Transactions in Financial Assets and Liabilities 233
9.16 Some transactions, such as the accrual of interest
expense and its treatment as borrowing of an additional
amount of the fi nancial instrument, take place continu-
ously. In this case, the transaction in the associated fi -
nancial asset or liability also takes place continuously.
Netting and Consolidation of Flows
Netting
9.17 Transactions in fi nancial assets and liabilities
are presented in Table 9.1 as the net acquisition of each
category of fi nancial asset and the net incurrence of
each category of liability. Th at is, in the GFS framework,
only the net change in the holding of a type of asset is
presented, not gross acquisitions and gross disposals,
as with most nonfi nancial assets. (Separate amounts for
gross acquisitions and gross disposals may, of course,
be presented if the underlying accounting records per-
mit and the information is analytically meaningful.)
When the same type of fi nancial instrument is held
both as a fi nancial asset and a liability, transactions in
fi nancial assets are presented separately from transac-
tions in liabilities rather than netting transactions in li-
abilities against transactions in fi nancial assets.
Consolidation
9.18 As explained in paragraphs 3.152–3.168, con-
solidation is a method of presenting statistics for a set
of units (or entities) as if they constituted a single unit.
A consolidated set of accounts for a unit, or group of
units, is produced by, fi rst, an aggregation of all fl ows
and stock positions within an agreed analytical frame-
work, followed by the elimination, in principle, of all
fl ows and stock positions that represent relationships
among the units or entities being consolidated.
9.19 Transactions in fi nancial assets are eliminated
when the two parties to the transaction are units that
are being consolidated. For example, if a local govern-
ment unit purchases a security issued by the central
government, both the acquisition of the fi nancial asset
and the incurrence of the liability would disappear in
a presentation of statistics for the entire general gov-
ernment sector but not in a presentation of either the
central or the local government subsector separately.
Arrears
9.20 As explained in paragraphs 7.247–7.250, ar-
rears are defi ned as amounts that are both unpaid
and past the due date for payment. In principle,
amounts payable for any expense, for acquisition of
nonfi nancial assets, or related to any liability may
become in arrears if the amounts are past due for
payment (e.g., in the case of overdue debt service
payments).9.21 Some types of fi nancial assets and liabilities,
most notably debt securities, loans, fi nancial deriva-
tives, and other accounts receivable/payable, mature
at scheduled dates, or series of dates, when the debtor
is required to make specifi ed payments to the creditor.
If the payments are not made as scheduled, the debtor
has eff ectively obtained additional fi nancing by not
making the scheduled payments. When arrears occur,
no transactions should be imputed, but the arrears
should continue to be shown in the same instrument
until the liability is extinguished. However, if the con-
tract provided for a change in the characteristics of
a fi nancial instrument when it goes into arrears, this
change should be recorded as a reclassifi cation in the
form of other changes in the volume of the fi nancial
assets and liabilities (see paragraph 10.84). If the con-
tract is renegotiated or the nature of the instrument
changes from one instrument category to another
(e.g., from bonds to equity), the resulting fl ow should
be recorded as transactions in the repayment of the
original liability and the creation of a new liability (see
paragraph 3.97).9.22 Nonetheless, interest accrues on liabilities
in arrears (both principal and interest arrears) and
is known as late interest. Late interest should ac-
crue at the same interest rate as on the original debt
instrument, unless the interest rate for arrears was
stipulated in the original debt contract, in which
case this stipulated interest rate should be used. Th e
stipulated rate may include a penalty rate in addi-
tion to the interest rate on the original debt. For
other liabilities in arrears, in the absence of other
information, interest costs accrue on these arrears
at the market rate of interest for overnight borrow-
ing. Also, any additional charges relating to arrears
(such as penalties) should be recorded as interest on
arrears of the debtor at the time the charges accrue.
If an item is purchased on credit and the debtor fails
to pay within the period stated at the time the pur-
chase was made, any extra charges incurred should
be regarded as interest on arrears and accrue until
the debt is extinguished.