REPORT OF FIRST CANBERRA II MEETING

1. REPORT OF FIRST CANBERRA II MEETING Voorburg, April 15-17, 2003

2. REPORT OF FIRST CANBERRA II MEETING • Sessions • Presentation of the mandate of Canberra II • Definition of assets and intangibles • Originals and copies • Leases and contracts • Ownership transfer costs • Military equipment • R&D

3. Mandate of the Group • Principal objective is to propose changes or clarifications to the SNA • Three subgroups formed, concerning: • Conceptual issues, mainly linked to intangibles • Treatment of R&D • Other issues, mainly concerned with measurement • Discussion mainly concerned with whether treatment of consumer durables should be added to the list of topics. Decision was not to include at present, but proponents given the option of submitting a paper to the first meeting of the AEG (February 2004) which will decide the scope of the update.

4. Definition of assets and intangibles • Introduction paper by Peter Hill. In summary: • General agreement on the need to include “intangible” type assets in the national accounts, but more work needed to determine the particular types that should be included. • Significant review of the production account – show the input of capital services. (On the agenda for October 2003 meeting.) • Need to review terminology and classification of assets. Possibly drop the term “intangibles”. • Consideration be given to adding a new criterion to the definition of an asset, viz the reliability of measurement.

5. Originals and copies • Three papers presented • A model for treatment of assets in the NA by Robin Lynch • The treatment of originals and copies in the SNA by Anne Harrison • The double counting issue by Francois Lequiller • The main issue was whether capitalising originals and copies leads to double counting and, if so, how to record these expenditures. Three different views were expressed by the authors.

6. Originals and copies - cont. • A produced intangible asset is an original idea produced by R&D. It cannot be copied, but can be shared. An asset stemming from an original idea is an access device to it. Payments for the derived asset (such as a piece of software) are partly for acquisition of the access device and partly for the rental of the original. GFCF comprises the values of the original idea and the access device excluding the rental for the original (providing it meets the other necessary criteria).

7. Originals and copies - cont. • The sale of a copy is a sale of part of the original. This results in positive GFCF by the buyer of the copy and negative GFCF by the owner of the original. • Both the creation of the original and the purchase of a copy can be GFCF. The GFCF occurs at different times, and as the copy is purchased the value of the original declines due to COFC. When estimates net of COFC for production and capital stock are used there can be no double counting, even over time. In summary, maintain the status quo.

8. Originals and copies - cont. • There was little support for the first view, more support for the second view, but the majority of support was for the third view. • Peter Harper is to conduct a survey canvassing the views of members based on summary proposals by the three authors. He will give a progress report at the October 2003 meeting.

9. Leases and other transferable contracts • Three papers presented: • The treatment of contracts in the 1993 SNA by John Pitzer • Leases and other transferable contracts and Leases and licences by Peter Harper • Discussion at the meeting should be considered as the first round in dealing with a complex issue. A number of ideas were put forward, including: • Treating contracts in a manner akin to financial derivatives. • Partitioning a leased asset between a lessor and a lessee. • A small group was given the task of reformulating the different proposals in a more organised way for the October 2003 meeting.

10. Ownership Transfer Costs • Peter van der Ven, the moderator of the EDG, presented his report. At present ownership transfer costs (OTCs) incurred with the transfer of non-financial assets are capitalised and those of financial assets are expensed. The report recommends: • Changing the depreciation period for OTCs from the life of the underlying asset to the period of ownership. • Clarifying the valuation principles of assets.

11. Ownership Transfer Costs – cont. • Several members disagreed: • Some felt that all OTCs should be expensed. • Some felt that OTCs for fixed assets should be capitalised but those for valuables should be expensed. • A vote on whether OTCs for fixed assets should be expensed or capitalised was roughly equal. • It was decided to pass the issue onto the AEG. However, the ISWGNA has responded by asking the Group to reconsider the issue.

12. Military equipment • A paper Accounting for Military Assets was presented by Brent Moulton. • There was wide support for capitalising military equipment. • The majority of members favoured recording the loss of military assets in time of war in the other changes in volume account rather than COFC. • Some borderline issues remain pertaining to long-lived, but one-use only items like ICBMs. These issues are to be addressed at the October 2003 meeting. • Brent was asked to prepare an issues paper for the first AEG meeting. • Need to coordinate with GFS developments.

13. Research and Development • Context: The National Experts on Science and Technology Indicators (NESTI) group are interested in bridging the gap between the Frascati Manual (FM) and the SNA, and reconsideration by national accountants of capitalising R&D expenditure. • Numerous papers presented – see EDG – and the discussion was wide ranging. • Wide agreement that at least some R&D is capital formation, but not on the boundary. • Acceptance of a cost-based approach to valuation and the use of data from surveys consistent with the FM.

14. Research and Development – cont. • There was recognition that the measurement difficulties (e.g. suitable breakdowns of capital expenditure, asset lives, price indexes) had to be addressed before making recommendations to the AEG. • Results of simulations were presented by several countries. More work needed to be done. • Capitalisation of R&D largely out of step with business accounts. • Capitalisation of R&D increases the need to place more emphasis on NDP.

15. Research and Development – cont. • Future work • Volunteer countries to test the impact of capitalising R&D, including on net aggregates. To be done in connection with the development of bridge tables. Completed by early 2004. • NESTI and national account experts to be made aware of each other and the progress of this work. • Report on progress and discuss key issues further at the October 2003 meeting.

16. October 2003 Meeting of Canberra II • Follow up on previous issues • Consider the process adopted by the ISWGNA for the updating of SNA93 and its ramifications for Canberra II • Terminology and classification of assets • Borderline between rent and sale • Treatment of intangibles in business accounting • Purchased goodwill and other non-produced intangible assets

17. October 2003 Meeting of Canberra II – cont. • Databases • Land • Mineral exploration • Public good type assets • BOOT schemes • Capital services in the production account • Obsolescence • Other issues