Understanding Other Comprehensive Basis of Accounting (OCBOA)
The Other Comprehensive Basis of Accounting (OCBOA) might sound like a covert operation or a secret society from the world of numbers, but it’s essentially a less complicated cousin of GAAP. Perfect for entities looking for simpler and potentially cheaper alternatives to the GAAP rigmarole, OCBOA is the yoga to GAAP’s high-intensity interval training.
What is OCBOA?
OCBOA stands for those financial statements prepared using a non-GAAP system of accounting. This system adheres to well-defined criteria that have substantial support in popular accounting literature. The beauty of OCBOA is that it allows entities to prepare financial statements that are easier to digest than the complex multi-course meal that is GAAP.
Examples and Advantages
Common examples of OCBOA include:
- Income Tax Basis of Accounting: Crunching numbers based on income tax calculations.
- Cash Basis of Accounting: Recognizes revenues and expenses only when cash changes hands.
- Modified Cash Basis of Accounting: A hybrid of cash and accrual basis accounting.
The advantages? Oh, there are a few:
- Simplicity: Less complexity in preparation and analysis.
- Cost-Effectiveness: Generally cheaper to prepare because you’re not wrestling with as many standards and regulations.
- No Cash Flow Statement Required: Yes, you read it right. Under OCBOA, you can skip the statement of cash flows, which is often a relief for many businesses.
Special Considerations
While OCBOA might seem like a financial Wild West, it’s still governed by a set of rules. It provides an alternative approach especially when GAAP statements are not obligatory. Here’s what you should keep in eye on:
- Professional Standards: They still apply. You can’t just throw the accounting book out the window.
- Audits and Reviews: OCBOA statements can still be audited or reviewed, so keep your paperwork tidy.
- Disclosures: They should be akin to those of GAAP, providing the necessary information clearly and transparently.
Closing Thoughts
Think of OCBOA as your financial statement’s casual Friday. It’s less formal, potentially more practical, but still needs to adhere to a set of professional guidelines. Whether it’s more suitable than GAAP depends on your specific needs and circumstances. So, if GAAP feels like wearing a tie to a bbq, OCBOA might just be the breath of fresh air you need in your financial reporting.
Related Terms
- GAAP (Generally Accepted Accounting Principles): The strict parent of financial reporting standards.
- Cash Basis Accounting: Recognizes transactions only when cash is received or paid.
- Income Statement: A key financial document showing financial performance over a period.
Suggested Reading
For those looking to expand their understanding or become the life of any accounting party, consider the following books:
- “Accounting Made Simple” by Mike Piper.
- “Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports” by Thomas Ittelson.
Embrace the simplicity and potential cost savings of OCBOA, or stick to the tried and tested path of GAAP, the choice is as complex or as simple as your financial needs dictate.
