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Balance Sheet Financing
Off balance sheet usually means an asset or a debt or an activity that finances the company and does not appear in the balance sheet. It involves a lease or a separate subsidiary or a contingent liability such as a letter of credit.
|4503 (cca 12 pages)
Table of contents
The impact of off balance sheet financing in the banking industry 3
Critics of regulating bodies 6
The need of having off balance sheet rules 6
Accounting standards and Disclosure of off-balance sheet arrangements 9
Lack of transparency in financial reporting 13
Preview of the essay: Balance Sheet Financing
Off-Balance-Sheet Financing is a form of financing whereby large capital expenditures are kept off of a company's balance sheet by the use of various classification methods. Off balance sheet financing activities are used by companies to keep their ration of debt to equity as well as leverage ratios low. The companies will most probably do this if there is a large expenditure that can break negative debt covenants. The use of Off-Balance-Sheet Financing does not support the inclusion of loans, debt and equity which appears on the balance sheet. Some examples of off balance sheet financing include joint ventures, research and development partnerships as well as operating leases. Off balance sheet financing do not deal with purchases ...
... balance sheet of a company should have items appearing on it if it is an asset or liability formally owned by or legally responsible for. The balance sheet should also give account of uncertain assets or liabilities. These uncertain assets and liabilities must also meet tests of being probable, measurable and meaningful. For example, a company that is being sued for damages would not include the potential legal liability on its balance sheet until a legal judgment against it is likely and the amount of the judgment can be estimated; if the amount at risk is small, it may not appear on the company's accounts until a judgment is rendered.
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