#4 Basis of Accounting for Non-Profit Entities

Financial Statement Notations…OCBOA Differences

If “cash basis” financial statements are modified, the preparer should make the notation in the financial statement title that these are presented on a “modified cash basis.” For example, non-profit financial statements using the GAAP basis would say Statement of Net Assets and Statement of Activities, but under the modified cash basis would say Statement of Assets, Liabilities and Net Assets—Modified Cash Basis and Statement of Revenues and Expenses—Modified Cash Basis.

On the flip side, too many modifications could result in financial statements that are very similar in appearance to GAAP. If an outside accountant were asked to review or render an audit opinion on such financial statements, their report would have to be modified as well to disclose the subtle differences.

In summary, the subtle differences between GAAP, cash and modified cash basis of accounting can make presentation of financial statements confusing unless the end user is well aware of these differences, reminder the preparer to consider all facts in preparing information for management, the bank and other third parties.