Reference no: EM131943187

Off-balance sheet financing (transactions), as the name implies, are non-recording of financial obligations on the balance sheet. According to our text, in addition to operating leases that are indistinguishable from capital leases, these transactions can be through-put agreements where a company agrees to run goods through a processing facility; take-or-pay arrangements, where a company guarantees to pay for goods whether needed or not; certain joint ventures and limited partnerships; product financing arrangements, where a company sells and agrees to either repurchase inventory or guarantee a selling price; selling receivables with recourse and recording them as sales rather than liabilities; selling receivables as backing for debt sold to the public; and outstanding loan commitments (Subramanyam, 2014).

There have been controversies surrounding this kind of “creative” accounting because it can encourage the manipulation of financial statements and fraud such as occurred at Enron. Despite these arguments, most companies that use these transactions do so in compliance with accounting rules and regulations. Do you or do you not support the use of off-balance sheet financing.