Question

Discuss at least two items that are important to the value of companies but are not recorded in their statements of financial position. What are some reasons why these items are not recorded in the statement of financial position?

Answer 1

Answer:

Off balance sheet item is a term for asset of liablity that do not appear on a company's balance sheet. Although not recorded on the balance sheet, they are still assets and liablitites of the company. Off-balance sheet items are typically those not owned by or are a direct obligation of the company.

For example when loans are securitized and sold off as investments, the secured debt is often kept off the bank's books. An operating lease is one of the most common off-balance items. Off balance sheet items are often difficult to identify and track within a company's financial statement because they often only appear in the accompanying notes.

The asset managed or brokered as a part of these offered services usuallly belong to client directly, although the company provides management, depository or other services to the client. The company itself has no direct claim to the assets, so it does not record them on its balance sheet (they are off - balance sheet assets), while it usually has some basic fiduciary duties with respect to the client. Financial institutions may report off balance sheet items in their accounting statement formally, and may also refer to asset under management , a figure that may include on and off balance sheet items.

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