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Integration of natural resource wealth in the Canadian National Balance Sheet Accounts - Implementation challenges

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Title: Integration of natural resource wealth in the Canadian National Balance Sheet Accounts - Implementation challenges


1
Integration of natural resource wealth in the
Canadian National Balance Sheet Accounts -
Implementation challenges
  • Note by Canada

2
Natural Resource Wealth
  • Canada has substantial reserves of natural
    resources (NR)
  • - Energy and minerals in the ground
  • - Accessible stands of timber in forests
  • In 2010, natural resource wealththe dollar value
    of selected resource reservesstood at 1.16
    trillion
  • Important in terms of growth ... exports,
    employment and income ? economic accounts

3
Current Partial Integration in CSNA
  • Current treatment of NR in Canadian system of
    national accounts reflects a partial integration
  • Specifically, NR are incorporated into annual
    estimates of national wealth ... At economy-wide
    level on Consolidated National Balance Sheet
  • National wealth covers produced as well as
    non-produced assets - includes NR by major type
  • Two issues ?Frequency of NR develop sectoral
    estimates for National Balance Sheet Accounts

4
International standards' guidance - SNA08
  • SNA08
  • Assets appear on the balance sheet of the unit
    that is the economic owner of the asset (SNA08
    13.3) ? a key principle in the economic accounts
    ... But not always followed in SNA08
  • ... In many cases this unit (the economic owner)
    will also be the legal owner but in the case of a
    financial lease, the leased asset appears on the
    balance sheet of the lessee, while the lessor has
    a financial asset of similar amount and a
    corresponding claim on the lessee (SNA08 13.3) ?
    But is it required to treat NR as a leased
    produced asset ?

5
SNA 2008 (contd)
  • ... On the other hand, when a natural
    resource is the subject of a resource lease, the
    asset continues to appear in the balance sheet of
    the lessor even though most of the economic risks
    and rewards of using the asset in production are
    assumed by the lessee (SNA08 13.3)
  • No SNA08 guidance as to why in this case ... Why
    violate the key economic ownership principle?

6
SNA 2008 (contd)
  • Contracts, leases and licenses may be operating
    leases, licenses to use natural resources,
    permits to undertake specific activities and
    entitlement to future goods and services on an
    exclusive basis ... these sorts of contracts are
    regarded as assets only if the existence of the
    legal agreement confers benefits to the holder in
    excess of the price paid by the lessor, owner of
    the natural resource or permit issuer and the
    holder can realize these benefits legally and
    practically. It is recommended that such assets
    (the natural resource lease, permit or licenses)
    be recorded only when the value of the asset is
    significant and realized, in which case a
    suitable market price necessarily exists. (SNA08
    13.52)
  • NR pass the significance and suitable market
    tests ? resource leases should be recorded ... As
    a non-financial intangible asset, following
    corporate accounting

7
SNA 2008 (contd)
  • ... Because there is no wholly satisfactory way
    in which to show the value of the asset split
    between the legal owner and the extractor, the
    whole of the resource is shown on the balance
    sheet of the legal owner and the payments by the
    extractor shown as rent (SNA08 13.50)
  • Possible interpretation second-best solution
  • An attempt at establishing a one approach fits
    all economies ... Realistic?
  • For CSNA ? implementation issues

8
SNA08 Issues in relation to sectoring natural
resource wealth
  • Inconsistency with economic ownership principle
  • Does not reflect economic reality in Canada and
    in a number of other economies ? no one approach
    applies to all economies
  • Accounting standards for corporations and
    government
  • Does not articulate impact on government accounts
    ... GFS?
  • No clear distinction between value of NR and
    associated resource leases (rights to extract)

9
SEEA031
  • . The draft SEEA (2012) proposes that the value
    of mineral and energy resources is split between
    the two owners based on their share of the future
    stream of resource rent. The share accruing to
    the government should be based on the expected
    stream of payments of rent by the extractor to
    the government
  • SEEA supports the partitioning of NR with options
  • Can the physical assets be partitioned or is
    their an approach that shows claims based on rent
    shares?

1SEEA (2003). Integrated Environmental and
Economic Accounting, Handbook of National
Accounting, United Nations, New York
10
Government Accounting
  • Natural resource stocks are not included in
    government financial statements
  • Not included in IMF GFS manual currently being
    updated
  • Government holds assets in trust for the nation
  • While stocks not necessarily recognized, revenues
    including royalties and resource rights are
    recognized
  • Suggests a corresponding asset

11
Corporate Accounting
  • Usually carried as intangible asset (also some
    out-of-scope depletable assets)
  • Carried at written-down acquisition cost rather
    than market value
  • Can be sold (implies claim on the resources) and
    would be carried at transaction price
  • Substantial revenues and profits (largest share
    of the rent) imply economic ownership
  • Reflected in corporate share values

12
Proposed CSNA treatment
  • Issue of partitioning the physical assets
  • Can physical assets be sectored? NO
  • Issue of assets required to match income stream
  • Assumptions related to future stream of earnings
    and royalties
  • Assumptions related to return to capital
  • Assumptions related to intangible assets (claims
    on the physical stock right to exploit the
    reserve) proportional to their respective shares
    of rent

13
Proposed CSNA treatment, contd
Sectored NR assets ... sectoral net worth,
national wealth
  • INSERT MATRIX HERE

14
Sectoring Methodolgy
  • Draft SEEA 2012 base the governments share of
    natural resource wealth on the NPV of the
    expected stream of government income paid by
    resource extractors to governments (i.e.,
    royalties and special taxes). The amount of
    royalties depends on a number of factors, such as
    resource price, quantity of production and
    government's policies

15
Sectoring Methodology (contd)
  • To arrive at the corresponding corporate sector
    asset, the NPV of the remaining resource rent
    (total resource rent less government royalties
    and special taxes) is allocated to the corporate
    sector as its share of resource wealth

16
Summary
  • Plan to implement sectored natural resources in
    2014 mini historical revision
  • Based on the model described here
  • Would be appreciative of feedback (now or later)
  • Questions or Suggestions?
  • Joe.Wilkinson_at_statcan.gc.ca
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