October 19, 2021

Off-Balance Sheet Liabilities: Still Got It!

If you were worried that the heyday of companies using accounting rules to stash gazillions of dollars in debt out of sight was over, you can rest easy, friend. The Wall Street Journal reports on a Moody’s analysis by Trevor Pijper that found that defunct U.K. contractor Carillion used loose rules to keep about half a billion pounds it owed lenders for “reverse factoring” arrangements tucked away where most people didn’t see it.

“Carillion’s approach to its reverse factoring arrangement had two key shortcomings: the scale of the liability to banks was not evident from the balance sheet, and a key source of the cash generated by the business was not clear from the cash flow statement,” Mr. Pijper said. The company’s 2016 balance sheet didn’t give a clear picture of the full scale of its liabilities to banks, he added.

The bummer for Carillion, of course, is that their lenders had a clear picture of their liabilities the whole time. Banks are such sticklers about the whole “you owe us money” thing.

[WSJ]

Image: iStock/solar22

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