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Off balance sheet (OBS) usually means an asset or debt or
financing activity not on the company's balance sheet.
Some companies may have significant amounts of off-balance
sheet assets and liabilities. For example, financial
institutions often offer asset management or brokerage
services to their clients. The assets in question (often
securities) usually belong to the individual clients
directly or in trust, while the company may provide
management, depository or other services to the client. The
company itself has no direct claim to the assets, and
usually has some basic fiduciary duties with respect to the
client. Financial institutions may report off-balance sheet
items in their accounting statements formally, and may also
refer to "assets under management," a figure that may
include on and off-balance sheet items.
The formal accounting distinction between on and off-
balance sheet items can be quite detailed and will depend
to some degree on management judgments, but in general
terms, an item should appear on the company's balance sheet
if it is an asset or liability that the company owns or is
legally responsible for; uncertain assets or liabilities
must also meet tests of being probable, measurable and
meaningful. For example, a company that is being sued for
damages would not include the potential legal liability on
its balance sheet until a legal judgment against it is
likely and the amount of the judgment can be estimated; if
the amount at risk is small, it may not appear on the
company's accounts until a judgment is rendered.
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