GAAP and IFRS

Off-Balance-Sheet Financing On the Way Out?

To the investing public, off-balance-sheet financing has fallen into disgrace. Will it deserve another look after the SEC and FASB have their say?
Marie LeoneJanuary 8, 2003

After evolving over the last quarter-century into one of the most popular corporate finance tools in the United States — taking such forms as securitizations, synthetic leases, and unconsolidated entities — it seems that off-balance-sheet financing is being deconstructed in a hurry.

This month the Securities and Exchange Commission and the Financial Accounting Standards Board are handing down new rules and guidance aimed at improving the transparency of financial statements. The SEC is rewriting its guidance on MD&A disclosure, introducing Regulation G, and rewriting its rules governing Form 8-K. FASB is trained on consolidation of variable interest entities, or VIEs (until now, better known as special-purpose entities, or SPEs) and on loan guarantees.

Collectively, the new mandates are intended to help investors view companies through the “eyes of management”; detractors say that these initiatives only cloud the issues. We say, it’s time to get a clearer picture of the developing situation.

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Read our special report on off-balance-sheet financing