its offset in current transfers. The fourth type is capital transfers that offset transactions undertaken, without exchange, in fixed assets or in their financing. For example, debt forgiveness and the provision of foreign aid funds to build roads are classified as capital transfers.

The first and third of these types of transactions make up the current account, while the second type makes up the financial account. The fourth type (capital transfers), together with a minor item for the acquisition and disposal of non-produced, non-financial assets (such as patents), make up the capital account.

The double-entry accounting system is used for recording balance of payments transactions. Under the conventions of the system, the compiling economy records credit entries for:

• exports of goods, provision of services, provision of the factors of production to another economy and
• financial items reflecting a reduction in the economy’s external assets or an increase in external liabilities.

The compiling economy records debit entries for:

• imports of goods, acquisition of services, use of production factors provided by another economy and
• financial items reflecting an increase in assets or a decrease in liabilities.

In other words, for real or financial assets, a positive figure (credit) indicates a decrease in holdings, and a negative figure (debit) indicates an increase. For liabilities in the form of financial instruments, the rule is reversed, that is, a positive figure indicates an increase and a negative one, a decrease.

Transactions in a double-entry accounting system are reflected in pairs of equal credit and debit entries. For example, an export transaction for which payment is received through the banking system involves a credit entry for providing the good to a non-resident and a debit entry for being provided with foreign exchange assets as payment for the export. Any entries for which there is no quid pro quo are matched by special offsetting entries. Such offsetting entries are made in the categories ‘current transfers’ (of secondary income, when offsetting the provision of current resources such as food for famine relief) and ‘capital transfers’ (of the capital account, when offsetting the provision of capital resources such as development aid to build a new dam).




In principle, the net sum of all credit and debit entries is zero. In practice, some transactions are not measured accurately (errors), while others are not measured at all (omissions). Equality between the sums of the credit and debit entries is then brought about by the inclusion of a ‘net errors and omissions’ item which balances the accounts.

Transactions should be valued in the balance of payments at market prices. However, for practical reasons, transactions are generally valued in the statistics at transaction prices as this basis provides the closest practical approximation to the market price principle.

Transactions recorded in the balance of payments should be recorded at the time of change of ownership. For current account transactions, this occurs when ownership of goods changes, or services are provided. Investment income is recorded on a full accrual basis, that is, when it is earned. Reinvested earnings are calculated for the earnings of the period of account. Secondary income and capital transfers should be recorded when the goods, services, cash, etc., to which they are offsets, change ownership. Those transfers, such as taxes and fines, which are imposed by one party on another, should ideally be recorded at the time of occurrence of the underlying transactions or other flows or events that give rise to the liability to pay. For financial account transactions, the time of recording is at the change of ownership of the financial claims, which by convention is the time at which transactions are entered in the books of the transactors.

In practice, the nature of the available data sources is such that the time of recording of transactions will often differ from the time of change of ownership. Where practical, timing adjustments are made for significant transactions to ensure that they are recorded in the time period in which change of ownership occurs.

As described above, international investment position statistics are the balance sheet of the levels (stock) of Australia’s foreign financial assets and liabilities. While the international investment position statistics form an integral part of Australia’s international accounts (diagram 31.1), they are also useful in their own right, for example, in determining the impact of foreign investment policies and the level of Australia’s foreign assets and liabilities, including foreign debt. They are also useful when analysing the behaviour of financial markets.

As with the balance of payments, market price is the principal method of valuation in international investment position statistics, and financial assets and liabilities are recognised on a change of ownership basis, that is, at the time when the foreign financial asset or liability is acquired, sold, repaid or otherwise disposed of.