FAR, Financial Accounting and Reporting

Sources for Special-Purpose Frameworks

Last reviewed 2026-09-14

The standards and authorities behind PocketCPA's FAR lessons on Special-Purpose Frameworks. The topic rests on OCBOA / SPF.

About this topic

Auditing literature calls these bases special-purpose frameworks (SPF). The older term for the most common of them is an other comprehensive basis of accounting (OCBOA). FAR tests them because many real engagements, and a steady share of exam questions, involve statements that are deliberately not GAAP.

Read that definition structurally. It is a closed list of five, not an open description. A framework qualifies because it is one of the five named bases, not because somebody judged it reasonable.

Key points

• Special purpose frameworks include cash basis, modified cash basis, tax basis, regulatory basis, and contractual basis.
• A modified cash basis is a hybrid that must have substantial support; it cannot pick and choose GAAP treatments at will.
• Tax-basis financial statements follow the IRC, reporting depreciation per Section 168 rather than GAAP useful-life methods.
• The auditor's report on an SPF framework uses an emphasis-of-matter paragraph identifying the framework and referring to the note.

What the lessons cover

1. What counts as a special-purpose framework
2. The cash basis
3. The modified cash basis
4. The tax basis
5. Regulatory, contractual, and other bases
6. Titles, terminology, and disclosures
7. Converting between the cash basis and the accrual basis
8. What the statements actually look like
9. Fact patterns and the label they carry

Authoritative references

Where these requirements sit in the literature.

• AU-C 800.07 carries the whole definitional load.
  • Special purpose financial statements are statements prepared in accordance with a special purpose framework.
  • A special purpose framework is a financial reporting framework other than GAAP that is one of the cash, tax, regulatory, contractual or other bases, each defined in its own lettered subparagraph.
  • The closing sentence names the cash, tax, regulatory and other bases as those commonly referred to as other comprehensive bases of accounting, leaving the contractual basis out.
• AU-C 800.A6 distinguishes the regulatory basis from the frameworks it is built on.
  • What it rests on. A regulatory basis is typically based on a framework promulgated by an authorized or recognized standard-setting organization such as FASB or GASB, but does not include all of that framework's requirements.
  • What it is not. Decisively, the cash and tax bases are not regulatory bases even when a regulator permits them.
• AU-C 800.A2 and .A3 cover a regulatory or contractual basis built on a general purpose framework such as U.S. GAAP without complying with all of it.
  • The description must not imply that the framework includes all the requirements of, or is the same as, the framework it is based on.
  • The description must refer instead to the financial reporting provisions of the contract or regulation.
• AU-C 800.11 lists what management acknowledges responsibility for disclosing.
  • A description of the framework, including a summary of significant accounting policies and how it differs from GAAP, the effects of which need not be quantified.
  • Informative disclosures similar to those required by GAAP, where the statements contain items the same as or similar to GAAP items.
  • A description of significant interpretations of the contract, on a contractual basis.
  • Additional disclosures needed for fair presentation.
• AU-C 800.16 puts the same three tests on the auditor for the statements themselves.
  • The statements are suitably titled.
  • The statements include a summary of significant accounting policies.
  • The statements adequately describe how the framework differs from GAAP, with the effects again not needing to be quantified. AU-C 800.A24 limits that description to the material differences.
• AU-C 800.A23 is the titles paragraph.
  • The GAAP titles that are off limits are balance sheet, statement of financial position, statement of income, statement of operations, statement of cash flows, and similar unmodified titles.
  • The substitutes are statement of assets and liabilities arising from cash transactions, statement of revenue collected and expenses paid, and statement of income - regulatory basis.
• AU-C 800.18, .A25 through .A28 and appendix B carry the disclosure package.
  • Informative disclosures similar to GAAP are required for like items.
  • Additional disclosures are required for fair presentation, with related party transactions, restrictions on assets and owners' equity, subsequent events and significant uncertainties named in .A28.
  • .A27 permits qualitative information to be substituted for quantitative information.
  • .A26 observes that tax-basis and modified cash-basis statements usually reflect depreciation, long-term debt and owners' equity, so those disclosures are comparable to GAAP.
  • Appendix B states that special purpose financial statements may not include a statement of cash flows.
• AU-C 800.13 and .17 carry the contractual basis interpretations requirement.
  • When an interpretation is significant. It is significant when adopting another reasonable interpretation would have produced a material difference in the information presented.
  • What the statements must do. They must adequately describe those interpretations.
  • AU-C 800.A10 adds that if the parties cannot agree on the significant interpretations, the auditor may determine the framework is not acceptable.
• AU-C 800.19a, .20, .21 and .22 and appendix A carry the reporting consequences by basis.
  • .19a requires a description of the purpose for which the statements are prepared, on the regulatory, contractual and certain other bases.
  • .20 requires the emphasis-of-matter paragraph.
  • .21 requires the restricted-use other-matter paragraph for the contractual and regulatory bases.
  • .22 reverses that for regulatory-basis statements intended for general use, dropping both paragraphs and requiring a dual opinion on GAAP and on the framework.
  • AU-C 800.A34 defines when general use exists.
• AU-C 800.A18 treats going concern as a framework attribute. The going concern basis of accounting is relevant only when the framework requires management to use an alternative basis in specified circumstances, as the AICPA's Financial Reporting Framework for Small- and Medium-Sized Entities does with the liquidation basis. The cash and tax bases specify no alternative, so the going concern basis of accounting is not relevant to them.
• AS 3305.04, the PCAOB successor to the pre-clarity AU 623, sorts the bases differently.
  • It lists only four bases and no contractual basis.
  • It defines the cash basis as the cash receipts and disbursements basis plus modifications having substantial support such as recording depreciation on fixed assets or accruing income taxes.
  • It names the price-level basis of accounting as the example of a definite set of criteria having substantial support applied to all material items.
• IRC 448 governs whether the tax basis can look like the cash basis.
  • 448(a) bars the cash receipts and disbursements method for a C corporation, a partnership with a C corporation partner, and a tax shelter.
  • 448(b) excepts farming businesses, qualified personal service corporations, and entities meeting the gross receipts test.
  • 448(c) sets that test at average annual gross receipts for the three preceding taxable years not exceeding 25,000,000, indexed for inflation for years beginning after 2018 under 448(c)(4).
• The permanent differences that appear on tax-basis statements but not on the return are found at four Code sections.
  • IRC 103(a). Gross income does not include interest on any state or local bond.
  • IRC 162(f)(1). There is no deduction for an amount paid to a government in relation to the violation of any law.
  • IRC 274(n)(1). The deduction for food or beverages may not exceed 50 percent of the expense.
  • IRC 265(a)(2). There is no deduction for interest on indebtedness incurred or continued to purchase or carry obligations whose interest is wholly exempt.
• The tax cost recovery that replaces GAAP depreciation sits at three Code sections.
  • IRC 179(a) is the election to treat the cost of section 179 property as an expense not chargeable to capital account, deducted in the year placed in service.
  • IRC 168 is the accelerated cost recovery system.
  • IRC 168(k) is the special allowance for qualified property.
• IRC 461(h)(1) (economic performance) and IRC 267(a)(2) (matching a deduction to a related payee's income) are the two provisions that most often push an accrual-method taxpayer's tax-basis expense later than the GAAP expense on identical facts.

How PocketCPA uses these sources

Every lesson is written in original words and cites the paragraph each rule comes from. No standard's text is reproduced. How lessons and questions are written and checked is set out in our methodology.

See also

• Sources for every FAR topic
• Free FAR sample questions
• The CPA exam glossary