The AICPA recently provided a webcast titled: The New AICPA OCBOA Publications: What They Are and How They Apply to Governments and Not-for-Profits Using Cash, Modified Cash, and Regulatory Frameworks.
I was surprised to see the number of governments that present financial statements in accordance with an other comprehensive basis of accounting (OCBOA). The webcast did not provide an exact percentage of governments using OCBOA, but it looks like you can easily conclude that over 33% of governments use OCBOA.
Why Issue OCBOA Financial Statements?
As I said in my prior OCBOA post, the short answer is: Cost. If you’ve created GAAP basis governmental financial statements, you know how complicated these statements are. OCBOA statements—whether cash basis, modified cash basis or tax basis—are simpler to create.
Many governments require GAAP basis statements so make sure, before making any changes, that OCBOA statements are permissible in your locale.
Modified Cash Basis of Accounting
The modified cash basis is the pure cash basis with modifications having substantial support. (A pure cash basis of accounting would reflect only cash inflows and outflows with beginning and ending cash.)
A common modification to the cash basis is the capitalization of assets purchased and recognition of depreciation over estimated useful lives. Though using the modified cash basis, impaired capital assets may also be written down. In addition, the related long-term debt would normally also be recorded.
Another common modification is the deferral of revenue recognition for governments receiving cash that will be used in future periods; the deferral would be shown as a liability.
OCBOA Presentation Issues
GAAP basis governmental financial statements reflect government-wide and fund-level presentations. OCBOA statements will normally include the same type of presentation – government-wide and fund-level statements – though you are using different recognition criteria. A general rule for OCBOA statements is: follow GAAP guidelines where you can; this includes disclosures (though the notes are amended in accordance with the framework used).
While not required for OCBOA statements, you may include supplementary information.
Required supplementary information (RSI) is not required under the modified cash basis, but can be provided; if provided, the information is not considered RSI but supplementary information or additional information. RSI can only be “required” by GAAP.
While certain disclosures are not required in OCBOA statements (e.g., fair value of investments or the funded status of a defined benefit plan), such information can be provided in the notes.
Use of the AICPA Financial Reporting Framework for Small- and Medium-Sized Entities
Governments should not use the AICPA small- and medium-sized entity framework.
Updated AICPA Guidance
If you are issuing governmental OCBOA statements, I strongly recommend that you purchase the AICPA’s updated book: Applying OCBOA in State and Local Governmental Financial Statements. Mike Crawford and Mike Glynn have done a fine job in preparing this publication.