Journal articles: 'Off-balance sheet accounting'

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Weetman, Pauline. "Off-balance sheet financing." British Accounting Review 21, no. 1 (March 1989): 103–5. http://dx.doi.org/10.1016/0890-8389(89)90084-x.

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Barrett, Jonathan. "“Off balance sheet law”: Globalisation, accounting and democracy." Kōtuitui: New Zealand Journal of Social Sciences Online 2, no. 2 (January 2007): 75–94. http://dx.doi.org/10.1080/1177083x.2007.9522425.

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Chandra, Uday, Michael L. Ettredge, and Mary S. Stone. "Enron-Era Disclosure of Off-Balance-Sheet Entities." Accounting Horizons 20, no. 3 (September 1, 2006): 231–52. http://dx.doi.org/10.2308/acch.2006.20.3.231.

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The scandal that followed Enron's failure to disclose billions of dollars of debt held by off-balance-sheet entities (OBSEs) prompted investor interest in these entities and motivated auditors to request more accounting guidance. The SEC responded by issuing Financial Release No. 61 (FR-61) to remind managers to follow SEC guidance for disclosures on liquidity and capital resources in the Management's Discussion and Analysis section of the annual report. FR-61 identifies disclosure objectives but does not require specific disclosures. We study how the OBSE-related disclosures of companies that sponsored OBSEs before Enron changed after Enron/FR-61. We find that while OBSEs were widely used by S&P 500 firms before Enron/FR-61, a majority of these firms either did not disclose their OBSEs or, if they did, provided little useful information. After Enron/FR-61, OBSE disclosure levels increased significantly but not uniformly across firms. The pattern of increases suggests that FR-61 reduced regulatory uncertainty and increased the perceived minimum level of required OBSE disclosure. Our results are consistent with the view that general guidance (of the type found in principles- or objectives-based accounting standards) may result in underdisclosure or a large disparity in level of disclosure, and that reminders of responsibility and suggestions to consider specific disclosures partially remedy both problems.

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Biondi, Yuri, Robert J. Bloomfield, Jonathan C. Glover, Karim Jamal, James A. Ohlson, Stephen H. Penman, Eiko Tsujiyama, and T. Jeffrey Wilks. "A Perspective on the Joint IASB/FASB Exposure Draft on Accounting for Leases." Accounting Horizons 25, no. 4 (December 1, 2011): 861–71. http://dx.doi.org/10.2308/acch-50048.

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SYNOPSIS The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) recently issued a joint exposure draft on accounting for leases. This exposure draft seeks to shift lease accounting from an “ownership” model to a “right-of-use” model. Under the current ownership model, leases can be reported on balance sheet (finance leases) if certain tests are met, or off balance sheet (operating leases) if those tests are not met. The new model seeks to report all leases on the balance sheet based on the present value of lease obligations without any bright line tests, and no sharp on or off the balance sheet classifications. We are sympathetic to the standard setters' concern that the current lease standard is being manipulated improperly by managers, resulting in large amounts of debt being reported off balance sheet. We provide a discussion of current lease accounting and the proposed exposure draft. We also comment on five key issues covered by the exposure draft: the definition of a lease, the initial measurement and eventual reassessment at fair values, the accounting for lessors, the impact of lease accounting on recognition and income measurement, and classification of lease accounting elements and their impact on accounting ratios. JEL Classifications: M40.

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Fridson, Martin S. "Hidden Financial Risk: Understanding Off-Balance Sheet Accounting (a review)." Financial Analysts Journal 61, no. 6 (November 2005): 101–2. http://dx.doi.org/10.2469/faj.v61.n6.2777.

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Pfeiffer, Jr., Ray J. "Market value and accounting implications of off-balance-sheet items." Journal of Accounting and Public Policy 17, no. 3 (September 1998): 185–207. http://dx.doi.org/10.1016/s0278-4254(98)10005-4.

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Androniceanu, Armenia, and Lenka Strakova. "Creative accounting in a global business environment." SHS Web of Conferences 92 (2021): 02003. http://dx.doi.org/10.1051/shsconf/20219202003.

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Research background: The main essence of financial statements is a true and fair view of accounting because accounting information is an essential source of information about the company. A global business environment that provides scope for selecting existing accounting practices, different techniques, or different methods used in reporting may appear to be beneficial to the business and its accounting. Breach of the accounting principle of a true and fair view of the accounts through the intentional implementation of accounting errors or accounting fraud committed by responsible employees increases information asymmetry between creators and users of accounting information. Purpose of the article: The paper aims to point out the use of creative accounting in companies existing in the global business environment using a graphical representation of accounting cases using creative accounting techniques, namely Window dressing techniques, and Off-balance sheet techniques. Methods: In the paper is used the method of description and the comparison method based on which we compare entity that prepares the accountant statements in two variants A and B by using window dressing techniques and off-balance sheet techniques. The achieved results are presented in this paper using a graphical representation. Findings & Value added: Through the use of creative accounting techniques such as Window dressing techniques and Off-balance sheet techniques, our goal is to point out the possible manipulation of the company’s financial statements by performing accounting cases in terms of maximization variant (A) and minimization variant (B).

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Bauman, Mark P. "The Impact and Valuation of Off-Balance-Sheet Activities Concealed by Equity Method Accounting." Accounting Horizons 17, no. 4 (December 1, 2003): 303–14. http://dx.doi.org/10.2308/acch.2003.17.4.303.

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This paper reports the results of a study of the financial reporting effects of off-balance-sheet activities concealed by the equity method of accounting. The study examines footnote disclosures relating to equity method investees, offers suggestions for improving the usefulness of those disclosures, and estimates the valuation effects of information in the disclosures. An important empirical finding is that the market places significant negative values on investor-guaranteed off-balance-sheet obligations.

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SAFONOVA, Margarita F., and Yuliya V. MARCHENKO. "Debating points of accounting to reflect escrow account transactions by the developer organization." International Accounting 22, no. 4 (April 15, 2021): 438–58. http://dx.doi.org/10.24891/ia.24.4.438.

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Subject. This article discusses the issues of reflection of information on settlements with equity construction investors both on off-balance and balance sheet accounts of the developer. Objectives. The article aims to determine the extent of the transition to project financing of housing construction using escrow accounts, explore options for accounting for incoming funds of equity construction investors, and develop a methodology that helps avoid tampering with the balance sheet total of developers. Methods. For the study, we used induction, deduction, analysis, synthesis, and the calculation and graphic, monographic, and accounting and analytical methods. Results. In some cases, the findings have revealed significant discrepancies the way funds available to escrow accounts get accounted for. An analysis of the causes of these deviations confirms the need to develop an off-balance sheet accounting methodology. Conclusions and Relevance. The updated methodology is structured in such a way that the investors' funds are accounted by the developer in one account, another account is used for settlements with the equity construction investors, and the funds placed by the bank on the escrow accounts are reflected in the off-balance sheet of the developer, without misrepresenting the balance sheet total. The results can be used in the theory and practice of construction companies in the process of accounting and reporting by business entities of various forms of ownership, as well as for further scientific developments and practical applications.

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Kusano, Masaki, and Yoshihiro Sakuma. "Recognition versus Disclosure and Audit Fees and Costs: Evidence from Pension Accounting in Japan." Journal of International Accounting Research 19, no. 3 (July 8, 2020): 133–60. http://dx.doi.org/10.2308/jiar-19-082.

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ABSTRACT Statement No. 26, Accounting Standard for Retirement Benefits, requires Japanese firms to recognize previously off-balance sheet pension liabilities on their balance sheets. We explore auditors' responses to recognized versus disclosed pension liabilities in the Japanese audit market. We use a pre-Statement No. 26 versus post-Statement No. 26 setting to analyze whether and how disclosed versus recognized pension information affects audit fees and costs. We show that disclosed pension liabilities are processed similarly to recognized previously off-balance sheet pension liabilities when audit fees are determined. However, we find that associations with audit costs differ between disclosed and recognized pension liabilities. We also find that audit costs' differential relations with disclosed and recognized pension liabilities are particularly pronounced for firms with a large pension plan deficit. Overall, our results suggest that auditors scrutinize recognized amounts more closely than disclosed financial information, thereby increasing the reliability of accounting information. JEL Classifications: M41; M42; M48.

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Hsieh, Su-Jane, and Shuming Liu. "The cost-of-equity implications of off-balance sheet pension liabilities." Journal of Contemporary Accounting & Economics 17, no. 1 (April 2021): 100238. http://dx.doi.org/10.1016/j.jcae.2020.100238.

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Jamal, Karim, and Hun-Tong Tan. "Joint Effects of Principles-Based versus Rules-Based Standards and Auditor Type in Constraining Financial Managers’ Aggressive Reporting." Accounting Review 85, no. 4 (July 1, 2010): 1325–46. http://dx.doi.org/10.2308/accr.2010.85.4.1325.

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ABSTRACT: Managers sometimes implement accounting standards (such as the lease standard) opportunistically to move debt off balance sheet. Regulators and standard-setters are considering the adoption of principles-based accounting standards to reduce such opportunism. We report the results of an experiment in which experienced financial managers, with incentives to structure a transaction off balance sheet, take a reporting position on how a lease is to be reported. We manipulate the type of accounting standards (principles-based, rules-based) and the type of auditor (principles-oriented, rules-oriented, or client-oriented). Results show that for a rules-based standard, auditor-type does not influence participants’ propensity to report the transaction off balance sheet. However, for a principles-based standard, auditor-type matters in that this propensity is lowest when the auditor is principles-oriented as opposed to rules- or client-oriented. Our results suggest that a move toward more principles-based standards is likely to result in improved financial reporting quality only when there is a corresponding shift in auditors’ mindsets toward being more principles-oriented.

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Hembarska, Nataliia, Khrystyna Danylkiv, and Khrystyna Gorbova. "Disclosure of Off-Balance Sheet Accounting Data in the Enterprise's Financial Statements." Accounting and Finance, no. 2(88) (2020): 12–17. http://dx.doi.org/10.33146/2307-9878-2020-2(88)-12-17.

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Paik, Daniel Gyung H., Joyce A. van der Laan Smith, Brandon Byunghwan Lee, and Sung Wook Yoon. "The Relation between Accounting Information in Debt Covenants and Operating Leases." Accounting Horizons 29, no. 4 (July 1, 2015): 969–96. http://dx.doi.org/10.2308/acch-51214.

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SYNOPSIS Proposed changes by the FASB and the IASB to lease accounting standards will substantially change the accounting for operating leases by requiring the capitalization of future lease payments. We consider the impact of these changes on firms' debt covenants by examining the frequency of income-statement- versus balance-sheet-based accounting ratios in debt covenants of firms in high and low Off Balance Sheet (OBS) lease industries. Based on debt contracts from the 1996–2009 period, our results provide evidence that lenders focus on balance sheet (income statement) ratios in designing debt covenants for borrowers in low (high) OBS lease industries. Further, the use of balance-sheet- (income-statement-) based covenants falls (rises) faster in high OBS lease industries than in low OBS lease industries as the use of OBS leasing increases. This evidence indicates that OBS operating leases influence lenders' use of accounting information in covenants, suggesting that creditors consider the impact of OBS leases when structuring debt agreements. These results also suggest that the proposed capitalization of OBS leases may not result in firms violating loan covenants but will make the balance sheet a more complete source of information for debt contracting by removing the need for constructive capitalization of OBS leases.

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Bonsall, Samuel, Kevin Koharki, and Monica Neamtiu. "The Effectiveness of Credit Rating Agency Monitoring: Evidence from Asset Securitizations." Accounting Review 90, no. 5 (January 1, 2015): 1779–810. http://dx.doi.org/10.2308/accr-51028.

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ABSTRACT This study investigates how differences between the rating agencies' initial (at the date of debt issuance) and subsequent (post-issuance) monitoring incentives affect securitizing banks' rating accuracy. We hypothesize that the agencies have stronger incentives to monitor issuers when providing initial versus post-issuance ratings. We document that initial ratings are positively associated with off-balance sheet securitized assets and incrementally associated with on-balance sheet retained securities. However, subsequent ratings fail to capture current exposure to off-balance sheet securitizations. We also find that subsequent ratings reflect default risk less accurately than initial ratings. The subsequent ratings' responsiveness to default risk is worse when a bank has more off-balance sheet securitized assets. Collectively, our findings are consistent with lax post-issuance monitoring. They raise questions about the effectiveness of using ratings as an ongoing contracting mechanism and suggest that conclusions about rating accuracy could differ depending on whether researchers focus on initial versus post-issuance ratings.

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Segura, Anatoli, and Jing Zeng. "Off-balance sheet funding, voluntary support and investment efficiency." Journal of Financial Economics 137, no. 1 (July 2020): 90–107. http://dx.doi.org/10.1016/j.jfineco.2020.02.001.

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Boone, Jeff P., and K. K. Raman. "Off-balance sheet R&D assets and market liquidity." Journal of Accounting and Public Policy 20, no. 2 (June 2001): 97–128. http://dx.doi.org/10.1016/s0278-4254(01)00023-0.

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Maglio, Roberto, Valerio Rapone, and Andrea Rey. "Capitalisation of operating lease and its impact on firm’s financial ratios: Evidence from Italian listed companies." Corporate Ownership and Control 15, no. 3-1 (2018): 152–62. http://dx.doi.org/10.22495/cocv15i3c1p1.

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Lease accounting will never be the same again. The endorsement of IFRS 16 on November 2017 sets out new rules for the recognition and measurement of the lease. The new standard removes the lessee’s distinction between operating and financial lease and it will have a substantial impact for companies have previously kept a large proportion of their financing off balance sheets. Under IAS 17 companies have exploited a financial accounting loophole by structuring lease transactions as operating leases, favouring opportunistic behaviours by managers and distorting the investors’ perception of the disclosure. IFRS 16 removes the so-called bright lines companies used to avoid capitalisation of leases and turns any attempt to hide lease liabilities off the balance sheet into a futile exercise to improve transparency of information. The purpose of this research is to analyse the potential impact of the new accounting rules on key financial ratios of Italian listed companies using a refined constructive capitalisation method. The results of the study show that the reflection of the operating leases on the balance sheet shall cause a significant increase in the assets and liabilities and for this reason, there shall be a significant effect on the main debt, liquidity and profitability ratios.

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Picconi, Marc. "The Perils of Pensions: Does Pension Accounting Lead Investors and Analysts Astray?" Accounting Review 81, no. 4 (July 1, 2006): 925–55. http://dx.doi.org/10.2308/accr.2006.81.4.925.

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This paper explores the ability of investors and analysts to fully process available pension information when establishing prices and making earnings forecasts. I find that neither prices nor forecasts fully reflect the quantifiable future earnings effects of changes in pension information at the time it becomes publicly available in the firm's 10-K. Instead, the evidence suggests that investors and analysts only gradually incorporate this information into prices and forecasts as they observe the effects of the pension plan changes on subsequent quarterly earnings. The persistent tardiness of analysts to incorporate this relevant and economically significant information about earnings is surprising given that they are provided with pension information on a repeated and timely basis. Additionally, I find that the off-balance-sheet portion of the pension plan's funded status and the PBO are predictive of future returns while the on-balance-sheet portion of the funded status is not. This implies that investors do not accurately assess the long-run cash flow and earnings implications of these off-balance-sheet pension disclosures. The compensation rate is also predictive of future returns suggesting that it signals management's expectation of future performance.

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Hull, John. "Assessing Credit Risk in a Financial Institution's Off-Balance Sheet Commitments." Journal of Financial and Quantitative Analysis 24, no. 4 (December 1989): 489. http://dx.doi.org/10.2307/2330981.

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Seetharaman, Arumugam, John Rudolph Raj, and A. S. Saravanan. "Asset securitization problems and prospects." Corporate Ownership and Control 5, no. 4 (2008): 403–12. http://dx.doi.org/10.22495/cocv5i4c3p7.

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Applying off balance sheet financing mechanism is largely driven by its practicality, flexibility, and the most importantly it provides a platform for cheaper capital and solves many accounting related issues. Off balance sheet financing, particularly asset securitization, will continue to become the most dominant financing alternatives in view of its multi-functional capabilities in solving financing requirement and hedging needs. Asset securitization has been widely applied by the emerging economies in helping them during the economic crisis. Securitization has also been a lifesaver for banks in helping them recapitalizing during financial crisis. Securitization to a certain extent has contributed to the disintermediation of commercial banks being a major provider of capital. Despite the significant benefits and impacts, asset securitization has also its flaws or weaknesses. A flaw in structuring the deal could be one of the contributory factors of a failed deal. It could also attract excessive abuse, which consequently will be catastrophic to the financial system. Thus, proper control and regulation of off-balance sheet financing is inevitable

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Tokarski, Maciej. "Kreatywna księgowość a fałszowanie sprawozdań finansowych." Przedsiębiorczość - Edukacja 4 (January 1, 2008): 289–95. http://dx.doi.org/10.24917/20833296.4.28.

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The balance policy is not the art of what is possible but also the art of what is permissible bythe law. Testify about these occurrences qualified as: creative accounting, window dressing,incomes smoothing or off balance sheet financing. The aim of article is to present the mainfactors of creative accounting based on the examples of analyses many firms from the worldand Polish companies as an instrument of management in the company.

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Palmer, Richard J., and Thomas V. Schwarz. "Improving the FASB's Requirements for Off-Balance-Sheet Market Risk Disclosures." Journal of Accounting, Auditing & Finance 10, no. 3 (July 1995): 521–40. http://dx.doi.org/10.1177/0148558x9501000306.

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This paper discusses the requirements and limitations associated with SFAS No. 105 market risk disclosures, empirically examines the current implementation of SFAS No. 105 in the financial disclosures of financial institutions, and proposes improvements to the market risk disclosures presently required by the FASB. The results of the empirical analysis of 35 large U.S. financial institutions show that (1) many firms indicated a concern that statement users are not able to clearly distinguish between required contract dollar amount disclosures and actual risks; (2) although most firms use instruments with OBS risk for proprietary hedging and trading, no firm provides a useful detailed breakdown of the degree of risk attributable to these different activities; (3) the greatest conformity in reporting occurs in those firms with the largest contract dollar volume (in absolute terms and as a percent of equity); and (4) very few firms take any initiative in the reporting of additional disclosures. In light of these findings, this paper proposes a new method of market risk disclosure that is based on the margin required by exchanges and their Clearing Corporations. Margin disclosure is shown to be superior to SFAS No. 105 requirements in that it (1) directly correlates with the true risk of a firm's position, (2) is based on the entire financial position of a firm, (3) is easily obtained for even the most complex financial positions, (4) is dynamic in response to changing market conditions, (5) is determined by an independent third party whose main interest is the measurement of market risk, and (6) is a numeric rather than descriptive measure.

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McAnally, Mary Lea. "Banks, Risk, and FAS105 Disclosures." Journal of Accounting, Auditing & Finance 11, no. 3 (July 1996): 453–90. http://dx.doi.org/10.1177/0148558x9601100313.

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This study examines whether Statement of Financial Accounting Standard No. 105 (FAS105) footnote disclosures of off-balance-sheet financial instruments and derivatives provide risk-relevant information in addition to that provided by the balance sheet alone. A theoretical model relates market and industry risk measures to FAS105 disclosures. Empirical tests of the model reveal that these disclosures do provide risk-relevant numbers although the results are not uniformly strong. The balance sheet financial instruments explain 42 percent of the variation in market risk and 45 percent of the variation in industry-level risk among 499 U.S. commercial bank holding companies. FAS105 disclosures of off-balance-sheet instruments and derivative positions explain an additional 5 to 7 percent of the variation. Stronger evidence is presented that shows that certain controversial classes of derivatives are not associated with increased levels of market and industry-level risk. This latter evidence stands in contrast to the current notion that derivative contracts, especially interest rate and currency swaps, increase overall bank riskiness. Results also corroborate the FASB categorization of classes of financial instruments along two important risk dimensions: credit risk and market risk.

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Mckee, Gregory, and Albert Kagan. "Managerial implications of off-balance sheet items in community banks." Studies in Economics and Finance 35, no. 1 (March 5, 2018): 178–95. http://dx.doi.org/10.1108/sef-05-2017-0109.

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Purpose Community banks were affected distinctly by changes in banking regulation in the 1990s when compared with large commercial banks. These banks offer non-traditional finance items, presumably to compete with these financial institutions. This study aims to examine the importance of accounting for off-balance sheet (OBS) items when estimating the financial performance of community banks. Design/methodology/approach This study applies a two-stage analysis pathway that initially calculates X-efficiency scores as part of the overall cost structure and then deploys data envelopment analysis bootstrapping method for a second-stage ordinary least square model. Findings Study findings indicate that failure to include OBS items in the X-efficiency calculation for community banks understates the efficiency performance of these banks. Furthermore, results indicate that factors internal and external to the community bank affect X-efficiency. Increases in OBS items are associated with growth in assets and growth in net non-interest income. Therefore, OBS items become an attractive alternative source of income and a mechanism for expanding output with the same volume of inputs. In addition, OBS items allow the largest community banks to deleverage their balance sheet, whereas the smallest community banks still emphasize on traditional lending products and benefit from existing equity. Also, larger banks may be using OBS items as a mechanism to isolate their performance from macroeconomic fluctuations. Research limitations/implications Research limitations include a reduced number of community banks as consolidation accelerates partly because of compliance concerns. Practical implications The approach used supports a series of community bank managerial approaches that may be adopted by management. Originality/value The results of this study show several reasons why community banks may have managerial incentives to include OBS items. As observed by Gilbert et al. (2013), community banks are adjusting their product line so as to operate efficiently. Community banks must provide a product line which provides margin and meets customer needs at a profit to the firm. OBS items allow existing staff to provide funds without additional equity requirements from the balance sheets. The increase in OBS activities may signal the perception that the associated interest income is less risky and less costly than other alternatives, including adopting technologies to diversify traditional loan product offerings. As community banks tend to have lower default rates than their larger counterparts, the most likely explanation is that the OBS interest risk is more attractive than compliance or development of mechanisms to offer a broader suite of traditional loan products.

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Yu, Kun. "Does Recognition versus Disclosure Affect Value Relevance? Evidence from Pension Accounting." Accounting Review 88, no. 3 (December 1, 2012): 1095–127. http://dx.doi.org/10.2308/accr-50381.

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ABSTRACT This study examines whether institutional ownership and analyst following affect the value relevance of disclosed versus recognized pension liabilities. Using a sample of firms with pension liabilities that were disclosed under SFAS No. 87 and subsequently recognized under SFAS No. 158 from 1999 to 2007, I find that off-balance-sheet pension liabilities are more value relevant for firms with a higher level of institutional ownership or analyst following in the pre-158 period. More importantly, I find that SFAS No. 158 increases the value relevance of previously disclosed off-balance-sheet pension liabilities for firms with a low level of institutional ownership or analyst following, and that the increase in the value relevance becomes less pronounced for firms with a higher level of institutional ownership or analyst following. Overall, the results are consistent with the view that institutional ownership and analyst following affect the value relevance of disclosed information as well as the valuation difference between disclosed and recognized information. This study also highlights the importance of considering institutional ownership and analyst following in the value-relevance research. Data Availability: All data are publicly available from the sources indicated in the text.

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Tokarski, Maciej. "Sprawozdanie ﬁnansowe – niedoskonałe źródło informacji o sytuacji ﬁnansowej przedsiębiorstwa." Przedsiębiorczość - Edukacja 5 (January 1, 2009): 176–86. http://dx.doi.org/10.24917/20833296.5.16.

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Balance policy is not only the art of making what is possible, but also the art of making itaccording to the law. Examples of this occurrences are known as: creative accounting, windowdressing, incomes smoothing, off balance sheet ﬁnancing.The aim of the article is to show that ﬁnancial statements can be imperfect source ofinformation about ﬁnancial situation of the enterprise and possible the negative consequencesfor potential users.

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Voss, Grażyna. "Sprawozdawczość ﬁnansowa i jej rola w rozwoju społeczeństwa informacyjnego." Przedsiębiorczość - Edukacja 5 (January 1, 2009): 172–75. http://dx.doi.org/10.24917/20833296.5.15.

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Balance policy is not only the art of making what is possible, but also the art of making itaccording to the law. Examples of this occurrences are known as: creative accounting, windowdressing, incomes smoothing, off balance sheet ﬁnancing.The aim of the article is to show that ﬁnancial statements can be imperfect source ofinformation about ﬁnancial situation of the enterprise and possible the negative consequencesfor potential users.

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Cho, Hye-jin, Othmar M. Lehner, and Rachatar Nilavongse. "Combining financial and ecological sustainability in bank capital regulations." Journal of Applied Accounting Research 22, no. 3 (January 20, 2021): 423–35. http://dx.doi.org/10.1108/jaar-10-2020-0221.

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PurposeWith the macroprudential approach, systemic risk is explained by a general equilibrium (GE) model. However, since on-balance-sheet and off-balance-sheet (OBS) risks are structurally segmented, for example annually or periodically on financial statements, the GE model might need further integration with OBS risks including ecological shocks.Design/methodology/approachThis study develops a theoretical two-period model with consumption, investment and loans, which further includes carbon emissions to distinguish between loans for “green” or “brown” firms to enhance the perspective of ecological sustainability.FindingsThe paper shows how the environmental, social and governance (ESG) factors might be of relevance in the standard bank capital regulatory structure. In dealing with ecological sustainability, a new methodological framework with the green K-index introduces penalties to be paid in the capital structure related to ESG factors. The model is enhanced for screening green or brown firms related to impact investing. The integrated view of financial stability and ecological sustainability further illuminates how a wide cross-sectoral resilience of a green K-index measure for the economy might be achievable.Research limitations/implicationsA stock-flow consistent model with balance-sheet methods raises the question whether all necessary variables and parameters can be computed in practice. Compared to the agent-based model (ABM), this model additionally lacks inputs from agents' behaviour, thus non-rational decisions, which may be relevant in practice. More generally, by adopting a balance-sheet structure, the model shows a coherent framework with relevant variables. The methodology of the GE model with OBS has not been scholarly explored and thus is presented for discussion rather than generalisation. The GE model with OBS provides a new interpretation of systemic risk and interbank relations with a consideration of ecological aspects. Its economic implication contributes to contemporary banking theory as well as to the sustainability discussions in the larger financial sector.Practical implicationsBanks and investors can more carefully measure the ecological risks in their loan portfolios and make better informed decisions leading to a better sustainability of the financial markets.Originality/valueThis study develops a theoretical GE model with off-balance-sheet risks. The model adds green regulation enhancing the capital regulation framework relevant to sustainability. This, in turn, enhances the role of banks in a coherent economic framework for loan decisions towards a much greener finance.

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Pong, Christopher K. M. "Jurisdictional contests between accountants and lawyers: the case of off-balance sheet finance 1985-1990." Accounting History 4, no. 1 (May 1999): 7–29. http://dx.doi.org/10.1177/103237329900400102.

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BONDARENKO, Olha, and Iryna MASIUK. "Audit methodology. Formation and write-off of receivables and payables." Economics. Finances. Law, no. 7 (July 30, 2020): 10–13. http://dx.doi.org/10.37634/efp.2020.7.2.

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Introduction. The share of receivables and payables in the structure of the balance sheet has a high percentage, which certainly affects the production process as a whole. Every receivable is someone's accounts payable and vice versa. Each company faced non-payment of debts in any direction. In this article, we will consider the control over settlements with counterparties and the procedure for writing off and forming bad receivables and payables. The purpose of the paper is to study the audit process at the enterprise in the section of receivables and payables. Identify the processes of writing off bad debts. Results. The audit of accounts payable and receivable is relevant in connection with the introduction of the International Accounting Standards in the management of the enterprise, the constant change in the legal framework of Ukraine. Settlements with debtors and creditors for goods and services have a significant impact on the functional activities of the enterprise, so when the audit firm checks all the nuances of accounting in this area, the main factor of fair conclusions is the provision of reliable information. The main source of information is financial statements, where receivables have a significant share in the assets of the balance sheet, and accounts payable in the liabilities of the balance sheet. Conclusion. Debt write-off is an important component in settlements with counterparties. More often than not, we are faced with bad debts. For the correctness of the display of information and write-off of receivables, the company creates a reserve of doubtful debts, which is reflected in account 38 "Reserve of doubtful debts". To write off accounts payable, the company must have important evidence, documents that are approved in accordance with the law.

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Sheraga, Carl A., and Paul Caster. "Distortions in the measurement of the efficiency of financial leverage strategies in the airline industry when operating leases are ignored." Journal of Transportation Management 25, no. 1 (April 1, 2014): 21–36. http://dx.doi.org/10.22237/jotm/1396310580.

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The Financial Accounting Standards Board and the International Accounting Standards Board have set forth a proposal requiring companies to capitalize operating leases and include them as assets and liabilities on their balance sheets. The proposal is motivated by the fact that current methods accounting for operating leases hide a great deal of off-book leverage and thus are misleading to investors. Such a change would have a significant impact on the U.S. airline industry where aircraft and property operating leases are quite prevalent. This study utilizes an in-depth strategic management perspective in examining how well U.S. airlines pursue optimization strategies with regard to the management of financial leverage in order to achieve desired targets of growth and profitability. Such benchmarking is accomplished by utilizing the DEA model suggested by Capobianco and Fernandes (2004). This study demonstrates the distortion inherent in inter-airline benchmarking when operating leases are not capitalized on the balance sheet.

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Kros, John F., and S. Scott Nadler. "THE IMPACT OF SARBANES-OXLEY ON OFF-BALANCE SHEET SUPPLY CHAIN ACTIVITIES." Journal of Business Logistics 31, no. 1 (March 2010): 63–77. http://dx.doi.org/10.1002/j.2158-1592.2010.tb00128.x.

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Callahan, Carolyn M., Rodney E. Smith, and Angela Wheeler Spencer. "An Examination of the Cost of Capital Implications of FIN 46." Accounting Review 87, no. 4 (July 1, 2012): 1105–34. http://dx.doi.org/10.2308/accr-10272.

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ABSTRACT This study examines whether the adoption in 2003 of FASB Interpretation No. 46/R (FIN 46), Consolidation of Variable Interest Entities—An Interpretation of ARB No. 51, changed the cost of capital for affected firms. Using comparative analysis on a broad sample of 11,719 firm-quarter observations for 1,389 firms during the period 1998 through 2005, we find evidence that FIN 46 significantly increased the cost of equity capital for firms with affected variable interest entities (VIEs), an increase of approximately 50 basis points relative to firms reporting no material effect from the standard. Further, firms consolidating these formerly off-balance sheet structures experienced the largest increase. Taken together, these results suggest that FIN 46 reduced the opportunity for firms to use off-balance sheet structures to artificially reduce their cost of capital, a matter of regulatory concern. Data Availability: All data are available from public sources.

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Zhang, Qingjun, Si Chen, and Yi Jin. "The impact of off-balance-sheet regulations on bank risk-taking: Evidence from China." Research in International Business and Finance 54 (December 2020): 101297. http://dx.doi.org/10.1016/j.ribaf.2020.101297.

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Beaver, William H., Stefano Cascino, Maria Correia, and Maureen F. McNichols. "Group Affiliation and Default Prediction." Management Science 65, no. 8 (August 2019): 3559–84. http://dx.doi.org/10.1287/mnsc.2018.3128.

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Using a large sample of business groups from more than 100 countries around the world, we show that group information matters for parent and subsidiary default prediction. Group firms may support each other when in financial distress. Potential group support represents an off-balance sheet asset for the receiving firm and an off-balance sheet liability for the firm offering support. We find that subsidiary information improves parent default prediction over and above group-level consolidated information possibly because intragroup exposures are netted out upon consolidation. Moreover, we document that improvements in parent default prediction decrease in the extent of parent-country financial reporting transparency, a finding that suggests that within-group information matters most when consolidated financial statements are expected to be of lower quality. We also show that parent and other group-firms’ default risk exhibits predictive power for subsidiary default. Lastly, we find that within-group information explains cross-sectional variation in CDS spreads. Taken together, our findings contribute to the prior literature on default prediction and have direct relevance to investors, credit-rating agencies, and accounting regulators. This paper was accepted by Suraj Srinivasan, accounting.

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MILLS, LILLIAN F., and KAYE J. NEWBERRY. "Firms' Off-Balance Sheet and Hybrid Debt Financing: Evidence from Their Book-Tax Reporting Differences." Journal of Accounting Research 43, no. 2 (May 2005): 251–82. http://dx.doi.org/10.1111/j.1475-679x.2005.00170.x.

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Astami, Emita W. "Factors Explaining Management Preferences of Accounting for Goodwill Prior to the Implementation of IFRS 3: A Cross-Country Study." Gadjah Mada International Journal of Business 8, no. 1 (January 12, 2006): 43. http://dx.doi.org/10.22146/gamaijb.5624.

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This study provides evidence on the cross sectional relationship between firm economic variables and management preferences in the selection of an accounting technique for goodwill. It examines goodwill accounting policy disclosures in the 2000/2001 annual reports of 269 listed companies in the five countries: Australia, Hong Kong, Indonesia, Malaysia, and Singapore. The key focus is management’s choice of accounting techniques for the treatment of goodwill.The results show that accounting practices for goodwill vary significantly across country of origins and across industry groups. Two economic variables significantly explain management preferences of accounting for goodwill. The finding shows that the higher a company’s financial leverage ratio the company managers prefer to write off goodwill immediately against income or to capitalize and amortize it in a sorter period of time. The higher a company’s size, the more likely the company would write-off of goodwill to balance sheet reserves. Thus, this study provides empirical evidence that management preferences of accounting for goodwill have economic consequences.

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Brooks, Marcus, Stephanie Hairston, and Charles Harter. "Does manager ability influence the classification of lease arrangements?" Journal of Applied Accounting Research 21, no. 1 (December 23, 2019): 19–37. http://dx.doi.org/10.1108/jaar-02-2019-0028.

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Purpose The purpose of this paper is to examine the influence of manager ability on a firm’s choice of lease classification and the decision to capitalize vs lease firm-specific assets. Design/methodology/approach The authors use regression analysis to examine the association between manager ability, lease classification and asset specificity. Findings Using 31,110 firm-year observations from 1998 to 2013, the authors find a significant positive relationship between manager ability and the decision to classify leases as operating. The authors also find that high-ability managers are more likely to capitalize, rather than lease, specialized firm-specific assets. Research limitations/implications The results imply that manager ability influences the choice of lease classification, which provides some support for the recent changes to lease accounting in Accounting Standard Update (ASU) 2016-02. The authors also show that asset specificity may serve as a mitigating factor in high-ability managers’ preference for operating leases, which implies that high-ability managers’ concerns with operational efficiency outweigh the benefits of off-balance sheet financing in their purchasing decisions if the asset in question is firm-specific. Practical implications The findings may be useful to boards of directors, investors and accounting academics concerned with the role that managerial ability plays in operational decision making and financial reporting. Originality/value The results imply that high-ability managers prefer off-balance sheet financing, which is unlikely to limit their access to external capital, but that this relationship is mitigated if the firm requires highly specialized assets.

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Morales Díaz, José, Miguel Ángel Villacorta Hernández, and Florentina Iulia Voicila. "Lease accounting: an inquiry into the origings of the capitalization model." De Computis - Revista Española de Historia de la Contabilidad 16, no. 2 (December 26, 2019): 160. http://dx.doi.org/10.26784/issn.1886-1881.v16i2.357.

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Both the IASB and the FASB have recently issued new lease accounting standards (IFRS 16/Topic 842) that have been applied by entities since the beginning of fiscal year 2019. The new standards introduce an important change in the lessee’s accounting model, impacting entities’ accounting ratios, systems, internal controls, etc. Lessees will have to apply a capitalization model for almost all lease operations. In other words, nearly all lease operations will be shown on the lessee’s balance sheet, and there will be very few off-balance sheet leases.The aim of this paper is to explain the evolution of lease accounting standards from the beginning of the 20th century up until the present day, i.e. to analyze how this accounting area has evolved driven both by one of the basic accounting principles: “substance over form” (nowadays universally admitted), and also by the “utility paradigm”. While initially no leases were capitalized (following the legal form of the operations), subsequently (in the second stage) some of them did start to be capitalized (“finance leases”) under the assumption that they were very similar to financed purchases. Nowadays (under IFRS 16/Topic 842 – the third stage) almost all leases are capitalized for comparability and other reasons.This is the accounting area in which the “substance over form” principle has been most widely applied in modern accounting history. We fundamentally use historical information from primary sources (historical accounting standards, pronouncements of accounting standards issuers, historical research works, etc.) and we focus on US GAAP and IFRS standards.

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Len, Vasyl, and Valentyna Glivenko. "Long-Term Receivables and Liabilities in Accounting and Reporting." Accounting and Finance, no. 3(89) (2020): 30–40. http://dx.doi.org/10.33146/2307-9878-2020-3(89)-30-40.

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The purpose of the article is to disclose the types of long-term debt liabilities, which need to be evaluated at the balance sheet date at their present value, to substantiate the procedure for calculating the present value and reflecting of accounting differences in accounting system. The requirements of national accounting standards regarding the display of long-term receivables and liabilities in accounting and reporting are discussed in the article. The methods of selecting the interest rates and the procedure of calculating their present value are described. It is proved that considering the national accounting standards there is uncertainty and multivariation concerning discount rates and the procedure of calculating the present value of long-term liabilities and distribution of discount variances. Due to this fact, the decision on the application of discount rates and the procedure of calculating the present value are made by accounting entities on their own based on the professional judgment of an accountant. It is proved that it is advisable to calculate the present value of long-term liabilities on the first balance sheet date after their occurrence using a quarterly period. It is argued that during the transferring long-term liabilities to current ones, discount variances should be written off at the same time. It is concluded that the discount variances should be accounted with applying the accounts of other income and expenses. An example of calculating the present value of long-term liabilities and accounting entries to it are also given. It is determined that the reflection of the present value of long-term liabilities in the accounting and reporting, that arose in connection with the acquisition of assets, does not affect their initial and further assessment. It is proposed to form and approve at the state level the Guidelines for determining the present value of long-term liabilities, that are to be discounted, and the distribution of discount variances between reporting periods.

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MAYDEW, EDWARD. "Discussion of Firms' Off-Balance Sheet and Hybrid Debt Financing: Evidence from Their Book-Tax Reporting Differences." Journal of Accounting Research 43, no. 2 (May 2005): 283–90. http://dx.doi.org/10.1111/j.1475-679x.2005.00171.x.

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De Villiers, Rikus R., and Sanlie L. Middelberg. "Determining The Impact Of Capitalising Long-Term Operating Leases On The Financial Ratios Of The Top 40 JSE-Listed Companies." International Business & Economics Research Journal (IBER) 12, no. 6 (May 24, 2013): 655. http://dx.doi.org/10.19030/iber.v12i6.7871.

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Operating leases forma great part of companies financing structures in todays economicenvironment. Some accounting standard-setters and other users of financialstatements are of the opinion that the current standard on accounting foroperating leases, IAS 17, does not provide sufficient guidelines on the disclosureof a companys leasing activities. The current accounting standard on leasesprovides companies with the opportunity to classify lease contracts intodifferent classes which leads to off-balance-sheet financing. This problem iscurrently being addressed by the IASB as they are in the process of developingan improved standard on leases.The main focus ofthis paper is to determine the impact of the improved accounting standard onthe financial statements and the resulting financial ratios of theJSETop40 companies when operating leases are accounted for ason-balance-sheet debt. The differences between the current IAS 17 and theExposure draft (ED/2010/9) are identified and the comparison indicatessignificant differences between these two approaches on accounting foroperating lease activities.The focus of the IASBin developing this exposure draft was to provide the users of financialstatements with a universal picture of the leasing activities that the companyis engaged in. The findings include that this objective is achieved as usersare not left uninformed about any of the financing activities that stakeholdersare exposed to if indeed a company is engaged in operating lease activities.The study also revealed that the capitalising of long-term operating leaseswill have a significant effect on the key financial ratios that stakeholdersuse to interpret a companys financial performance.

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Park, Younghee, and Kyunga Na. "The effects of listing status on a firm’s lease accounting: Evidence from South Korea." Gadjah Mada International Journal of Business 19, no. 1 (April 10, 2017): 77. http://dx.doi.org/10.22146/gamaijb.12848.

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This study examines how the listing status affects a firm’s choice of lease accounting, using 7,023 firm-year observations that record either an operating or a capital lease from 2001 to 2013 in Korea. We find that unlisted firms are more likely to opt for operating leases, and to have a higher ratio of operating leases than listed firms are. These results indicate that unlisted firms tend to prefer operating leases which can be used as a tool to avoid increasing debt levels and to benefit from off-balance sheet financing (or unrecorded liabilities), compared to listed firms. This study contributes to the current accounting literature as it is the first to provide empirical evidence regarding the impact of the listing status on a firm’s lease accounting.

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Beatty, Anne, Scott Liao, and Joseph Weber. "Financial Reporting Quality, Private Information, Monitoring, and the Lease-versus-Buy Decision." Accounting Review 85, no. 4 (July 1, 2010): 1215–38. http://dx.doi.org/10.2308/accr.2010.85.4.1215.

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ABSTRACT: A flourishing stream of research suggests that liquidity-constrained firms with low accounting quality have limited access to capital for investments. We extend this research by investigating whether these firms are more likely to lease their assets. Lessors’ superior control rights allow them to provide capital to constrained firms with low-quality accounting reports. Consistent with this conjecture, we find that low accounting quality firms have a higher propensity to lease than purchase assets. To verify that leasing does not merely reflect these firms’ desire for off-balance-sheet accounting, we investigate whether banks’ access to private information and monitoring affect the relation between accounting quality and leasing. We find the association between accounting quality and leasing decreases when banks have higher monitoring incentives and when loans contain capital expenditure provisions. These results suggest that other mechanisms can substitute for the role of accounting quality in reducing information problems.

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Thiemann, Matthias. "The impact of meta-standardization upon standards convergence: the case of the international accounting standard for off-balance-sheet financing." Business and Politics 16, no. 1 (April 2014): 79–112. http://dx.doi.org/10.1515/bap-2012-0011.

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Analyses of transnational governance formation point to the destabilizing effects transnational standard setters have upon national institutional configurations. Isomorphic pressures, it is argued, lead to the standardization of procedures used and actors involved in standard setting processes. What is not clear, however, is to what extent this meta-standardization increases the chances for convergence of national with transnational standards. This article explores this question for the case of the international accounting standard for off-balance-sheet financing in the Netherlands, France and Germany. It argues that the reconfiguration of domestic governance architectures had a decisive impact on convergence processes. Counter-intuitively, copying goals, membership and procedures of the transnational, private International Accounting Standards Committee limited the chances of rule convergence, as it threatened to deinstitutionalize the standard-setting role of an important national champion of rule-convergence, the banking regulator. The institutional template developed at the transnational level created actor-mismatch at the national level between those formulating and those implementing the rules, thereby weakening the coalition for rule change. A strong coalition, however, is needed to overcome vested business interests that favor convergence with transnational templates for legitimacy gains at the same time that they oppose convergence to contentious rules that limit their business activities.

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Graham, Roger C., Raymond D. King, and Cameron K. J. Morrill. "Decision Usefulness of Alternative Joint Venture Reporting Methods." Accounting Horizons 17, no. 2 (June 1, 2003): 123–37. http://dx.doi.org/10.2308/acch.2003.17.2.123.

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Depending on the country and circumstances, reporting rules for intercorporate investments may require the cost method, the equity method, proportionate consolidation, or full consolidation, and may yield dramatically different accounting numbers. In the post-Enron environment there is a particular focus on investments for which liabilities remain off balance sheet. We compare the information content of alternative accounting treatments for a sample of Canadian firms reporting joint ventures under proportionate consolidation. We restate their financial statements using the equity method, and we compare the information content of the two accounting methods in predicting accounting return on common shareholders' equity. We find evidence consistent with the view that financial statements prepared under proportionate consolidation provide better predictions of future return on shareholders' equity than do financial statements prepared under the equity method. We conclude that, for these firms, proportionate consolidation provides information with greater predictive ability and greater relevance than does the equity method.

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Bricker, Robert, Gary Previts, Thomas Robinson, and Stephen Young. "Financial Analyst Assessment of Company Earnings Quality." Journal of Accounting, Auditing & Finance 10, no. 3 (July 1995): 541–54. http://dx.doi.org/10.1177/0148558x9501000307.

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This study investigates sell-side financial analysts' interpretations of the phrase “earnings quality” and their preference for accounting methods. The data are a sample consisting of 479 sell-side financial analyst full-text reports for a set of companies stratified on exchange, SIC code, and size in three recent time periods. These reports illustrate the importance placed by analysts on identifying companies' core earnings. The results show that analysts associate high earnings quality with near-term earnings predictability. This predictability is defined in an economic sense in terms of a low level of earnings volatility, and in an accounting sense in terms of management discretion over the establishment and adjustment of certain conservative reserves, allowances, and off-balance-sheet assets. Limited association was found between earnings quality and the application of conservative accounting methods, per se.

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Berger, Allen N., and Raluca A. Roman. "Did Saving Wall Street Really Save Main Street? The Real Effects of TARP on Local Economic Conditions." Journal of Financial and Quantitative Analysis 52, no. 5 (October 2017): 1827–67. http://dx.doi.org/10.1017/s002210901700062x.

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We investigate whether saving Wall Street through TARP really saved Main Street during the recent financial crisis. Our difference-in-difference analysis suggests that TARP statistically and economically significantly increased net job creation and net hiring establishments and decreased business and personal bankruptcies. The results are robust, including accounting for endogeneity. The main mechanisms driving the results appear to be increases in commercial real estate lending and off-balance-sheet real estate guarantees. These results suggest that saving Wall Street via TARP may have helped save Main Street, complementing the TARP literature and contributing to the cost–benefit debate.

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Srinivasan, N. P., and S. Sreenivasa Murthy. "Factors Influencing the Decision to Lease: An Indian Perspective." Vikalpa: The Journal for Decision Makers 19, no. 3 (July 1994): 37–46. http://dx.doi.org/10.1177/0256090919940303.

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The Indian leasing industry has grown dramatically in the recent past. The reasons for leasing differ from country to country and from company to company depending on the tax and accounting policies of that country and the basic financial characteristics of the companies respectively. It is against this background that N P Srinivasan and S Sreenivasa Murthy had undertaken a survey of the opinions of Indian finance managers on the reasons influencing their decision to lease. According to them, availability, working capital, and tax and off-balance sheet factors are important factors in the decision to lease.

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Journal articles on the topic 'Off-balance sheet accounting'

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