Accrual principle By Kristina Stæhr Vest Gitte Frej Knudsen

Accrued interest in the financial accounts Data must be on an accrual basis to comply with national accounts standard Untill 2007, data on government debt did not comply with this – no accrued interest Data included from 2007, also implemented back in time as far as possible. In order to comply with internationally approved national accounting standards all data must be on an accrual basis. In Denmark we are very fortunate as most data received for the public sector are already on an accrued basis. Data on the government bonds are calculated and later send to our office by the Danish Central Bank.   Up until 2007 when I began working at statistics Denmark, accrued interest was not included in the debt of central government. The data we received were in both nominal and market value for balance data as well as transactions data. Graphics One showing data on accrued interest and how they fluctuate across the year One showing the size of government bonds and the significance of accrued interest compared to this. Future improvements Data on accrued interest for local government debt Ensuring that time of recording of interest matches the time of recording of the cash basis debt.

Data accrued interest on government debt AF332L_domestic q1 q2 q3 q4 2010 8455 15.398 22.442 2.757 2011 9.319 15.834 22.831 2.883 2012 8.980 15.329 21.898 2728 AF332L_foreign q1 q2 q3 q4 2010 811 993 1.633 1.320 2011 870 1.248 1.821 1.621 2012 605 602 920 1.084 As interest accrued is only to be included until actually paid this was a constantly recurring problem in the data but fortunately not an increasing one. The error was also the largest in the quarterly data for quarters 1-3 and less so for the fourth quarter as most of the interest were due before January 1st.

Data received from the Central Bank Data on foreign and domestic debt, bonds only Stock values in both nominal and market value Transactions in both nominal and market value Data on accrued interest Data on counter sectors for all of the above   Fortunately for me, my predecessor had readied most of the data on accrued interest for me, all I had to do was make the decision and implement the data in the system. The issue of accrued interest had been one of the bigger ones at the QFAGG related task force and he had been in contact with the central bank in the wake of one such task force in order to get accrued interest on the government debt data already received from the central bank. Luckily the Central bank was able to, relatively easy, include accrued interes on the government debt in the quarterly deliveries to Statistics Denmark. If we had had to calculated accrued interest on government debt ourselves this would have meant that The central bank (in Denmark the debt office is in the central bank) would have had to sent data on government debt on a far more detailed level than what is currently included in the delivery. What we receive at present is data on foreign and domestic debt, subdivede into short term and long term as well as subdivided into countersectors to enable us to consolidate correctly. Data is furthermore delivered for both balances and transactions enabling us to calculated as a residual revaluations. This was in 2007 expanded to include accrued interest All this data is on a fairly aggregated level including only the information we need and not much else. If we were to calculate accrued interest in Statistics Denmark, we would need far more detailed information on the debt including information on each series of bonds, yearly interest rate, date of each coupon payment and its principal.

Accrued interest and stock values AF332L_domestic, 2012 q1 q2 q3 q4 IV.3, acr. I. 8.980 15.329 21.898 2.728 IV.3, m.v. 726.667 764.873 790.141 771.596 IV.3, n.v. 614.537 638.170 657.245 631.585 Though only accounting at years end for a few billion dkk this is stil a significant amount, perhaps not when compared to gross debt but at present the market value of the danish net debt is 113,7 billion dkk, excluding accrued interest would have a visible impact on this.

Nominal value, ESA 2010 Valuation of debt at nominal value: Nominal value is defined as: The sum of funds originally advanced, plus any subsequent advances, less any repayments, plus any accrued interest. The significance of including accrued interest in the accounts are further underlined by the new definition of nominal value in the upcoming ESA2010 where nominal value is defined as issuance + accrued interest. There is also ongoing descussions as to whether this change should be implemented in the EDP debt as well.

Accrual principle in quarterly data Transactions in the economy must be recorded when the economic activity takes place. The distribution of some transactions on quarters are not in accordance with the accrual principle: Interest Consumption of fixed capital Current transfers to/from the rest of the world Capital transfers to/from the rest of the world Imputed social contribution The timing of the bookkeeping is not due to accrual principle. The distribution of transactions on quarters are not in accordance with the accrual principle.

Example: Distribution for interests on quarters in 2013 Interest according to bookkeeping data on quarters

Example: Distribution for interests on quarters in 2013 Uses data from the annual budget and accounting statistics. Accounts for the years 2011 and 2012 Budget for 2013 Distributed on a quarterly basis in the year 2013 using the so-called Denton algorithm. Millions DKK 2011 2012 2013 Accounting data Budget data Expences, Interests 37.581 36.393 33.360 Revenue, interests and dividends 29.111 28.095 29.522

Example: Distribution for interests on quarters in 2013 Interest according to distributed data on quarters