International accounting standard board changes to treatment of leases Potential impacts to Australian macroeconomic statistics

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1 Organisation for Economic Co-operation and Development COM/SDD/DAF(2018)7 DIRECTORATE FOR FINANCIAL AND ENTERPRISE AFFAIRS STATISTICS AND DATA DIRECTORATE English - Or. English 5 November 2018 Cancels & replaces the same document of 5 November 2018 Working Party on Financial Statistics International accounting standard board changes to treatment of leases Potential impacts to Australian macroeconomic statistics Joint Meeting of the Working Party on Financial Statistics and the Working Party on National Accounts 6-7 November 2018 OECD Conference Centre This paper has been prepared by Tom Lay, National Accounts, Australian Bureau of Statistics (ABS). It outlines the potential impacts to macroeconomic statistics as a result of recent changes to the treatment of Leases in international accounting standards. The paper proposes some options for treatment in the National Accounts and their associated impact to key aggregates. Feedback is sought from the International Statistical Community as to the best way to progress these changes. This paper will be presented at the joint meeting of the Working Party on Financial Statistics and the Party on National Accounts on 6-7 November 2018, under agenda item 5.c. JT This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

2 2 COM/SDD/DAF(2018)7 International accounting standard board changes to treatment of leases Potential impacts to Australian macroeconomic statistics Tom Lay, National Accounts, Australian Bureau of Statistics (ABS) This paper outlines the potential impacts to macroeconomic statistics as a result of recent changes to the treatment of Leases in international accounting standards. The paper proposes some options for treatment in the National Accounts and their associated impact to key aggregates. Feedback is sought from the International Statistical Community as to the best way to progress these changes.

3 COM/SDD/DAF(2018)7 3 Table of contents International accounting standard board changes to treatment of leases Potential impacts to Australian macroeconomic statistics Background International Standards Impacts on reporting in ABS Collections Economic Activity Survey (EAS) Government Finance Statistics (GFS) International Trade/International Investment New Capital Expenditure (Capex) Quarterly Business Indicators Survey (QBIS) Impact on Australian national accounts Increase the intermediate use of leasing services output Reduce the output of leasing services to match the fall in intermediate use Magnitude of Impacts Treatment of income flows Treatment of Right of use asset Backcasting Summary Annex Tables Table 1. Operating lease income (highlighted items indicate potential impact from changes) Table 2. Derived approximate impact to value added ( ) Table 3. Operating lease expenses by division (RLH expense data not available for all years. Data reflects latest available observation) Table 4. Non-resident operating lease services Annex Table 0.1. Current recording of operating leases in the 2008 SNA Annex Table 0.2. Impact of changes to accounting standards (unbalanced SU tables) Annex Table 0.3. Option 1 - Increase the intermediate use of leasing services output (2008 SNA Treatment) Annex Table 0.4. Option 2 Reduce the output of leasing services to match the fall in intermediate use (Accounting Standards treatment)... 17

4 4 COM/SDD/DAF(2018)7 1. Background 1. In January 2016, the International Accounting Standards Board (IASB) issued a revised standard for the accounting of Leases in financial statements. The International Financial Reporting Standard (IFRS) 16 Leases, replaces the previous International Accounting Standard (IAS) 17 and will apply to reporting periods after January This will also be adopted in the Australian Accounting Standards Board (AASB) Under the new accounting standards there will be a significant impact on how operating leases are recorded in the financial statements of businesses and Government. 3. The most significant change to note is where companies that currently have nonfinancial assets under an operating lease, will now be required to bring the value of those assets onto the balance sheet. A Right of Use asset equal to the value of the non-financial asset (less accumulated depreciation) over the lease period will be recognised on the balance sheet of the lessee. While there will be a corresponding Lease Liability equal to the net present value of the future rental payments. 4. An important aspect to note is that under the new accounting standards there is no change to lessor reporting. 5. Given the significance of the changes, the ABS has considered what the best approach is to manage the implementation of the new standards across the suite of macroeconomic statistics. 2. International Standards 6. Currently under the System of National Accounts 2008 (2008 SNA), there is a distinction between assets that are used under operating leases and those under financial leases. 7. Under an operating lease, the legal owner is also the economic owner and accepts the operating risks and receives the economic benefits from the asset by using it in a productive activity. One indicator of an operating lease is that it is the responsibility of the legal owner to provide any necessary repair and maintenance of the asset. Under an operating lease the asset remains on the balance sheet of the lessor. The payments made under an operating lease are referred to as rentals and are recorded as payments for a service. 8. A financial lease is one where the lessor as legal owner of an asset passes the economic ownership to the lessee who then accepts the operating risks and receives the economic benefits from using the asset in a productive activity. In return, the lessor accepts another package of risks and rewards from the lessee. It is frequently the case that the lessor, though the legal owner of the asset, never takes physical delivery of the asset but consents to its delivery directly to the lessee. 9. Under a financial lease, the legal owner is shown as issuing a loan to the lessee with which the lessee acquires the asset. Thereafter the asset is shown on the balance sheet of the lessee and not the lessor; the corresponding loan is shown as an asset of the lessor and a liability of the lessee. Payments under the financial lease are treated not as rentals but as the payment of interest and repayment of principal. If the lessor is a financial institution, part of the payment is also treated as a service charge (FISIM-Financial Intermediation Services Indirectly Measured).

5 COM/SDD/DAF(2018) Table 1 in the appendix outlines a simple example of how operating leases are currently recorded and balanced in the National Accounts. 3. Impacts on reporting in ABS Collections 11. Information on operating and financial leases are currently collected through a range of ABS business surveys and the Government Finance Statistics (GFS) collection framework. These collections are main inputs into the Australian System of National Accounts (ASNA) but also published statistical outputs in their own right. The following section outlines the potential impacts to the main collections Economic Activity Survey (EAS) 12. The EAS is the primary data source for income and expenditure data on Leasing by Australian businesses. 13. On the lessor side of these transactions, all businesses report total leasing income on the EAS, however businesses profiled to ANZSIC ( Australian and New Zealand Standard Industrial Classification) Division L Rental, Hiring and Real Estate are asked to breakdown leasing income by different asset types. These are expected to remain unchanged as a result of the accounting changes. 14. On the lessee side, providers are asked to differentiate expenses related to both types of leasing arrangements. In the standard EAS form, financial lease expenses are reported under interest expenses and depreciation under depreciation and amortisation expense. While operating lease expenses are reported under other operating expenses. Under the new standards the data would show a fall in amounts reported under other operating expenses offset by a rise in interest expenses. Impact in EAS is expected to be the same as for National Accounts i.e. total intermediate use (TIU) is expected to reduce and Industry Value Added (IVA) is expected to increase. 15. In relation to capital expenditure and disposal of assets, the EAS are proposing to test splitting out right to use capital additions to capture the value of the rentals paid on the use of fixed assets leased from other institution units under operating leases as SNA treats this as intermediate consumption and not capital formation. The EAS collects capital expenditure for sub-categories of Land, building and infrastructure, Machinery and equipment and information technology. 16. The current intent is for Australian Industry (ABS cat. No ), which is based on accounting/financial concepts rather than economic, to treat the lease change in the same ways as ASNA to maintain coherency if we are able to isolate the operating lease expenses Government Finance Statistics (GFS) 17. GFS is the primary data source for income and expenditure data on Leasing by the public sector. 18. On the income side, most of the collection detail focuses on taxation and property income. To the extent there is operating lease income earned by general government or public corporations, this is reported in GFS under the Economic Type Framework (ETF) 112 Sales of goods and services. However, this will include income earned from a range of

6 6 COM/SDD/DAF(2018)7 different sources and not just from operating lease. This item will remain unchanged as the accounting standards do not impact the lessor side. 19. Operating lease expenses are reported in ETF 1233 Use of goods and services. As with the income side, this will be grouped with other types of expenses and it is not possible to separately identify an amount for operating leases. Amounts reported under this item would be expected to decrease under the new standards. 20. The interest expenses associated with financial leases are reported in ETF 1279 interest nec. Amounts reported under this item would be expected to increase under the new standards. 21. GFS also collect balance sheet for the public sector. The assets and liabilities are expected to increase due to the inclusion of the right of use asset and subsequent lease liability International Trade/International Investment 22. The Survey of International Trade in Services (SITS) is the main data source for operating leases within the Balance of Payments (BoP) and National Accounts. Businesses engaged in services trade with non-residents are in scope of the SITS and report detailed information on both the earnings and expenses from Sea and Aircraft operating leasing to and from non-residents. All other operating lease expenses are captured under the data item Q47i Other leasing services. Under the new accounting standards there will be a fall in the amounts reported for these items. 23. The Survey of International Investment (SII) is the main data source for financial leases. Financial lease balances are included under Loan assets and liability, along with the accrued interest associated with these balances. Balances related to financial leases are not separately identified. 24. There will be an impact to imports and exports of capital assets if more of these assets are being treated as a financial lease. This should not impact Gross Domestic Product (GDP) overall as the changes net out through Gross Fixed Capital Formation (GFCF) and Net Trade New Capital Expenditure (Capex) 25. The ABS Capex survey provides estimates for new capital expenditure undertaken by private businesses. The survey is one of the key data sources for Private GFCF in the ASNA. Under the new standards, there is a potential to overestimate the value of Capex due to both the lessor and lessee record some value of the asset on their respective balance sheets. More detail from providers is required as it is not clear how the lessee intend to report the Right of Use asset from a capital expenditure perspective Quarterly Business Indicators Survey (QBIS) 26. The QBIS provides quarterly estimates of profits, income from the sale of goods and services, wages and salaries, and the book value of inventories. The operating profit measure is the main data source used to derive quarterly estimates of Gross Operating Surplus for the private non-financial corporations sector. Lessee reporting of profits will potentially increase under the new standards as they will no longer report the lease expenses under operating expenses.

7 COM/SDD/DAF(2018) Impact on Australian national accounts 27. At this stage, there is some uncertainty about how data providers intend to reflect the changes in their financial statements and subsequently within the ABS collections. The ABS is currently liaising with its key providers across both the Private and Government sectors to better understand how they intend to report the changes, and to determine what additional information could be provided to enable modelling of operating lease data. 28. The changes to the accounting treatment for leases will have a significant impact on Macroeconomic Statistics and particularly key aggregates within the ASNA. While the changes are relatively straightforward to record when preparing the financial statements of individual businesses, they result in asymmetric reporting of lease income and expenses. In the absence of any intervention from National Accountants, will lead to unbalanced supply and use (SU) tables and potentially distort key aggregates such as GDP. 29. This imbalance is created due to a fall in the intermediate use of leasing services output without a corresponding fall in output. If no adjustments are made, this has the effect of increasing GDP in unbalanced terms. 30. It is important to note that while the changes lead to an imbalance in the National Accounts, this is not an unusual occurrence. Reporting of data by 2 parties to a transaction (which in theory should equal) often do not match in practice and these can be resolved through the standard National Accounts reconciliation processes (such as SU tables). 31. Table 2 in the appendix demonstrates the nature of the imbalances and the impact on the accounts. 32. In order to correct for the imbalance in GDP, a judgement call must be made as to which side of the reporting to align to in the National Accounts. This leads to 2 options that could be applied to correct the imbalance: 1. Increase the intermediate use of leasing services output. 2. Reduce the output of leasing services to match the fall in intermediate use. 33. To understand the impacts of these changes, these 2 options and their implications through the suite of accounts are outlined below Increase the intermediate use of leasing services output 34. This option effectively restores the 2008 SNA treatment of leases. From a pure statistical and conceptual point of view this is the most preferred option, given the 2008 SNA treatment has not changed. The current treatment aims to reflect the most appropriate economic and legal ownership of the assets, and the underlying economic behaviour being undertaken. 35. This approach could be achieved by simply increasing the total intermediate use of leasing services to match the total output of leasing services produced. In doing so, this treatment implicitly assumes that the lessor is the economic owner of the leased assets. This is possible because the lessor reporting (supply side) is not changing and could act as a control total for making an adjustment to intermediate use. 36. Ideally, providers would continue to report in ABS collections on a 2008 SNA basis. Some changes to survey forms would need to be considered depending on how providers intend to report future leases. For example, we could ask providers to exclude

8 8 COM/SDD/DAF(2018)7 interest expenses associated with Right of use assets and to report these amounts as operating lease expenses. 37. Alternatively an estimate of operating lease expenses could be modelled. The aim here would be to estimate the value that would have been reported had our providers continued to report under the previous accounting standards. This estimate could then be added to the intermediate use to at least restore the starting position that would have prevailed in the absence of any changes. 38. Discussions with key providers are currently underway and this will inform how we might proceed. Some initial feedback so far suggests providers will be able to provide additional details for an interim period but that it will not be possible to produce 2 sets of estimates indefinitely. 39. If this option is implemented there is no statistical impact on the accounts, since the current treatment is effectively maintained going forward. Table 3 in the appendix shows how this option would be implemented to restore balance across the accounts Reduce the output of leasing services to match the fall in intermediate use 40. This option effectively exercises a judgement to align the 2008 SNA to the lessee reporting. This approach also implicitly leads to most leasing arrangements being treated as financial leases. Table 4 in the appendix details the entries in the National Accounts which would arise as a result of implementing this option. Under this approach there are no impact to key aggregates for the total economy, however this option introduces significant compositional changes to industry and sector aggregates. 41. The impacts to the National Accounts are summarised below: Production Account Total output of the economy declines due to the fall in output of leasing services. This would match the fall in the intermediate use of leasing services of other industries, causing the value added of this industry to fall. Overall GDP is unchanged as the fall in value added of the Rental, Hiring and Real Estate Industry is completely offset by a rise in value added of other industries which had previously recorded intermediate use of leasing services. The fall in output would be replaced by a financial income flow. The treatment of this income flow is a key conceptual consideration if this option is enacted and is discussed further in the paper. o Treating this all as property income would lead to a fall in leasing services output as described in Table 3 of the appendix. o If part of this income is considered output (e.g. FISIM or Fee Income) then this will partly offset the fall in leasing services output. However overall GDP will remain unchanged as the intermediate use would increase by the same amount. Income Accounts The impacts to industry value added seen in the production account would be matched by an equivalent change in Gross Operating Surplus/Mixed Income and/or Compensation of Employees. An additional complication arises if the lessor is in

9 COM/SDD/DAF(2018)7 9 the Government sector since its output is measured at the sum of costs, which effectively equates to consumption of fixed capital. Property income received by financial corporations will increase to match the fall in output of leasing services. Consumption of fixed capital of the lessor will fall and will be offset by an increase for the lessee. There is no overall impact to net saving as the changes are simply a re-allocation between the Production and Income accounts. While overall net saving is unchanged, there will be compositional effects due to industry and sector that will arise. Accumulation Accounts/Balance sheets Total GFCF will be unaffected by the change. However any purchases of new and used fixed assets under operating lease would be reflected in the industry or sector of the lessee rather than the lessor, leading to compositional impacts. These changes also flow through to the respective sector balance sheets. Financial assets (lessor) and liabilities (lessee) in the form of loans increases associated with the shift of the fixed assets onto the balance sheet of the lessee. Overall net worth should remain unchanged as the fixed assets simply move from the balance sheet of one sector to another, and the subsequent increase in loan assets is matched by an equivalent increase in liabilities. To ensure these changes do not impact the transaction accounts, these will need to be enacted through an other change in volume. Other impacts to the National Accounts 42. There is a possibility that the changes to the accounting standards may have a real world effect on the behaviour of businesses going forward. Leases that have a term of less than 12 months are exempt from these changes, so it is possible there will be a shift towards short-term leases, particularly where there are tax incentives for these assets to remain offbalance sheet. 5. Magnitude of Impacts 43. The following section attempts to provide an indication of the magnitude of the impacts that might be expected through the macroeconomic accounts based on the above conceptual flows. 44. Table 1 uses information from the EAS sent to businesses classified to the Rental, Hiring and Real Estate Industry. This survey was a flexible (irregular) and asked for additional asset detail for leasing income. This provides an indication of particular assets which might be subject to the new accounting rules and the proportion these make of total Leasing output. This suggests that the vast majority (91.7%) of output would be potentially impacted by the changes.

10 10 COM/SDD/DAF(2018)7 Table 1. Operating lease income (highlighted items indicate potential impact from changes) EAS data item Value ($m) Ratio (Total RLH Income) % Heavy machinery and scaffolding $5, Household and commercial goods $ Motor vehicle and transport Passenger car rental or hire $2, Other motor vehicle rental or hire $ Transport equipment rental or hire $1, Other rent, leasing and hiring $2, Residential property operators $5, Non-residential property operators $61, Total (items subject to AASB16) $76, Total Income from rent, leasing and hiring (RLH) services $83, The ratio of Leasing Income (subject to the new accounting rules) over Total Leasing Income from Table 1 is then applied to Total Value Added from the SU tables in an attempt to quantify the impact on the Production Account. This equates to a fall in the value added of the Rental, Hiring and Real Estate Industry of $48.6b if option 2 is implemented. This equates to 2.8% of Australian GDP in This amount should be considered an upper bound limit and will vary depending on how providers report and any real word behavioural changes that might occur. Table 2. Derived approximate impact to value added ( ) Total Value Added Division L (SU Tables) Value Added from Operating Lease (Derived) $53,054m $48,701m 46. Table 3 shows the main users of operating lease expenses and provides an indication of the main industries that are potentially impacted on the use side. This information is sourced from the EAS, however operating lease expenses are only available for some years and only for certain industries. The ratios obtained from this survey could be used as a basis for enacting option 1 above.

11 COM/SDD/DAF(2018)7 11 Table 3. Operating lease expenses by division (RLH expense data not available for all years. Data reflects latest available observation) ANZSIC Division Rental, leasing and hiring expense ($m) National Account Total Intermediate Use ($m) Ratio (RLH expense/ TIU) % B Mining ( ) $2,858 $103, C Manufacturing ( ) $6,050 $264, F Wholesale trade ( ) $7,189 $66, G Retail trade ( ) $16,067 $48, I Transport, Postal and Warehousing ( ) $6,471 $84, J Information, Media and $1,940 $51, Telecommunications ( ) L Rental, hiring and real estate ( ) $5,059 $52, M Professional, Scientific and $8,197 $105, Professional services ( ) N Administration and Support $2,967 $37, Services ( ) R- Arts and Recreation services ( ) $1,174 $21, Table 4 shows the extent to which operating lease services are being provided to and from non-residents. This suggests that the changes to the accounting standards will have a minimal impact on Rest of the World sector. Table 4. Non-resident operating lease services ($m) ($m) ($m) ($m) ($m) ($m) ($m) Exports (Credits) Air Sea Other Imports (Debits) Air Sea Other Treatment of income flows 48. The treatment of the financial income flows remains unclear, and there are a number of possible options. The logical option is to simply treat these as interest payments, similar to how they would be recorded under conventional financial lease arrangements. This leads to additional questions about whether FISIM is being generated and if so, the income flows would need to be partitioned into a service component and a property income flow. 49. However it is debatable whether FISIM is in fact being generated, given these are essentially an imputed flow and it would be difficult to justify that a financial intermediation service is being produced. 50. Another option could be to treat these as an explicit fee similar to those charged by banks e.g. loan application fees, or monthly account keeping fees. Again this option is justifiable on the basis that there is a financial service being provided by the lessor, and it is difficult to present a logical rationale for doing this.

12 12 COM/SDD/DAF(2018)7 51. The treatment of the income flow would also have implications on the sector and industry classification of the lessor. For example, if it is determined that the Lessor is producing financial services (e.g. FISIM or Fee income), then there is a conceptual argument to reclassify the lessor to the Financial industry/sector, otherwise there would be financial services being provided by a unit in the non-financial sector. 7. Treatment of Right of use asset 52. The discussion so far has not given any consideration to the Right of Use asset that is established under the new accounting standards. These assets could also be recognised on the balance sheets in the National Accounts in their own right, while at the same time continuing to show the fixed assets on the balance sheet of the lessor. 53. This leads to a number of additional questions on the conceptual treatment of the Right of Use asset. For example is this a financial or a non-financial asset? One the one hand, the Right of Use would appear to create an obligation (liability) on the part of the lessor to make the asset available for use, in which case it has the characteristics of a financial asset. However, one area of inconsistency might be that this asset is being used to produce non-financial goods and services. 54. This approach should have no net or compositional impacts through the production and income accounts but results in a grossing up of the financial accounts and balance sheets. 8. Backcasting 55. Enacting option 2 above will require consideration to how the changes would be implemented. In particular, whether the changes should be backcasted through the historical time series, or considered to have changed at the point the accounting standards changed. 56. Backcasting the changes would be preferred but is complex and it will be particularly challenging for the ABS to unwind historical entries in its capital stock system (the PIM). While a point in time implementation would be much simpler to implement but would lead to large (and offsetting) flows through the accounts. 9. Summary 57. The upcoming changes to the international accounting standards will create imbalances in the National Accounts due to the asymmetric nature of the reporting by businesses. The work undertaken by the ABS shows that an approach of maintaining the current SNA treatment is not only preferred from a conceptual standpoint but also from a practical one. Aligning to the accounting standards will likely lead to a distortion in Macroeconomic Statistics due to the large compositional impacts that arise. 58. The ABS view is that the accounting standards treatment is also problematic to implement in the 2008 SNA from a practical perspective, requiring a greater level of imputation and adjustment to ensure balance across the accounts. The hypothetical example considered in the paper makes a number of assumptions for simplicity, and the level of

13 COM/SDD/DAF(2018)7 13 complexity increases further once these assumptions are removed. More work needs to be done if this option is enacted but there is a risk that these changes completely break the relationships in the 2008 SNA. 59. In order to implement the accounting standards treatment correctly, a number of conceptual questions also need to be resolved. These questions are difficult to answer and will require guidance from the international statistical community and to ensure any changes are implemented in a consistent way. 60. The ABS is hoping to obtain additional data from providers to help inform the balancing of the accounts under the new accounting standards. This information is critical irrespective of which option is adopted. Even maintaining the current SNA approach will require updated information noting the expected changes in behaviour by businesses. 61. The ABS is currently engaging extensively with key providers and some have already noted that it will not be possible to provide leasing expenses based on the previous accounting standards indefinitely, but will be able to do so for a period of time to assist the ABS transition to the new standards. 62. The ABS is seeking views from other National Statistical Organisations (NSO) with particular interest in the approach outlined above and also how other NSO s are planning to manage the implementation of the new accounting standards.

14 14 COM/SDD/DAF(2018)7 Annex Annex Table 0.1. Current recording of operating leases in the 2008 SNA Rental, hiring and real Financial and Other Households estate services insurance services industries Production account Output - Rental services 100 Output - Financial services 100 Output Other 100 Intermediate consumption - Rental services Intermediate consumption - Financial services Intermediate consumption - Other Gross value added Income account - Generation of primary income Compensation of employees 75 Gross operating surplus Income account - Allocation of primary income Interest Balance of primary income Income account - Distribution of income Disposable income Income account - Use of income Final consumption expenditure - Rental services 50 Final consumption expenditure - Financial 50 services Final consumption expenditure - Other 50 Net saving Capital account Gross fixed capital formation - Buildings and structures Net lending (+) / Net borrowing (-) Gross domestic product (P) 150 Gross domestic product (I) 150 Gross domestic product (E) 150 Financial account Acquisition of assets (currency and deposits) Acquisition of assets (loans) 75 Incurrence of liabilities (currency and deposits) 50 Incurrence of liabilities (loans) 75 Net lending (+) / Net borrowing (-) 0 Other changes in the volume of assets account Other changes in volume n.e.c. - Produced nonfinancial assets Other changes in volume n.e.c. - Financial assets/liabilities Changes in net worth due to other changes in the volume of assets 0 Balance sheet Net worth - Opening balance 1,000 Opening balance - Buildings and structures 1,000 Opening balance - Currency and deposits (asset) Opening balance - Loans (asset) Opening balance - Currency and deposits (liability) Opening balance - Loans (liability) Closing balance - Buildings and structures 1,000 Closing balance - Currency and deposits (asset) Closing balance - Loans (asset) 75 Closing balance - Currency and deposits 50 (liability) Closing balance - Loans (liability) 75 Net worth - Closing balance 1,000

15 COM/SDD/DAF(2018)7 15 Annex Table 0.2. Impact of changes to accounting standards (unbalanced SU tables) Rental, hiring and real Financial and Other Households estate services insurance services industries Production account Output - Rental services 100 Output - Financial services 100 Output Other 100 Intermediate consumption - Rental services Intermediate consumption - Financial services Intermediate consumption - Other Gross value added Income account - Generation of primary income Compensation of employees 75 Gross operating surplus Income account - Allocation of primary income Interest Balance of primary income Income account - Distribution of income Disposable income Income account - Use of income Final consumption expenditure - Rental services 50 Final consumption expenditure - Financial 50 services Final consumption expenditure - Other 50 Net saving Capital account Gross fixed capital formation - Buildings and structures Net lending (+) / Net borrowing (-) Gross domestic product (P) 200 Gross domestic product (I) 200 Gross domestic product (E) 150 Financial account Acquisition of assets (currency and deposits) Acquisition of assets (loans) 75 Incurrence of liabilities (currency and deposits) 50 Incurrence of liabilities (loans) 75 Net lending (+) / Net borrowing (-) 0 Other changes in the volume of assets account Other changes in volume n.e.c. - Produced nonfinancial assets Other changes in volume n.e.c. - Financial assets/liabilities Changes in net worth due to other changes in the volume of assets 0 Balance sheet Net worth - Opening balance 1,000 Opening balance - Buildings and structures 1,000 Opening balance - Currency and deposits (asset) Opening balance - Loans (asset) Opening balance - Currency and deposits (liability) Opening balance - Loans (liability) Closing balance - Buildings and structures 1, Closing balance - Currency and deposits (asset) Closing balance - Loans (asset) 1, Closing balance - Currency and deposits 50 (liability) Closing balance - Loans (liability) Net worth - Closing balance 2,000

16 16 COM/SDD/DAF(2018)7 Annex Table 0.3. Option 1 - Increase the intermediate use of leasing services output (2008 SNA Treatment) Rental, hiring and real Financial and Other Households estate services insurance services industries Production account Output - Rental services 100 Output - Financial services 100 Output Other 100 Intermediate consumption - Rental services Intermediate consumption - Financial services Intermediate consumption - Other Gross value added Income account - Generation of primary income Compensation of employees 75 Gross operating surplus Income account - Allocation of primary income Interest Balance of primary income Income account - Distribution of income Disposable income Income account - Use of income Final consumption expenditure - Rental services 50 Final consumption expenditure - Financial 50 services Final consumption expenditure - Other 50 Net saving Capital account Gross fixed capital formation - Buildings and structures Net lending (+) / Net borrowing (-) Gross domestic product (P) 150 Gross domestic product (I) 150 Gross domestic product (E) 150 Financial account Acquisition of assets (currency and deposits) Acquisition of assets (loans) 75 Incurrence of liabilities (currency and deposits) 50 Incurrence of liabilities (loans) 75 Net lending (+) / Net borrowing (-) 0 Other changes in the volume of assets account Other changes in volume n.e.c. - Produced nonfinancial assets Other changes in volume n.e.c. - Financial assets/liabilities Changes in net worth due to other changes in the volume of assets 0 Balance sheet Net worth - Opening balance 1,000 Opening balance - Buildings and structures 1,000 Opening balance - Currency and deposits (asset) Opening balance - Loans (asset) Opening balance - Currency and deposits (liability) Opening balance - Loans (liability) Closing balance - Buildings and structures 1,000 Closing balance - Currency and deposits (asset) Closing balance - Loans (asset) 75 Closing balance - Currency and deposits 50 (liability) Closing balance - Loans (liability) 75 Net worth - Closing balance 1,000

17 COM/SDD/DAF(2018)7 17 Annex Table 0.4. Option 2 Reduce the output of leasing services to match the fall in intermediate use (Accounting Standards treatment) Rental, hiring and real Financial and Other Households estate services insurance services industries Production account Output - Rental services 50 Output - Financial services 100 Output - Other 100 Intermediate consumption - Rental services Intermediate consumption - Financial services Intermediate consumption - Other Gross value added Income account - Generation of primary income Compensation of employees 50 Gross operating surplus Income account - Allocation of primary income Interest paid Interest received 50 Balance of primary income Income account - Distribution of income Disposable income Income account - Use of income Final consumption expenditure - Rental services 50 Final consumption expenditure - Financial 50 services Final consumption expenditure - Other 50 Net saving Capital account Gross fixed capital formation - Buildings and structures Net lending (+) / Net borrowing (-) Gross domestic product (P) 150 Gross domestic product (I) 150 Gross domestic product (E) 150 Financial account Acquisition of assets (currency and deposits) Acquisition of assets (loans) 100 Incurrence of liabilities (currency and deposits) 50 Incurrence of liabilities (loans) 100 Net lending (+) / Net borrowing (-) 0 Other changes in the volume of assets account Other changes in volume n.e.c. - Produced nonfinancial assets -1, Other changes in volume n.e.c. - Financial 1, assets/liabilities Changes in net worth due to other changes in the volume of assets 0 Balance sheet Net worth - Opening balance 1,000 Opening balance - Buildings and structures 1,000 Opening balance - Currency and deposits (asset) Opening balance - Loans (asset) Opening balance - Currency and deposits (liability) Opening balance - Loans (liability) Closing balance - Buildings and structures Closing balance - Currency and deposits (asset) Closing balance - Loans (asset) 1, Closing balance - Currency and deposits 50 (liability) Closing balance - Loans (liability) Net worth - Closing balance 1,000