Other Comprehensive Basis Of Accounting
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 includes 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.
Definition: Other Comprehensive Basis of Accounting (OCBOA) refers to financial statements prepared using accounting systems different from Generally Accepted Accounting Principles (GAAP). OCBOA systems include tax basis, cash basis, statutory accounting basis, etc. These systems are often used for specific industries or purposes to meet various financial reporting needs.
Origin: The concept of OCBOA originated in response to different financial reporting needs. As the requirements for financial reporting by various industries and government agencies evolved, traditional GAAP could not meet all needs, leading to the emergence of OCBOA. Key milestones include the mid-20th century when many industries began adopting specific accounting bases to comply with regulatory requirements.
Categories and Characteristics: OCBOA mainly includes the following categories:
- Tax Basis: Financial statements prepared based on tax laws, primarily for tax reporting purposes.
- Cash Basis: Financial statements prepared based on cash receipts and disbursements, suitable for small businesses and non-profits.
- Statutory Accounting Basis: Financial statements prepared according to legal and regulatory requirements for specific industries (e.g., insurance).
Specific Cases:
- Case 1: A small retail business uses a cash basis accounting system, recording all cash transactions. This method simplifies financial management but may not fully reflect the business's financial position.
- Case 2: An insurance company uses a statutory accounting basis, preparing financial statements according to state insurance commission regulations to ensure compliance and transparency.
Common Questions:
- Question: What is the main difference between OCBOA and GAAP?
Answer: OCBOA systems are usually more simplified and tailored for specific purposes or industries, while GAAP is a comprehensive, general accounting standard. - Question: Does using OCBOA affect a company's financial transparency?
Answer: It might, as OCBOA systems are generally less comprehensive than GAAP, but in specific cases, OCBOA can provide more relevant information.
