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Off balance sheet finance
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Off balance sheet finance and impairment
.... debt ratios). Consequently then, a first effect of off-balance-sheet financing for the companys financial statement is that it makes it more controllable by massively reducing the revealed costs. This is achieved through various means of classification and its aim is to keep the leverage and debt to equity ratios at low levels. Examples of off-sheet-financing may include joint ventures, partnerships for research and development or operating leases (Investopedia, 2009).
However the capitals are not included in the companys balance sheet, they are included in the balance sheet of another company specially formed with this purpose. These agencies are called Special Purpose Vehicles (SPV) or Special Purpose Entities (SPE). Given then that the assets and liabilities are moved to the SPV, it also means that their adherent risks are also moved (Risk Glossary, 2005). In other words, the second effect upon the financial statement is that it becomes better able to reveal and manage risks.
Also, a third effect is that the initial balance-sheet, or the on-balance-sheet-financing, it more flexible. Then, another effect of the SPVs is that they allow economic agents to pay less in taxes, coming as such next to fraud and immoral and unethical conduct. In
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