Cash- and Tax-Basis Financial Statements — Preparation and Reporting

• Chapter 0 - Overview
  • Course Goals
  • Introduction
  • Organization
    • Chapter 1
    • Chapters 2 and 3
    • Chapter 4
    • Chapters 5 and 6
    • Appendices
  • Conclusion
• Chapter 1 - OCBOAs
  • Learning Objectives
  • Introduction
  • References
  • What Are Other Comprehensive Bases of Accounting?
  • The Income Tax Basis of Accounting
    • Additional Income Taxes for Prior Years
    • Accounting Changes for Tax Purposes
    • Entities Subject to the Alternative Minimum Tax (AMT)
  • The Cash Basis of Accounting
    • Typical Cash-Basis Modifications
  • Definite Criteria Applied to Items in the Financial Statements
  • The Regulatory Basis of Accounting
  • General Presentation Guidelines
    • Titles of OCBOA Financial Statements
    • Statement of Cash Flows
    • Determining When OCBOA Financial Statements Are Appropriate
  • Cases
    • Case 1-1
    • Case 1-2
    • Case 1-3
    • Case 1-4
    • Case 1-5
• Chapter 2 - Differences between GAAP and Tax Accrual Accounting Methods
  • Learning Objectives
  • Introduction
  • References
  • Revenue and Gross Income
    • GAAP Definition of Revenue
    • Legal Definition of Gross Income
    • Recognition of Revenue
    • Recognition of Gross Income
    • Exclusions from Gross Income
    • Installment Sales
    • Sales on Approval and Sales with Right of Return
    • Unrealized Gains and Losses on Investments
    • Equity Method
  • Expenses and Deductions
    • Recognition of Expenses
    • Allowance of Deductions
    • Vacations
    • Pensions
    • Impairments of Loans
    • Impairments of Long-Lived Assets
    • Uncollectible Receivables
    • Allowances for Sales Returns
    • Loss Contingencies
    • Start-Up Costs and Organization Costs
    • Leases
  • Inventory
    • Summary of GAAP Rules
    • Summary of Tax Laws
    • Similarities
    • Significant Differences
  • Accounting Changes and Errors
    • Summary of GAAP Rules
    • Summary of Tax Laws
    • Similarities
    • Significant Differences
  • Depreciation
    • Summary of GAAP Rules
    • Summary of Tax Laws
    • Similarities
    • Significant Differences
  • Aggressive Accounting Positions
  • Summary
  • Case
    • Case 2-1
  • Appendix – Recognition Differences: GAAP vs. Income Tax Method
• Chapter 3 - Differences between GAAP and the Cash Method of Accounting
  • Learning Objectives
  • Introduction
  • References
  • Pure Cash-Basis
  • Modified Cash-Basis
  • PCPS Survey
  • Summary
  • Case
    • Case 3-1
• Chapter 4 - Presentation and Financial Statement Disclosure
  • Learning Objectives
  • Introduction
  • References
  • The Nature of OCBOA Financial Statements
  • Titles of OCBOA Financial Statements
  • Captions in OCBOA Financial Statements
  • Disclosures in OCBOA Financial Statements
    • Basis of Accounting
    • Terms of Debt Agreements and Future Minimum Payments
    • Terms of Leases and Future Minimum Payments
    • Information about Defined Benefit and Defined Contribution Pension Plans
    • Commitments and Contingencies
    • Off-Balance-Sheet Risk and Concentration of Credit Risk
    • Income Taxes
    • Fair Value of Financial Instruments
    • Postretirement and Postemployment Benefits
    • Future Major Repairs and Replacements for Common Interest Realty Associations (CIRAs)
    • Risks and Uncertainties
    • Accounting Changes
    • Related-Party Transactions
    • Subsequent Events
    • Potential Adjustment from IRS Exam
  • Summary
  • Cases
    • Case 4-1
    • Case 4-2
    • Case 4-3
    • Case 4-4
  • Appendix – Comprehensive Illustration
• Chapter 5 - Audit, Compilation, and Review Reports
  • Learning Objectives
  • Introduction
  • References
  • Audit Reports
    • Standard Audit Reports
    • Clarification of the Extent of Testing of Internal Control
    • Modifications of Standard Audit Reports
  • Standard Compilation and Review Reports
    • Overview
    • Standard Compilation Report
    • Modifications of Standard Compilation Reports – Disclosures Omitted
  • Review Reports
    • Standard Review Report
    • Other Modifications of Compilation and Review Reports
  • Common Deficiencies in OCBOA Reports/Financial Statements
  • Summary
  • Cases
    • Case 5-1
    • Case 5-2
• Chapter 6 - Effects of OCBOAs on Procedures in Audits, Reviews, and Compilations
  • Learning Objectives
  • Introduction
  • References
  • Testing Assertions in an Audit
  • Effects on Compilation and Review Procedures
  • Evaluating Accounting Methods and Disclosures
  • Summary
  • Case
    • Case 6-1
• Chapter 7 - Latest Developments
• Appendix A - Excerpts from AICPA Financial Statement Preparation Manual
• Appendix B - AU Section 623, Special Reports
• Appendix C - AU Section 9623, Special Reports: Auditing Interpretations of Section 623
• Appendix D - AR Section 100, Compilation and Review of Financial Statements
• Appendix E - AR Section 9100, Compilation and Review of Financial Statement: Accounting and Review Services Interpretation of Section 100 [Excerpts]
• Appendix F - Technical Questions and Answers (Non-Authoritative)

733089

Overview

Course Goals

• Prepare cash, modified cash-, and tax-basis financial statements, including footnotes.
• Compile, review, or audit financial statements prepared in accordance with other comprehensive bases of accounting.

Introduction

This course provides the practical information you need to properly and efficiently prepare and report on financial statements presented in accordance with an other comprehensive basis of accounting (OCBOA). The course explains which bases of accounting are acceptable, which financial statements should be presented, and which disclosures are required. In addition, the course outlines the main differences between accounting methods used under GAAP and other comprehensive bases of accounting.

Organization

Chapter 1
The course begins with an explanation of what constitutes an acceptable other comprehensive basis of accounting. Chapter 1 also summarizes the professional standards that apply to OCBOAs and summarizes the accounting, presentation, disclosure, and reporting issues.

Chapters 2 and 3
These two chapters describe the differences between GAAP and tax accrual accounting methods and cash accounting methods. Accountants who repare OCBOA financial statements and accountants who compile, review, or audit OCBOA financial statements need to understand these differences in order to evaluate the propriety of accounting used in OCBOA financial statements and to evaluate the adequacy of disclosure of the differences between OCBOA and GAAP financial statements.

Chapter 4
This chapter describes the appropriate titles for financial statements, explains which financial statements are required or permitted, and describes the required footnote disclosures in OCBOA financial statements.

Chapters 5 and 6
The final chapters of the course deal with providing professional services related to OCBOA financial statements. These chapters explain how to report on compilations, reviews, and audits and explain how performing such services for OCBOA financial statements may be different than performing them for GAAP financial statements.

Appendices
The appendices include authoritative standards and interpretations, as well as non-authoritative checklists, example financial statements and auditor reports, and responses to technical inquiries.

Conclusion
The manual is designed to be a permanent reference tool. We hope your reading of this manual enriches your professional learning experience.
Note. We use the terms he and she alternately throughout the course (except when a particular person is mentioned) since both sexes are well represented throughout the profession.

Chapter 1

OCBOAs

Learning Objectives

• Identify appropriate other comprehensive bases of accounting (OCBOA).
• Describe types of entities for which an OCBOA is most appropriate.
• Describe the professional standards that apply to financial statements prepared on OCBOA.
• Summarize the presentation issues related to OCBOA financial statements.

Introduction
Presentation guidelines for OCBOA financial statements have not been developed by the FASB or the Accounting Standards Executive Committee of the AICPA. The only authoritative guidance for these types of statements is contained in auditing standards, specifically SAS No. 62 (AU Section 623) (See Appendix B). SAS No. 62 indicates that OCBOA presentations include the following:

• The tax basis of accounting
• The cash or modified cash basis of accounting
• A definite set of criteria having substantial support that is applied to all material items in the financial statements
• A regulatory basis of accounting

Of these, tax and modified cash basis are by far the most frequently used. The statement of cash flows is not required for OCBOA financial statements.