REPORT OF THE OECD TASK FORCE ON SOFTWARE MEASUREMENT

STD/NA(2002)2

STD/NA(2002)2

MACROBUTTON InsertCVP.main \* MERGEFORMAT

Table of contents

Introduction4

Overview5

Chapter I: Classification, Definition and Conceptual Issues9

1.1Definition of software originals, reproductions and, games9

1.1.1The SNA Definition9

1.1.2Task Force Definition Of Software9

1.2Originals and own-account software11

1.2.1Own-Account Software11

1.2.2Valuation of software systems produced in-house12

1.3Licenses to use and rentals14

1.3.1Licenses to use14

1.4Licenses to Reproduce copies for sale and Bundled/Embedded Software17

1.4.1Licenses to reproduce17

1.4.2Bundles, Embedded Software (and sub-contracting on software for sale)18

1.5Royalties18

1.6Maintenance19

1.7Small Tools20

1.8Databases20

1.8.1The SNA20

1.8.2Definition of Databases21

1.8.3Electronic Data22

1.8.4Task Force Proposals24

1.8.5Conclusion25

1.9Concordance Tables25

1.9.1CPA Concordance Table26

5.2.2 US SIC Concordance Table28

Chapter II: International Trade Flows31

2.1Introduction: Identifying Imports and Exports of Software Goods and Services31

2.2International Trade Measurement Issues31

2.3Concepts, Definitions and Classification issues32

Where can software transactions be found in classifications of trade and in the balance of payments32

2.4Results of the Survey of National Practices in the Measurement of Software in the National Accounts33

2.5General remarks concerning responses to section 3.1 International Trade in Software35

2.6Trade in Software Goods (response to table L in the Questionnaire)35

2.7Draft conclusions and recommendations42

2.8International Trade Codes for Computer Software43

Joint OECD-Eurostat Classification of International Trade in Services43

Chapter III: Deflators45

3.1Introduction45

3.2Deflation of pre-packaged software46

3.3Deflation of customised software47

3.4Deflation of own-account software48

3.5Summary table of deflations used for software49

3.6Draft Commission Decision on price and volume measures in National Accounts (Eurostat B1/CN 503 e)49

Chapter IV: Lessons from Business Accounting and Business Surveys51

4.1Business accounting: the theory.51

4.1.1Introduction51

4.1.2The US Approach51

4.1.3International Financial Reporting Standards (IFRS) Process of Accounting51

4.1.4Financial disclosure of necessary information in business accounts53

4.2Business accounting: tax rules54

4.3Business accounting: in practice54

4.3.1Software editing companies54

4.3.2Lessons from business accounting54

4.4A strategy for estimating software investment56

4.5Adequate Business Surveys57

External costs related to software for own final use:58

Internal costs of in-house software58

Chapter V: The supply approach60

5.1Purchased software60

Step 1: from industry data to product data60

Step 2: inclusion of imports to obtain total resources61

Step 3: inclusion of trade margins and taxes62

Step 4: avoiding double counting63

Step 5: maintenance65

Step 6: Exclusion of household purchases and exports.65

5.2Macro-estimate of own-account software66

5.2.1General principles66

5.2.2Coverage of software professionals69

5.2.3Coverage of compensation70

5.2.4Adjustments71

5.2.5Non-labour costs (intermediate consumption, consumption of capital, operating surplus, etc.)

73

5.3Other adjustments75

Chapter VI: Consumption of Fixed Capital, Current Year Estimation77

6.1Consumption of Fixed Capital77

6.2Current Year Estimation78

ANNEX80

List of participants80

Summary of recommendations84

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REPORT OF THE OECD TASK FORCE ON SOFTWARE MEASUREMENT IN THE NATIONAL ACCOUNTS

Chteau de la Muette22-23 April 2002

Introduction

A change was made in the latest system of national accounts (SNA93) that recommended the capitalisation of software. This was widely welcomed since it recognised the "asset" and "investment" characteristics of software and brought the treatment of software purchased separately into line with software purchased as a bundle with hardware, which has always been capitalised. However this has come at a cost, namely, a deterioration in the international comparability of economic statistics. An examination of the estimation-techniques used in National Statistics Offices (NSOs) in the OECD area suggests that this reflects differences in interpreting what software is, as much as it does differences in measurement approaches.

This is not the only area of the national accounts where issues of international comparability arise but the comparability of software estimates across countries has been the subject of much discussion and scrutiny, reflecting its importance to economic growth and investment and its role in productivity and capital services estimates. The differences in estimation processes are significant: the impact of harmonising definitions and measurement techniques could lead to revisions of over 1 per cent of current price GDP levels, with consequential impacts on GDP growth and ICT investment.

To address these measurement issues, and improve international comparability, an OECD Task Force was set up in October 2001. 19 countries were represented in the Task Force - 12 European and 7 non-European. A European (Eurostat) Task Force was also convened to work in parallel with the OECD Task Force. The common objective of the task forces was to propose conceptual and practical recommendations on software measurement in the national accounts that would improve the comparability of data between countries.

This report describes the recommendations of the OECD Task Force that will be presented to the OECD national accounts expert meeting in October 2002. The Eurostat Task Force presented its report to the Eurostat GNP Committee in July 2002. While the two reports may differ in presentation, their recommendations are fully consistent.

In the present report, to help the reader, recommendations have been highlighted and numbered, and a summary of recommendations is included as an annex.

Overview

The first step of the Task Force was to evaluate the extent of difference across countries and to improve understanding of their underlying causes. As such a detailed Questionnaire was sent to Task Force Members towards the end of 2001. Responses confirmed that significant differences existed, both in concepts and in estimation procedures, and that these compromised comparability.

The two charts below, compiled from a synthesis of the returns, illustrate the impact and significance of these differences. The first details the significance of software, as a proportion of GDP. A striking feature is the variance across countries, particularly when contrasted with other information. For example the UK, with a software producing industry 50% larger than Denmarks (as a per cent of GDP) has software

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STD/NA(2002)2

Organisation de Coopration et de Dveloppement Economiques

Organisation for Economic Co-operation and Development

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English - Or. English

STATISTICS DIRECTORATE

National Accounts

REPORT OF THE OECD TASK FORCE ON SOFTWARE MEASUREMENT IN THE NATIONAL

ACCOUNTS

Paper prepared by Franois Lequiller, Nadim Ahmad, Seppo Varjonen, William Cave and Kil-Hyo Ahn -

OECD Paris

OECD MEETING OF NATIONAL ACCOUNTS EXPERTS

Chteau de la Muette

8-11 October 2002

Beginning at 9:30 a.m. on the first day

francois.lequiller@oecd.org

Document complet disponible sur OLIS dans son format d'origine

Complete document available on OLIS in its original format

STD/NA(2002)2

Unclassified

English - Or. English

investment levels less than one/third the size of Denmarks.

Central to the issue of measurement is how investment expenditure in computer services (software) is distinguished from intermediate consumption in computer services. In other words, the ratio of capitalised software to total expenditure (by businesses and government on computer services) is a measure of the propensity of any country to capitalise software, so a comparison of this ratio (the investment ratio) provides insight into the scale of measurement differences across countries. The Questionnaire used a harmonised definition of computer services and the chart below compares this ratio across countries. Figure 2 below compares these ratios for 14 OECD countries. (Not all countries were able to comply exactly with the harmonised definition although all EU countries use exactly the same definition).

Investment in software. Price indices from 1980 onwards. 1995=100

0

100

200

300

400

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

DEN

AUS

CAN *

USA *

FRA

FIN

A priori, assuming that common definitions and measurement procedures existed, one would have expected these ratios to be much closer together. At the more detailed level differences are st