Other Comprehensive Basis of Accounting (OCBOA)

Question 1

Identify the other comprehensive basis of accounting (OCBOA).

Answer 1

(1) Cash basis
(2) Modified cash basis
(3) Income tax basis
(4) Regulatory basis
(5) A definite set of accounting criteria that has substantial support in practice and which is applied to all material financial statement items (e.g., price level/inflation adjusted statements)

Question 2

Describe a modified cash basis of accounting.

Answer 2

A modified cash basis of accounting results from adjustments made to cash basis accounting. Specifically, while most items continue to be accounted for using the cash basis, some items are accounted for using the accrual basis. As a consequence, the financial statements reflect accounts and amounts based on a combination of the cash basis and the accrual basis.

Question 3

Identify some bases of accounting that are not an “other comprehensive basis of accounting.”

Answer 3

(1) Accounting based on US GAAP
(2) Accounting based on the unique provisions of a loan agreement
(3) Accounting based on the unique provisions of an acquisition agreement

Question 4

Under what circumstances can an auditor report on a specified element of the financial statements that is derived from net income, such as “profit participation”?

Answer 4

The auditor can report on a specified element of the financial statement that is derived from net income when he/she has audited the entire set of financial statements.

Question 5

What should be included in the auditor’s report when reporting on compliance with contractual agreements related to audited financial statements?

Answer 5

(1) Affirm that the statements were audited;
(2) Identify the specific covenants and provide negative assurance about compliance; and
(3) Restrict the distribution of the report to the parties to the agreement.

Question 6

What changes should be made in an auditor’s report when reporting on financial statements prepared under another comprehensive basis of accounting (OCBOA)?

Answer 6

• Add an explanatory paragraph before the opinion paragraph describing the basis used and refer to the footnote to the financial statements that describes the basis used; and
• In the opinion paragraph refer to that same footnote to the financial statements that describes the basis of presentation used, since it differs from GAAP.

Question 7

Describe special-purpose financial presentations that may be consistent or inconsistent with GAAP.

Answer 7

• Financial statements presented on a prescribed basis resulting in an incomplete presentation, but otherwise consistent with GAAP; or
• Financial statements prepared on a basis of accounting prescribed in an agreement, not in conformity with GAAP or other comprehensive basis of accounting.