Off-balance sheet items (OBS) is an accounting practice in which a company does not include a liability on its balance sheet.
Although these items are not reflected in the balance sheet itself, they are nonetheless assets and liabilities of the company.
Off-balance sheet items can be used to keep debt-to-equity (D/E) and deleveraging low, facilitating cheaper borrowing and preventing bond covenant violations.
The practice of off-balance sheet financing has come under increasing scrutiny after a series of accounting scandals exposed the practice’s abuse.