03-26-2008, 11:51 PM
<font color="navy"></font id="navy"><font size="4"></font id="size4"><font face="Century Gothic">you are right 4th element, the term became popular after the Enron collapse..
Off balance sheet financing refers to a form of financing which is kept off of a company's balance sheet i.e. these are not recognized on the balance sheet in contrast to on balance sheet financing like direct debt or equity funding. This is normally achieved through creating an Special purpose Entity (SPE), a firm or legal entity established to perform some narrowly-defined or temporary purpose. Therefore, the purpose is achieved without having to recognize any of the associated assets or liabilities on its own balance sheet. The purpose is achieved "off-balance sheet."
Companies often use off-balance-sheet financing to keep their debt to equity (D/E) and leverage ratios low, mostly to comply with the debt covenants. Operating leases and L/Cs are the most common forms of off-balance-sheet financing.
Enron's collapse occurred when it was discovered that much of its profits and revenues were the results of deals with Special Purpose Entities which were not consolidated in the financial statements.
SPEs are discussed in the forum topic
http//www.accountancy.com.pk/forum/topic.asp?topic_id=6039</font id="Century Gothic">
Off balance sheet financing refers to a form of financing which is kept off of a company's balance sheet i.e. these are not recognized on the balance sheet in contrast to on balance sheet financing like direct debt or equity funding. This is normally achieved through creating an Special purpose Entity (SPE), a firm or legal entity established to perform some narrowly-defined or temporary purpose. Therefore, the purpose is achieved without having to recognize any of the associated assets or liabilities on its own balance sheet. The purpose is achieved "off-balance sheet."
Companies often use off-balance-sheet financing to keep their debt to equity (D/E) and leverage ratios low, mostly to comply with the debt covenants. Operating leases and L/Cs are the most common forms of off-balance-sheet financing.
Enron's collapse occurred when it was discovered that much of its profits and revenues were the results of deals with Special Purpose Entities which were not consolidated in the financial statements.
SPEs are discussed in the forum topic
http//www.accountancy.com.pk/forum/topic.asp?topic_id=6039</font id="Century Gothic">
