Thoughts on New OCBOA Framework
August 10, 2022

The recent flurry of activity related to private company financial reporting is interesting. In particular the AICPA announcement that they will be developing a financial reporting framework for small and medium sized entities (SME). This is welcome news.

For years we have been advocating the use of income tax basis financial statements for SMEs, as a way to reduce the cost of financial reporting caused by the standards overload inherent in U.S. GAAP. Accrual basis income tax based financial statements provide a reasonable substitute for GAAP for many smaller entities, especially those entities that are not required to provide audited financial statements to their lender. Such entities typically have smaller credit requirements and the bank is satisfied with statements that are compiled or reviewed by a CPA.

Unfortunately the use of income tax basis financial statements has not been widespread, despite the obvious cost savings for the entities. I think one of the reasons is that there has not been a robust reporting framework that will give the lenders confidence in the comparability of SME statements using income tax basis. There simply was the potential for too much variation, but no associated body of literature (as with U.S. GAAP) that users could reference when analyzing the statements.

Now it appears that will be changing. The AICPA project seeks to develop an accounting framework, based on accrual basis income tax accounting, with certain modifications. This framework will be considered an “other comprehensive basis of accounting” or OCBOA and will provide consistent guidance to preparers and their accountants when issuing such statements. This framework will also give management sufficient information to understand their performance and cash flows. As noted by Chuck Landes, the vice president of Professional Standards and Services at the AICPA, “Users…want to understand the company’s financial position, what they own and what they owe. They also want to understand their operations, how does a company make money. And they also want to understand what kind of cash flow is available from this company to make certain that they can repay any amounts that are lent to the company.”

The key to the success of this new OCBOA framework will be the broad acceptance by lenders and other users of SME financial statements. We think the AICPA will launch a campaign to educate this community about the benefits. ParenteBeard will be solidly behind this effort and will work with our SME clients and their lenders and other users to encourage use of the new framework. We think it will be highly cost effective for all.

The new framework is expected to be completed in the fall and ready for use in 2013. For more information see