Do you think making companies report off balance sheet leasing activities will improve transparency, and perhaps...

Do you think making companies report off balance sheet leasing activities will improve transparency, and perhaps investor confidence?

Expert Solution

The leasing is an important and flexible measure of financing. Therefore, the transparency and comparability of information on off-balance sheet leases by bringing them onto the balance sheet. Assets that were used but not owned were not reported on the statement of financial position. Due to it, any associated liability was also left out of the statement. It was referred as ‘off balance sheet’ finance. This helped companies to keep their liabilities low, and thus the key financial ratios calculated on the basis of that information provided distorted results. The guidelines provided to investors on the basis of distorted key financial ratios and non-transperant information misguided them. This sort of accounting did not faithfully represent the transaction. The fact is that a company often effectively ‘owned’ these assets and ‘owed a liability. Therefore, incorporation of lease activities will provide true and fair picture of financial position of company to investor which will help them to take investment decisions.

ekkarill92 answered 2 years ago

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