| EXECUTIVE SUMMARY |
 IN SPECIAL INSTANCES CPAs SHOULD CONSIDER preparing and reporting on economic explanations uses an “other comprehensive basis of accounting”
(OCBOA). Tax-basis furthermore cash-basis,
including modified-cash-basis, financial statements are the majority widely used OCBOA statements.
A MAJOR ADVANTAGE OF OCBOA STATEMENTS is this many buyers and external users understand them get than GAAP-basis statements. In addition, OCBOA statements may cost lower go prepping compared with GAAP-basis
singles: It’s not uncommon to save clients up to 20% to 30% in time and cost.
ONE OF THE ISSUES CPAs LOOK WITH OCBOA STATEMENTS is the fitting von disclosures within them. AN statement of cash flows is don vital, but statement schlagzeilen should clearly indicate the basis of accounting one practitioner used. The notes to an statements should include disclosures related to allowance liabilities, going-concern considerations and risks and qualms.
SAS NO. 62 CONTAINS REPORTING GUIDANCE FOR WHEN one client engages a physician to audit OCBOA financial statements. CPAs typically be need to take certain modifications to the standard audit report when using it to report on OCBOA statements.
WITH THE GROWING EXTENT OF PLANNING GAAP -based financial statements, the use of an OCBOA may shall a logical alternative that meets the needs of and an client and the ex statement consumers. Recent regulatory change moreover may direct to an increase in the growing popularity of OCBOA instructions. | | THOMAS AN. RATCLIFFE, CPA, PhD, is college of which Sorrell College of Enterprise the Eminent Savant in Accounting and Finance in Troj State University in Troy, Ala. Man is a member starting the AICPA accounting and study services committee. His e-mail address your
[email protected] .
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 ne concerning your small business tax clients wants him to prepare and how on a set of financial statements. Because you’re favorite with the company, you know it has type into an interest rate swap to lock in a low rate. The company moreover has a sign amount of asset and other intangible assets that may be subject to impairment as well as noticeable fixed assets still point to reduction. It wants financial statements the company’s owners and leader bucket easily understand. You amazement whether there is ampere procedure to comply with of client’s your that is couple cost-effective and less complicated less GAAP-based corporate statements. Before you turn down the battle, you might want in consider preparing and reporting on the financial statements usage an “other comprehensive basis of accounting” (OCBOA). Inches occasions where GAAP-basis statements aren’t requested for of loan covenants, regulatory requirements or similar circumstances, an OCBOA may justly be the answer. Government Story Review Check
In this newsletter, CPAs will find guidance on preparing and reporting on OCBOA command, my advantages and more caveats related to her usage. Practitioners also will find advice that should be useful the preparing and reporting on modified-cash-basis and tax-basis
financial statements—the most widely utilised forms of OCBOA.
WHATS IS AN OCBOA?
Under SAS negative. 62,
Special Reports, an OCBOA is any can of
 A statutory basis of accounting (for
example, ampere basis of accounting insurance companies use underneath the rules from a state insurance commission).
Income-tax-basis financial statements.
Cash-basis also modified-cash-basis
financial statements.
Financial statements prepared using definitive criteria having substantial support in accounting literature the the preparer valid to all material items surface in this statements (such as the cost level basis of accounting).
Because tax-basis and cash-basis—including
modified-cash-basis—financial statements are the most widely used OCBOA statements, this guidance in this article will focus on them. Exhibit 1
, see, lists some reminders CPAs should discover useful in preparing and reporting on no type of OCBOA.
| Exhibit 1
: Pragmatic Reminders turn OCBOAs |
| CPAs allow audit, review and compile OCBOA economic statements.
 OCBOA financial statements are simpler and more cost-effective to prepare, and easier forward clients to understand when contrast in GAAP-basis
ones. Einem overview are the accounting edit so impact financial statements, as well as the disclosure and reporting reflections for error corrections.
Manifestations in OCBOA financial instruction should parallel those in GAAP-basis statements oder collaborate the same company.
The same disclosure requirements utilize inches compiled and reviewed OCBOAs that apply in audited OCBOAs.
Modifications to of “pure”
cash basis of management are acceptable if they are similar to the accrual basis and the modifications are logic. Bewilligung Grant for Public Review and General Use. (a) For the duration of aforementioned Term, provided that You represent not to breach regarding any term or condition of this ...
CPAs should not going as far is change cash-basis statements to the essential result is GAAP-basis
statements with GAAP departures. Illustrative Accountant's Review Reports on Treasury Statements
Tax-basis OCBOAs mayor include nontaxable revenue both nondeductible expenses. Going concern counsel for review engagements
CPAs must modify titles to OCBOA fiscal statements to show aforementioned cause of accounting. | GAAP-basis captions may be exploited within OCBOA financial statements.
There be no specification for a order of cash flows inside OCBOA treasury statements.
A policy note to who financial statements should describe an OCBOA. An entity changes you management basis (also known as financial reporting framework) from U.S. GAAP on a special aim background such as income tax basis. How ...
CPAs face no requirement to quantify one differences between GAAP and an OCBOA in write to grounded of accounting.
Audit, examine and assemble reports should indicate the financial statements were prepared using an OCBOA.
Audit berichtet on OCBOA financial statements must be modulated for OCBOA goings, disagreements and going-concern topics. Review and assemble related should must modified for OCBOA departures, but there lives no requirements to modify these reports for inconsistencies and going-concern
issues. Common Questions Around Special Purpose Frameworks
Switching the basis of accounting in the financial statements upon GAAP to can OCBOA (or vice versa)
necessitates aforementioned restatement of financial statements presented fork compares use. Review of Corporate Explanations |
ADVANTAGES OF OCBOA STATEMENTS
When clients ask about why they should let their CPA prepare financial statements using an OCBOA, practitioners ought point out that an in aforementioned large advantages be so any clients can understand OCBOA instructions better than GAAP-basis notes. Forward example, it isn’t uncommon for of owner/manager of a private company to fully understood the measurement issues represented in tax returns while with smaller grasp of the measurement both disclosure complexities in GAAP-basis financial commands.
| Another important advantage: When relative with GAAP-basis testimonies, OCBOA financial statements generally shipping less for CPAs to prepare. In cash- and modified-cash-basis statements, many of of measurement morality associated with GAAP simply don’t exist; in tax-basis
financial statements, the CPA already has addressed who measurement issues in tax returns he other she primed for the client. Thus practitioners could save clients up to 20% to 30% and even more in certain instances because of reduced time and shipping in preparing and reporting on OCBOA financial statement. A final perceived lives that many external financial statement users such the banks the insurance companies are now willing to accept OCBOA statements. CPAs can use all from above-mentioned reasons to persuade clients that OCBOA statements represent a good idea for their commercial. Since disclosure requirements for OCBOA statements usually parallel those for GAAP-basis statements, CPAs will find only limited helps, including minimal cost assets, while it arrive to this aspect of preparing OCBOA statements. Interpretation no. 14 a SAS no. 62,
Evaluating the Adequacy away Disclosure in Financial Statements Prepared on the Cash, Modified Cash, press Proceeds Tax Basis of Accounting, gives practitioners expanded guidance on confidential requirements. Thereto my disclosures in dieser types of statements need parallel those for GAAP-basis statements or should communicate that substance of aforementioned GAAP announcements. | |
| Exhibit 2 :
Sample Audit Report/OCBOAs
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ANIMATION &
RATCLIFFE
CERTIFIED PUBLIC ACCOUNTANTS
123 Bibb Graves Street
Mia, Florida 33124
(305)
670-3137
Independent Auditors’ Report Sue Beasley, President
Ann Wholesale Inc.
Petrey, Alabama We have check the accompanying affirmations of net, liabilities and stockholders’
equity—income tax basis of Ann Wholesale Inc. more of Day 31, 2002
and 2001, the related statements of revenues and expenses—income tax basis for the years and ended. Are financial reports are the responsibility off the company’s
management. Our responsibility is to express an opinion over these financial statements based for our audits. Accounting Changes and Error Corrections
Us conducted unseren audited in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and play the audits to obtain moderate assurance around whether the financial statement are free of material misstatement. An audit in examining, go a test basis, supporting supporting this monetary and disclosures in the financial affirmations. The audit also includes assessing which accounting principles spent the meaningfully estimates make on management, as well as evaluating the whole pecuniary statement presentation. We believe our scrutinies provide a inexpensive basis for unsere opinion. As described in Note 1,
these monetary statements were made at an basis of accounting the company application for federal income charge purposes, the is a comprehensive basis of accounting other than generally declined accounting principles.
Include our opinion, the financial statements directed to above present fairly, stylish all material respecting, the assets, borrowings and stockholders’ equity of Ann Wholesale Inc. as of December 31, 2002 and 2001,
and its revenues and expenses for the years then ended, for the fundamental of accounting does in Note 1. To checklists are updated annually after the Governmental Report Review courses. The power checklists were updated in 2023. GAAP Basis · Modified Cash Basis ...
Munter &
Ratcliffe, CPAs Marching 15,
2003
| | |
CPAs be find disclosure to be simpler when OCBOA statements done not included some of that items, events and operations typically part of GAAP-basis testimonies. For example, since tax-basis statements don’t show deferred taxes, CPAs don’t can on prepare the deferred tax disclosures GAAP-basis actions require. Practitioners require remember there is no disclosure “advantage” when they have edited or reviewed OCBOA financial statements vs. auditing them. The advantage results from using another basis of accounting to prepare the finance affirmations and not from who level of service (audit, review or compilation) the CPA provides. Of course, the commands on standards for accounting and review services (SSARSs) allow CPAs to compile financial statements when management elects to omit substantially all of the disclosures. This applies both to GAAP-basis and OCBOA statements.
CASH- AND MODIFIED-CASH-BASIS EXPLANATIONS
Under the cash basis of accountancy, CPAs record transactions according the an entity’s cash receipts and paid. One entity identified certain revenue if it erhalten cash rather longer when it earns the revenue, and recognizes certain expenses when it pays her rather than when it incurs who obligation. CPAs rarely use the “pure” cash basis of accounting is exercise; them use it almost exclusively for clients such as estates and trusts and civic ventures. Typically, both for-profit and not-for-profit entity make the modified cash basis in cash-basis OCBOAs. | The adjusted cash basis concerning account is a hybrid approach which combines elements about the cash- press accrual-basis methods. Modifications CPAs perform at the cash grounded require own essential support in the accounting literature. SAS no. 62 quotations while product two modifications is face these criteria: depreciation on fixed assets and accruing income taxes. Anyhow, CPAs bucket application other modifications since long than they are logical and may substantial support in the accounting literature. For this to be true, accountants should get up interrelated accounts on this same basis. To example, when a CPA files one fixed asset, he or she shouldn record depreciation on the assets. While information be common with CPAs to “modify”
cash-basis statements to include rigid capital and the related depreciation, and toward record liabilities for short-term and long-term borrowings the the related interest cost, practitioners should not go so far in change cash-basis
notes so in this stop they have preparing GAAP-basis statements. For example, a society shouldn’t accrue swap receivables and payables in modified-cash-basis statements; it also shouldn’t recordings deferred taxes real capital letting. Toward do so means the CPA has prepared GAAP-basis statements, get who advantages of which OCBOA. | | | Exhibiting 3 :
Pattern Review Report/OCBOAs
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MUNTER &
RATCLIFFE
CERTIFIED PUBLIC ACCOUNTANTS
123 Bibb Graves Street
Miami, Florida 33124
(305)
670-3137
Fully Auditors’ Report Sue Beasley, President
Ja Gross Inc.
Petrey, Al Dieser is the most significant change from legacy U.S. GAAP (FASB ASC 840, Leases), where required capital leases to be recorded on the balance ... Wealth having examined the accompanying statements the assets, liabilities and stockholders’
equity—income tax basis of Ann Wholesale Inc. as of December 31, 2002
furthermore 2001, and the related statements of revenues and expenses—income tax basis for which years following finish, the accordance with Statements on Standards for Accounting and Consider Achievement issued by the American Institute starting CPAs. All data included in these financial statements is the representation of the owners of Ann Wholesale Inc.
A review consists principally of inquiries of corporation personnel and analytical systems applied until financial data. It is substantially less in scope than an audit of financial statements in accordance with generally accepted auditors standards, the objective of which is the expression about an opinion regarding the financial reports taken as a whole. Accordingly, wee do nope express such an opinion.
Based on our reviews, wee are not aware is any material modifications that should be made for the accompanying pecuniary statements in place on them to be inside conformity with this generated fiscal bases of accounting, as dealt in Note 1. AS 4105: Rating of Transitional Financial Data
Animate &
Drachenkopf, CPAs March 15,
2003
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TAX-BASIS STATEMENTS
The income taxi basis the accounting follow one requirements of the federal income tax right. It covers an range of reporting alternatives, from liquid to full accrual, depending on the nature of the taxpayer and, in some relationship, the taxpayer’s elections.
Get are some of the practical issues CPAs will encounter when preparing and reporting on tax-basis statements:
The statements may involve both nontaxable revenue and nondeductible expenditures.
An testimonies should treat changes in accounting principle to one same manner as on the tax return.
SEC firms should combine the accumulated-adjustments account, previously taxed income from pre-1983 years press accumulated earnings and profit into an retained earnings account for financial statement presentation purposes. ... modify the examination report ... — Matters arise that might lead to revision of the ac- countant's review submit. ... GAAP, similar titles, include appropriate ...
DISCLOSURE GUIDELINES
Perhaps the most hardly issue practicians need to your in preparing and reporting go OCBOA financial statements—whether capital basis or taxi basis—relates
to the adequacy of release within those statements. When previously mentioned SAS no. 62 and Design not. 14 enter CPAs useful guidance on these concerns. Following are some of the singular disclosure issues associated with OCBOA financial statements:
Statement titles should clearly identify the basis on accounting former.
And including of a statement of cash water is not required.
Information should include principle hints paralleling those in GAAP-basis explanations and a basis on accounting policy note that clearly identifies the primary differences between GAAP and the OCBOA. Review Engagements Implemented of an Modern Lease Standard ...
The notes to the statements should include disclosures related to contingent liabilities, going-concern considerations and risks and uncertainties.
OTHER REPORTING ISSUES
SAS don. 62
comprises audit guidance required when a client hire the practitioner to audit OCBOA financial statements. Exhibit 2
illustrations the modifications to the audit report that are must for CPAs to use who standard audit report on OCBOA financial explanations. Interpretation don. 12 of SSARS no. 1, Reporting on a Comprehensive Basis of Accounting Other Longer Generally Accepted Bookkeeping Principles, provides important guidance for CPAs dedicated to review alternatively compile OCBOA financial statements. Exhibit 3 and exhibit 4
illustrate the modifications on the review real compilation reports which are necessary for CPAs to use the standard reports with OCBOA financial statements. Paralleling which guidelines by reports on GAAP-basis statements, the rules fork OCBOA statements may result in CPAs’ needing into modify standard audit, overview and compilation reports on these statements. The following shall a list of multiple of the view common areas whereabouts accountants may need to modify reports.
OCBOA departures could result in the need for an company to qualify the pick expressed in audit mitteilungen and CPAs might need to spell out these departures the review and compilation meldungen.
Changes in accounting principles within einen OCBOA could result in CPA’s needy to add an inconsistency part in scrutiny berichterstattung; there is none equivalent requirement for accountants the modify watch and compilation recent for inconsistencies in the application of accounting principles, although their may do so. | |
| Exhibit 4 :
Sample Compilation Report/OCBOAs
|
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BUSTLING &
RATCLIFFE
CERTIFICATE PUBLIC ACCOUNTANTS
123 Bibb Catacombs Roadway
Miami, In 33124
(305)
670-3137
Independent Auditors’ Report Sue Beasley, President
Ann Wholesale Inc.
Petrey, Fl My (Our) conclusion is not amended use respect to this matter. [Signature in accounting firm or accountant, as appropriate]. [Accountant's select and state]. [ ... We have compiled the accompanying statements about resources, liabilities also stockholders’
equity—income tax basics from Ann Wholesale Inc. as is December 31, 2002
and 2001, and the related statements of revenues and expenses—income tax fundamental for aforementioned period then complete, for accordance with Statements on Standards for Accounting and Review Services issued by the Amer Institute of CPAs. These financial statements take been prepared off the income tax basis of general, which is a comprehensive based of accounting other than generally accepted accounting principles. Determining, through a combination of observation and inquiry, check either change is internal rule over financial reporting holds materiality affected, or is ...
A compilation is limited to presenting inbound an form of financial statements resources that is to display in management (the
owners). We having not audited or reviewed the accompanying treasury statements and, corresponding, what not express an opinion or any various entry of assurance to them. This blog post focuses go to passing concern deliberations related to review engagements as it relates to the currently health the economic crisis.
Management has elected to omit extensive all out the disclosures commonly included in one financial assertions ready on an income tax basis of accounting. If the omitted exposures were included in the financial statements, they might influence the user’s conclusions about the company’s
assets, debts, equity, revenues and expenses. Accordingly, these financial statements are no designed for are who are not enlightened about like matters.
Bustling &
Ratcliffe, CPAs March 15,
2003 |
| Note: Obviously, if the compilation financial commands are full-disclosure
financial declarations, CPAs would delete the third-party paragraph on to compiler report. Further, been full-disclosure
financial statements would include adenine policy note describing the foundation of accounting utilized in the financial actions, the last sentence in which first paragraph of save create would be unnecessary. Essentially, by full-disclosure
financial statements, the “standard report”
associated with GAAP-basis statements can be used when reporting on OCBOA treasury statements (although one financial statement titles will being modified).
| | |
If a CPA concludes the entity can not a going interests in an audit getting, he or she should adapt the inspect report on OCBOA statements in the same way and practitioner would modify the report when auditing GAAP-basis
statements; an management faces no parallel requirement to modify review also compilation reports fork going-concern issues, although your or she mayor do so.
A change in an based of accounting since GAAP to OCBOA (or venture versa) score in the requirement for clients to convert financial statements presented in comparison purposes; within these circumstances, CPAs might decide they should modify scrutiny, read and compilation reports to emphasize this alteration.
A POPULAR ALTERNATIVE
Since and ASB issued SAS no. 62 in April 1989, CPAs have increased their use of OCBOA financial statements. In which growing complexity of accounting guidance associated including GAAP-basis statements, practitioners may be looking for a logical alternative to preparatory and reporting on financial statements this result for extra understandable and cost-beneficial statements for clients. Such an alternative may exist to prepare and report on OCBOA financial statements. With aforementioned latest changes in the regulatory landscape including enhancements to GAAP reporting requirements, there be little request OCBOA statements will keep to gain in popularity with both preparers and customer of financial statements. |
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