Question
In: Finance
Discuss ONE advantage and ONE disadvantage of supporting to include off-balance sheet activities
Discuss ONE advantage and ONE disadvantage of supporting to include off-balance sheet activities
Solutions
Expert Solution
Off balance sheet activities are those for which no asset or liabilities are shown on the financial statements. For examples loans which have been securitized and sold as an investment.
One benefit of including the off-balance sheet activities in the footnote is the shareholders are aware that these are certain kinds of activities the business is involved in and even though currently the liability is not going to arise, it may arise in future so it gives the shareholders as well as investors a broader perspective.
One disadvantage of including the off-balance sheet activities in the footnote is even though they are mentioned as an statement there is not enough information the investor and shareholders can gather as to what is the probability of that liability arising in future because the information is minuscule.
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