Investigating the possibility of detecting (recognizing) the use of off-balance sheet financing in companies listed on the stock exchange by independent auditors

1 Introduction

According to the acceleration of the process of science and technology in today's industrial world, every field of science is divided into more specialized trends. This division arises by itself and according to the need and necessity and the increasing complexities of the industry. The world of economics and the relationships between economic and financial variables have not been exempted from these developments, and the issues of this field are becoming more complex and difficult than before, especially money and capital markets, which play an important and decisive role in the economy. Financing for the implementation of profitable projects plays a very important role in the growth of the company. The company's ability to provide potential financial resources to prepare capital for investments and prepare suitable financial plans are considered to be the main factors of the growth and progress of companies[1]. One of the biggest challenges for companies to continue their activities is the lack of financial resources to meet capital needs, which motivates and encourages companies to choose and determine short-term or long-term financing methods in different ways [2]. Decisions related to financing by companies are mainly related to the capital structure, as well as determining and choosing the best method of financing and its combination. As a result, a company can affect the wealth of shareholders through changes in things such as profit per share, profit sharing policy, term timing and profitability risk, and choosing the method of financing. The financial resources of each economic unit are made up of internal and external sources, internal sources include cash flows from operations, funds from the sale of assets, and external sources include borrowing from the financial markets and issuing securities. [3]

With the emergence of major financial innovations that took place in the 1980s, companies turned to new ways of financing, which met their financial needs not through conventional and popular methods, but through new and innovative methods. Movari fulfilled an initiative that led to the emergence of new discussions on how to record and present this type of financing by companies in financial reports and in specialized publications of the accounting profession [4]. In this research, the nature and methods of off-balance sheet financing, as well as briefly the reasons for its use by companies, and finally to investigate the possibility of identifying the use of this type of financing in companies by independent auditors. It has been controversial. The problem discussed in this research is to recognize one of the methods of financing under the title "off-balance sheet financing" (OBSF) [6] and to examine how it is recognized by independent auditors.

Explaining the term off-balance sheet financing is somewhat difficult, this problem first arises when writing about this topic. Naturally, the assumption and rule is that the items that are certain belong to the balance sheet and the items that are not certain are excluded from this rule. The practical effect of off-balance sheet transactions is that such transactions are not shown as a complete representation of the main activity in the accounts, which is due to one of the following two reasons:

· Or it is possible that the items arising from the transaction are brought into the accounts purely, such as removing loans received against the assets that are pledged for financing.

· Or it is possible that the resulting items be removed from the accounts completely from the transactions in such a way that these items are presented on the basis of future obligations and not as current assets and liabilities such as (obligations of operating leases, obligations paid or not received, contracts or contracts of trust goods and possible non-operating liabilities). and better financial ratios are presented, such as leverage ratios and return on capital employed.

· Second, off-balance sheet activity affects the timing or disclosure of related income items, especially the presence or absence of items on the balance sheet usually either affects the price of the financing involved in the transaction or is included in other items of income and expenses.

The term off-balance sheet financing (OBSF) apparently focuses on the balance sheet. But according to the above explanations, such transactions also affect other financial statements. For example, when an asset is sold, one of the effects of this operation is that the sold asset is removed from the balance sheet, and another effect is that the sale is recorded in the profit and loss statement and the profit and loss from the sale is measured. Therefore, there is a connection between the rule of recognition and non-recognition of items in the balance sheet and the rule of income recognition. Transactions of this kind are classified as transactions whose form is in conflict with their economic content. The accounting response is to identify items that have real and true content and clearly display the transactions.

Off-balance sheet transactions are transactions whose purpose is to allow companies to avoid reflecting definitive aspects of activities in the accounts, therefore, this term has a negative connotation. It is believed that the actions of those who indulge in such transactions should be prevented. From this point of view, standards should be established that do not allow accounts to be misleading by the effect of transactions whose main motivation is to create accounts.

Given that the financial statements of companies that use various methods of off-balance sheet financing (OBSF) may be misleading for users, and also considering that companies that use this type of financing are usually and not necessarily suffering from financial crises and lack of liquidity, which are the same effects. With their importance in the continuity of companies' activities, it is necessary to judge independent auditors through how to recognize and recognize the use of this type of financing and determine how to extract related information and how to handle it. It was financial reports that the US Senate responded to this weakness by passing the Sarbanes-Exley bill [7] in 2002, which has been the most important component of securities law since the 1930s in the New York Stock Exchange. Section (C) 401 of the aforementioned law requires that the Securities and Exchange Commission (SEC)[8] initiate a study in response to the following 2 questions.

The extent of off-balance sheet practices (OBS) including the possibility of using special purpose entities (SPE) [9]

and whether financial statements published by companies clearly reflect off-balance sheet arrangements. ?

In order to answer these questions, the Securities Exchange Commission (SEC) started a study on relatively extensive practices related to the scope and concept of the word off-balance sheet and examined a diverse set of business practices that are considered as implicit off-balance sheet concepts. By the companies, the existing accounting laws related to this matter, how to record and reflect in the financial reports of the companies and the reasons for the companies' use of this type of financing, and finally how independent auditors approach to recognize and recognize the use of this type of financing by the companies should be examined and studied. Texts, books and commercial and accounting publications of the world are discussed. This attraction is due to knowing how to provide the capital needed to continue the activities of the companies. Off-balance sheet financing, as its name suggests, refers to transactions that are not reflected in the financial statements, and such transactions are not completely transparent and visible to investors.