Since FAF rejected the proposal for a separate standard-setting body for private companies, the AICPA has issued its Financial Reporting Framework for Small- and Medium-sized Entities (FRF for SME)--a 188-page, simplified reporting framework for private companies, Unlike the PCC, the AICPA's FRF for SME, does not purport to be GAAP but rather represent an OCBOA
that can be adopted by any company that chooses to do so--as long as the users of the information are willing to accept the Statements prepared in accordance with that framework.
It's a common misconception that professional standards--including ethics rules--don't apply to OCBOA
The non-accountant might think that "a comprehensive basis of accounting" is better than accounting principles that are "generally accepted." But, many (including GAO) viewed OCBOA
as indicative of a second-class status.
In some instances, later exemplified, they should have been made optional to private companies." In 1989, The CPA Journal reported that the Private Company Practice Section (PCPS) had promoted non-GAAP Other Comprehensive Bases of Accounting (OCBOA
) as an alternative.
When preparing financial statements in accordance with a special-purpose frame work (also commonly referred to as an other comprehensive basis of accounting, or OCBOA
), the accountant is required to include a description of the financial reporting framework on the face of the financial statements or in a note to the financial statements.
On the same day the FAF trustees voted to establish the PCC, the American Institute of Certified Public Accountants (AICPA) announced its plans to develop a financial reporting framework "to meet the needs of some privately held small- and medium-sized enterprises (SMEs) as well as the users of the financial statements of these entities." The AICPA has referred to the ultimate outcome of this initiative as an "OCBOA
" framework, which is a reference to provisions of the Institute's Code of Professional Conduct that distinguish between GAAP and an "Other Comprehensive Basis of Accounting" that a company might use instead of GAAP to prepare financial statements.
* The preparation and Fair presentation of the financial statements in accordance with the applicable financial reporting framework: GAAP, other comprehensive basis of accounting (OCBOA
) or IFRS, for example;
GAAP as issued by the FASB; another comprehensive basis of accounting (OCBOA
), such as cash- or tax-basis; or full IFRS, among others.
* Accounting Advisor Tom McEachern tells us it's a common misconception that professional standards--including ethics rules--don't apply to OCBOA
The guide also contains a new illustrative auditor's report on OCBOA
financial statements in connection with new revisions reflecting the effects of Auditing Interpretation Nos.
In my opinion, encouraging the use of a special-purpose GAAP alternative framework, such as a cash or income tax basis (formerly OCBOA
) or the AICPA's Financial Reporting Framework for Small- and Medium-Sized Entities circumvents conceptually sound accounting, and does not serve the needs of probable third-party users (see Nicholas J.
The financial statement(s) may be prepared in accordance with a general-purpose framework, such as GAAP, or a special-purpose framework (commonly referred to as an other comprehensive basis of accounting, or OCBOA
), such as a regulatory framework.