off balance sheet finance

The most obvious example is that of an operating lease, where the asset is not shown in the SOFP (because it is not owned by the business) and where there is no liability shown (as it would be if they had borrowed money and bought the asset. The potential problem is that directors may prefer to lease the asset rather than borrow and buy it (because they then show lower liabilities) which might not be what is best for the business (and therefore best for the shareholders).