In the wake of the Global Financial Crisis, a number of influential stakeholders called on the International Accounting Standards Board (IASB) to improve the quality of accounting rules relating to investments in other entities. This paper argues that rather than heeding these calls, the IASB’s response has led to an increase in opportunities for entities to engage in off-balance sheet financing through the use of potential voting rights and supermajorities. This paper demonstrates how the rules on potential voting rights have been relaxed and shows that under the comparatively more restrictive IAS 27, the use of supermajorities is already used by approximately 28 per cent of the top 100 Australian-listed companies, as these entities do not consolidate majority-held investees. Evidence is presented which indicates these entities tend to be larger, have less favourable leverage and have better efficiency ratios, compared to entities which do not disclose these structures. The paper also uses a case study to demonstrate the impact this variant of off-balance sheet financing can have on the general-purpose financial reports of investing companies.
|Number of pages||14|
|Journal||Journal of Applied Research in Accounting and Finance|
|Publication status||Published - 2013|
HUGHES, M., & HOY, S. (2013). Two Steps Backward and One Step Forward: The IASB's Response to Off-balance Sheet Financing Through Investments in Other Entities. Journal of Applied Research in Accounting and Finance, 8(1), 41-54. http://www.gcbe.us/2012_CBEC/data/Mark%20D%20Hughes,%20Simon%20J%20Hoy.doc