Off-balance sheet transactions

Off balance-sheet items are matters where substance over form addresses the issue

In days gone by, an item held under a lease (before IAS 17) didn’t belong to the lessee so was not included as an asset even though the lessee had the significant risks and rewards of ownership

By the clever wording designed by lessors’ draughts persons it was possible to design the wording of a lease so that it was difficult to classify a lease as a finance lease or as an operating lease and if it didn’t quite satisfy the definition of a finance lease then it must by default be an operating lease. Even though, in effect, it was a finance lease

Same with subsidiaries – if we didn’t hold >=50% then the investment was not a subsidiary

But holding 49% is surely effectively a subsidiary. So recent IFRSs address these issues and attempt to restrict the opportunities for entities to keep matters off their balance sheets simply by finding loop-holes in the wording of standards

Auditors? Skill and judgement and not allowing the client to outwit them

OK?