What Are Off-Balance Sheet Transactions?

Off-balance sheet transactions are off-balance sheet transactions and refer to off-balance sheet transactions. That is to say, the profits or risks generated by these exchanges are not included in the balance sheet and cannot truly reflect the gains or risks of these transactions.

Off-balance sheet transactions

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Off-balance sheet transactions

Case 1: Analysis of off-balance sheet transactions related to controlled entities [1]

There are many types of off-balance sheet transactions. For off-balance sheet transactions related to controlling entities, if an economic entity asks for a control or significant influence relationship, it should use appropriate force to disclose this relationship. Consolidated accounting statements are Good choices From the perspective of current accounting practices, the scope of consolidation and its force-law are often linked to the relationship between economic entities. The relationship between economic entities is: control, joint control, significant influence, no control, no joint control Without significant impact. The corresponding merger methods are divided into: full merger, proportional merger and equity method merger. All economic entities that belong to the controlling relationship should be completely merged, economic entities that belong to the common controlling relationship should be merged in proportion, and economic entities that belong to the significant influence relationship should be merged using the equity method.

I. Control and its boundaries

According to IAS 27-Consolidated Financial Statements and Accounting for Subsidiaries, control is the right to control the financial and operating policies of an enterprise in order to obtain benefits from its activities. Deciding the financial and operating policies of an enterprise is the main sign of control, and obtaining economic benefits is the main purpose of control. For this reason, the standard further believes that even if the parent company only owns half or less of the voting shares of an enterprise, there is a controlling relationship if one of the following conditions is met:

Hold more than half of the voting rights through agreements with other investors; have the right to govern the financial and operating policies of the company according to the charter or agreement; have the power to appoint and remove most members of the board of directors and similar authorities; There is a majority voting right. The standard also considers that subsidiary is an enterprise controlled by another enterprise. That is, the opinion of the International Accounting Standards Board is:

(1) The controlling entity is a concept equivalent to a subsidiary, where the boundary of control is where the boundary of the subsidiary is;

(2) Control is linked to voting shares.

Types of off-balance sheet transactions related to controlled entities

Control has both quantitative standards and quality rules. When these rules, standards and economic substance conflict, off-balance sheet transactions occur. Off-balance sheet transactions related to the controlling entity mainly exist in unconsolidated subsidiaries and quasi-subsidiaries that are substantially controlled by the parent company. The reporting entity uses unconsolidated Off-balance sheet transactions undertaken by subsidiaries and quasi-subsidiaries vary according to the purpose of the reporting company. Generally, there are two forms: sales of assets to off-balance-sheet controlled entities for specific purposes, and acquisitions through off-balance-sheet controlled entities. Another company or asset, engaging in a specific purpose transaction activity outside the group statement, etc.

(1) Sale of assets

The assets sold by the reporting entity to the off-balance sheet controlling entity cannot be used by the parent company in the future, and the off-balance sheet controlling entity may lease it to the parent company in the form of operating lease. In this case, the parent company can achieve at least two purposes through this sale and leaseback transaction: (1) report profit and loss in the profit and loss statement; and (2) it is not necessary to report the asset and its related Debt.

(2) Purchase of assets or companies

Sometimes the parent company may purchase an asset or a company through an off-balance-sheet controlling entity. The specific approach is generally: first purchase the assets or company of the off-balance-control entity, and then buy back the company when the time is right. The reasons for the parent company to engage in this type of off-balance sheet transactions are multi-pronged, and there are profit motivations as well as off-balance sheet financing motivations. (3) Engaging in certain business activities outside the group.

The parent company may use the quasi-subsidiary or unconsolidated subsidiary to move certain high-risk or high-debt equity activities outside the consolidated statement to reduce the parent company's risk or debt ratio.

Investigation on the disclosure of off-balance sheet transactions of listed companies in China

Through the above analysis, we divided the possible Ix. Domains related to off-balance sheet transactions related to the controlling entity into two parts: unconsolidated subsidiaries and quasi-subsidiaries that are actually controlled by the parent company. Let's analyze China's regulations on such transactions and the specific disclosures of listed companies.

(I) Disclosure of unconsolidated subsidiaries controlled by the parent company

1. In determining the scope of preparation of consolidated statements, China and the International Accounting Standards Board have basically the same views, and also determine the scope of consolidation based on control. According to the Interim Provisions on Consolidated Accounting Statements issued by the Ministry of Finance in 1995, the parent company should include all its domestic and overseas subsidiaries under the consolidated scope of the consolidated statements when preparing the consolidated accounting statements. The Reply to the Request for Consolidation Scope of the Consolidated Accounting Statements stipulates that: Subsidiaries whose total assets, sales income and net profit are lower than the indicators of the consolidated statement of 10070, will not be consolidated, which leaves room for off-balance sheet transactions in terms of regulations. .

2. Regarding how to disclose unconsolidated subsidiaries, China does not make special regulations, only in the relevant standards there are disclosures related to related parties and relationships and their transactions. It is required that whether or not there is a transaction, it should be reported in the training statement. The notes disclose relevant information about the consolidated subsidiary; in the event of a transaction, the transaction amount, proportion and pricing policy should be disclosed in the notes to the accounting statements.

The Securities and Futures Commission in 1999 revised the `` No. 2 Guidelines for the Content and Format of Information Disclosure by Public Issuing Companies '' to provide:

The company shall disclose the full names, registered capital, business scope, and the amount of investment and equity of the parent company in all its domestic and overseas subsidiaries and joint ventures under its control.

Subsidiaries that are not included in the scope of consolidated accounting statements shall clearly explain the reasons and their impact on the financial position.

3. Implementation of listed companies.

Through the inspection of some companies' unmerged subsidiaries, we found that there are many problems in actual implementation:

The disclosure of unconsolidated subsidiaries is relatively messy. The disclosure of the scope of consolidation in the holding subsidiaries and joint ventures, and the content and amount of transactions in related party transactions, will cause extremely inconvenient investment analysis for investors.

The disclosure of unconsolidated subsidiaries is incomplete. It is difficult to find information about the assets, liabilities, profits and cash flows of unconsolidated subsidiaries in the disclosure, which will affect further analysis and research.

(II) Disclosure of prospective subsidiaries

China does not specifically target quasi-subsidiary "disclosure standards and related regulations. However, if this type of company is the related company of the parent company and there is some kind of transaction with the parent company, according to The following information should be disclosed:

1. The amount of the transaction or the corresponding proportion;

2. Amount or corresponding proportion on the date of final settlement;

3. Pricing policies (including transactions with no or only symbolic amounts).

In addition, the CSRC's "No. 2 Guidelines for the Content and Format of Information Disclosure by Public Issuing Companies" stipulates that "in the event of custody, contracting, leasing of other companies or custody, contracting, or leasing of listed company assets by other companies, When the profits brought to the listed company reach more than 10% of the total profits of the listed company for that year, the company should also disclose the main contents of the relevant contract in detail, such as the status of the relevant assets, the amount and term involved, the income and the basis for determination. The impact of this gain on listed companies should also be disclosed. "

Listed companies have made corresponding disclosures in accordance with the above requirements, but there is a lack of systematic and complete disclosure in the disclosure aimed at subsidiaries. The disclosure in the subsidiaries is important in the report. Among the transactions and other important events after the balance sheet date, this has brought extremely inconvenience to investors' analysis and research.