Off Balance Sheet Disclosures: A Comparison Between Indian and US Companies

Authors

  •   Varadraj Bapat Assistant Professor, S. J. Mehta School of Management, IIT Bombay, Mumbai
  •   Mehul Raithatha Assistant Professor, Smt. M. M. K. College of commerce and Economics, University of Mumbai

Keywords:

Off Balance Sheet Items, Derivatives Disclosures, Hedging Disclosures, Leases, Joint Ventures, Compliance with Disclosure Standards.

Abstract

Off balance sheet items refer to an asset or debt or financing activity or financial instrument not on the company's balance sheet, but having a potential impact on the financial position. The significance of off balance sheet items as a source of finance has been steadily increasing since 1990s. Of the Indian Accounting Standards (AS) related to off balance sheet items, AS 19 (Leases) and AS 27 (Financial Reporting of Interests in Joint Ventures) are compulsory, whereas AS 30 (Financial Instruments: Recognition and Measurements) and AS 32 (Financial Instruments: Disclosures) are recommendatory in nature. Corresponding Financial Accounting Standards (FAS) in US are - FAS 133 (Accounting for Derivative Instruments and Hedging Activities) and FAS 13 (Accounting for Leases). The paper compares the disclosure level for off balance sheet items, particularly with reference to leases, interests in joint ventures, and financial instruments, including derivatives for major Indian and US companies. Indian companies need to substantially enhance their disclosure levels for off balance sheet items in order to match the international standards. This is expected to happen once AS-30 and AS-32 become mandatory from April 1, 2011. The Indian Pharma and IT sector is more transparent in terms of their disclosures for derivatives, as compared to the auto sector. Telecom sector companies have not moved to AS 30 and continue to capitalize losses on higher percentage of foreign borrowing funded fixed assets. This has helped them to avoid showing foreign losses.

Downloads

Download data is not yet available.

Downloads

Published

2012-05-01

How to Cite

Bapat, V., & Raithatha, M. (2012). Off Balance Sheet Disclosures: A Comparison Between Indian and US Companies. Indian Journal of Finance, 6(5), 11–24. Retrieved from https://indianjournalofcomputerscience.com/index.php/IJF/article/view/72417

Issue

Volume 6, Issue 5, May 2012

Section

Articles

References

Aboody, D. and B. Lev. (1998). “The Value Relevance Of Intangibles: The Case Of Software Capitalization.†Journal of Accounting Research, Volume 36, Issue 1, pp.161-191.

Angbazo, Lazarus. (1997). “Commercial Bank Net Interest Margins, Default Risk, Interest-Rate Risk And Off-Balance Sheet Banking.†Journal of Banking and Finance, Volume 21, Issue 1, pp. 55-82.

Baginski, S., J. Hassel, and G. Waymire, (1994). “Some Evidence On The News Content Of Preliminary Earnings Estimates.†The Accounting Review, Volume 69, Issue 1, pp. 265-271.

Begley, J. and R. Freedman. (2004). “The Changing Role Of Accounting Numbers In Public Lending Agreements.†Accounting Horizons, Volume 18, Issue 2, pp. 81-96.

Berger, P.G., R. Hann and J.D. Piotroski. (2003). “The Impact of SFAS No. 131 on Information And Monitoring.†Journal of Accounting Research, Volume 42, Issue 2, pp. 163-223.

Bhojraj, S., W.G. Blacconiere, and J.D. D'Souza. (2004). “Voluntary Disclosure In A Multi-Audience Setting: An Empirical Investigation.†The Accounting Review, Volume 79, Issue 4, pp. 921-947.

Boone, Jeff and K. K. Raman. (2001). “Off-balance Sheet R&D Assets And Market Liquidity.†Journal of Accounting and Public Policy, Volume 20, Issue 2, pp. 97-128.

Breuer, Peter. (2002). “Measuring Off-Balance-Sheet Leverage.†Journal of Banking and Finance, Volume 26, Issue 3, pp. 223-242.

Carment, Thomas, Hamid Pourjalali and David Durkee. (2001). “A Motivational Study Of Off-Balance Sheet Financing: The Case Of Research And Development Limited Partnerships.†The Mid-Atlantic Journal of Business, Volume 37, Issue 4, pp. 153-173.

Clarkson, P.M., J.L. Kao, and G.D. Richardson. (1994). “The Voluntary Inclusion Of Forecasts In The MD&A Section Of Annual Reports.†Contemporary Accounting Research, Volume 11, Issue 1, pp. 423-450.

Dichev, I.D. and J.D. Piotroski. (1999). “The Performance Of Long-Run Stock Returns Following Issues Of Public And Private Debt.†Journal of Business Finance & Accounting, Volume 26, Issue 9, pp. 1103-1132.

Dowdell, T.D. and E. Press. (2004). “The Impact Of Sec Scrutiny On Financial Statement Reporting Of In-Process Research And Development Expense.†Journal of Accounting and Public Policy, Volume 23, Issue 3, pp. 1103-1132.

Frankel, R., M. McNichols, and G. P. Wilson. (1995). “Discretionary Disclosure And External Financing.†The Accounting Review, Volume 70, Issue 1, pp. 135-150.

Keating, A. Scott And Jerold Zimmerman. (2000). “Depreciation-Policy Changes: Tax, Earnings Management, And Investment Opportunity Incentives.†Journal of Accounting and Economics, Volume 28, Issue 3, pp.359-389.

Myers, Stewart and Nicholas Majluf. (1984). “Corporate Financing And Investment Decisions When Firms Have Information Those Investors Do Not Have.†Journal of Financial Economics, Volume 13, Issue 2, pp.187-221.

Mills, L.F. and K.J. Newberry. (2005). “Firms' Off-Balance Sheet Financing: Evidence From Their Book-Tax Reporting Differencesâ€. Journal of Accounting Research, Volume 43, Issue 2, pp.251-282.

Shevlin, Terry. (1987). “Taxes and Off-Balance-Sheet Financing: Research And Development Limited Partnerships.†The Accounting Review, Volume 62, Issue 3, pp. 480-509.

Uppal R. K. and Navdeep Kumar (2007). “Financial Derivatives Markets In India - Some Glaring Issuesâ€. Indian Journal of Finance, Volume 1, Issue 2.