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CA Nitin Wadhwani

CA Nitin Wadhwani (Querist)
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12 August 2008 What Is Off-Balance Sheet Financing?

CHEZHIYAN

CHEZHIYAN (Expert)
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21 August 2008 Off balance sheet (OBS) usually means an asset or debt or financing activity not on the company's balance sheet. It could involve a lease or a separate subsidiary or a contingent liability such as a letter of credit. It also involves loan commitments, futures, forwards and other derivatives, when-issued securities (famous in the US)[clarify] and loans sold.

Some companies may have significant amounts of off-balance sheet assets and liabilities. For example, financial institutions often offer asset management or brokerage services to their clients. The assets in question (often securities) usually belong to the individual clients directly or in trust, while the company may provide management, depository or other services to the client. The company itself has no direct claim to the assets, and usually has some basic fiduciary duties with respect to the client. Financial institutions may report off-balance sheet items in their accounting statements formally, and may also refer to "assets under management," a figure that may include on and off-balance sheet items.

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