Off-balance sheet , or Incognito Leverage , usually means an asset or debt or financing activity is not in the company's balance sheet. Total swap is an example of a sheet item off the balance sheet.
Some companies may have large amounts of assets and liabilities off the balance sheet. For example, financial institutions often offer asset management or brokerage services to their clients. The managed or brokered assets as part of this offered service (often securities) usually belong to each client directly or in trust, although the company provides management, storage or other services to the client. The company itself has no direct claims on assets, so it does not record them on the balance sheet (they are off-balance sheet assets), while it usually has some basic fiduciary obligations with respect to clients. Financial institutions may report off-balance sheet items in their formal accounting reports, and may also refer to "managed assets," a number that can include items outside and outside the balance sheet.
Under current accounting rules both in the United States (US GAAP) and international (IFRS), operating leases are off-balance-sheet financing. Financial liabilities of non-consolidated subsidiaries (as they are not wholly owned by parents) may also be off-balance sheets. The obligation is part of the accounting fraud in Enron.
The formal book-keeping differences between on and off-balance sheet items can be very detailed and will depend on a certain level of management judgment, but in general terms, items must appear on the company's balance sheet if it is an asset or liability that the company owns or is legally responsible; uncertain assets or obligations must also fulfill the testing to be probable , measurable and significant . For example, a company that is sued for indemnification will not include potential legal liabilities on its balance sheet until a legal assessment of it is possible and the number of assessments can be estimated; if the amount of risk is small, it may not appear in the company account until the assessment is given.
Video Off-balance-sheet
Perbedaan antara lembar on dan off-balance
Traditionally, banks lend to borrowers with strict borrowing standards, keep loans on their balance sheets and maintain credit risk - the risk that borrowers will fail (unable to pay interest and principal as specified in the loan contract). In contrast, securitization allows the bank to remove the loan from the balance sheet and transfer the credit risk associated with the loan. Therefore, two types of items are interesting: on-balance sheet and off-balance sheet. The former is represented by traditional loans, as banks show loans on the side of their balance sheet assets. However, securities loans are represented from the balance sheet, since securitization involves the sale of the loan to a third party (the borrower's originator and the borrower being the first two parties). Banks disclose details of securities assets only in the notes to their financial statements.
Maps Off-balance-sheet
Banking Example
The bank may have substantial amounts in off-balance sheet accounts, and the differences between these accounts may not be apparent. For example, when a bank has a customer depositing $ 1 million in a regular bank deposit account, the bank has a $ 1 million liability. If the customer chooses to transfer the deposit to a money market mutual fund account sponsored by the same bank, $ 1 million will not be a bank liability, but the amount held in trust for the client (formally as a share or unit in the form of a collective fund). If funds are used to buy shares, they are also not owned by the bank, and do not appear as bank assets or liabilities. If the client then sells the shares and keeps the proceeds in a regular bank account, this will now appear again as a bank liability.
For example, UBS owns CHF 60.31 billion an irrevocable credit facility of the balance sheet in 2008 (USD 60.37 billion.)
Citibank had an off-balance sheet asset of $ US $ 960 billion in 2010, amounting to 6% of GDP of the United States.
References
External References
- Off-Balance-Sheet Entities: Good, Bad And Bad - Investopedia
Source of the article : Wikipedia
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