Understanding financial statements of state-owned enterprises

Financial statements offer an overview of a company’s financial performance and position over a given period. Companies, including state-owned enterprises (SOEs), typically prepare four main financial statements on a monthly, quarterly and annual basis: the balance sheet, income statement, cash flow statement and statement of shareholders’ equity. These statements, along with relevant accounting policies and explanatory notes, provide a comprehensive view of a company’s financial status.

In line with Requirement 2.6.b of the EITI Standard, SOEs must disclose their audited financial statements or key financial items where full statements are unavailable. This disclosure complements the financial requirements related to state participation and SOEs under the EITI Standard, including the disclosure of SOE financial relations with the state (Requirement 2.6), the sale of the state’s share of production (Requirement 4.2), transactions related to SOEs (Requirement 4.5) and quasi-fiscal expenditures by SOEs (Requirement 6.2). These requirements ensure comprehensive transparency in SOEs’ financial operations, promoting accountability in the extractive sector. 

This note provides guidance to stakeholders, including EITI multi-stakeholder groups (MSGs), on locating information required by the EITI Standard within SOEs’ standard financial statements.¹

This diagram illustrates the financial relationships of an SOE with various parties, including the government, SOE subsidiaries, joint ventures and affiliates, extractive projects, lenders, shareholders and business partners.

The terms below outline the main elements of a consolidated financial statement. For a more detailed list of terms, see Annexe A. 

Balance sheet

A balance sheet reports a company's assets, liabilities and shareholders' equity at a specific point in time, providing a basis for evaluating its capital structure and computing rates of return.

Income statement

An income statement, also called a profit and loss (P&L) statement, shows the company's income and expenditures, indicating whether it is generating a profit or loss for a given period. Along with the balance sheet and cash flow statement, it reflects a company’s financial health.

Cash flow statement

A cash flow statement summarises cash inflows and outflows, measuring how effectively a company manages its cash position to meet debt obligations and fund operations.

Statement of shareholders’ equity

A statement of shareholders’ equity indicates changes in the value of shareholders’ equity or ownership interest in a company over the accounting period, offering transparency about changes in equity accounts and business activities that affect shareholders’ interests.

Financial audits 

Financial audits provide an independent opinion of whether a company’s financial statements present a “true and fair” view of its financial performance. In many countries, these audits are mandatory, assuring tax authorities and governments that companies accurately calculate their tax obligations. Audits also give investors confidence that the financial data is reliable for assessing investment risks.

Other warning signs include consistently low profit margins, inadequate reinvestment, excessive short-term debt, diminishing returns and pending legal issues. 

The objective of EITI Requirement 2.6 is to ensure an effective mechanism for transparency and accountability for state-owned enterprises (SOEs), and state participation more broadly, through a public understanding of whether SOEs’ management is undertaken in accordance with the relevant regulatory framework. This information provides the basis for continuous improvements in the SOE’s contribution to the national economy whether financially, economically or socially, and strengthens understanding of the extent to which SOE investment decisions are aligned with long-term public interests.

This requirement covers:

• Publication of SOE audited financial statements 
• Rules governing SOEs’ financial relations with the state 
• State and SOE ownership in the extractive industries 
• State and SOE loans and guarantees 
• SOE expenditures 
• SOE procurement and sub-contracting 
• SOE corporate governance and anti-corruption 
• SOE investments and the energy transition S
• OE agents and intermediaries

The objective of EITI Requirement 4.2 is to ensure transparency in the sale of oil, gas and/or mineral resources or other revenues collected in kind to allow the public to assess whether the sales values correspond to market values, and to ensure the traceability of the proceeds from the sale of those commodities to the national Treasury.

This requirement covers:

• In-kind revenues, proceeds of sales and transfers to the state 
• Buyer selection process 
• Sales agreements 
• Disclosures by commodity buyers

The objective of this EITI Requirement 4.5 is to ensure the traceability of payments and transfers involving state-owned enterprises (SOEs), as well as to strengthen public understanding of whether revenues accruable to the state are effectively transferred to the state and of the level of state financial support for SOEs.

This requirement covers: 

• Company payments to SOEs 
• SOE transfers to government 
• Government transfers to SOEs

The objective of EITI Requirement 6.2 is to ensure that, where state-owned enterprises (SOEs) undertake extractive-funded expenditures on behalf of the government that are not reflected in the national budget, these are disclosed to ensure accountability in their management. 

The requirement covers:

• SOE quasi-fiscal expenditures, including social services 
• Public infrastructure 
• Subsidies 
• National debt servicing

Where to find information

When publicly disclosed, SOEs’ financial statements are usually available on the SOE’s website, the relevant government ministry’s website, or on the corporate register. In some cases, SOEs’ audited financial statements are attached to government audit reports published on the audit office’s website. If it is not possible to publish the full audited financial statements, SOEs must document legal or regulatory barriers to publication.

Gaps with EITI disclosure requirements 

Some SOEs only publish a summary of their consolidated financial statements, or omit the auditor’s report. Some published financial statements may be outdated or unaudited.

How the EITI can add value

The EITI provides a platform for publishing financial statements, particularly where SOEs lack websites or face barriers. EITI countries could also play a role in collating financial statements and developing publicly accessible databases of audited financial statements in cases where none exist. 

The financial relationship between SOEs and the state includes transfers of funds, retained earnings, and reinvestments, which are governed by specific rules and practices.

2.1 Transfer of funds

SOEs regularly transfer funds to and from the state in the form of dividends, grants, subsidies, and budget allocations, governed by formal rules and practices.

Where to find information 

The rules governing the distribution of profits by SOEs, such as dividends or ad hoc transfers to government entities, are generally not described in the SOE’s audited financial statements. Similarly, the rules on SOEs’ entitlement to financial transfers from the government, such as budget transfers, subsidies or other financial assistance, are not typically found there.

These rules are usually codified in relevant laws, such as general SOE law, a law specific to a particular SOE, or the SOE’s statutes or articles of incorporation (often called memorandum of incorporation). In some cases, these financial relations are formalised in the country’s Public Finance Management Act.

Actual transfers from the government to the SOE are typically disclosed in the cash flow statement under “Financing Activities”. They may be categorised as government “grants”, “assistance” or “other income from the state”. 

SOE transfers to the government, including dividends, are generally reported in the SOE’s balance sheet, under shareholder equity. Net profits transferred from the SOE to the state are often labelled as “distribution of profits” or shown as a deduction from retained earnings in the statement of stockholders' equity. 

As government often holds interests in SOEs, the International Financial Reporting Standards (IFRS) (specifically IAS 24) require financial reports to include details on “related party” disclosures, transactions or amounts due/owed to the SOE. The materiality of these disclosures can provide insight into the SOE’s performance in terms of financial transfers between the state and the SOE.

Gaps with EITI disclosure requirements 

Not all SOEs or companies provide detailed components of operating income in their financial statements. Some report data under general “operational costs”, which may include non-tax transfers to the government. Additionally, SOEs may not consistently report dividends; when this occurs, it is unclear if no dividends were paid or if they were categorised under other items. 

There can also be differences in how SOE dividends are reported depending on the accounting method used. Accrual accounting reports dividends as they relate to profits from that year, while cash basis accounting records dividends when they are paid, which often related to profits from the previous year). 

How the EITI can add value

EITI reporting can:

• Provide an annual assessment of whether the financial transfers between the state and SOEs are in line with statutory procedures.
• Compare cash and accrual accounting of SOE transfers to the state, tracking decisions on dividends and their actual transfers to government, enhancing public oversight of SOEs’ contributions to government revenues over time. 
• Serve as a platform to analyse SOE payments to government, providing insights into the return on shareholder equity, which can inform public debate and policy on the management of oil, gas and mining SOEs.

2.2 SOEs’ retained earnings

SOEs retain earnings after dividend distribution, which can be reinvested in operations or saved for future use.

Where to find information 

The rules related to SOEs’ ability to retain earnings are generally codified in relevant laws, such as a general SOE law, a law specific to a particular SOE, or in the SOE’s statutes or memorandum of incorporation. 

Information on SOEs’ retained earnings are presented in the balance sheet under equity. Additional details are often provided in the notes to the financial statements. 

Gaps with EITI disclosure requirements

Consolidated financial statements typically aggregate intra-group transactions, which means retained earnings for subsidiaries, joint ventures and affiliates in which the SOE holds an equity interests may not be disaggregated. However, the EITI requires public disclosure of retained earnings at a consolidated group level, as well as for any SOE subsidiaries considered material.

How the EITI can add value 

EITI reporting can:

• Track trends in SOEs’ retained earnings and analyse how they are managed and allocated, ensuring that distributions comply with legal frameworks and explaining any variances.
• Compare cash and accrual accounting of retained earnings, improving public understanding of SOEs’ financial management over time.

SOEs reinvest retained earnings into their own operations or their subsidiaries, affiliates, or joint ventures to support long-term growth and capital development.

Where to find information 

Rules related to SOEs’ ability to reinvest retained earnings are not usually detailed in the audited financial statements but are instead codified in relevant laws, such as a general SOE law, a law specific to a particular SOE, or in the SOE’s statutes or memorandum of incorporation. 

Information on reinvestments typically appears in the balance sheet under assets, and may also be found in the notes to financial statements, particularly sections on property, plant and equipment. The cash flow statement also reports capital expenditures under “cash flow from investing”. The reinvestment rate is calculated by dividing capital expenditures by net income.

Gaps with EITI disclosure requirements

Consolidated financial statements reinvestment data at a group level, without disaggregating by subsidiary, joint venture and affiliate. IFRS 12 requires disclosure on interests in subsidiaries, joint ventures, joint arrangements, etc. At minimum, the EITI Standard requires disclosure of reinvestments at a consolidated level.

How the EITI can add value

EITI reporting can:

• Provide an annual assessment of SOE reinvestments, focusing on return on investment.
• Compare cash and accrual accountings for SOEs’ reinvestments, improving public understanding of financial management over time.
• Assess the alignment of SOE reinvestments with broader energy transition and climate risk considerations.

2.4 SOE(s)’ third-party financing

Third-party financing is any funding for an SOE or its subsidiaries that comes from sources other than the SOEs’ shareholders or internal funds. This can include equity or debt financing from banks, institutional investors or retail investors. Equity financing involves raising capital by selling shares to retail or institutional investors, while debt financing entails borrowing funds to be repaid at a future date, usually with interest.

Where to find information 

Rules related to SOEs’ ability to raise third-party financing are generally codified in relevant laws, such as a general SOE law, a law specific to a particular SOE, or in the SOE’s statutes or memorandum of incorporation.

Information on third-party debt financing typically appears in the balance sheet under financial liabilities (current or non-current). The cash flow statement may provide details under “cash flow from financing activities”, with further information in the notes to the financial statements. Third-party debt financings are usually labelled as “short-term loan”, “long-term loan”, “line of credit”, “bond” or “Eurobond”. 

Information on equity financing is usually disclosed in the balance sheet under “total liabilities and stockholders' equity” or “total liabilities and owner's equity”. The cash flow statement will reflect capital raised through equity issuance, although this does not affect the income statement. 

SOEs often hold interests in other entities, such as subsidiaries (where an SOE has a controlling share), joint ventures (a joint arrangement where two or more parties share control), or associate companies/affiliates (entities in which the SOE has a minority and non-controlling share).

Where to find information

Rules related to financial relations between SOEs and their subsidiaries and joint ventures are usually disclosed in the notes section of the SOE’s consolidated financial statements, under the summary of significant accounting policies. This section typically outlines the accounting treatment for SOE investments in subsidiaries, joint ventures and associates/affiliates, as well as the SOE’s entitlement to a share of profits from these entities. 

Additional information may be found in the statutes of the SOE’s subsidiaries, joint ventures and associates/affiliates, which often detail the financial relations between the SOE and its equity holdings. 

The practices related to the financial relations between SOE and their subsidiaries and joint ventures are often only partially described in audited financial statements. Information on dividends collected by SOEs from subsidiaries, joint ventures and affiliates is usually included in the income statement under revenue and other income.

Further information on retained earnings, reinvestments and third-party financing of SOE subsidiaries, joint ventures and affiliates may also appear in the notes to the financial statements.

Gaps with EITI disclosure requirements

The notes to the financial statements typically describe the accounting treatment for different legal arrangement (e.g. subsidiary, joint venture, associate/affiliate) but do not always include a comprehensive list of companies in which the SOE holds equity, categorised by legal arrangement type.

The notes should confirm the legal arrangement type for each company where the SOE holds equity, although this information may not always be centralised in the audited financial statements. Information on interests in subsidiaries or joint ventures held for sale or any discontinued operations may also be lacking.

Consolidated financial statements often present income (i.e. dividends) from equity participations in subsidiaries, joint ventures and affiliates in aggregate, rather than by individual company. While the notes may sometimes break down dividend income by individual company, this is not always the case. The EITI requires disclosures by individual entity or source of income, which could also be included as part of “related party” transactions in the financial statement notes.

How the EITI can add value

EITI reporting can:

• Provide an annual assessment of SOEs’ financial relations with their subsidiaries and joint ventures, focusing on tracking transactions and revenues within the SOE group and at the consolidated group level.
• Offer a platform for analysing trends in dividends paid by subsidiaries and joint ventures to the SOE group, supporting public assessments of the SOE’s return on investments over time.

Where to find information 

Consolidated financial statements typically show the aggregate value of a company’s investments in joint ventures and affiliates in the balance sheet under “assets”. Impairments related to these investments are shown under “costs and expenses” in the income statement. A list of subsidiaries, joint ventures and affiliates may be included in the notes, though it is not always comprehensive. In some cases, this information can be found in the supplementary section of the annual report.

Consolidated financial statements often do not provide a comprehensive list of equity interests held by an SOE’s subsidiaries, joint ventures or affiliates. While they usually include direct equity interests held by SOEs, they may not cover indirect equity interests held by companies in which the SOEs own shares.

The notes to the consolidated financial statements usually disclose:

• The terms attached to government and SOE ownership, i.e. the treatment of assets and liabilities related to equity holdings (typically in the section on accounting policies);
• Changes in government and SOE ownership in subsidiaries, joint ventures and affiliates;
• The terms of changes in SOE ownership in subsidiaries, joint ventures and affiliates.

Where to find information

Information on third-party debt financing for SOEs is usually found in the balance sheet under financial liabilities (current and non-current). Related party transactions, which include loans between the government and SOEs, may also be covered in the notes.

• Government loans: The notes typically describe loans or loan guarantees received from the government in aggregate. Government loans and guarantees provided to specific companies are often detailed in the government’s budget execution report or publications by the Ministry of Finance. 
• SOE loans: Loans from an SOE to its subsidiaries are usually recorded in the financial statements of the subsidiaries but may not appear in the consolidated financial statements of the SOE group. However, company loans to joint ventures and affiliates are usually recorded in the consolidated financial statements in the cash flow statement under “cash flow from investing activities”. The terms of these loans may be described in the notes to the financial statements.

Gaps with EITI disclosure requirements

• Government loans: Financial statements typically describe loans and guarantees provided by the government in aggregate, and not broken down by individual loans or guarantee. Specific details such as the loan tenor, repayment modalities or interest rate are often lacking.
• SOE loans: Financial statements do not always list loans provided by an SOE to its subsidiaries. Information on loans to joint ventures and affiliates may lack details on the loan tenor, repayment modalities and interest rate.

How the EITI can add value

• EITI reporting can establish a framework for SOEs to disclose comprehensive details of their loans and guarantees, which is a key part of their accountability to the state and the public.
• Clear and consistent disclosures on contingent liabilities such as loans and guarantees help address fiscal transparency concerns.

SOEs’ expenditures are divided into operational costs for day-to-day activities and capital investments for long-term asset development and growth. “Operating expenditures” refer to the recurring costs incurred by an SOE in its day-to-day operations, typically arising from the sale of oil, gas and products in a given year. These include: 

• General, operating, selling, administrative and marketing costs
• Employee and facility expenses (e.g. rent) 
• Exploration expenses if not capitalised (i.e. if the sources of funding for an expense are not clearly defined)
• Depreciation, impairment and amortisation (if related to operations)
• Costs of purchasing oil, gas and petroleum products

Operating expenditures exclude tax or non-tax transfers to the state and financial costs, such as interest and other borrowing-related charges.

“Capital expenditures” refer to the cash spent by an SOE on acquiring or upgrading physical assets in a given year. This includes investments through the acquisition or leasing of property, equipment (wells, plants, etc.), or costs related to upgrading and maintaining existing assets to extend their life. Capital expenditures only cover acquisition costs that are capitalised. Exploration costs, such as drilling exploratory wells, are included only if explicitly capitalised. These expenditures reflect the SOE’s investments aimed at future growth. 

Where to find information

• Operating expenditures: Rules related to SOEs’ operating expenditures are generally codified in laws (e.g. general SOE laws, SOE-specific laws) or in the SOE’s statutes or memorandum of incorporation.
• Capital expenditures: The regulatory framework for capital expenditures is also codified in relevant laws of statues, and the accounting policies in the financial statements provide information on asset depreciation and amortisation. Details on actual capital expenditures are typically disclosed as assets in the balance sheet and in the cash flow statement under “investing activities”.

Gaps with EITI disclosure requirement

The way in which SOEs report their expenditures varies significantly across jurisdictions. It is often challenging to distinguish between operational and capital expenditures in financial statements. It may also be difficult to identify whether a cost has been capitalised, based on the available data.

How the EITI can add value

EITI reporting can: 

• Provide an annual assessment of whether SOEs’ operating and capital expenditures comply with relevant rules and regulations.
• Offer a platform for evaluating trends in SOE’s capital expenditures over time, situating these expenditures within the broader context of the SOE’s financial performance and future growth prospects. 

Where to find information 

Consolidated financial statements typically do not provide information on SOEs’ procurement and sub-contracting rules or practices. However, some SOEs disclose this information on their corporate websites. 

Procurements may also be governed by the general procurement legal framework of the respective state. In instances where an SOE has undergone a performance audit, the performance audit report may review the SOE’s procurement rules and practices. 

Gaps with EITI disclosure requirements

Some SOEs disclose procurement and sub-contracting rules on their websites, but this information often focuses on legal and regulatory procedures, rather than providing an overview of actual procurement and sub-contracting practices. 

How the EITI can add value

EITI reporting can:

• Provide an annual assessment of how well SOEs’ procurement and sub-contracting practices align with relevant rules and regulations.
• Offer a platform for evaluating the robustness of procurement and sub-contracting policies and practices, reducing the risk of mismanagement or undue discretion in the awarding of contracts.
• Help align SOEs’ contracting disclosures with international standards, such as the Open Contracting Data Standard (OCDS), which fosters greater transparency and accountability.

Corporate governance in SOEs includes the rules and practices for appointing Boards, defining mandates, establishing codes of conduct and implementing anti-corruption measures to ensure accountability and transparency.

Where to find information

Consolidated financial statements consistently provide information on the company’s investments. Capital expenditures are typically reported under the “cash flow from investing” section of the cash flow statement in the balance sheet. The notes related to “tangible fixed assets” often disclose SOE investments in exploration and production, including both development and dismantling costs.

Gaps with EITI disclosure requirements

Consolidated financial statements typically do not provide an overview of the SOE’s investment plans beyond the period under review, nor do they describe how investments align with energy transition and climate risk considerations. However, they often contain some forward-looking commentary, though this is not always directly linked to the company’s broader investment strategy or assumptions about the future. 

How the EITI can add value:

EITI reporting can: 

• Provide additional context on SOEs’ investment plans, particularly in relation to energy transition and climate risk considerations.
• Clarify the impact of energy transition and climate risk on SOEs’ investment strategies.
• Help align SOEs’ investment planning with the country’s broader energy transition and climate risk considerations.

Where to find information 

Consolidated financial statements typically do not provide detailed information on a company’s agents, intermediaries, suppliers or contractors. However, some SOEs disclose such information on their corporate websites as part of efforts to enhance transparency in procurement practices.

Gaps with EITI disclosure requirements

SOEs’ disclosures regarding their agents, intermediaries, suppliers and contractors tend to be limited to the names of these entities, with little additional detail. Few SOEs publish beneficial ownership information of their agents, intermediaries, suppliers or contractors.

How the EITI can add value: 

EITI reporting can: 

• Support SOEs in establishing robust record-keeping and disclosure practices concerning the identity of their agents, intermediaries, suppliers and contractors.
• Clarify the beneficial ownership of SOEs’ key agents, intermediaries, suppliers and contractors.
• Serve as a platform for discussing and assessing any risks related to the identity and roles of SOEs’ agents, intermediaries, suppliers and contractors. 

Where to find information 

• Volumes of state in-kind revenues collected: Consolidated financial statements typically provide information on the SOE’s share of production but rarely include details on in-kind revenues collected for the state. Some SOEs maintain separate accounts of operations for the state and their own commercial activities, with distinct financial statements. 
• Volumes of state in-kind revenues sold: Consolidated financial statements often report crude oil sales volumes, but seldom distinguish sales conducted on behalf of the state. However, some SOEs maintain separate accounts, and some may disclosure their commodity sales on their corporate websites.
• Value of proceeds of sales of state in-kind revenues: Consolidated financial statements typically include proceeds from commodity sales under “Revenue” in the income statement, but do not clearly separate revenues from sales made on behalf of the government, nor do they break this down by buyer. Some SOEs maintain separate accounts, and best practices include publishing more detailed information on crude oil sales on corporate websites.
• Value of transfers to the state of proceeds of sales of state in-kind revenues: Consolidated financial statements do not typically present information on transfers of in-kind revenue sales to the state Treasury. Instead, these details are usually found in government reports, such as in annexes to budget execution reports published by the Ministry of Finance.

Gaps with EITI disclosure requirements

• Volumes of state in-kind revenues collected: In-kind revenues are generally presented in aggregate, not broken down by project, as required by the EITI Standard. Some SOEs only publish summaries of their consolidated financial statements, lacking the required detail. 
• Volumes of state in-kind revenues sold: As with collected revenues, SOEs’ financial statements often present sales volumes in aggregate, rather than disaggregated by project or buyer. Corporate websites can provide more detailed data, but this practice is not yet widespread.
• Value of proceeds of sales of state in-kind revenues: Financial statements and annual reports typically do not break down the proceeds of sales of the state’s in-kind revenues by buyer. However, where SOEs publish information on crude oil sales on corporate websites, this may include sales data disaggregated by buyer and cargo. 
• Value of transfers to the state of proceeds of sales of state in-kind revenues: While financial statements present the value of payments to the state of taxes and dividends, they generally do not include details on the transfer of sales proceeds to the state. Payments may be lumped into operational expenditures, without being disaggregated.

How the EITI can add value 

EITI reporting can: 

• Enable SOEs to demonstrate the efficiency of the commercialisation process for the commodities they produce.
• Provide a platform for annual assessments of the terms of trade for the state’s commodity sales, allowing for multi-year and cross-country comparisons of commodity sales prices and terms. 

Where to find information 

Commodity sales contract templates are sometimes published on SOEs’ websites. However, final versions of these agreements are rarely made public. Publicly listed companies may disclose some contracts as part of their reporting requirements. 

Gaps with EITI disclosure requirements 

SOEs generally do not publish final commodity sales agreements. However, national EITI processes are leading to the publication of model commodity sales agreement templates, such as in Iraq, Mexico and the Republic of the Congo. Publicly listed companies are sometimes required to disclose commodity sales agreements involving state partners, as in the case of the LNG sales contract with BP and Kosmos Energy in Mauritania and Senegal.

How the EITI can add value 

EITI reporting can:

• Improve public oversight of state commodity sales and their contractual basis, ensuring that transactions are conducted fairly and in line with market practices.
• Enable stakeholders to assess whether the state receives a fair value from its in-kind revenues in line with the terms of the sales agreement(s).
• Provide a platform for comparing the terms of state commodity sales across countries, fostering best practices and reducing the risk of mismanagement or corruption in sales processes. 

Where to find information

Consolidated financial statements typically do not disclose a company’s specific purchases from SOEs. However, a growing number of buyers are publishing this information through annual payments to government reports.

Gaps with EITI disclosure requirements

While some buyers disclose their purchases, these do not consistently meet the EITI Standard’s requirements. They often fail to disaggregate purchased volumes and values by individual cargo, and do not usually differentiate between state’s in-kind revenues and the SOE’s own equity commodity sales.

How the EITI can add value

EITI reporting can: 

• Promote a level playing field by enhancing transparency in the buyer selection and sales process.
• Improve transparency on the ownership of contractors and help clarify the relationship between the SOE and its business partners, reducing counterparty risk and strengthening the SOE’s credibility with lenders and investors.
• Align buyer selection practices with international standards such as the OECD’s guidance for SOEs on “How to Select Buyers of Oil, Gas and Minerals”, supporting transparent and competitive sales processes.

Where to find information

Consolidated financial statements present the value of dividends received from subsidiaries, joint ventures and affiliates in the “revenue” section of the income statement. 

Gaps with EITI disclosure requirements 

Information on dividends from subsidiaries, joint ventures and affiliates is not always broken down by individual company.

Where to find information

Information on SOE transfers to the government, such dividends, are typically presented in the SOE’s balance sheet under “shareholder equity”. Transfers of net profits from the SOE to the state are often labelled as “distribution of profits” or “statement of stockholders’ equity as a subtraction from retained earnings”, among other labels.

Gaps with EITI disclosure requirements 

Not all companies record the components of operating income in detail, so some report data for “operational costs” that also includes non-tax transfers to government.

SOEs sometimes do not report dividend payments, making it unclear whether no dividends were paid or if they were classified under another category. Differences also exist between dividends reported on an accrual basis (linked to profit in the same year) and a cash basis (dividends paid in that year, often based on prior-year profits). 

Where to find information

Government transfers to SOEs are typically disclosed in the cash flow statement under “Financing Activities”, and may be categorised as “grants”, “assistance” or “other income from the state”, among other labels.

How the EITI can add value

EITI reporting can: 

• Clarify the flow of fiscal revenues collected by SOEs and their transfers to the Treasury. 
• Provide insight on subsidies and financial relations within SOEs’ subsidiaries, joint ventures and affiliates. 
• Offer transparency on other payments and revenues outside regular legal frameworks, such as advances on fiscal payments. 

Quasi-fiscal expenditures are arrangements where SOEs undertake public social expenditure on behalf of the state that falls outside the formal government budget. This may include spending on social services, public infrastructure, fuel subsidies and national debt servicing.

Such expenditures are typically directed by the government, although in some cases individual government officials may issue directives that are not codified in law. Expenditures related to assets controlled or owned by the SOE that have not been directed by the government are usually not considered quasi-fiscal expenditures.³

Accounting policies: Accompanying a financial statement, the notes to the financial statements, provide details on the organisation’s operations and the figures presented. Typically, the second note describes the organisation’s accounting policies, which refer to the principles, practices and rules applied when preparing and presenting financial statements.

Auditor’s report: An auditor’s report is the formal opinion or disclaimer issued by an auditor after performing an audit. It confirms whether the financial statements are free from material error or omission. The auditor’s report typically mirrors the structure of the financial statements and specifies whether errors or omissions that could impact the understanding of the financial statement were found.

Balance sheet: A balance sheet, also called “statement of financial position”, is a financial statement that reports a company's assets, liabilities and shareholders' equity at a specific date. It helps compute rates of return and evaluate a company’s capital structure.

Cash flow statement: A cash flow statement is a financial statement that summarises the amount of cash and cash equivalents entering and leaving a company. It shows how the company manages its cash, including debt obligations and operating expenses.

Cash-based vs accrual-based accounting: Cash-based accounting recognises revenues and expenses when cash is received or paid, while accrual-based accounting recognises income when it is earned and expenses when liabilities are incurred, regardless of cash flow.

Income statement: The income statement, also called “profit and loss (P&L) statement”, is the most common financial statement and summarises a company’s revenues, costs and expenses over a specified period, typically a fiscal quarter or year.

Joint ventures vs joint arrangements: A joint venture has rights to the net assets of the arrangements, while in a joint arrangement, the parties have rights to the assets and obligations for liabilities (see IFRS 11).

Materiality: Materiality refers to whether information is significant enough to influence decisions. Materiality can be quantitative or qualitative. A quantitative materiality consideration is usually a specific percentage of net income or other major financial aggregate (e.g. 5% of net income from continuing operations or 2-3% of operating income), but these thresholds can vary significantly. An item may not necessarily be considered as immaterial only because it falls below a predetermined quantitative threshold; other qualitative factors may still make an item material, such as misstatements that affect key ratios, or where statements distort transactions with related parties or other specific matters (see IFRS Materiality practice statement).

Ownership or interests in other entities: Ownership refers to the rights and responsibilities of the individuals holding a legal or equitable interest in a company. Ownership information helps users assess the risks and impacts of the company’s interests in subsidiaries, joint arrangements or affiliates on its financial performance and position (see IFRS12).

Reinvestment vs investment: Reinvestment occurs when income from an investment is reinvested into that investment, such as dividends to buy more stock, or interest payments to buy more bond. This contrasts with general investments that involve fresh capital or purchasing assets. 

Related parties: A related party is a person or an entity connected to the reporting entity. This includes close family members of an individual that has (sole or joint) control or influence over the entity, whether it is a parent company, subsidiary, fellow subsidiary, associate or joint venture of the reporting entity, or if it is (solely or jointly) controlled, or significantly influenced by a related party (see IAS24).

Retained earnings: Retained earnings are the portion of profits not distributed as dividends, kept for reinvestment or debt repayment. These earnings are reflected in the income statement and carried over to the equity section of the balance sheet, where they contribute to book value. Retained earnings (RE) are calculated as: RE = Period Start RE + Net Income/Loss – Cash Dividends – Stock Dividends.

Statement of shareholders’ equity: This document highlights changes in stockholders’ or shareholders’ equity, or ownership interest in a company, from the start to the end of a given accounting period. It forms part of the company’s balance sheet.

Stock: Stock represents shareholder equity. It is calculated as: Stock = Assets - Liabilities + Shareholder Equity (stock). Based on this equation, common stock is neither considered an asset nor a debt. However, being on the opposite side of the asset equation, it is treated more as a liability than an asset, as a shareholder can request to cash out.

Subsidiaries versus associates/affiliates: Affiliates and associates are companies where the parent company holds a minority stake, while subsidiaries are those where the parent company holds a controlling interest. Associates are entities over which the investor has significant influence, usually presumed if the entity holds 20% or more of the voting power, either directly or indirectly (e.g. through subsidiaries) (see IFRS IAS 28).

Third-party financing: Third-party financing occurs when SOEs secure financing from an external source, such as a bank or private investor, rather than from their shareholders or the state.