Off Balance Sheet

Off balance sheet items are assets asset or liabilities that are not shown on a company's balance sheet. They usually have to be referred to in the notes to a company's accounts. Some companies routinely hold substantial off balance sheet items as a normal part of their operations. Investment management firms, for example, assets and investments belonging to their clients off their balance sheets. Or a company may wish to finance a project by transferring the risk of doing so from its own balance sheet onto that of a subsidiary or other separate legal entity. This allows it to be financed without affecting shareholders' interests or adding to the parent company's debt burden. This is known as off balance sheet financing. It allows a company to borrow without affecting measures of indebtedness such as gearing or without breaking debt covenants. The opportunities to mislead investors and creditors by means of off balance sheet financing have been reduced in recent years as a result of changes to accounting standards.

See also: SPV, Sarbanes-Oxley