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What Is OCBOA — and Can It Work for Your Business?


Why would a firm prepare financial statements using criteria other than GAAP—the U.S. Generally Accepted Accounting Principles? There are two major advantages to using another system: Other Comprehensive Basis of Accounting (OCBOA). Statements prepared under this system may be easier to understand than statements prepared under GAAP and may cost significantly less to prepare.

A key difference between GAAP basis financial statements and OCBOA statements is that the latter don't require a statement of cash flows or comprehensive disclosures. Still, you'd be wise to include the basis of accounting used, contingent liabilities, and risks and uncertainties.
An OCBOA financial statement can encompass:

  • A statutory basis of accounting, for example, a basis of accounting insurance companies use under the rules of a state insurance commission.
  • Income tax basis.
  • Cash basis and modified cash basis.
  • Definitive criteria having substantial support in accounting literature that the preparer applies to all material items appearing in statements — price-level basis of accounting, for instance.
  • Situations where GAAP basis statements aren't necessary because of loan covenants or regulatory requirements.

OCBOA statements may be more useful for certain entities based on who the users are and what they're expecting to see. A regulatory agency or budget and management decisions may make OCBOA statements more useful. 

These other widely used alternatives to GAAP often are referred to as special purpose frameworks. A downside to consider is that statements may not meet the requirements of certain users or regulators. The change in accounting basis should be disclosed in the notes to the financial statements.

But OCBOA statements aren't without a code of their own:

  • Professional standards still apply to OCBOA statements.
  • OCBOA statements may be audited, compiled or reviewed.
  • The basis of accounting used must be disclosed, and all statements must be titled in a manner that is distinguishable from GAAP basis titles.
  • Disclosures should be comparable to those of a GAAP basis statement and, accordingly, should provide either the relevant disclosures required by GAAP or information that communicates the substance of those required disclosures.
  • If modifying an OCBOA basis, changes cannot be so extensive as to effectively result in a GAAP basis statement with departures.

Other Comprehensive Basis of Accounting is a non-GAAP accounting framework, and using it may apply when financial statements are needed for a specific purpose or when the preparer wants to use a simpler system with fewer disclosures. Contact us if you think OCBOA might be right for your business.

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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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