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Position of FASB on off-balance sheet financing

The Financial Accounting Standards Board (FASB) sets financial and accounting the rules and policies that are used by businesses and other organizations in the Unites States. It helps companies by giving them solutions especially when they are faced with financial problems. Some of the rules that it has placed to regulate the usage of off-balance sheet financing so as to protect business entities include. “FASB said that business cooperation is required to disclose information about their off-balance sheet status so that their business as well as others can be protected (Pendlebury, Groves & Christopher, 1990).

” The disclosure occurs in phases but the first step talks of giving all the information that pertains to the business and assets and liabilities with other related entities. Other steps will include information on matters related to finances. They are also required to state the exact amount, how they think the business as well as the public will be affected in case of a loss. More over, companies should report when they are over or under funded.

It has also given rules on how the companies should relate with SPEs for instance, even if a parent company owns 50% shares in another company, it must consolidate

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the other companies balance sheet in its own as it also benefits from the success of the other business. FASB also instills the ethical principles that are required in the practice of business so that they guide people on what they should do and if someone breaks any rule, then they will be penalized. The policies and codes of conduct are necessary because they regulate how people operate and enhance the continual progress of businesses as well as the economy.

Reference: Haskins M. E. (2007). The Secret Language of Financial Reports: The Back Stories That Can Enhance Your Investment Decisions, McGraw Hill Professional, p. 141, 226 Koller, T. et al. (2005). Valuation: Measuring and Managing the Value of Companies 4th Ed. John Wiley and Sons, 2005 Miller, P. B. W. & Bahnson P. R. (2002). Quality Financial Reporting, McGraw-Hill Professional p. 74, 107 Pendlebury, M. , Groves, V. E. R. & Christopher, D. (1990). Fanning Company Accounts: Analysis, Interpretation, Understanding 2nd Ed. Routledge

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