1 Background

As long ago as 1982, Professor Agostinelli wrote for Eurostat a report called : "Utilisation de la quatrième directive CEE à des fins statistiques". His conclusions were that it seems never to have been the case that Eurostat or other partners in the European Statistical System wanted to use annual accounts following the Fourth Directive as a unique source of information for structural business statistics.

The following limitations were identified:

• the large numbers of accounting options for member states

• the restricted business population likely to be in scope

• lack of statistically precise accounting definitions

• inappropriate reporting units within company structures

2 SBS Regulation and the 4th Accounting Directive

Work leading to the promulgation of the Council SBS Regulation in December 1998 included an effort to align terminology for SBS variables with that used in the model formats of the Fourth Directive. 

Many NSIs in the years intervening since the Agostinelli Report intensified their own efforts to use accounting information for statistical purposes (see the Eurostat Handbook of Good Practices for Administrative Sources for more details).

It was accordingly important to try to make more explicit the relationship between accounting definitions and statistical variables at the EU level. The outcome was identification, where possible, of the "links to company accounts" of relevant variables in Commission Regulation (EC) no 2700/98 concerning the definitions of characteristics for structural business statistics".  Referred to as the SBS Regulation.

In terms of the main financial statements, it is possible to relate key variables to both the balance sheet and the profit and loss account, although this is easier to do for the latter than for the former. One reason for this is because company balance sheets are concerned with the value of net assets whereas the underlying concept in structural business statistics is "investment". Some NSIs nonetheless try to approximate investment, using information from opening and closing balance sheets. One approximation, "gross increase in the value of tangible fixed assets", is readily obtainable from Fourth Directive headings. Another which is conceptually closer, "investment in tangible fixed assets", requires more detailed information on e.g. re-evaluations and capital restructuring that go beyond the Directive headings and may or may not be available from accounting frameworks at national level. A further difficulty with the balance sheet is that the four classes of tangible fixed assets are quite well comparable to Fourth Directive headings, but this is only partly true for intangibles. Specification of investment variables in the SBS regulation in fact represent an unsatisfactory compromise to accommodate national accounts terminology. It is therefore no surprise that some NSIs, such as the UK, prefer to collect investment data as gross domestic fixed capital formation for the national accounts by direct surveys, outside of the main business statistics collection system.

The situation with the profit and loss account is more straightforward, at least for one of its presentations. This is because the "by nature" breakdown in the profit and loss account is amenable to calculation of value-added, described in paragraph 8.11 of ESA 95 as "the value generated by any unit engaged in a production activity". By the same token, it is a building block for the production account used in national accounting to obtain the vital aggregate of gross domestic product. 

By contrast, the other presentation of the profit and loss account with the breakdown of expenses "by function" is much less statistically tractable. There are a number of reasons for this:

• the purposes of the presentation are microeconomic, specifically centred on the profit-generating capability of the individual enterprise and measures of interest to providers of capital and debt financing.
• the separate calculation of costs of sales and overhead allows internal management to monitor operational efficiency but by splitting costs of factors of production such as materials and staff costs between these different purposes prevents any calculation of value-added in the national accounting sense.
• the concept of cost of sales focuses attention entirely on the part of production that is sold, obscures information on production going to stocks and treats costs of production for own use not as operating charges but as items to be capitalised as assets in the balance sheet.
• the allocation of costs between those incurred in generating turnover, those which are overheads and those going under other headings is a matter entirely for the business, rather than a subject for the systematic classification necessary for making meaningful comparisons and for compiling aggregated data.

The advantages of the "by function" breakdown for owners and managers mean that it will be the preferred accounting presentation wherever a choice of formats is allowed. This is true both for individual accounts and for consolidated accounts. The presence of the "by function" breakdown in the illustrative profit and loss accounts appended to IAS 1 "Presentation of Financial Statements" is undoubtedly explained by this consideration.

Links between variables in Structural Business Statistics Regulation and headings in "by nature" format of profit and loss account in Fourth Accounting Directive are shown in the following table :

The shortcomings of the present Directives are well known to NSIs, in particular to those who are actively trying to maximise statistical utilisation of the accounting information available in their countries. French statisticians at INSEE have carried out considerable work in this area, some of it in association with their colleagues at Statistics Canada, where use of administrative sources, including accounts, is similarly highly developed.

Statisticians at EU and national levels have stated on numerous occasions that they would therefore like to see many improvements to the Directives, of which the following is only a partial list.

• a clearer distinction between turnover and other operating income
• segmental reporting of turnover to be better defined by activity sector and by geographical area ( preferably including EU/EEA specifically)
• rules for the allocation of the principal components respectively of costs of sales, overheads and other expenses
• specific disclosures in all formats of the profit and loss account of costs of all factors of production such as materials and staff costs
• introduction (probably in notes to the accounts) of standard presentation of numbers of employees
• specific disclosures either on the face of accounts or in the notes of the elements of production not sold in the accounting period, e.g. going to stock or for own use and also of transactions in goods and services purchased for resale in same condition as received
• separate identification and systematic allocation of ordinary and extraordinary activities
• up-dating of assets classification, particularly for intangibles, and better orientation of balance sheet items with investment concept
• separate identification of assets acquired by finance leases, definition and treatment in accordance with ESA 95.

3. The SBS Regulation and the International Accounting Standards