FAR2 M7 Special Purpose Frameworks

Question 1

Other Comprehensive Bases of Accounting (OCBOA)

Answer 1

Non-GAAP presentations of accounting. Include cash, tax, price level adjusted, and regulatory basis.

Question 2

OCBOA Presentation Guidelines

Answer 2

• FS titles should be different from accrual statements
  (Don’t use GAAP terms)
• Cash flows are not required
• FS should explain changes in equity accounts
• Disclosures to include:
  A. Summary of significant accounting policies
  B. Informative disclosures required by GAAP
  C. Disclosures related to items not shown on the face
  of the face of the FS, such as related party
  transactions, subsequent events, and uncertainties

Question 3

Cash Basis FS

Answer 3

Revenues recognized when cash is received and expenses when cash is paid. Includes a Statement of Cash & Equity (BS), and Statement of Cash Receipts & Disbursements (IS). No cash flow, as the IS serves as the CF.

Question 4

Modified Cash Basis FS

Answer 4

Hybrid reporting method which includes both cash and accrual basis.
Common Modifications:
- Capitalizing and depreciating fixed assets
- Accrual of income taxes
- Recording liabilities
- Capitalizing inventory
- Reporting investments at FV
Reports include Statement of Assets & Liabilities (BS) and Statement of Revenues Collected and Expense Paid (IS).

Question 5

Income Tax Basis

Answer 5

Financial statements prepared on the methods and principles used to prepare an entity’s tax return. Entities not required to use the accrual basis, can use the tax basis. Suited for entities that have complex operations. Nontaxable revenues and expenses must be recognized in the tax basis FS in the period received or paid for cash basis taxpayers, and in the period accruable for accrual basis taxpayers.

Question 6

Nontaxable Revenues & Expenses & Financial Statements

Answer 6

Nontaxable revenues and expenses may be reported as:

• Separate line items in the revenue and expense sections of the statement of revenues and expense
• Additions and deductions to NI
• A disclosure note

Question 7

Tax Basis Financials

Answer 7

1. A statement of assets and liabilities and equity (income tax basis) or statement of income (income tax basis)
2. A statement of revenues and expenses and retained earnings (income tax basis) or a statement of income (income tax basis)

Question 8

Balance Conversion from Cash to Accrual

Answer 8

Cash BS only reports cash and equity. To convert to an accrual basis, all assets and liabilities existing as of the year-end need to be added, if not already included.

Question 9

Common Balance Sheet Account

Answer 9

• AR
• Inventory
• Prepaid expenses
• Investments at FV
• Fixed assets, net of depreciation
• Accounts payable
• Accrued liabilities
• Unearned revenue
• Interest payable
• Income taxes payable
• Short term and long term debt

Question 10

Income Statement Conversion

Answer 10

Primary adjustments for conversion:

1. Converting cash to accrual basis revenue
2. Converting cash paid for purchases to accrual basis of COGS
3. Converting cash paid for OPEX to accrual basis of OPEX

Question 11

Additional Adjustments

Answer 11

• Recognize depreciation/amortization
• Capitalize fixed assets
• Reduce fixed asset balance for assets sold during the period (fixed asset sales are cash receipts under the cash basis) and recognize gains/losses on the sale.
• Record debt proceeds as a liabilty
• Record debt repayments as reduction to liabilities

Question 12

Revenue Conversion

Answer 12

Cash Basis Revenue 
\+ Ending AR
- Beginning AR
- Ending Unearned Revenue
\+ Beginning Unearned Revenue
= Accrual Basis Revenue

Question 13

COGS Conversion

Answer 13

Cash Paid for Purchases
\+ Ending AP
- Beginning AR
- Ending Inventory
\+ Beginning Inventory
= COGS

Question 14

Expense Conversion

Answer 14

Cash Paid for OPEX
\+ Ending Accrued Liabilities
- Beginning Accrued Liabilities
- Ending Prepaid Expenses
\+ Beginning Prepaid Expenses
= Accrual Basis OPEX