Definition
Off-Balance-Sheet Items
Off-balance-sheet items are obligations or exposures not recorded as assets or liabilities on the balance sheet but disclosed in the notes.
Common examples include operating guarantees, letters of credit, derivative contracts, and certain contingent obligations. For banks, off-balance-sheet exposures like guarantees and forex contracts are large and feed into risk-weighted assets for capital purposes.
These items matter because they represent real economic risk hidden from the headline balance sheet. Ind AS has brought several previously off-balance-sheet arrangements, such as most leases, back onto the balance sheet, but contingent and derivative exposures still require careful reading of the notes to accounts.
Related terms
- Risk-Weighted Assets (RWA)Risk-Weighted Assets are a bank's assets weighted according to their credit risk, used as the denominator in capital adequacy calculations.
- Contingent LiabilityA contingent liability is a possible obligation that may arise depending on a future event, disclosed in the notes rather than recognised on the balance sheet.
- Notes to AccountsNotes to accounts are the detailed disclosures accompanying financial statements that explain accounting policies, breakdowns and items not visible on the face of the statements.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.