The limited role of international accounting standards and regulations on limiting Off-Balance Sheet Transactions: A literature review
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Abstract
The study aims to examine the changing roles of IFRS in limiting off-balance sheet financing. A combination of literature review and document analysis were applied as part of the procedures undertaken to answer the proposed research questions and arrive at the study conclusions. The study findings revealed that the adoption of IFRS 16 serves to enhance transparency which is instrumental in improving companies’ decision-making capabilities. Additionally, the study also found that the application of IFRS 16 is necessary for eliminating the current dual accounting model for lessees, which distinguishes between off-balance sheet operating leases and finance leases. Furthermore, the study uncovers that off-balance-sheet financing items exist in several forms and magnitude yet only IFRS 9 and IFRS 16 address leases and contingent obligations and guarantees, thereby excluding other forms of off-balance-sheet financing items. Hence, the study findings infer that the combined use of IFRS, SFAS and other accounting standards is essential in limiting off-balance sheet financing issues. The study’s practical implications demand that financial consultants and managers change the structuring of financial transactions to ensure that they do not comply with GAAP but also communicate the economic substance of transactions to users of financial statements.
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