Off Balance Sheet Disclosures- a Comparison Between Indian and US Companies

Abstract

Off Balance Sheet (OBS) means an asset or debt or financing activity or a financial instrument not on the company's balance sheet. Off balance sheet items do not affect the company's Leverage Ratios or Profitability ratio as the conventional on balance sheet items impact the same. In certain cases, the off balance sheet items give rise to a large contingent and leveraged exposures that need to be studied carefully to understand the underlying risks and variability in profits that might be caused by these items. With the onset of derivatives, calculating fair values for most these complex instruments i no longer an easy ta k. For e.g., as per US GAAP SFAS (Statement of Financial Accounting Standards), 157 establishes a valuation hierarchy based on the level of independent, objective evidence available regarding the value of the investments. It establishes three classes of investments: