Off Balance Sheet and Financial Reporting Quality

Companies have used off balance sheet (OBS hereafter) arrangements responsibly, and irresponsibly, for some time (Wayman, 2002). These sorts of transactions were permissible under Generally Accepted Accounting Principles (GAAP) and tax laws so that companies could finance business ventures by transferring the risk from the parent to the off balance sheet subsidiary (Lander & Auger 2008). Today, a company that has any kind of off balance sheet item is being tarnished by Enron-gate, whether justified or not. This term paper will define some typical off balance sheet items and discuss whether they are good or bad. In addition, it will examine the quality of financial statements by providing numbers of researches that have been done to scrutinize the improvement and how they should be.