All statements should be prepared on a "going concern basis" and (except for cash flow statements) should be on an accruals basis.

Immaterial amounts should be aggregated with amounts of similar nature and do not need to be presented separately.

Assets/liabilites and income/expense should not be offset, unless an IAS allows it or unless immaterial. IAS18 contains provisions for revenue-related flows, and gains/losses may be reported net.

Assets should be separated on the balance sheet into current / non-current categories. Current assets are expected to be realised within 12 months (or held for consumption/sale) in normal operations, and are cash or cash-equivalent asset not restricted in use.

Balance sheets should separately identify (amongst others) property, plant and equipment, intangible assets, inventories and provisions. See IAS 16 for more on tangible assets.

The income statement should, as a minimum, show: revenue, results of operating activities, finance costs, tax expense, profit/loss from ordinary activities, extraordinary items, minority interest, and net profit/loss. Other breakdowns may be required by other IAS.

The notes to the financial accounts should at least include details of accounting policies which are covered by IAS.

ESA95 is established on an accruals basis (para 1.57) except for certain transactions where cash is considered an acceptable approximation – for example, staff bonuses.

In theory there is no concept of "materiality" of the national accounts – all amounts should be presented in accordance with the breakdowns specified.

ESA95 (paras 1.58 and 1.59) specifies gross recording of transactions and assets/liabilities between and within units, except where specifically implied by a definition or classification.

ESA95 distinguishes fixed assets, inventories and financial assets. There is no specific rule on the period during which inventories must be used.

ESA95 (annex 7.1) distinguishes between dwellings, other buildings, machinery and equipment, intangible assets and inventories (amongst others).

Inventories exclude any items where sale is "assured" – this will already be included with sales.

Inventories include goods for sale, work-in-progress and materials.

Inventories should be measured at the lower of cost and net realisable value (the latter is net of costs to make the sale).

Any "abnormal losses" from inventories should be expensed.

The benchmark treatments for cost of inventories are either "First-in-First Out" or weighted average cost (the weighted average of the price of the item at the beginning and during the period).

The alternative approach for costs of inventories is "Last-in-First Out".

ESA95 (para3.117) defines changes in inventories as the value of entries into inventories less the value of withdrawals and the value of any recurrent losses of goods held in inventories.

Inventories consist of materials and supplies, work-in-progress, finished goods and goods for resale.

ESA95 (para 7.37) says that inventories should be valued at prices prevailing on the date to which the balance sheet relates.

This IAS provides for disclosure of "extraordinary items" – examples given are earthquake damage and expropriation.

There must also be disclosure of write-downs, restructuring, asset disposals (including of property, plant and equipment), and litigation settlements.

Where fundamental errors are discovered in past periods, the benchmark approach is to adjust the current accounts and restate the figures for previous years. The alternative approach is to adjust the current year.

ESA95 includes these types of events in the other changes in volume of assets account.

ESA95 does not recognise the concept of provisions. It does have accounts for revaluations, and records disposals of assets negative in GFCF.

Contract revenue should be measured as the initial amount of revenue agreed in the contract, adjusted for any variations if they will probably result in revenue and can be reliably measured.

Contract costs should include both directly attributable costs and suitably allocated overhead costs.

If the outcome can be reliably estimated, revenue and costs should be matched at the stages of completion.

ESA95 (para 3.59) specifies that if a contract of sale is agreed in advance for the construction of a building, the output produced in each period is treated as being sold to the purchaser at the end of each period. The value of the output may be approximated by the stage payments made ine ach period.

ESA95 (para 3.52) says that for own-account construction, work-in-progress is estimated by applying the proportion of production costs incurred in the period to the estimated current basic price.

This IAS specifies that current tax for current and prior periods should be recognised as a liability if unpaid, and any rights of tax recovery should be treated as an asset.

Deferred tax liabilities are defined as income taxes payable in future periods which relate to the differences between the existing tax base of assets or income/expenditure and the future tax liability arising from these assets or income/expenditure. A common case is when the purchase of an asset can be offset against tax in one period, but the stream of future benefits from the asset are taxable in a future period.

Property, plant and equipment are defined in this IAS as (a) held by an enterprise for use in production…, for rental to others, or for administrative purposes, and (b) expected to be used during more than one period.

An item of property, plant and equipment should be recognised as an asset when it is probable that future economic benefits (risks and rewards) associated with the asset will flow to the enterprise, and the cost of the asset to the enterprise can be reliably measured.

Most spare parts and servicing equipment will be expensed as consumed, though major spare parts and stand-by equipment can be an asset if expected to be used over more than one period, or if they can only be used in connection with a particular asset.

An item of property, plant or equipment which is recognised as an asset should initially be measured at its cost. This cost includes costs of site preparation, initial delivery and handling costs, installation costs, professional fees and (if necessary under IAS37) provision for eventual dismantling and removal.

Subsequent expenditure relating to the asset should be added to the value of the asset if it is probable that this will create an increase in future economic benefits which will flow to the enterprise. Examples given include extending the useful life of an asset and upgrading a machine to increase quality of output.

After recognition, as an asset, property plant and machinery, the benchmark treatment is that should be valued at its cost less any accumulated depreciation and any accumulated impairment losses. The alternative treatment is that these assets are valued at "fair value" (usually market value), with revaluations occurring simultaneously for similar types of asset, though not necessarily each year.

Depreciation should be recognised as an expense, unless it is incurred in the production of another asset. It should be allocated over the useful life of the asset according to the economic benefits given to the enterprise. The estimation of useful life of an asset is a matter of judgement based on experience.

ESA95 (para 3.102) defines fixed assets as produced outputs that are themselves used repeatedly, or continuously, in processes of production for more than one year.

ESA95 (para 3.111) specifies that the costs of ownership transfer of fixed and non-produced assets should be included in capital formation of the new owner of an asset. ESA95 specifies that gross capital formation is valued at purchasers’ prices.

ESA95 (para 3.107f) says that gross capital formation should include improvements to fixed assets which go well beyond the requirements of ordinary maintenance and repairs.

ESA95 (para 7.25) says that fixed assets are valued in the balance sheet as if they were acquired on the balance sheet date (ie. at market values).

ESA95 (para 6.02) defines consumption of fixed capital as amount of assets used up, during the period under consideration, as a result of normal wear and tear and foreseeable obsolescence. Consumption of fixed capital appears in the other changes in volume of assets account (and also in any net aggregates).

This IAS classifies leases as operating leases or finance leases depending on whether the risks and rewards incident to the ownership of the leased asset lie with the lessor or the lessee.

If the lease transfers substantially all the risks and rewards incident to ownership to the lessee, then it is a finance lease. Otherwise it is an operating lease.

Finance leases would normally be defined in the following cases:

• The lease transfers ownership of the asset to the lessee at the end of the contract, or allows the lessee to purchase the asset at below expected market price.
• The lease term is for the major part of the economic life of the asset.
• At lease inception, the present value of the minimum lease payments amounts to at least substantially all of the fair value of the lased asset.
• The leased assets are of such a specialised nature that only the lessee can use them without major modifications.
• Where the lessee can cancel the lease, the lessor’s costs associated with the cancellation are met by the lessee.

In the case of finance leases, the assets and liabilities associated with the lease should be recorded at fair value in the balance sheet of the lessee.

ESA95 (annex II) distinguishes between operating and financial leases.

ESA95 specifies that if all risks and rewards of ownership of a durable good are, de facto though not de jure, transferred from lessor to lessee, the lease is a financial lease.

ESA95 specifies that for financial leasing the leasing period covers all, or most, of the economic life of the durable good. At the end of a finance lease the lessee often has the chance to buy the good at a nominal price. The Eurostat Manual on Deficit and Debt contains more guidance on leases in the context of public infrastructure.

ESA95 says that under a finance lease the durable good is treated as if it is owned by the lessee from the beginning of the leasing period.

This IAS specifies that revenue includes only gross inflows of economic benefits received by an enterprise on its own account – it does not include amounts collected on behalf of third parties (eg. sales taxes).

Revenue should be measured at fair value of the consideration received or receivable, including any trade discounts or volume rebates.

When goods or services are exchanged for goods and services of a similar nature, the exchange is not regarded as a transaction which generates revenue.

Revenue is recognised when:

• the enterprise has transferred to the buyer the significant risks and rewards of ownership
• the enterprise retains neither continuing managerial involvement nor effective control over the goods sold
• the amount of revenue can be measured reliably
• it is probable that economic benefits associated with the transaction will flow to the enterprise
• the costs incurred or to be incurred in respect of the transaction can be reliably measured (so that revenue and expenditure can be reliably matched).

This timing of recognition can be different from the transfer of legal title.

Revenue in the form of interest, royalties and dividends should be:

ESA95 measures output at basic prices.

ESA95 applies market prices for transactions.

ESA95 (para 1.36) states that non-monetary transactions are also included in the system.

ESA95 measures output, not sales. However in practice sales (with an appropriate inventory adjustment) are often used to determine output.

ESA95 (para 4.50) states that interest should be recorded as accruing continuously over time to the creditor on the amount of the principal outstanding.

This IAS looks at different types of employees benefits (note that IAS26 complements this IAS on retirement plans):

Short-term employee benefits (wages, salaries, short term absences, profit sharing and bonuses, non-monetary benefits). These should be measured as an expense when an employee has rendered service to an enterprise, except for profit sharing and bonuses where recording is at the point an enterprise has an obligation to pay and a reliable estimate can be made.

Post-employment benefits (pension plans and medical plans) are divided into defined contribution plans and defined benefit plans.

• Under defined contribution plans an enterprise’s obligation is limited to the amount it agrees to contribute to the fund (the contribution is an expense). All actuarial and investment risks are with the employee
• Under defined contribution plans the enterprise’s obligation is to provide agreed benefits to current and former employees, and the actuarial/investment risk fall on the enterprise. Enterprises must undertake an actuarial assessment to determine the amount of liability and the expense to be incurred (including current service cost, interest cost, expected return on any plan assets, actuarial gains and losses)

Other long term employee benefits (long term absence or disability payments, any compensation paid more than 12 months after the period in which the work was done) are recorded in the balance sheet as a liability at the net present value (the defined benefit standards apply if there are any associated assets).

ESA95 (para 4.02) defines compensation of employees as total remuneration, in cash or in kind, payable by an employer to an employee in return for work done by the latter during the accounting period.

ESA95 (para 4.03) states that compensation of employees should be recorded gross of any social contributions or taxes payable by the employee.

ESA95 (para 4.12) allows ad-hoc bonuses and other exceptional payments to be recorded when they are due to be paid.

ESA95 (Annex III) treats the reserves of pension funds as assets of households. Property income arising is treated as paid to households, who then make supplementary contributions.

For private social insurance schemes, companies are recorded as making actual social contributions on behalf of their employees

For unfunded social schemes, companies are treated as making imputed social contributions on behalf of their employees. In theory the imputed social contribution should be set by reference to the companies’ obligations to its staff. In practice the contribution is usually set equal to benefits paid.

In ESA95 there is no distinction between long-term and short-term compensation of employees.

This IAS ensures that government grants (including non-monetary grants) should not be recognised until there is reasonable assurance that the enterprise will comply with the conditions attached and that the grants will be received

Government grants should be recognised as income so that they are matched with the related costs which they are intended to meet (the "income approach"). But any grants awarded for "giving immediate financial support" to an enterprise can be measured, possibly as an extraordinary item, in the period when the enterprise qualifies for it.

Government grants related to assets can be recognised as deferred income, or as reduced depreciation charge on the asset concerned.

Grants can either be presented as a separate income item or as netted off the expenditure to which they relate, though the IAS has a preference for the first treatment.

ESA95 describes grants to businesses as subsidies (D3), investment grants (D92) and other capital transfers (D99). Subsidies are to be recorded when the transaction or event which gives rise to the payment occurs.

ESA95 (paras 4.162 and 4.166) specifies that investment grants and other capital transfers are to be recorded when payment is due to be made (or when the ownership of the asset is transferred if an investment grant in kind).

ESA95 records investment grants gross of capital formation as receivables by the unit.

A foreign currency transaction should be recorded by applying the exchange rate between the reporting currency and the foreign currency on the date of the transaction.

Any foreign currency monetary items in the balance sheet should be reported using the closing exchange rate.

Treatment of investment in foreign operations varies:

• For a foreign operation "integral to the operations of the business", the transactions are treated as if they had been transactions of the reporting enterprise itself (ie. exchange rate movements applied immediately)
• For a foreign entity (which undertakes the majority of its transactions in local currency) the exchange rates movements should be treated as changes in equity until the net investment is disposed of.

ESA95 (para 6.58) requires that any transactions in financial assets in foreign currency must be converted using exchange rates at the time the transactions occur.

ESA95 (para 7.31) specifies that assets and liabilities denominated in foreign currencies should be converted at the market exchange rate prevailing on the date of the balance sheet.

This IAS sets out the requirements for a parent company to prepare consolidated financial statements, including all of its subsidiaries.

Subsidiaries may be domestic or foreign and are controlled through a shareholding of at least 50% of voting power, or where the parent has de facto control through statute, agreement or ability to appoint or remove the majority of board members.

Subsidiaries excluded from consolidation are those purchased and held with a view to disposal in the near future, or those where there are severe long-term restrictions on transferring funds to the parent.

Consolidation should include the following:

• Elimination of any investment or equity held by the parent.
• Minority interests subtracted from total income of the group.
• Intragroup transactions and balances should be eliminated in full.

Consolidated statements should use a common accounting system for all like transactions.

ESA95 defines several different levels of unit in chapter 2. Paragraph 2.13 says that:

• Entities which, while keeping a complete set of accounts have no autonomy of decision in the exercise of their functions are combined with the units that control them.
• Entities forming part of a group of units engaged in production and keeping a complete set of accounts are deemed as institutional units, even if they have partially surrendered their autonomy of decision to a holding company.

Control is defined in ESA95 (para 2.26) as the ownership of more than half the voting shares, or otherwise controlling over half the voting power. Control can be exercised indirectly.

ESA95 (para 1.58) says that for sub-sectors or sectors, flows and stocks are not consolidated between constituent units.

ESA95 records any property income paid by one unit to another as a gross use.

ESA95 (para 3.15) says that the total output of an institutional unit comprised of more than one local KAU is the sum of the outputs of the local KAUs, including outputs delivered by component local KAUs.

This IAS defines an associate as an enterprise in which the investor has significant influence (more than 20% of the voting rights) and which is neither a subsidiary nor a joint venture of the investor.

An investment in an associate must be recorded under the "equity method". The investment is initially booked at cost value and then adjusted to reflect the share of the investor in profits and losses after acquisition.

ESA95 allows for equity investments to be held between businesses. There is no concept of an associate.

Undistributed profits are generally not shown as increasing equity – the value of equity in ESA95 should be made with reference to a market price.

This IAS establishes specific reporting requirements for banks, in addition to those required under IAS1.

In the income statement, income and expenses should be grouped by nature. The following items should be specifically disclosed for banks:

Interest and similar income;

Interest expense and similar charges;

Dividend income;

Fee and commission income;

Fee and commission expense;

Gains less losses arising from dealing securities;

Gains less losses arising from investment securities;

Gains less losses arising from dealing in foreign currencies;

Other operating income;

Losses on loans and advances;

General administrative expenses; and

Other operating expenses.

ESA95 (paras 1.58 and 1.59) requires that transactions should not be netted off. The presentation of the sector accounts requires interest to be separated into resources and uses.

ESA95 (para 3.63) specifies that:

• Holding gains and losses should be ignored in measuring output.
• Trade margins on foreign exchange and securities are to be included in output.
• The output of financial intermediaries should include fees and Commissions charged.

This IAS requires that the recoverable value of an asset should be estimated whenever there is an indication that an asset may be impaired (it does not apply however to certain assets covered in other IAS).

Impairment is identified when the carrying amount of an asset (defined according to IAS 16) falls below its recoverable amount.

There are two ways to record the impairment in the income account:

• As a cost in the income statement during the period during which the impairment is recognised, or
• For an asset which has been re-valued, as a reduction in the ‘revaluation surplus’ carried on the balance sheet.

An impaired asset should be valued at the higher of its "value in use" or its "net selling price".

The "net selling price" is ideally the observed market price for the asset in its existing state less any incremental costs associated with the disposal of the asset.

The "value in use" relies on the estimation of future cash flows associated with the asset, and applying an appropriate discount rate. The IAS gives detailed guidance on this calculation.

An impairment loss may be reversed (up to the value the asset would have reached had it not been considered impaired before). This reversal would be recorded either as income or as an increase in the revaluation surplus.

ESA95 (para 7.25) says that fixed assets are valued in the balance sheet as if they were acquired on the balance sheet date (ie. at market values).

ESA95 allows three different ways in which the value of an asset may change – consumption of fixed capital, revaluation, and other changes ion volume of assets.

ESA95 (para 6.02) defines consumption of fixed capital as amount of assets used up, during the period under consideration, as a result of normal wear and tear and foreseeable obsolescence. Consumption of fixed capital appears in the other changes in volume of assets account (and also in any net aggregates).

ESA95 (para 6.35) says that nominal holding gains and losses as arise from changes in the level and structure of their prices.

This IAS defines provisions as liabilities of uncertain timing or amount. By contrast contingent liabilities are those assets and liabilities whose existence can only be determined by the occurrence or non-occurrence of one or more future events.

A provision should be recognised when an enterprise has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic resources will be needed to settle the event, and a reliable estimate can be made of the amount of the obligation. A provision may not include gains from the expected disposal of an asset.

Provisions are separately identified in the balance sheet and changes in provisions impact on the income statement.

ESA95 does not include the concept of provisions.

This IAS defines which intangible assets can be capitalised in business accounts and how they should be valued and depreciated. The IAS does not deal with mineral rights and exploration expenditure, financial assets or insurance contract related intangible assets.

An intangible asset should be recognised only if it is probable that future economic benefits attributable to the asset will flow to the enterprise, and the cost of the asset can be measured reliably. The acquisition of an intangible asset will usually satisfy these criteria (though during some business acquisitions it may not be possible to separate this element).

An intangible asset should be measured initially at cost (cost of acquisition of an enterprise acquires the asset).

Certain items should never be recorded as an asset – internally generated goodwill, any expenditure during the research phase of a project, internally generated brands, titles, customer lists and similar items.

The IAS allows the recording of development expenditure as an asset so long as a strict list of criteria are satisfied (notably technical feasibility is assured and the enterprise intends, and is capable of, completing the development for own use or sale).

For continuing recording in the balance sheet, the benchmark treatment is to value an intangible asset at its cost less any accumulated amortisation and accumulated impairment losses. The alternative treatment is to carry the asset at its fair value (with reference to a market). The rules here are almost identical with those contained in IAS 16.

An intangible asset should be depreciated over its useful life. There is a rebuttable presumption that the useful life of an intangible asset will not exceed 20 years.

A recoverable amount should be estimated for all intangible assets at least at each financial year end (this is tougher than IAS 36).

ESA95 (annex 7.1) shows the following intangible assets included:

• Mineral exploration
• Computer software
• Entertainment, literary or artistic originals
• New information, specialised knowledge etc whose use is restricted to those units with ownership rights over them
• Patented entities
• Leases and other transferable contracts
• Purchased goodwill
• Other intangible non-produced assets.

ESA95 (para 3.113) says that gross fixed capital formation is valued at purchasers’ prices plus the costs of ownership transfer. For own-account capital formation, its is valued at the basic prices of similar assets on the market (in effect sum of costs plus a mark-up for net operating surplus). Other possible valuation bases include present value of estimated future returns, and production costs (for entertainment literary or artistic originals)

ESA95 (para 3.70e) says that all research and development expenditure is to be expensed.

ESA95 (para 6.03) specifies that consumption of fixed capital should be calculated for all intangible fixed assets.

This IAS distinguishes investment property from other types of property. Investment property is defined as a land or building (or both) held to earn rentals or for capital appreciation or for both.

Investment property should only be recognised if it is probable that future economic benefits attributable to the asset will flow to the enterprise, and the cost of the property can be measured reliably.

The IAS allows enterprises to choose between measuring the property at fair value or at cost.

For fair value, a gain or a loss arising should be included in the net profit or loss for the period. Fair value does not require that disposal costs should be included, and should be judged against an active market or closest equivalent.

This IAS specifies the treatment of biological assets, the agricultural produce at point of harvest, and any associated government grants.

A biological asset should be measured on initial recognition and at each balance sheet date at its fair value less estimated point-of-sale costs. Agricultural produce harvested from an enterprise’s own biological assets should also be measured as fair value less estimated point-of-sale costs.

The fair value of these items should be unaffected by any forward contract signed

Any gain or loss arising from initial recognition of these items (eg. a new-born calf) should be included in the profit or loss for that period.

If a biological asset cannot be reliably valued at fair value, it should be valued at cost less any accumulated depreciation and any accumulated impairment losses.

ESA95 (para 3.58) specifies that the output of agricultural products should be recorded continuously over the entire period of production (with growing crops, standing timber and animals raised for slaughter being recorded as work in progress).

ESA95 (para 3.48) defines the basic price as the price receivable by the producers from the purchaser.

ESA95 includes new-born animals in output.

ESA95 (para 6.03) specifies that consumption of fixed capital should not be calculated for animals.