Introduction 15 66. Statistical units may be defined as the entities about which information is sought and about which statistics are ultimately compiled. These may be identifiable legal or physical entities or statistical constructs. 67. Statistical units may be defined following many criteria, namely: legal, accounting or organizational criteria; geographical criteria; and economic criteria. The relative importance of these criteria depends on the type of unit concerned. A legal or institutional criterion helps to define units that are recognizable and identifi- able in the economy. In some cases, legally separate units need to be grouped together because they are not sufficiently autonomous in their organization. In order to define some types of units, accounting or financial criteria also have to be applied. The avail- ability of accounting criteria requires that an institutional unit maintain a complete set of accounts. In the case of the organizational criteria of an enterprise, the defin- ing characteristic is that the organizational unit should have an appreciable degree of autonomy. 68. A unit can also be geographically identified. Observational and analytical units are defined in such a way as to permit data to be compiled for local, regional and national economies. The rule regarding geographical criteria is helpful in order to permit consolidation and avoid omissions or duplications of units. 69. Activity criteria suggest that entities engaged in similar economic activities be grouped together because this makes it easier to analyse goods and services pro- duced in the economy using a homogeneous production technology. 70. Economic statistics are required by different users for various types of analysis. The System of National Accounts (SNA) is a principal user and it has par- ticular requirements, but there are also other users, including policy analysts, business analysts and businesses that use economic data for studying industrial performance, productivity, market share and other issues. Since different units within an economic entity are suitable for the compilation of different types of data, the type of data that are required is another factor that influences the definition and delineation of statisti- cal units. (a) Legal entities 71. Most societies provide for the legal recognition of economic entities, under laws that enable them to define and register themselves as legal entities. Legal entities are recognized by law or society, independently of the persons or institutions that own them. The characteristics of a legal entity are: they own goods or assets, they incur liabilities and they enter into contracts. The legal unit always forms, either by itself or sometimes in combination with other legal units, the legal basis for the statistical unit. 72. An example of a legal entity is a corporation that owns or manages the property of the organization, enters into contracts, receives and disposes of its income, and maintains a complete set of accounts, including profit and loss accounts and bal- ance sheets. (b) Institutional units 73. Institutional units are the core unit of SNA. All subsequent definitions embody the definition of this basic unit. Institutional units are transactors in the SNA and must therefore be capable of engaging in the full range of transactions in their own right and on their own behalf.
International Standard Industrial Classification of All Economic Activities (ISIC), Revision 4 16 74. An institutional unit is defined as an economic entity that is capable, in its own right, of owning assets, incurring liabilities and engaging in economic activi- ties and transactions with other entities. It may own and exchange goods and assets, is legally responsible for the economic transactions that it carries out and may enter into legal contracts. An important attribute of the institutional unit is that a set of economic accounts exists or can be compiled for the unit. This set of accounts includes consolidated financial accounts and/or a balance sheet of assets and liabilities. 75. Institutional units include persons or groups of persons in the form of households and legal or social entities whose existence is recognized by law or society independently of the persons or other entities that may own or control them. 2. Statistical units in the System of National Accounts 76. The systematic description of the economy, as represented by SNA, analy- ses two interrelated types of transactors and transactions that require two levels of statistical units. The establishment, in combination with ISIC and CPC, is used for the analysis of transactions in goods and services and for compilation of the produc- tion account. The enterprise is used as the statistical unit for compilation of income accounts, accumulation accounts and balance sheet accounts, as well as in the institu- tional sector classification of economic entities. (a) Enterprise 77. An institutional unit in its capacity as a producer of goods and services is known as an enterprise. An enterprise is an economic transactor with autonomy in respect of financial and investment decision-making, as well as authority and respon- sibility for allocating resources for the production of goods and services. It may be engaged in one or more productive activities. 78. An enterprise may be a corporation (or quasi-corporation), a non-profit institution or an unincorporated enterprise. Corporate enterprises and non-profit institutions are complete institutional units. On the other hand, the term “unincor- porated enterprise” refers to an institutional unit—a household or government unit— only in its capacity as a producer of goods and services. 79. The enterprise is the level of statistical unit at which all information relat- ing to its transactions, including financial and balance-sheet accounts, are maintained, and from which international transactions, an international investment position (when applicable), consolidated financial position and net worth can be derived. (b) Establishment 80. SNA describes the statistical unit to be defined and delineated for indus- trial or production statistics as the establishment. The establishment is defined as an enterprise or part of an enterprise that is situated in a single location and in which only a single (non-ancillary) productive activity is carried out or in which the principal productive activity accounts for most of the value added. 81. ISIC is designed for grouping units engaged in similar activities for the purpose of analysing production and compiling production statistics. Although it is possible to classify enterprises according to their principal activity using ISIC and to group them into industries, some of the resulting industries are likely to be very het- erogeneous when enterprises have secondary activities that are very different from their principal activities. It therefore becomes necessary to partition large and complex
Introduction 17 enterprises into more homogeneous units, for which production data can be com- piled. This is particularly important for enterprises that account for a large proportion of the value added of particular industries or the economy as a whole. 82. Although the definition of an establishment allows for the possibility that there may be one or more secondary activities carried out, they should be small in magnitude compared with the principal activity. If a secondary activity within an establishment is as important, or nearly as important, as the principal activity, then the unit is more like a local unit (see paras. 86 and 87 below). It should be subdivided so that the secondary activity is treated as taking place within an establishment separate from that in which the principal activity takes place. 83. In the case of most small and medium-sized businesses, the enterprise and the establishment will be identical. Large and complex enterprises that are engaged in many economic activities belonging to different ISIC industries will be composed of more than one establishment, provided that smaller, more homogeneous production units can be identified for which production data can be compiled. 3. Other statistical units 84. The concept of the establishment combines both a kind-of-activity dimen- sion and a locality dimension. The concept is based on the assumption that the aim of the statistical programme is to compile data that is classified both by activity and by geographical region. In circumstances in which precision in either the geographic or the activity dimension is not required, there are other units that may be used as statis- tical units for the compilation of production or production-related statistics. (a) Kind-of-activity unit 85. A kind-of-activity unit is an enterprise or part of an enterprise that engages in only one kind of productive activity or in which the principal productive activity accounts for most of the value added. Compared with the establishment, in the case of such a unit, there is no restriction on the geographic area in which the activity is car- ried out but it is characterized by homogeneity of activity. (b) Local unit 86. Enterprises often engage in productive activity at more than one location, and for some purposes it may be useful to partition them accordingly. Thus, a local unit is defined as an enterprise or a part of an enterprise (for example, a workshop, factory, warehouse, office, mine or depot) which engages in productive activity at or from one location. The definition has only one dimension, in that it does not refer to the kind of activity that is carried out. 87. When the criterion of kind-of-activity unit and the local unit are combined, the resulting concept corresponds to the operational definition of the establishment. (c) Unit of homogeneous production 88. Units that are defined to be optimal for a particular type of analysis are described as analytical units. Establishments are designed to be units that are more suitable for analysis of production in which the technology of production plays an important role. However, the appropriate analytical unit for the purposes of input- output analysis is a unit of homogeneous production that is defined as a production
International Standard Industrial Classification of All Economic Activities (ISIC), Revision 4 18 unit in which only a single (non-ancillary) productive activity is carried out. Units of homogeneous production are independent of the location of the activity. 89. If it is desired to compile production accounts and input-output transac- tion tables by region, it is necessary to treat units of homogeneous production located in different places as separate units even though they may be engaged in the same activity and belong to the same institutional unit. 4. Delineating statistical units 90. The universe of economic entities is composed of large and complex enter- prises engaged in many different activities, whether horizontally or vertically inte- grated, that may be undertaken at or from many geographical locations, as well as small enterprises engaged in one or very few activities that are undertaken at or from a single geographical location. 91. Enterprises have production units at which or from which they undertake the economic activity of producing goods and services. Production can take place at a particular location—for example, at a mine, a factory or a farm, or in the case of pro- duction of services from a certain location. For example, either transportation services deliver the product from the farm or factory gate to the purchaser or the product is delivered by means of a network that operates over a wide geographical area. Either way, it is assumed that the service originates from a certain location. Similarly, other services, such as those of engineering consultants, originate at a certain location from which they may be delivered to the location of the customer. 92. The need to delineate statistical units arises for large and complex economic entities whose activities fall into different classes of ISIC or whose production units are located in different geographical areas. 93. In large and complex entities, the units at which or from which production takes place are grouped for management, administrative and decision-making pur- poses into hierarchical structures. Higher-level organizational units own, control or manage the lower-level production units where production decisions are made or pro- duction takes place. Management of the financial affairs of the business usually occurs at a higher organizational level than does management of production operations. The accounting systems of businesses usually reflect this management structure by mir- roring the hierarchy of management responsibility for the operations of the business. The accounts required to support the management and decision-making functions, whether financial or production, are usually maintained for the corresponding level of management responsibility. 94. Enterprises also have a legal structure that may constitute units or groups of units that form the legal base of the business. An enterprise derives its autonomy from the common ownership and control of its resources, irrespective of the number of legal units under which it registers them. 95. In small enterprises, the operational and legal structures often coincide and may even be embodied in a single unit. For large enterprises, the operational structure may be different from the legal structure, coinciding with it only at the highest level of the business. In such cases, the organizational and production units of the enterprise’s operational structure may differ from the units of their legal structure. 96. The statistical units of large and complex institutional units may be deline- ated through a process referred to as profiling. Profiling identifies the enterprise, its legal structure, its operating structure, and the production and organizational units that are used to derive the statistical units. Once identified, the enterprise and its con-