The Analysis Of Off-Balance Sheet Exposures A Global Perspective New York Barbara Havlicek 1.212.553.1653 Kevin Stoklosa Greg Jonas Laura Levenstein Pamela Stumpp London Michel Madelain 44.20.7772.5454 Trevor Pijper Frankfurt Wolfgang Draack 49.69.707.30.700 Toronto Waylon Iserhoff 1.416.214.1635 Sydney Brian Cahill 61.2.9270.8100 Hong Kong OFF-BALANCE SHEET ITEMS LR015 Basis of Factors The potential for risk exists in off-balance sheet items. For items other than derivative instruments, a 1.3 percent factor was chosen on a judgment basis. The 1.3 percent pre-tax factor will differentiate between the companies that have small and large exposures to this risk. The accounts have been prepared on a historical cost basis, modified to include market valuation of marketable securities, gold and all other onbalance-sheet and off-balance-sheet assets and liabilities denominated in foreign currency. the motivation behind off-balance sheet decisions. Given the recent attention paid to bank off-balance sheet activities and their risks, surprisingly little has been \"ritten about the measurement of off-balance sheet banking risk. The literature on off-balance sheet activities and their risk is limited and, due to Off balance sheet items are in contrast to loans, debt and equity, which do appear on the balance sheet. Most commonly known examples of off-balance-sheet items include research and development partnerships, joint ventures, and operating leases. Among the above examples, operating leases are the most common examples of off-balance-sheet ... While there are legitimate reasons for off-balance-sheet accounting, it is often used to make a company look like it has far less debt than it actually does. Some types of off-balance-sheet accounting move debt to a newly created company specifically for that purpose, which was the case with Enron.