what is off balance sheet obs 
off balance sheet obs items are assets or liabilities that do not appear on a company s balance sheet although not recorded on the balance sheet they are still assets and liabilities of the company investopedia jake shiunderstanding off balance sheet obs off balance sheet items are an important concern for investors when assessing a company s financial health off balance sheet items are often difficult to identify and track within a company s financial statements because they often only appear in the accompanying notes also of concern is some off balance sheet items have the potential to become hidden liabilities for example collateralized debt obligations cdo can become toxic assets assets that can suddenly become almost completely illiquid before investors are aware of the company s financial exposure off balance sheet items are typically those not owned by or are a direct obligation of the company for example when loans are securitized and sold off as investments the secured debt is often kept off the bank s books prior to a change in accounting rules that brought obligations relating to most significant operating leases onto the balance sheet an operating lease was one of the most common off balance items off balance sheet items are not inherently intended to be deceptive or misleading although they can be misused by bad actors to be deceptive certain businesses routinely keep substantial off balance sheet items for example investment management firms are required to keep clients investments and assets off balance sheet for most companies off balance sheet items exist in relation to financing enabling the company to maintain compliance with existing financial covenants off balance sheet items are also used to share the risks and benefits of assets and liabilities with other companies as in the case of joint venture jv projects types of off balance sheet itemsthere are several ways to structure off balance sheet items the following is a short list of some of the most common an obs operating lease is one in which the lessor retains the leased asset on its balance sheet the company leasing the asset only accounts for the monthly rental payments and other fees associated with the rental rather than listing the asset and corresponding liability on its own balance sheet at the end of the lease term the lessee generally has the opportunity to purchase the asset at a drastically reduced price under a leaseback agreement a company can sell an asset such as a piece of property to another entity they may then lease that same property back from the new owner like an operating lease the company only lists the rental expenses on its balance sheet while the asset itself is listed on the balance sheet of the owning business accounts receivable represents a considerable liability for many companies this asset category is reserved for funds that have not yet been received from customers so the possibility of default is high instead of listing this risk laden asset on its own balance sheet companies can essentially sell this asset to another company called a factor which then acquires the risk associated with the asset the factor pays the company a percentage of the total value of all ar upfront and takes care of collection once customers have paid up the factor pays the company the balance due minus a fee for services rendered in this way a business can collect what is owed while outsourcing the risk of default 