What Does Other Comprehensive Basis of Accounting Mean?

Other Comprehensive Basis of Accounting (OCBOA) includes financial statements prepared using a system of accounting that differs from GAAP, the most common being tax-basis and cash-basis financial statements. Other Comprehensive Basis of Accounting (OCBOA) systems also include a statutory basis of accounting such as that used by insurance companies to comply with the rules of a state insurance commission, as well as financial statements prepared using defined criteria that are well-supported in popular literature.

Understanding OCBOA

Two major advantages of financial statements prepared under OCBOA are: they are easier to understand than statements prepared under GAAP, which can be quite complex, and they may cost significantly less to prepare than GAAP-based statements. A key difference between GAAP-basis financial statements and those prepared under OCBOA is that the latter does not require a statement of cash flows.

One criticism of OCBOA statements is that disclosures are not adequate. As a result, it is recommended that comprehensive disclosures be made by a company that has adopted OCBOA, including the basis of accounting used, contingent liabilities and risks and uncertainties.

Under the Statement on Auditing Standards (United States) No. 62, Special Reports, an OCBOA is any one of:

  • A statutory basis of accounting (for example, a basis of accounting insurance companies use under the rules of a state insurance commission).
  • Income-tax-basis financial statements.
  • Cash-basis and modified-cash-basis financial statements.
  • Financial statements prepared using definitive criteria having substantial support in accounting literature that the preparer applies to all material items appearing in the statements (such as the price level basis of accounting).

In situations where GAAP-basis statements aren't necessary because of loan covenants, regulatory requirements or similar circumstances, an OCBOA alternative may be the preferred format.

OCBOA statements may be more useful for certain entities based on who the users are and what they are expecting to see. They may be required by a regulatory agency or may be tied to budgets and management decisions. In addition, costs may be reduced since these audits may require less complex procedures and required disclosures.

Although OCBOA statements deviate from the far more common GAAP standards, they are not without a code of their own. For instance:

  • Professional standards still apply to OCBOA statements.
  • OCBOA statements may be audited, compiled or reviewed.
  • A statement of cash flows is not required in OCBOA statements.
  • The basis of accounting used must be disclosed, and all statements must be titled in a manner that is distinguishable from GAAP basis titles.
  • Disclosures should be comparable to those of a GAAP basis statement and, accordingly, should provide either the relevant disclosures required by GAAP or information that communicates the substance of those required disclosures.
  • If modifying an OCBOA basis, modifications cannot be so extensive as to effectively result in a GAAP basis statement with departures.