US regulators tackle off-balance sheet items
The practice of off-balance sheet financing, which figured heavily in Enron's demise, is to undergo a shake up as US regulators move to tighten rules, it emerged this week.
A new rule, which will radically alter the way many large US companies compile their accounts, could come into force as early as the end of this year as pressure increases to improve financial reporting.
The US Financial Accounting Standards Board, the equivalent of the UK’s Accounting Standards Board, is to draw up rules to be put out for consultation in the second quarter, the FT reported today.
Special purpose vehicles are used by many US public companies to shift assets and liabilities of partnerships and trusts off the parent company’s balance sheet to enhance earnings and maintain credit ratings.
Following similar corporate collapses in the UK in the early 1990s, the ASB tightened its rules on off-balance sheet reporting. The standard FRS 5 has been effective since September 1994.