Off-Balance-Sheet Financing
Off-balance sheet financing referred to as the table financing, off-balance financing, off-balance sheet financing, off-balance sheet financing. Mainly in the areas of finance and accounting, a term used by professionals, balance-sheet financing is also used in certain leveraged lease financing of the providers do not have recourse to the lessor can only require that the leased asset to the lessee for rental recovery one of the loan.
Balance-sheet financing - Realization 1, Table foreign direct financing The transfer of ownership of the assets of not financing in the form of special loans. Such as those operating lease, consignment merchandise, processing and other business activities do not involve the transfer of ownership of the assets and liquidity and accounting in the financial statements need to reflect, but do have the right to use the assets transferred to the financing of enterprises, to meet the enterprises to expand business scale alleviate the shortage of funds needs.
2, the table outside the indirect financing Is replaced by another enterprise the enterprise's liabilities modes of financing. The most common is the establishment of a subsidiary or subsidiaries, and investments in a subsidiary or subsidiaries, or affiliates, subsidiaries, parent company of debt instead of debt.
3, balance-sheet liabilities, the transfer of The financing from the corporate balance sheet will be transferred to the sheet.
In fact, the nature of mortgage receivables, due to the reasons for the accounting treatment of its balance transferred to the sheet. Balance-sheet financing is mainly debt financing, its positive role is to enable enterprises to increase the role of financial leverage, especially when the role of financial leverage in the balance sheet is limited, we can use balance-sheet financing to enlarge the role of financial leverage to raise equity capital profits rate. At the same time open up the financing in order to increase financing channels, especially in the table means the limited liability, the channel is not passed, through the balance-sheet financing can be realized financing purposes. Balance-sheet financing - the impact An important means of balance-sheet financing is to design some of the complex economic operations, making it difficult to judge this business users to report on the impact of corporate assets or liabilities.
Several of these complex operations has the following characteristics: 1, the legal ownership of a project and enjoy the related benefits and bear the major key risks separated;
2, a transaction with another one or more transactions are interwoven, not to analyze them together, it difficult to understand the economic impact of the business;
3, in Terms of the transaction contains one or more options or conditions, but also reasonably be inferred from these provisions would be the exercise of options or business conditions will be met. Forward contracts are also sometimes used as a means of balance-sheet financing. Goods consignment, sale-leaseback debt security income (factoring of debts), mortgage securities (securitized mortgages) and credit transfer of staff may lead to balance-sheet financing behavior. From the 80s onwards, the United Kingdom, the United States and other countries, balance-sheet financing agreement rapidly. Such an agreement with the balance sheet items, an important feature, but it did not identify liabilities side, but also avoiding the recognition of an asset. Balance-sheet financing may be attributed to many reasons, the main reason may be tax concessions may also be reluctant to reflect the true corporate debt levels. If a company a higher debt ratio would rise to the concern of creditors, if the corporate equivalent of assets and liabilities at the same time from the balance sheet, offset, we can reduce the debt ratio.
Another set off from the balance sheet, we can reduce the debt ratio. Another possible reason is that businesses and the existing debt creditors, there must limit the level of agreement, balance-sheet financing can be regarded as a means to circumvent this restriction. Balance-sheet financing to cover up acts of the enterprise's key financial information, it is likely to mislead information users, and thus to attract the attention of accounting standards-setting bodies, they come up with accounting standards to reduce the balance-sheet financing projects, as far as possible be included in assets and liabilities Table. Set of accounting standards-setting bodies, condensed financial statements presented should be adopted, the orderly arrangement of the assets, liabilities and results of operations of the information to help actors understand the business as a whole. To achieve this purpose, the financial statements of the project classification and recognition must be based on economic substance over legal form of this principle. Processing a transaction according to their economic substance, it should fairly reflect the economic impact of complex business, for which, we should look askance recognition of assets and liabilities to take the following two steps: 1, an analysis of the transaction, whether to increase or decrease the company's existing assets or liabilities, or an increase of not previously recognized asset or liability.
2, the above identified assets or liabilities are not necessarily included in the balance sheet, according to recognized standards of assets or liabilities to be tested to check whether they are to be included in the balance sheet, or remain in the balance sheet, or from the assets and liabilities the table was removed. It is worth mentioning that countries finance leases and operating leases were made more stringent distinction between the provisions of the finance lease conditions. If a lease to meet one of the conditions, it should be handled as a finance lease, the lessee is recognized as an asset and corresponding liability in order to reduce the phenomenon of balance-sheet financing. These conditions are businesses based on economic substance. In addition, also provides that assets and liabilities shall not be offset with each other. Enterprises also need to carry out these complex operations appropriate disclosure, particularly in the financial statements have been identified in some respects different from ordinary assets and liabilities of the project and is not recognized in the financial statements of projects to real, fair picture of the business operations.
