Other Comprehensive Basis of Accounting (OCBOA)

What is OCBOA?

Other Comprehensive Basis of Accounting (OCBOA) refers to financial statements prepared using an accounting framework other than U.S. GAAP. Common OCBOA frameworks include the income tax (tax-basis) method, cash-basis and modified-cash-basis methods, statutory bases (for example, insurance-company rules required by state regulators), and other well-defined criteria supported in accounting literature.

OCBOA is appropriate when GAAP-based statements are not required by law, lenders, or regulators, or when users prefer a simpler presentation tied to taxes, cash flows, or regulatory requirements.

Common OCBOA types

• Income-tax basis (tax-basis) — records revenues and expenses as recognized for tax reporting.
• Cash basis — recognizes transactions when cash is received or paid.
• Modified cash basis — a hybrid that adds some accrual elements to cash accounting.
• Statutory basis — required formats and recognition rules imposed by regulatory bodies (e.g., state insurance commissions).
• Other definitive bases — specialized bases (e.g., price-level basis) that use established, consistently applied criteria.

Advantages

• Simpler and easier to understand than many GAAP presentations.
• Typically lower preparation and audit costs because fewer complex adjustments and disclosures are needed.
• May better align with users’ needs (e.g., tax planning, cash-management, regulatory reporting).
• Can be audited, reviewed, or compiled under standard professional practice.

Disadvantages and concerns

• OCBOA statements may provide less comprehensive disclosures than GAAP, which can limit comparability and the information available to outside users.
• Users unfamiliar with the chosen basis may misinterpret amounts unless the basis and key differences from GAAP are clearly disclosed.
• OCBOA cannot be modified so extensively that it effectively becomes GAAP with departures.

Reporting and audit considerations

• The financial statements must clearly disclose the basis of accounting used and use titles that distinguish them from GAAP-basis statements.
• While a statement of cash flows is not required under OCBOA, preparers should include disclosures that communicate the substance of key GAAP-required disclosures when relevant (e.g., contingent liabilities, significant risks and uncertainties).
• Professional standards for audits, reviews, and compilations apply to OCBOA engagements. Auditors perform procedures appropriate to the chosen engagement level and basis.
• When electing OCBOA, ensure the selected basis is consistently applied to all material items.

When to use OCBOA

• GAAP-based statements are not required by lenders, regulators, or investors.
• Financial reporting is intended primarily for internal management, tax authorities, or regulators that accept an alternative basis.
• Cost or complexity considerations make GAAP impractical for the entity’s size or purpose.
• Regulatory or contractual provisions mandate a statutory or tax-based presentation.

Key takeaways

• OCBOA provides alternatives to GAAP for preparing financial statements, with common forms including tax-basis, cash-basis, modified-cash, and statutory bases.
• OCBOA is generally simpler and less costly but may require more explanatory disclosures to ensure users understand the basis and limitations.
• Preparers must disclose the basis used, title statements appropriately, and follow professional standards for the chosen engagement (audit, review, or compilation).