346 Government Finance Statistics Manual 2014
Measurement). Other marketable fi nancial instruments
are measured at fair value. Employee-related liabilities
and long-term provisions other than fi nancial instru-
ments are measured at net present value, which may
approximate market price. Property, plant, and equip-
ment (PP&E) and intangible assets can be valued either
at fair value or at depreciated historic cost. Inventory is
valued at cost, with a requirement to reduce to net real-
izable value, if the inventory’s net realizable value falls
below cost. IPSASs allow investment properties to be
measured at fair value, except for those for which a fair
value is not reliably determinable on a continuing basis
(see IPSAS 16, Investment Property, paragraph 62).
Biological assets are valued at fair value minus costs to
sell, provided that fair value can be reliably measured.
A6.29 Where an item is reported at its historic
cost, IPSASs oft en encourage or require disclosure of
fair value, if there is a material diff erence between the
item’s historic cost and its fair value. For example, this
is the case for property, plant, and equipment, intan-
gible assets, and investment properties. In these three
cases, the use of historic cost is optional under IPSASs.
Th is means that governments can choose to value such
assets at fair value. If an entity chooses fair value, then
an initial valuation is made at cost, followed by sub-
sequent measurements at fair value. Fair value mea-
surement is not necessarily done annually. Interim
measurements will be at the fair value determined at
the most recent revaluation minus accumulated de-
preciation or amortization. While the choice of fair
value should, theoretically, align IPSAS measurement
with GFS measurement, other factors can, in practice,
result in diff erences. Statisticians’ measurement prac-
tices can involve sampling, indexing to infl ation, and
other estimation techniques that can generate diff erent
values from those produced by fi nancial accountants.
A6.30 IPSASs require disclosure of the valuation
basis for assets and liabilities. Th is means that IPSAS
information makes clear whether a current market
price has been used to value assets and liabilities. If
historic cost has been used to value assets or liabilities,
then the IPSAS source data will need to be adjusted
from historic cost to current market price before it
can be used for GFS. Th e adjustment will be straight-
forward where IPSASs already require disclosure of
a market price valuation, which may be the case for
some types of assets and liabilities where fair value is
materially diff erent from cost.Treatment of revaluations and other volume changes
A6.31 GFS diff erentiates between transactions
(economic fl ows by mutual agreement) and other
economic fl ows. GFS records all holding gains and
losses (revaluations) and other changes in the volume
of assets and liabilities in the Statement of Other Eco-
nomic Flows, which separates them from transactions.
Th is distinction is useful for fi scal analysis. Other eco-
nomic fl ows represent economic value gained or lost
due to events that are not directly under the control of
the government.
A6.32 IPSASs require the majority of changes in
value to be recorded in the Statement of Financial
Performance. Gains and losses recorded in the State-
ment of Financial Performance are then included in
the total net amount that fl ows from the Statement of
Financial Performance into the Statement of Changes
in Net Assets/Equity. As a result, the Statement of
Changes in Net Assets/Equity reports the total impact
of all recognized value changes. Some unrealized gains
and losses are not allowed to be recorded in the State-
ment of Financial Performance and must, instead, be
recorded directly in the Statement of Changes in Net
Assets/Equity. Th e main items are foreign exchange
gains and losses related to foreign subsidiaries, and
revaluations of property, plant, and equipment.
A6.33 Traditionally, the distinction between real-
ized and unrealized gains/losses was viewed as the
main diff erence between items recorded in the State-
ment of Financial Performance versus those excluded
from this statement and, instead, recorded only in the
Statement of Changes in Net Assets/Equity. Th e State-
ment of Financial Performance was viewed as showing
realized gains/losses, while the Statement of Changes
in Net Assets/Equity showed unrealized gains/losses.
However, IPSASs now require many unrealized value
changes to be included in the Statement of Financial
Performance. For example, value changes due to un-
realized revaluations of employee liabilities and im-
pairments are included in the Statement of Financial
Performance. Th e two main exceptions recorded in the
Statement of Changes in Net Assets/Equity (foreign ex-
change fl uctuations and revaluations of property, plant,
and equipment, and intangible assets) are both unreal-
ized, but they are also viewed as potentially obscuring
an entity’s fi nancial performance, partly because they
are viewed as outside of management’s control, and