Financial Flow Accounts

Detailed information for second quarter 2016

Status:

Active

Frequency:

Quarterly

Record number:

1804

The Capital and Financial Flow Accounts are statements of investment activity in and by households, non-financial corporations, financial corporations, governments, non-profit institutions serving households and non-residents. The Capital and Financial Flow Accounts record the net flow of non-financial assets, financial assets and liabilities by type of asset and liability. The Capital and Financial Accounts are extensions of the Income and Expenditure Accounts.

Data release - September 15, 2016

Description

Within the Canadian System of Macroeconomic Accounts, the capital account and the financial flow account are shown in the same account, called the Capital and Financial Flow Accounts. This is done to emphasize the close relationship between the two accounts.

The capital account shows the sources of funds for investment (gross saving and net capital transfers received) and the use of funds (non-financial capital acquisition). The closing entry in the capital account is the sector's net lending or borrowing.

At a very high level, the account shows whether or not the sector was able to generate enough internal funds to finance its investment activities. If the sector was able to generate more funds (gross saving and net capital transfers received) than it required for its investment activities it will be a net lender to the rest of the economy. If the sector was not able to generate sufficient funds to support its investment activities then it would be a net borrower from the rest of the economy.

The financial flow account is the financial counterpart to the capital account. It shows how the net lending or net borrowing was financed. The financial flow account closing entry is therefore also net lending and net borrowing, but is articulated by showing the transactions in financial assets and liabilities. The degree of instrument details indicate the breadth of financial activities in a modern capitalist economy, and the degree of sectoral details highlights the complexity of the financial system as well as its role in transferring funds from deficit to surplus sectors.

If the sector is a net lender then the financial flow account will show the net acquisition of assets and/or net reduction of liabilities associated with the lending activity. If the sector is a net borrower the financial flow account will show the net disposal of assets and/or net incurrence of liabilities associated with the borrowing activity. Within the Canadian National Economic Accounts, the difference between the net change in financial assets and the net change in financial liabilities is referred to as net financial investment. While conceptually equivalent to the measure of net lending or net borrowing found in the capital account, the Canadian National Economic Accounts uses the term net financial investment to highlight the fact that it is compiled from a different perspective.

In addition, there exists a statistical discrepancy between the net lending and net borrowing in the capital account and the net financial investment in the financial flow account. While in theory these measures should be the same, due to the different data sources used to compile the accounts, a discrepancy exists. The size of the discrepancy provides some indication of the quality of the measure but not the source.

Statistical activity

The Capital and Financial Flow Accounts are compiled by integrating numerous data sources related to the financing activity of the various sectors of the economy (households, general governments, financial and non-financial corporations, non-profit institutions serving households and non-residents) into a statement that depicts the sources and uses of funds in the Canadian economy. The 2008 System of National Accounts outlines the concepts, methods, accounting identities and accounting framework required to produce the Capital and Financial Flow Accounts. The statistical activity resembles that of a business accountant that is required to take basic company information and summarize it into a set of financial statements that provide information about the financing activities of the business. In the case of the Capital and Financial Flow Accounts, basic statistical information is taken from a variety of sources (such as business surveys, government public accounts, administrative sources and household wealth surveys) and summarized into Capital and Financial Flow Accounts which highlight the sources and uses of funds in the Canadian economy.

Collection period: 75 days after the reference quarter

Subjects

  • Economic accounts
  • Financial and wealth accounts

Data sources and methodology

Target population

The Capital and Financial Flow Accounts are compiled according to the production and asset boundary defined by the 2008 System of National Accounts. This includes the economic activities of all households, non-profit institutions serving households, governments, financial corporations and non-financial corporations operating within the economic territory of Canada. It also includes all interactions (e.g. purchase of financial assets and incurrence of liabilities) with non-residents.

Data sources

Data are extracted from administrative files and derived from other Statistics Canada surveys and/or other sources.

A significant number of data sources are used to compile the Capital and Financial Flow Accounts. Some of the more notable data sources include: estimates of capital stock, investment and consumption of fixed capital, the Quarterly Survey of Financial statements, regulatory banking information, pension fund surveys, Government Finance Statistics, administrative data and Balance of Payments statistics. All of these data sources are adjusted to conform to the 2008 System of National Accounts concepts and definitions and integrated into the 2008 System of National Accounts macroeconomic accounting framework.

Estimation

The Capital and Financial Flow Accounts are estimated by using the most complete and high quality data sources available in order to establish benchmark annual estimates. This generally entails using annual business surveys, administrative data files from the Canada Revenue Agency, other regulatory and administrative data files, annual household survey files, annual information from pension funds, financial institutions and government public accounts and establishing annual estimates.

Data are mainly received in aggregate form and, in some instances, on a company or enterprise basis. Such data come either in the form of balance sheet levels or with the financial flows already calculated; in the former instance, flows are derived using the change from the previous level.

Transactions in assets and liabilities, by detailed categories, are compiled for the major sectors of the economy. These transactions are adjusted to conform to the 2008 System of National Accounts conceptual framework and as such are adjusted for reasons of valuation, timing and coverage.

The sub-annual estimates are generated by applying the movements of sub-annual surveys such as the Quarterly Survey of Financial Statements, quarterly Balance of Payments and quarterly Government Finance Statistics to the benchmark estimates.

Quality evaluation

Given that the Capital and Financial Flow Accounts are compiled from a variety of diverse data sources it is not possible to produce typical survey-based quality indicators such as coefficients of variation or survey response rates. Instead, data are analyzed for time series consistency, links to current economic events, and coherence with related items within the framework.

Since the net lending or net borrowing of the various sectors in the economy can be measured from two perspectives¿the financial flow account and the capital account¿the compilation process itself is an important quality control on the data. Differences between net lending or net borrowing measured by the capital account and that measured by the financial flow account highlight inconsistencies in the source data which leads to adjustments that force coherence and improve the overall quality of the estimates. In addition, the financial flow account must respect a number of important accounting identities such as economy-wide transactions in financial assets must equal economy-wide transactions in liabilities. Adherence to these identities and the investigation of imbalances when they arise is another quality assessment feature of the system.

Disclosure control

Statistics Canada is prohibited by law from releasing any information it collects which could identify any person, business, or organization, unless consent has been given by the respondent or as permitted by the Statistics Act. Various confidentiality rules are applied to all data that are released or published to prevent the publication or disclosure of any information deemed confidential. If necessary, data are suppressed to prevent direct or residual disclosure of identifiable data.

Revisions and seasonal adjustment

Revisions - Statistical revisions are carried out in order to incorporate the most recent information from quarterly and annual surveys, taxation statistics, public accounts, censuses, etc.

Data are released within 75 days after the reference period. Estimates for each quarter are revised when those for subsequent quarters of the same year are published. At the time of the third quarter of each year, revisions are generally made back three years. The Capital and Financial Flow Accounts are not normally revised again except when comprehensive revisions are carried out.

The majority of the components of the sub-annual Capital and Financial Flow Accounts are not adjusted for seasonality. A few series are presented on a seasonally adjusted basis in order to facilitate analysis with the other components of the Canadian Macroeconomic Accounts, such as the Income and Expenditure Accounts. Seasonal adjustment is performed using the X12 ARIMA method of seasonal adjustment.

Data accuracy

The accounts are designed in a matrix format, using two constraints: 1) Sources of funds equal uses of funds; and, 2) financial asset transactions (by type) equal transactions in liabilities (by type). Imbalances give rise to statistical discrepancies, which is one gauge of the system's overall reliability. However, these are partial and insufficient measures.

No direct measures of the margin of error in the estimates can be calculated. The quality of the estimates can be inferred from analysis of revisions and from a subjective assessment of the data sources and methodology used in the preparation of the estimates.

Documentation

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