Other Comprehensive Basis of Accounting (OCBOA)
Candlefocus EditorSince OCBOA follows a different set of rules from GAAP, a financial statement prepared under this method is often easier to analyze than a statement created under GAAP. In addition, preparing a financial statement under this system can also cost less since it doesn't require a statement of cash flows.
However, a disadvantage of using the OCBOA is that it is viewed as having insufficient disclosures when compared with GAAP. The information found in a financial statement created under the cash basis of accounting may be simplified or limited due to the lack of adjustment entries related to depreciation or inventory. These adjustments are often included in a GAAP-compliant statement to provide further detail in the financial results.
The type of accounting statement used depends on the needs of the company. If a company prefers to present the expected results that lenders and investors are accustomed to seeing, the statement should adhere to GAAP. On the other hand, if a company wants to create a simpler statement that costs less to prepare, the OCBOA method may be a better choice.