F. SPECIAL PURPOSE FRAMEWORKS

Question 1

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“other comprehensive basis of accounting” (OCBOA)

What are they and how are they prepared?

Answer 1

• Cash Basis of Accounting
• Modified Cash Basis of Accounting
• Tax Basis of Accounting
• Regulatory Frameworks

When preparing financial statements based on an “other comprehensive basis of accounting” (OCBOA), the statement of cash flows is not usually prepared.

The important thing is that the statements are descriptive about what basis of accounting has been used. This will usually mean a descriptive title, or a title you’re used to, with the addition of the basis used in the title such as “Statement of Assets and Liabilities - Modified Cash Basis”

Question 2

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Cash Basis of Accounting:

Answer 2

Cash Basis of Accounting

Under pure cash accounting, revenue is when cash is received, and expenses are when cash is spent.

There isn’t really a balance sheet under pure cash accounting, and an ‘income statement’ would be titled something like ‘Statement of Cash Receipts and Disbursements’

Question 3

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Modified Cash Basis of Accounting:

Answer 3

Modified Cash Basis of Accounting

This is the cash basis plus a few elements of accrual accounting usually by capitalizing and depreciating assets or recognizing accounts receivable & accounts payable, and accruing income taxes due.

The statements would be titled something like “Statement of Assets and Liabilities - Modified Cash Basis” and “Statement of Revenues, Expenses, and Retained Earnings - Modified Cash Basis”.

Question 4

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Tax Basis of Accounting:

Answer 4

Tax Basis of Accounting

These statements obviously focus on presenting the information based on tax rules. There is a range of reporting certain aspects from cash basis to full accrual.

Again, the financial statement titles should specify the basis used such as “Statement of Revenues and Expenses - Income Tax Basis”.

Question 5

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Regulatory Frameworks:

Answer 5

Regulatory Frameworks

There are specific regulatory frameworks that have specific guidelines for financial reporting; these are considered an OCBOA, but you don’t need to know them all for the CPA exams.

Keeping with the idea that financial statements need to be clear about the basis they were prepared on, a title you might see for an income statement prepared under a regulatory basis might be “Statement of Income - Regulatory Basis”.