Other Comprehensive Basis of Accounting – Definition

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Other Comprehensive Basis of Accounting (OCBOA) Definition

OCBOA (Other Comprehensive Basis of Accounting) contains financial statements made with the help of an accounting system that is different from GAAP. These financial statements are most common, cash basis and tax basis. It also comprises a statutory accounting basis, for example, the one which the insurance companies use to follow the rules of a SIC (State Insurance Commission), also the financial statements developed with the defined criterion which is well supported in the common literature.

A client may ask the accountant to develop a financial statement which is non-standard. Normally, big companies use Generally Accepted Accounting Principles to prepare their financial statements, commonly known as GAAP. But all companies may not follow GAAP. They may use some non-GAAP accounting basis for the preparation of their financial statements. We call such reports “Other Comprehensive Basis of Accounting) or OCBOA. They are easier, simpler, cheaper and understandable than the ones prepared using GAAP. However, OCBOA is specific to small scale companies.

A Little More on What is ‘Other Comprehensive Basis of Accounting – OCBOA

There are several benefits of financial statements developed using OCBOA, 2 of them are;

One can understand them easily as compared to GAAP that may be very complicated. Their cost to prepare is fairly less as compared to GAAP related statements. The main difference in the financial statements prepared under GAAP and OCBOA is that OCBOA does not need a cash flow statement.

There is criticism on OCBOA statements as well, such as the disclosures are not sufficient. Consequently, the recommendations are that a company should make disclosures using OCBOA. It includes uncertainties, contingent liabilities, accounting basis and risk.

Under the Statement on Number sixty-two, the special reports on the auditing standards of the United States, OCBOA is;

A statutory basis of accounts, such as insurance companies accounting basis following the principles of a commission for state insurance. financial statements based on income tax, cash and updated cash.

The preparer implements all material things recorded in the Financial statements ( e.g. price level accounting basis) developed with the definitive criterion and substantial assistance in the accounting literature.

In the cases where statements made on the basis of GAAP are not essential because of regulatory requirements, loan covenants or same circumstances, OCBOA substitute can be a preferred format.

OCBOA statements can be more beneficial for specific entities on the basis of ‘who is using and what is expected to see’. A regulatory agency may need them or possibly tied to the management and budget decisions. Moreover, the cost may decrease because these audits can demand less complicated procedures and important disclosures.

Though OCBOA statements are different from the well known GAAP standards, they do not have their own code. For example

Still, the professional standards implement to OCBOA statements.

They can be audited, collected and tested.

A cash flows statement is not necessary for these statements.

The used accounting base should be disclosed. All statements have to be titled in such a way that it might be distinguished from the titles based on GAAP.

Disclosures must be compared to the statements of GAAP basis. Hence, they must ensure the provision of either the related disclosures needed by GAAP or data that share the substance of those necessary disclosures. If we modify the base of OCBOA, we cannot extend it so much that influentially results in the statement based on the GAAP with departures.

References for Other Comprehensive Basis of Accounting (OCBOA)

Academic Research on Other Comprehensive Basis of Accounting (OCBOA)

Accrual accounting, modified cash basis of accounting and the loan decision: An experiment in functional fixation, Riahi-Belkaoui, A. (1992). M Managerial Finance, 18(5), 3-13. This paper discusses the consequences of a statistical study wherein bank credit officers examined a loan application that was attached to the financials on the basis of MCBOA (Modified Cash Basis of Accounting) or accrual accounting. The credit officers 1st make a decision whether to provide the credit and fix the interest rate. 2nd, the evaluation was based on 3 quality attributes; Freedom from clerical mistakes and impacts of fraud and overall reliability. So, the credit officers evaluate the financial statements of a similar firm with the help of either the accrual data or MCBOA preference for the firm. The authors use a conditioning factor to elaborate on the findings.

Other comprehensive bases of accounting: Alternatives to GAAP?, Alderman, C. W., Guy, D. M., & Meals, D. R. (1982). Journal of Accountancy (pre-1986), 154(000002), 52. This paper explains the alternatives to Generally Accepted Auditing Principles (GAAP) and Other Comprehensive accounting bases.

Applications in Accounting–The OCBOA Solution: Bottom-Line Relief for Small Business Clients, Dell, J. H., & Cohen, J. J. (1991). Journal of Accountancy, 171(2), 89. This research elaborates the applications in accounting using the OCBOA (Other Comprehensive Basis of Accounting) solution. It also narrates the bottom line relief for clients who have a small business.

OCBOA: Financial statements, Ratcliffe, T. A. (2003). OCBOA: Journal of Accountancy, 196(4), 71. This paper provides details of the OCBOA (Other Comprehensive Basis of Accounting and its financial statements.

Cost effective financial reporting for small business, Friedlob, G. T., & Plewa, F. J. (1992). Journal of Small Business Management, 30(1), 89.In this paper, the authors discuss the financial reporting which is cost effective and cheaper for a small scale business.

IFRS for SMEs-an option for US private entities?, Jermakowicz, E. K., & Epstein, B. J. (2010). Review of Business, 30(2), 72. In 2009, the IAS board (International Accounting Standards) introduced a new IFRS (International Financial Reporting Standard) for the SMEs (Small and Medium scale Entities). The authors state the difference in the United States Generally Accepted Principles (US GAAP) and IFRS for SMEs, simplifications, potential implications for private bodies of the United States and 1st-time adoption requisites. Now, the private entities of the United States can use another method for financial reporting. This, the results are clear, accurate and reliable.

Actual Aspects Regardind the IFRS for SME-Opinions, Debates and Future Developments, Neag, R., Masca, E., & Pascan, I. (2009). Annales Universitatis Apulensis: Series Oeconomica, 11(1), 32. The economic globalization is, nowadays, an unarguable reality which has a vital effect on the cultural, social, economic and human condition of the collectivities. Small and Medium Entities hold an important position in the international economy. The authors are of the view that the International Financial Reporting Standards for the SMEs are still taken as very complex entities. However, there are several requirements which are not applicable for companies using a simpler business model. The tax authorities can use it for tax purposes. This issue needs to be addressed.

The Changing landscape of accounting standards setting, Titard, P. L., & DiGregorio, D. W. (2003). The CPA Journal, 73(11), 18. In this research, the authors describe the setting of accounting standards for the changing landscape.

Closing the Gap with Non-GAAP State and Locals, Crawford, M. A. (2003). Journal of Accountancy, 196(6), 24. This study is about closing the gap with non-Generally Accepted Auditing Principles (GAAP) in the state as well as local level.

A survey of South African registered Accountants‘ and Auditors’ attitudes towards differential corporate reporting., Wells, M. J. C. (2010). (Doctoral dissertation). This is a detailed survey of registered accountants of South Africa. This paper also throws light on the attitude of the auditors towards the financial reporting of differential corporate.

FIN-46 Consolidation: Impact on Lending Decisions, Duncan, J. R., & Schmutte, J. (2006). Com. Lending Rev., 21, 9. This paper highlights the effects of FIN-46 Consolidation on lending decisions. This consolidation is related to variable interest bodies interpreting US GAAP (the United States Generally Accepted Auditing Principles).

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