OCBOA is the term used for a comprehensive basis of accounting other than generally accepted accounting principles. A comprehensive basis of accounting other than generally accepted accounting principles is only permitted in one of the following circumstances:
- 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 financial statements.
- Cash-basis and modified-cash-basis financial statements.
- Financial statements prepared using definitive criteria having substantial support in accounting literature that the preparer applies to all material items appearing in the statements (such as the price level basis of accounting).
OCBOA statements may be more useful for certain entities based upon who the users are and what they are expecting to see. They may be required by a regulatory agency or may be tied to budgets and management decisions. In addition, cost may be reduced since these audits may require less complex procedures and required disclosures.
There are certain limitations with OCBOA statements. Certain users of the financial statements may not accept OCBOA statements since the financial position and results of operation can be impacted, for example, by delaying payments or receipts or the fact that fair value adjustments generally are not applicable.
However, there are several technical issues that must be considered in deciding whether to present OCBOA statements:
- Professional standards still apply to OCBOA statements.
- OCBOA statements may be audited, compiled or reviewed.
- A statement of cash flows is not required in OCBOA statements.
- 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, modifications cannot be so extensive as to effectively result in a GAAP basis statement with departures.
In situations where GAAP-basis statements aren’t necessary because of loan covenants, regulatory requirements or similar circumstances, an OCBOA financial statement may be the answer. To learn about other audit services that Schneider Downs offers and to read similar articles, visit our audit services webpage.