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OFF-BALANCE SHEET ARRANGEMENTS |
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DISCLOSURE OF OFF-BALANCE SHEET ARRANGEMENTS |
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The Accounting Standards Board’s Urgent Issues Task Force (UITF) was asked to review the legal definition of an off-balance sheet arrangement and in response has issued a press notice (ASB PN 328) on this topic. This review was sparked by a new disclosure requirement set out in section 410A of the Companies Act 2006, which applies to large and medium-sized companies that prepare accounts in accordance with either the Act and UK Financial Reporting Standards, or International Financial Reporting Standards (IFRS), as recognised by the European Union (EU). Off-balance sheet financing covers transactions or arrangements with other entities that are not included in the balance sheet. Some disclosures regarding off-balance sheet financing arrangements are already required under SSAP 21 “Accounting for leases and hire purchase contracts” and FRS 5 “Reporting the substance of transactions”. The problem is, however, that the Companies Act 2006 does not give a precise definition for an off-balance sheet arrangement and many companies are not sure of the adequacy of their disclosures in terms of complying with the Act. The Department for Business, Enterprise and Regulatory Reform (BERR) has issued guidance on the accounting and reporting provisions of the Companies Act 2006, based on EU Directive 2006/46/EC and includes the following types of risk and benefit sharing arrangements or obligations arising from: » debt factoring; » combined sale and repurchase agreements; » consignment stock arrangements; » securitisation organised through separate companies or unincorporated » entities; » pledged assets; » operating lease arrangements; and » outsourcing. In addition, the UITF offers additional guidance to companies when considering the disclosure requirements for off balance sheet arrangements in accordance with section 410A; namely: » only material off balance arrangements in force at the balance sheet date need be considered; and » details of the risks and benefits of material off balance sheet arrangements should be given in the notes to the accounts. |
