ABSTRACT
This chapter presents the ways in which accounting has been exploited to understate the level of gearing in a company's long-term capital structure through the omission of liabilities from the balance sheet. It shows that Off-Balance Sheet Financing (OBSF) having earlier origins, increased enormously in significance in the 1970s and 1980s. Writing in 1989, Hanson claimed that 'The overall quality of financial reporting has improved immeasurably in the past two decades'. The chapter describes some companies began to conduct part of their operations through subsidiary companies. The artificial device designed to create OBSF is referred to as a special purpose transaction (SPT), that is a contractual arrangement which, when reported in accordance with its precise legal form, produces accounting implications that differs significantly from the underlying commercial reality of the transaction. The use of SPT's to create OBSF is a recent manifestation of the age-old practice of using accounting information to deceive rather than enlighten external stakeholders.
