Off balance sheet transactions

‘Off balance sheet finance’ has been defined as ‘the funding or refinancing of a company’s operations in such a way that, under legal requirements and existing accounting conventions, some or all of the finance may not be shown on its balance sheet’. 1 The term ‘off balance sheet transactions’ is usually used to describe those transactions which meet such an objective. However, they can involve more than this; firstly, assets as well as liabilities are normally removed (or excluded) from a company’s balance sheet; secondly, an off balance sheet transaction is likely also to have an impact on the profit and loss account. For example it may result in the reporting of a profit or loss on the ‘disposal’ of an asset taken off the balance sheet; alternatively it may involve the exclusion of profits or losses from the profit and loss account, because the activities which give rise to these profits or losses are not dealt with in the consolidated financial statements. This chapter does not discuss transactions which use the legal requirements and existing accounting conventions to reflect what are in substance borrowings under another heading, such as minority interest; these are referred to in Chapter 12. Other ‘window dressing’ transactions which are effectively transient in nature are discussed at 3.5 of Chapter 21. These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.